We are navigating a
through
tough conditions, taking
effective action today while
creating strong foundations
for growth tomorrow.
Annual Report 2009
to
day
We have experienced 12 months
of diffi cult and unpredictable conditions.
Few businesses have been untouched
by wider economic and fi nancial issues,
and the property sector has certainly
been in the teeth of a very sharp downturn.
Contents
01
Report of the Directors
Covering the most significant
strategic, financial and operational
developments during the year.
05 Our priorities
06 All you need to know
Performance overview
08
09 Key performance indicators
10 Our Chairman’s message
12 Chief Executive’s report
Financial review
18
27 Business review
27 — Why conduct a Rights Issue?
28 — Group business review
— Our risks and how we
30
manage them
36 — Retail Portfolio
44 — London Portfolio
52 Board of Directors
54 Corporate responsibility
64 Corporate governance
68 Directors’ remuneration report
Financial statements
Including the independent auditors’
report, the income statement,
balance sheets and the notes to
the financial statements.
82
83
84
84
Directors’ statement
of responsibilities
Independent auditors’ report
Income statement
Statement of recognised income
and expense
85 Balance sheets
86 Cash flow statements
87 Notes to the financial statements
Investor resource
Helpful analysis, summaries
and information on business
performance and shareholdings.
132 Business analysis
138
Investor analysis
139 Five year summary
140
142 Glossary
143
144 Contact details
Investor information
Index
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The essential read
Performance overview
p08–09
From business and share performance
charts to key performance indicators.
Chairman’s message
p10–11
Alison Carnwath on the Company’s
resilient response to an extraordinary
market.
Chief Executive’s report
p12–14
Francis Salway assesses the results of the
Company’s clear and decisive actions.
Key analysis
Business analysis
p132–137
Clear, detailed information on operational
performance, including portfolio analysis.
Investor analysis
p138–139
An overview of our institutional investors,
together with a five year summary.
Land Securities Annual Report 2009
02
to
mor
row
Land Securities Annual Report 2009
Over many years, we have succeeded by being
strong in managing day-to-day operations
while maintaining a long-term perspective
on value generation.
This approach continued to guide our actions
through a demanding 2008/09. In particular,
we kept a tight focus on three priorities – the
need to act decisively and protect value today,
while planning well ahead for tomorrow.
Land Securities Annual Report 2009
03
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04
to
do
This annual report outlines our three
priorities in more detail. And it discusses
the actions we are taking to ensure the
Group can compete hard today while
preparing for growth tomorrow.
Land Securities Annual Report 2009
Act decisively
1. We are completing sales to
strengthen our balance sheet
2. We are taking tough,
pragmatic decisions early
3. We are responding quickly
to changing conditions
Protect value
4. We are maximising revenue
through asset management
5. We are developing even
stronger customer relationships
6. We are creating high quality
products that meet people’s
needs and aspirations
Plan well ahead
7. We are managing risk
in a changing market
8. We are continuing to
lead on sustainability
9. We are creating excellent
opportunities for future
development
The sale of Trillium enhanced our
position at a critical point. p15
The Trinity Quarter scheme, Leeds,
will be started later, aiming to open
for Christmas 2012. p16
We are pioneering new forms
of collaboration to generate
income. p17
Innovative thinking at Piccadilly
Lights, W1, has enhanced income.
p24
Across our portfolio, customers are
benefiting from a closer working
relationship with our teams. p25
The new Cabot Circus shopping
centre, Bristol, provides a powerful
sense of place. p26
Our mixed-use approach has
widened the appeal of One New
Change, EC4. p33
The Elements, Livingston,
exemplifies sustainable design
at its best. p34
Our transformation of Victoria,
SW1, is entering an exciting new
phase. p35
Land Securities Annual Report 2009
05
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06
All you need to know
Land Securities Group
Our strategy
Our strategy is simple: we manage our Retail Portfolio and London
Portfolio businesses through the property market’s cycles, adjusting
key investment and development activities ahead of changing
conditions to maximise return and minimise risk. In property
investment, we add value through active management of assets
and the timing of acquisitions and disposals. In development, we
create the right product at the right point in the cycle while keeping
a tight focus on cost and timing.
The Group’s Board of Directors directs strategy. It also
monitors the balance sheet and financial performance to ensure
capital is allocated appropriately – both across the two businesses
and between investment and development activity. Each business
benefits from the Group’s ability to provide operating efficiencies,
debt and other shared resources.
Retail Portfolio
London Portfolio
Our strategy
Our strategy
Using our ability to unlock the potential within properties and
places, we provide new and better ways for retailers to connect
with customers. The environments we create and manage aim
to enable occupiers to increase footfall, grow sales and offer
a great leisure experience.
We work to spot, unlock and maximise the potential of
shopping centres and retail parks throughout the UK. We look
for opportunities to move assets up the retail hierarchy through
proactive asset management improvements such as refurbishment
and reconfiguration. And we look for opportunities to develop new
retail locations and urban regeneration projects, with a focus on
mixed-use destinations with the potential to perform well over
the long term.
Our aim is to be the provider and partner of choice for
retailers and local authorities. We want to be recognised as a
market leader in terms of customer focus, design and innovation.
Using our knowledge, understanding and scale, we develop and
invest to create high quality space for world-class businesses and
brands. The spaces we provide enable organisations to enhance
their performance and improve day-to-day life for employees,
shoppers and local residents.
We focus on developing and managing prime London
assets, creating a balanced portfolio that blends strong investment
assets with medium- and long-term development opportunities.
To meet demand and mitigate risk, we put emphasis on mixed-use
schemes providing office, retail and leisure accommodation.
We operate in a cyclical market and take early, decisive
action on the timing and scope of key portfolio decisions. We
increase the return on our development activities by clustering
assets in key areas, so our work to create or enhance a new asset
increases the attraction and value of our other assets nearby.
Land Securities Annual Report 2009
All you need to know
07
About the Group
Who we are
Our vision
Land Securities is a FTSE 100 company and the largest Real Estate
Investment Trust (REIT) in the UK on the basis of equity market
capitalisation. We were founded by Harold Samuel in 1944 when he
acquired Land Securities Investment Trust Limited, which at the time
owned three houses in Kensington, London together with some
government stock. By 1969 Land Securities had established itself as the
country’s leading property business. In 2007 we converted to REIT status.
We now own and manage more than 2.7 million m2 of commercial
property, from London offices to major shopping centres and out-of-town
retail parks. In January 2009 we sold our Trillium property outsourcing
business and now focus our activities on the London and Retail businesses.
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.
We judge our progress towards this vision by measuring returns
generated for shareholders, customer retention and satisfaction levels,
employee satisfaction and third party recognition of our achievements.
Our values
Our landmark properties
Certain core values form the foundation of Land Securities. These
embody the way in which we work together to deliver effective customer
relationships. By putting these values into action we strengthen our ability
to deliver high levels of customer service and business performance over
the long term.
Our values:
We own more than 200 properties across the UK. These include many
well-known buildings and places, such as:
—Piccadilly Lights, London
—New Street Square, London
—Bankside 2&3, London
—Cardinal Place, London
—Queen Anne’s Gate (Ministry of Justice), London
—Portland House, London
—White Rose, Leeds
—Cabot Circus, Bristol
—St David’s Centre, Cardiff
—Princesshay, Exeter
—Gunwharf Quays, Portsmouth
—Bullring, Birmingham
—Retail World Retail Park, Gateshead
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Land Securities Annual Report 2009
08
C6_Small Page Links
Performance overview
Our performance at a glance
Revenue profit is our measure of the underlying pre-tax
profit of the Group. This is one of the measures we use
within the Company to assess our performance. You’ll find
a full definition of revenue profit in the glossary. p142
Pre-tax loss
£4,773.2m
Total dividend
56.5p
Revenue profi t
£314.9m
This reflects the impact of economic conditions on the
property market, and the unprecedented fall in values
in our sector over 12 months.
We reset the fourth quarter’s dividend payment in line
with the current economic and market environment,
rebasing it at a robust and sustainable level.
The increase is a result of the lower interest charges.
See page 20 for more information.
Chart 1
Land Securities performance versus
IPD – ungeared total property
return (%)
Chart 2
Dividends and adjusted diluted
earnings per share (p)
Chart 3
Revenue profi t (£m)
.
3
3
2
.
7
0
2
.
7
7
1
.
5
6
1
.
2
6
1
.
8
5
1
8
2
.
9
1
.
.
2
9
-
.
7
9
2
-
.
5
5
2
-
.
2
3
-
.
5
7
-
.
8
7
-
30
20
10
0
-10
-20
-30
70
60
50
40
30
20
10
0
5
2
0
6
.
0
5
3
6
.
.
7
9
8
3
8
0
2
4
.
6
2
3
6
.
9
7
0
6
.
8
6
7
5
.
.
7
5
2
6
.
1
6
1
5
6
7
7
4
.
.
3
1
9
3
.
2
2
9
3
.
8
1
6
3
400
300
200
100
0
08 & 09 have been
restated to exclude Trillium
revenue profit
.
9
4
1
3
.
8
4
8
2
05
06
07
08
09
3
years
5
years
Land Securities
IPD Quarterly Universe
05
06
07
08
09
Dividends per share (restated)1
Adjusted diluted earnings per share2 3
05
06
07
08
09
Chart 4
Combined portfolio value (£bn)
Retail Portfolio
4.3
Chart 5
Five year cumulative valuation
surplus/defi cit (£m)
Chart 6
Net assets per share (p)1
.
4
2
8
5
2
,
.
4
7
9
8
4,000
3,000
2,000
1,000
0
-1,000
-2,000
-3,000
.
1
5
6
9
3
,
.
6
0
6
6
2
,
2,400
2,100
1,800
1,500
1,200
900
600
300
0
1
4
3
1
,
5
6
1
1
,
,
6
7
0
3 2
2
7
9 1
3
4
1
,
,
5
6
9
1
,
2
6
8
1
,
3
6
7
1
,
9
3
6
3
9
5
.
1
3
8
0
2
-
,
London Portfolio
5.1
05
06
07
08
09
05
06
07
08
09
Basic
Adjusted diluted
To put this fall in property values in
perspective, during the downturn period
between 1990 and 1993 values fell 27%
over three years; in 2008/09 values fell
34.2% in 12 months.
Land Securities Annual Report 2009
Notes:
1.
The restated total dividend payable
represents the theoretical dividend per share
that would have been paid had the bonus
shares inherent in the Rights Issue been in
existence at the relevant dividend dates.
The earnings per share for the years ended
31 March 2008, 31 March 2007, 31 March
2006 and 31 March 2005 have been
adjusted for the bonus element inherent
in the Rights Issue that was approved on
9 March 2009.
The earnings per share for 2005 to 2007
includes the operating results of Trillium.
2008 and 2009 exclude the operating
results of Trillium as these have been
reclassified as discontinued operations.
2.
3.
Note:
1.
The net assets per share for the years ended
31 March 2008, 31 March 2007, 31 March
2006 and 31 March 2005 have been
adjusted for the bonus element inherent
in the Rights Issue that was approved on
9 March 2009.
Performance overview
09
Key performance indicators
Objective
Metric
Progress
To create sustainable
long-term earnings growth
for shareholders
Sustained real growth in adjusted earnings per
share to be at least 3% per annum over rolling
three-year periods
Annual revenue profit to exceed budget target
To maximise the returns
from the investment
portfolio
To manage our balance
sheet effectively
To complete and let our
development programme
IPD outperformance in each core sector
£31m of development lettings and £11m of
pre-construction lettings to be completed
Developments to be completed on budget
and on time
Sell £1.16bn of assets
Achieved £1.125bn of disposals including sale
of Trillium
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Normalised adjusted earnings per share growth
over three years to 31 March 2009 exceeded
RPI by 7.0% per annum
Annual revenue profit for continuing operations
up 10.6% on prior year, and within 0.1% of
budget target
Outperformed IPD sector benchmarks by 2.0%
for our London Portfolio, but underperformed
by 4.7% on our Retail Portfolio
Developments completed in the year were,
on average, 72% let by year end
£11m of development lettings achieved
All major construction schemes completed within
budget and on time, subject to a 10 day delay on
one project. Projects at 10 Eastbourne Terrace, W2;
Dashwood House, EC2; Cabot Circus, Bristol; and
The Elements, Livingston
Exceeded targets for shopping centres (score
of 4.2 out of 5.0, compared to target of 4.0), and
on target for London offices (score of 3.8 out of
5.0, compared to a target of 3.8)
Exceeded with grand mean score of 3.06
(classified as excellent by our external survey
provider) compared to 3.03 in prior year
On a benchmark basis our score was 2.98
against 2.90
This represents a good relative performance, with
a substantial level of sales achieved despite fewer
buyers and difficult credit markets.
Ensure high levels of
customer satisfaction
Overall customer satisfaction in Retail
and London businesses to exceed targets
Attract, develop, retain and
motivate high-performance
teams and individuals
Employee engagement to exceed
ETS industry benchmark
For more on our belief that it is the quality and
commitment of our people that sets us apart,
see our Group business review. p28-29
Read more about our focus on customer
satisfaction and this year’s customer survey
results in our CR section. p54-63
Land Securities Annual Report 2009
10
Our Chairman’s message
Resilient response to an extraordinary market
—A letter from Alison Carnwath
Alison Carnwath
Chairman
“This Company is not fi xed to
conventional ways of doing things
and we will take all necessary
measures to deliver exceptional
value for investors over time.”
Alison Carnwath
We have seen 12 months of high drama in the global economy, the
fi nancial markets and the UK business environment. Property asset values
suffered steep falls and this trend has continued into the new fi nancial year.
As a shareholder you have seen the tangible effects of these straitened
conditions – a rapid decline in the share price and a reduced dividend.
Demanding and unpredictable circumstances reveal character.
Some in our industry have fallen prey to gloom and passivity. Others
conduct a feverish search for green shoots. Land Securities has taken a
different approach, responding with decisive, pragmatic actions today
while positioning the business for growth tomorrow. We believe the current
period of transformation will generate attractive opportunities and we will
be ready to take advantage.
The very positive support shown for our recent Rights Issue speaks
volumes for the inherent strength of the Company and its relationship
with investors. Our last Rights Issue was 29 years ago, and shareholders
recognised this year’s initiative as a common sense response to
exceptional times.
Before, during and since the Rights Issue the Company has continued
to do everything necessary to create a resilient balance sheet, minimise
costs and maximise income. From the sale of Trillium to the pause in
development at Ebbsfl eet, we have seized every opportunity to strengthen
our position. We also cancelled plans to separate the Retail and London
Portfolios. Land Securities is, and will remain, a diversifi ed property
company. We will use the fl exibility of our funding structure and broad
portfolio of prime assets to ensure we emerge from this downturn in
excellent shape.
While the Company’s long-established qualities of stability and
integrity remain widely recognised, I also welcome the openness and
creativity I have found. Ultimately, our strengths fl ow from two sources
– fi rst, our clear understanding of how to manage our business mix and
skills to add value for shareholders; and second, our truly excellent people.
Life has been demanding, and I am very disappointed that market
dynamics required us to make redundancies, but the robust spirit within
this Company is inspiring. I thank our employees for their positive attitude
and commitment this year.
Land Securities Annual Report 2009
Our Chairman’s message
11
Table 7
Total shareholder returns*
Land Securities
FTSE 100
FTSE 350 Real Estate
FTSE All Share Real Estate
Over one
year to
31/03/09
Over five
years to
31/03/09
32.84
69.00
37.60
34.11
53.00
103.22
57.84
47.00
*Historical TSR performance in the value of a hypothetical £100.
Source: Datastream
In diffi cult times the rationale for extensive investment in corporate
responsibility comes under sharp scrutiny. The value of our approach is
clear. By developing a leadership position in areas such as sustainability,
community relations and employee development, we ensure we are the sort
of company people prefer to work with and for. Put simply, our investment
in corporate responsibility makes us a more successful and sustainable
business, and it will continue.
During the year our previous Chairman, Paul Myners, left the Board,
as did Rick Haythornthwaite and Trillium Chief Executive, Ian Ellis.
I thank them for their contribution to the Board and the business as a whole.
The Board is now smaller and well balanced. The Non-executives are
playing an active role in all aspects of strategy, performance and oversight.
The Executive team, led by Francis Salway, has shown its mettle in the
face of the formidable challenges affecting the Company and our industry.
However, their dedication and hard work has not been refl ected in the
results and therefore as a Board we decided not to pay bonuses or grant
salary increases for the Executive Directors this year.
The next 12 months will continue to make great demands on us all.
The economic outlook remains murky. While there is little we can do
about the wider environment, there is an enormous amount we can and
will do to strengthen our own position. We will continue to focus on
income and lettings to protect asset values. We will sell assets to reposition
the portfolio ready for the resumption of economic growth. We will time
our developments with precision. And we will be alive to opportunities
where we can use our cash, banking support and terrifi c industry
relationships to make astute acquisitions.
This Company is not fi xed to conventional ways of doing things
and we will take all necessary measures to deliver exceptional value
for investors over time. I thank shareholders, customers, suppliers and
colleagues for their tremendous support during a tumultuous year,
and I look forward to reporting back to you in 12 months’ time.
Alison Carnwath
Chairman
For a comprehensive review of our performance this year, please read our Chief Executive’s report p12-14 and the Financial review. p18-23
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Land Securities Annual Report 2009
12
Chief Executive’s report
A clear and decisive line
—Francis Salway, Chief Executive, reports
Francis Salway
Chief Executive
Watch Francis’s overview at:
www.landsecurities.com/annualreport2009
“ “Our response to the downturn
was guided by two clear priorities
– to protect shareholder value
today while ensuring we are
well positioned to compete and
thrive tomorrow. Our actions
were decisive and pragmatic.”
Francis Salway
Land Securities Annual Report 2009
This year the UK commercial property sector saw the sharpest fall in capital values on record. Occupiers and
property investors were affected by wider economic, financial and commercial dynamics, and this impacted
property values profoundly. We have not been immune to these exceptional conditions, experiencing a write-
down on the valuation of our investment properties of 34.2% which created a very substantial pre-tax loss.
The reduction in property values was driven largely by yield repricing. However, as the economy moved
into recession in the second half of the year, we also saw weaker demand from occupiers and pressure on rental
values. Rental values were down 9.3% across our portfolio, ranging from a reduction of 3.8% on our retail assets
to 19.8% on our London offices.
Our portfolio underperformed our benchmark, the IPD Quarterly Universe, in terms of ungeared total
property returns (-29.7% versus -25.5%) Table 8. However, some four-fifths of this underperformance was
attributable to our portfolio mix, as shopping centres, retail warehouses and London offices have been the weakest
performing segments of the UK market. Our relative performance was also affected by our development projects
and pre-development sites which have been hardest hit by the downturn.
Our response to the downturn was guided by two clear priorities – to protect shareholder value today
while ensuring we are well positioned to compete and thrive tomorrow. Our actions were decisive and pragmatic.
We made an early decision to defer key developments. We continued to make disposals, achieving over £500m of
property sales in a deteriorating market. And we moved quickly to reduce the Company’s administrative cost base
by some 10%. We were not afraid to stop our proposed demerger and we made the tough but correct decision
to sell Trillium. At the same time, we used our exceptional asset management skills to maintain revenue, we
successfully opened two major retail developments and we laid the foundations for future opportunities as the
economy recovers.
The tough decisions that we have taken over the year have strengthened our balance sheet and created
resilience in a difficult and deteriorating environment. As in previous downturns, the Company sought to navigate
a clear and decisive line through the turbulence and we are in sound shape as a result.
Rapidly evolving market
We had anticipated some degree of slowdown in the commercial property market in spring 2007 and, in
response, sold £1.56bn of assets in the year to March 2008. These sales assisted us as conditions weakened
further in 2008. In September 2008 we saw an extraordinary acceleration of the decline in the property market
and in the economy, and this brought our earlier actions into sharp focus. We recognised that we needed to
respond further and we did.
First, we continued to make sales despite fewer buyers and anxiety around pricing. These disposals helped
to strengthen our balance sheet. Long-term success in our market requires a steady nerve through all points of
the cycle, but particularly when selling in a downturn. We will continue to make disposals and recycle our capital
effectively, both to maintain balance sheet strength and to ensure that our portfolio is positioned for growth as
the market turns and recovers.
In January we also sold Trillium for a cash consideration of £444m, to generate total income and capital
receipts from this business since April 2008 of £750m (including the buyer’s assumption of Trillium’s debt).
Trillium has played a tremendous role in the evolution of Land Securities over recent years, but it was clear that
the capital we could realise from the disposal of this specialist business would prove invaluable in current
conditions. Relatively few disposals of property businesses went through during the year, so this successful
transaction again underlines our ability to complete sales in a challenging environment. Under our management
Trillium produced a return on capital materially better than conventional investment property, and I would like to
thank the employees of Trillium for their dedication and contribution.
Successful Rights Issue
Early in 2009 we made the decision to strengthen our financial position further through a Rights Issue. Our
effective actions during the year meant we were able to minimise our call on shareholders’ resources, and the
issue closed on 24 March 2009 having raised the targeted £756m. This fresh capital has helped to restore the
balance of our equity and debt capital, and it will help mitigate the effect on shareholders’ funds of any further
falls in property values. It will also ensure we are ready and able to react quickly when we identify opportunities
beneficial to shareholders.
Given the Rights Issue, the sale of Trillium and the challenging market conditions facing the Group, the
Board took the decision to reset the dividend and the final quarterly dividend has been proposed at 7.0p per share.
This was done to ensure that our dividend remains realistic and sustainable in light of the factors which will affect
our future earnings. We believe the new level will provide a secure platform from which we can work to deliver
future growth in dividends over time.
Chief Executive’s report
13
Spreading risk through a diverse tenant mix
The long-term nature of our contracts with customers provides us with resilience of income even at a time when
rental values are falling. This is reflected in our revenue profit for the year of £314.9m, which is up 10.6% with
broadly stable income and lower interest payments.
It is always regrettable when retailers go out of business and this year proved extremely demanding for
many. Like other property owners, we have suffered from retailer insolvencies but, across the Group as a whole,
only 3.8% of our total income is in administration. We have been proactive in response, working hard to support
our tenants and protect our own position. We have continuing income from approximately 15% of the units
currently in administration.
For some time we have mitigated risk by developing a diverse mix of customers. Our largest retail
customer, Arcadia Group, represents just 1.7% of our total investment portfolio income. Our only substantial
exposure to a single occupier is to the counterparty of choice, Central Government, who account for 9.5% of our
total portfolio income. By maintaining close relationships with this diverse mix of tenants we kept the increase in
underlying voids across our like-for-like investment portfolio to just 1.1% (from 3.5% to 4.6%) – another strong
relative performance.
Pragmatic timing on development
In line with our medium-term planning, we entered the year with a significantly lower level of developments due
for completion than at the peak of the market cycle in 2007. However, it was vital to achieve lettings success on
the two principal developments completed in the year – the shopping centres in Bristol and Livingston. Here we
achieved occupancy levels of 91% and 80% respectively at year-end, which confirms the attractive qualities of
the two schemes. Quality was again recognised when Cabot Circus won The British Council of Shopping Centres’
Supreme Gold Award and was named Best Shopping Centre of the Year in the MAPIC EG Retail Awards.
Leasing prospects for the developments coming through now – Dashwood House in the City and our
St David’s 2 joint venture with Liberty International in Cardiff – have proved more challenging. These were
respectively 9% and 47% let or in solicitors’ hands at year-end. It is helpful to put this in context. The projected
income on unlet space at Dashwood House represents just 2.1% of our total London office portfolio income.
And our share of the projected income on the remaining vacant space at St David’s 2 represents 2.3% of the
Retail Portfolio’s total income. The pace of lettings at St David’s 2 is increasing as we move towards opening
in the autumn.
Our history shows that we are not afraid to take tough development decisions. In summer 2002, for
example, we deferred New Street Square by 12 to 18 months and this proved enormously beneficial in terms of
the total returns on the project. This year we again took bold decisions on timing, opting to defer the start dates
for our schemes such as 20 Fenchurch Street, EC3, Trinity Quarter, Leeds and Ebbsfleet Valley in Kent. We remain
ready to take further similar decisions as appropriate, despite their potential impact on earnings in the short term.
While we are cautious on timing today, we continue to create excellent opportunities for tomorrow
Chart 9. This year we secured planning consent for substantial schemes in the West End, including the landmark
Victoria Transport Interchange plan (VTI2), together with Selborne House and Wellington House in Victoria, SW1.
The short-term outlook for the London office market remains challenging, but we expect tight development
supply constraints in the West End to drive a resumption of growth in the medium term. The success of our office
and retail development at Cardinal Place, SW1 confirms our ability to understand and lead the Victoria office
market transformation.
Adding value for customers
Throughout the year we worked proactively to support our tenants and ensure our products are designed to meet
the changing needs of businesses. To assist this, we moved our property management teams into the London and
Retail Portfolios so they could work in closer partnership with customers and colleagues.
In London, we helped existing and prospective tenants respond to tough market conditions by offering
flexible lease terms, addressing service charge costs, engaging in discussions on rate levels and offering some
short-term cost-effective space opportunities. In Retail, we were one of the first organisations to propose a basis
for switching to monthly rents for retailers and we worked in partnership with tenants to reduce service charges.
R
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4
4
Table 8
Total property returns (%)
2008
2009
Source: IPD
Land
Securities
-3.2
IPD
-9.1
-29.7
-25.5
Chart 9
Timing of completion of
development programme
(total development cost £m)
1,600
1,400
1,200
1,000
800
600
400
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2008
2009
2010
2011
2012
2013+
Year to 31 March
1 Cambridge. 2 Corby. 3 Thanet. 4 Queen Anne’s Gate.
Retail Portfolio – development completions
Retail Portfolio – development programme
Retail Portfolio – development pipeline
London Portfolio – development completions
London Portfolio – development programme
London Portfolio – development pipeline
Land Securities Annual Report 2009
14
Chief Executive’s report
Chart 10
Property yield pricing relative
to gilt yields (%)
14
12
10
8
6
4
2
0
-2
-4
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Property equivalent yield
10 year gilt yield
Difference between above yields
Of course, we want to do even more, and we continue to focus on removing unnecessary cost for tenants to help
them in the current climate. I am pleased that all our efforts on customer service were recognised when we were
named Retail Landlord of the Year 2008 in the Property Managers Association awards. Recent independent
customer satisfaction surveys have confirmed our standing, with one measure recording a 97% ‘willingness
to recommend’ Land Securities as a shopping centre landlord1.
Sustainability remains a priority
We see no conflict between sustainability and profitability. Quite the reverse. Good practice makes us a stronger
business. By combining a long-term view with innovative action today we are able to meet the changing needs
and expectations of tenants, local authorities, our employees and the general public. This approach produces
clear commercial benefits; helping us gain permission for new developments, reducing property running costs,
attracting new tenants and mitigating risks around future environmental legislation.
Our work has earned widespread recognition. We have been included in the Dow Jones Sustainability
Index each year since its launch in 2000 and are now the global leader for sustainability in the Real Estate sector.
This year Cabot Circus became the first major shopping centre to be awarded an ‘Excellent’ rating in the BREEAM
environmental assessment scheme, and The Elements in Livingston was the first enclosed shopping centre in the
UK to achieve this accolade. We believe the groundbreaking work on energy generation and distribution planned
for our new developments, such as the Victoria Transport Interchange plan, will underline our position as a leader
on sustainability.
Outlook
We expect property market conditions to remain challenging, with vacancy rates rising as businesses fail or
contract and, as a result, rental values weaken. These trends will put downward pressure on our rental income.
Occupational markets will display the full impact of economic conditions relatively late in the cycle, so we expect
the period of recovery in our sector to be extended. Investment property pricing may reach a turning point ahead
of the rental markets, and the yield gap between property yields Chart 10 and gilts or cash on deposit can be
expected to stimulate some buying interest. Indeed, this is just beginning to become apparent for well-let prime
properties. Whether the market cycle changes quickly or slowly, we will remain patient, making well-timed
transactions that fit with our strategy, skills and strengths.
In the meantime, we will continue to take a positive and pragmatic approach to managing through
the downturn – acting decisively, protecting value and planning for the future. We will respond to changing
conditions quickly. We will take difficult decisions as and when required. And we will use our strengthened
balance sheet to address future growth opportunities at the right point in the cycle.
This has been an exceptionally turbulent period in our market, but our experience tells us that out of
adversity comes opportunity, and that the companies who manage successfully through the downturn emerge
even stronger in the upturn. I believe Land Securities’ ability to react to the challenges of today while maintaining
a long-term perspective on value generation for tomorrow stands us in good stead.
Francis Salway
Chief Executive
Land Securities Annual Report 2009
1Kingsley Lipsey Morgan Retailer Satisfaction Study 2008. The 2008 figure represents an increase of 3% on 2007.
15
Act decisively
1. We are completing
sales to strengthen
our balance sheet
Corporate transaction, City of London
Trillium sale
We have not been afraid to sell key assets to protect our
long-term financial position. Take the sale of Trillium.
We acquired the business in 2000 and it prospered as part
of Land Securities, generating value for shareholders.
We concluded that Trillium would not be part of the Group
in the long term and the sale proceeds strengthened our
balance sheet at a critical point in the cycle.
■
■
■
Completed on 12 January 2009
We retained Accor hotel portfolio
Trillium produced a stronger return
on capital under our ownership than
conventional investment property
Land Securities Annual Report 2009
16
Act decisively
2. We are taking
tough, pragmatic
decisions early
Trinity Quarter scheme, Leeds
Trinity Quarter will:
Timing the delivery of a major new scheme is
challenging at the best of times. In a volatile market
it’s even tougher. But that hasn’t stopped us taking
a pragmatic approach to pipeline developments,
including Trinity Quarter in Leeds. Originally planned
for 2011, we now aim to open this retail development for
Christmas 2012. That means we can take advantage of
a competitive construction market while preparing to
open in better economic conditions with an exciting mix
of retailers. To mitigate risk we are seeking to secure
lettings before we start construction.
■
■
■
Address strong demand in one of the
UK’s largest cities
Create a premier shopping centre
in Leeds
Integrate with remodelled Leeds
Shopping Plaza in the heart of Leeds’
city centre
■ Rejuvenate historic thoroughfares
Land Securities Annual Report 2009
17
Act decisively
3. We are responding
quickly to changing
conditions
Gunwharf Quays, Portsmouth
Customer Satisfaction
The toughest market conditions on record have inspired us
to pioneer new forms of collaboration. In Retail this helped
us deliver just under 300 new lettings. We also improved
tenant satisfaction levels this year, despite the impact of
recession. Our approach meant we were one of the first
organisations to introduce a basis for monthly rent options.
We’ve worked closely with retailers to reduce service
charges and simplify lease agreements. And our teams have
helped tenants maximise performance through innovative
marketing, promotions and flexible formats.
Overall
performance
+18%
Communication
+17%
Understanding
retailers’ needs
+5%
Source: Retail Property Directors’ Customer Satisfaction
Study 2009. Independent survey by Real Service. Comparison
with 2006 results.
Land Securities Annual Report 2009
18
Financial review
Martin Greenslade
Finance Director
Overview
—Martin Greenslade discusses this year’s results
As we all know, this has been an exceptionally turbulent year for the global
economy and the business environment as a whole. The UK commercial
property market has certainly endured its share of very tough conditions
and our fi nancial results have been impacted signifi cantly as a result, with
a loss after tax of £5.2bn largely due to a revaluation defi cit of £4.7bn.
With property values suffering sharp falls, we saw our adjusted net assets
decline and our gearing rise. We ended the year with adjusted diluted net
assets (NAV) per share of 593p, down 66.4%.
While our numbers demonstrate the challenging year we have had,
they also refl ect a strong and decisive response from management. Rapidly
deteriorating market conditions required us to take tough decisions, and
by acting quickly we mitigated the very worst effects of the current market.
These actions included: the drawing down of our bank facilities, which
ensured that funds remained available to us even if property values
continued to fall; the disposal of Trillium, which, although at a loss, raised
additional cash at a critical time; and the rebasing of our quarterly
dividend from 14.9p per share (restated) to a fi nal proposed dividend of
7.0p per share, refl ecting a realistic view of the pressure on income ahead.
Through these and other actions we have achieved a substantial
reduction in net debt, down 27% over the year.
The numbers also refl ect the support provided by our shareholders,
with the £755.7m of cash generated from the Rights Issue helping to
strengthen our balance sheet.
Despite very diffi cult operating conditions, we increased revenue profi t
by 10.6% in the year. This is a positive achievement, but it is unlikely to be
maintained. This year’s fi gure was driven, in part, by lower interest rates on
our fl oating rate debt. Interest rates will not remain at current levels indefi nitely
and margins will rise as and when we renew our banking facilities. Rental
income is also likely to come under downward pressure from falling rental
values and voids from tenant insolvencies, lease expiries, partially let
developments and pre-development properties. And some of our actions to
maintain liquidity and a sound capital base may also have a negative impact
on our income statement. An example of this might be the sale of properties
to fund our existing committed capital expenditure. Nevertheless, ensuring
we have suffi cient capital and liquidity will enable us to capitalise on
opportunities which will undoubtedly arise in the coming years.
The pages that follow provide you with a detailed review of our
fi gures. Given the scale of events during the year, I hope this overview
helps put the results in context and conveys a clear picture of current
fi nancial dynamics.
Martin Greenslade
Finance Director
Land Securities Annual Report 2009
Financial review
19
We completed the sale of Trillium, our outsourcing business, on 12 January 2009. The transaction included
all of Trillium’s operations with the exception of the Accor hotel portfolio, which is now included within our
Retail Portfolio. As Trillium represented a separate major line of business for the Group, it has been treated
as a discontinued operation for the year ended 31 March 2009. The income statement and the relevant notes
for the prior period have been restated to assist comparison.
Additionally, all financial information on a ‘per share’ basis including last year’s comparatives has been
adjusted to reflect the Rights Issue which completed in March 2009. Further details are given below.
Headline results
The Group’s loss before tax from continuing activities was £4,773.2m, compared to a loss of £988.0m for the
year ended 31 March 2008. Revenue profit, our measure of underlying profit before tax, increased by 10.6%
from £284.8m to £314.9m.
Table 11
Reconciliation of loss before tax to revenue profi t
Loss before tax
Valuation defi cit – Group
– joint ventures
Losses/(profi ts) on non-current property disposals – Group
– joint ventures
Joint venture net liabilities adjustment
Mark-to-market adjustment on interest rate swaps
Mark-to-market adjustment on interest rate swaps – joint ventures
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
Write-down of trading properties
Revenue profi t
Year ended
31/03/09
£m
Year ended
31/03/08
£m
(4,773.2)
4,113.4
630.3
130.8
(2.9)
(17.7)
102.1
15.4
11.7
0.7
1.3
10.2
(2.5)
(5.5)
(3.8)
104.6
314.9
(988.0)
1,158.4
134.2
(57.3)
7.1
–
21.9
–
7.6
1.1
3.1
9.8
(2.8)
(8.3)
(2.0)
–
284.8
The basic loss per share from continuing activities increased from a loss of 188.43p last year restated for the
Rights Issue and the reclassification of Trillium to discontinued operations to a loss per share of 918.04p, with
adjusted diluted earnings per share showing a 2.9% increase on the comparable period to 62.57p (2008: 60.79p).
The loss from discontinued operations for the year all relates to Trillium and amounted to £420.9m, which
reflects the loss for the current year of £87.3m and a loss on disposal of £333.6m. The loss for the current year
included a goodwill impairment charge of £148.6m and a deficit on revaluation of investment properties of
£10.0m, partially offset by underlying profit from the Trillium business.
The combined investment portfolio (including joint ventures) decreased in value from £14.1bn to £9.4bn
on the back of a valuation deficit of £4,743.7m or 34.2%. Net assets per share decreased by 1223p from 1862p
at the end of March 2008 (restated for the Rights Issue) to 639p in March 2009, with adjusted diluted net assets
per share decreasing from 1763p at March 2008 to 593p at March 2009.
Loss before tax
The main drivers of our loss before tax from continuing activities were the change in value of our investment
portfolio (including any profits or losses on disposal of properties), impairment of our trading properties and
the impact of interest rate swaps. The degree to which movement on these and other items led to the increase
in our loss before tax from £988.0m last year to a loss of £4,773.2m this year, is explained in Table 12 below.
Table 12
Principal changes in loss before tax from
continuing activities and revenue profi t
Year ended 31 March 2008
Valuation defi cit
Impairment of trading properties
Loss on disposal of non-current properties
Interest rate swaps
Indirect costs
Interest on debt and bank borrowings
Joint venture net liabilities adjustments
Other
Year ended 31 March 2009
Loss
before tax
£m
Revenue
profi t
£m
(988.0)
(3,451.1)
(104.6)
(178.1)
(95.6)
0.8
28.8
17.7
(3.1)
(4,773.2)
284.8
–
–
–
–
0.8
32.6
–
(3.3)
314.9
R
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4
Land Securities Annual Report 2009
20
Financial review
Valuation deficit
The largest driver behind the increase in the year-on-year loss before tax was the revaluation deficit on our
combined investment portfolio (including joint ventures) of £4,743.7m (2008: £1,292.6m). The 34.2% reduction
in the market values of our properties is driven by a number of external factors including the overall economic
environment and investor demand.
Impairment of trading properties
Our trading properties are carried at the lower of cost and net realisable value. In accordance with our normal
practice, a valuation exercise was undertaken by Knight Frank LLP at 31 March 2009 to review the net realisable
values of our trading properties and this resulted in a £92.3m impairment (£104.6m including joint ventures).
The impairment primarily applied to development land and infrastructure programmes, mainly at Ebbsfleet Valley
in Kent.
Interest rate swaps
We use interest rate swaps to manage our interest rate exposure as described in the paragraph on hedging below.
The significant fall in interest rates this year has resulted in a charge to the income statement of £102.1m,
representing the change in market value of these swaps over the year (£117.5m including joint ventures).
Revenue profit
Revenue profit is our measure of the underlying pre-tax profit 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.
Table 13 shows the composition of our revenue profit including the contributions from London and Retail.
Table 13
Revenue profi t
Gross rental income1
Ground rents
Net service charge and
property costs
Indirect costs
Combined segment profi t
Unallocated expenses
Net interest – Group
– joint ventures
Revenue profi t
1.
Includes finance lease interest.
Retail
Portfolio
£m
London
Portfolio
£m
31/03/09
£m
374.6
(12.1)
(44.0)
(38.9)
279.6
352.8
(4.6)
(18.6)
(35.8)
293.8
727.4
(16.7)
(62.6)
(74.7)
573.4
(14.2)
(217.9)
(26.4)
314.9
Retail
Portfolio
£m
370.6
(11.3)
(25.3)
(40.7)
293.3
London
Portfolio
£m
342.5
(5.3)
(19.8)
(36.0)
281.4
31/03/08
£m
713.1
(16.6)
(45.1)
(76.7)
574.7
(13.0)
(255.9)
(21.0)
284.8
Chart 14
Dividends and adjusted diluted
earnings per share (p)
70
60
50
40
30
20
10
0
.
5
2
0
6
.
0
5
3
6
7
9
8
3
.
8
0
2
4
.
.
6
2
3
6
9
7
0
6
.
.
8
6
7
5
.
7
5
2
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.
1
6
1
5
.
6
7
7
4
05
06
07
08
09
Dividends per share (restated)1
Adjusted diluted earnings per share2 3
Gross rental income increased by £14.3m over last year, which was mainly due to purchases since 1 April 2007
and development properties, such as our schemes at Exeter, Bristol, Bankside and New Street Square. This was
partially offset by a reduction in rental income from the net sales of investment properties. The increase in
net service charge and property costs of £17.5m reflected the tougher climate facing our retail customers,
with higher void costs and empty rates as well as an increase in our bad debt provisions and write off of
pre-development costs.
Net interest expense was £32.6m lower than last year, reflecting lower average net debt over the period
following disposals and lower interest rates particularly in the second half of the year.
(Loss)/earnings per share
The basic loss per share from continuing activities was 918.0p, compared to a loss per share of 188.4p last year,
the change being predominantly due to the revaluation deficit on the investment property portfolio (791.7p
per share).
In the same way that we adjust profit before tax to remove capital and one-off items to give revenue
profit, we also report an adjusted earnings per share figure. Adjusted diluted earnings per share from continuing
activities increased by 2.9% from 60.8p per share for the year ended 31 March 2008 to 62.6p per share in the
current period Chart 14. This increase was largely attributable to reduced interest on borrowings but was
lower than the increase in revenue profit due to a prior year tax benefit in last year’s results.
Notes:
1.
The restated total dividend payable represents the theoretical dividend
per share that would have been paid had the bonus shares inherent in
the Rights Issue been in existence at the relevant dividend dates.
The earnings per share for the years ended 31 March 2008, 31 March
2007, 31 March 2006 and 31 March 2005 have been adjusted for the
bonus element inherent in the Rights Issue that was approved on
9 March 2009.
The earnings per share for 2005 to 2007 includes the operating results
of Trillium. 2008 and 2009 exclude the operating results of Trillium as
these have been reclassified as discontinued operations.
2.
3.
Land Securities Annual Report 2009
Financial review
21
Property Income Distribution (PID)
Who can claim exemption from
deduction of withholding tax on
Property Income Distributions1?
■ UK companies
■ Charities
■ Local Authorities
■ UK Pension Schemes
■
Managers of PEPs, ISAs and
Child Trust Funds
Who is unlikely to be able to claim
exemption from deduction of withholding
tax on Property Income Distributions?
Total dividend
We are recommending a final dividend payment of 7.0p per share. Taken together with the three quarterly
dividends of 14.9p, our full year dividend will be 51.6p per share (2008: 57.8p) which represents a 10.5%
reduction. These amounts have been restated to include the bonus factor inherent in the Rights Issue.
Table 15 shows the dividend per share at the time of payment as well as the restated amount.
Our final proposed dividend of 7.0p is the amount we indicated at the time of our Rights Issue, when we
explained that we were resetting our dividend to a lower base. It is also the amount we anticipate paying as our
quarterly dividend throughout the next financial year. On an annualised basis, this will reduce our dividend from
around £307m to £212m.
The table below sets out the percentage of dividends paid and payable which comprise Property Income
Distributions (PID) from REIT qualifying activities. The PID element is subject to 20% withholding tax for relevant
shareholders. Taking into account the proposed final dividend, the Group is expected to have satisfied its
minimum PID requirement for 2008/09.
The Company offers shareholders the option to participate in a Dividend Reinvestment Plan (DRIP).
For further details, please refer to the Shareholder centre within the Investor section of our corporate website
www.landsecurities.com.
■ Overseas shareholders2
■ Individual private shareholders
Table 15
Dividends
First quarterly dividend (paid on 24 October 2008)
Second quarterly dividend (paid on 12 January 2009)
Third quarterly dividend (paid on 24 April 2009)
Final dividend (payable on 24 July 2009)
Total dividend for the year
Property
Income
Distribution
(PID)
pence
Non-property
Income
Distribution
pence
14.85
16.50
16.50
7.00
54.85
1.65
–
–
–
1.65
Total
pence
16.50
16.50
16.50
7.00
56.50
Total
pence
(restated)
14.87
14.87
14.87
7.00
51.61
Net assets
At 31 March 2009, net assets per share was 639p, a decrease of 1223p compared to the year ended 31 March
2008. The reduction in our net assets was primarily driven by the lower value of our investment property portfolio,
the impairment of trading properties and the loss on disposal of Trillium.
In common with other property companies, we calculate an adjusted measure of net assets which we
believe better reflects the underlying net assets attributable to shareholders. Our adjusted net assets are lower
than our reported net assets primarily due to an adjustment to our debt. Under IFRS 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 31 March 2009, adjusted diluted net assets per share were 593p per share, a decrease of
1170p or 66.4% from 31 March 2008.
Table 16 summarises the main differences between net assets and our adjusted measure together with
the key movements over the year.
Table 16
Net assets attributable to equity holders of the Company
Net assets at the beginning of the year
Adjusted earnings
Revaluation defi cits on investment properties
Impairment of development land and infrastructure
(Losses)/profi ts on non-current asset disposals
Other
Loss after tax attributable to equity holders of the Company
(Loss)/profi t on discontinued operations
Dividends paid
Rights Issue
Other reserve movements
Net assets at the end of the year
Mark-to-market on interest rate swaps
Debt adjusted to nominal value
Adjusted net assets at the end of the year
Note: To the extent tax is payable, all items are shown post-tax.
2009
£m
2008
£m
9,582.9
10,791.3
325.0
(4,743.7)
(104.3)
(127.9)
(119.5)
(4,770.4)
(420.9)
(302.4)
755.7
(21.4)
4,823.5
150.2
(499.8)
4,473.9
314.6
(1,292.6)
–
50.2
(45.1)
(972.9)
142.1
(308.4)
–
(69.2)
9,582.9
12.7
(511.5)
9,084.1
1.
2.
See Total dividend information on how eligible shareholders
can claim exemption.
May be able to reclaim some or all of the withholding tax
under relevant double taxation treaty.
For further explanation of Property Income Distributions
and Dividend Reinvestment Plan. p140-141
Land Securities Annual Report 2009
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22
Financial review
Net pension surplus
The Group operates a defined benefit pension scheme which is closed to new members. At 31 March 2009
the net surplus was £3.0m. This was £8.0m lower than the surplus recognised at 31 March 2008, primarily
due to lower than expected returns on scheme assets.
The key assumptions behind this surplus are shown in note 33 to the accounts, together with
related sensitivities.
Cash flow, net debt and gearing
During the year, net debt decreased by £1,460.9m to £3,923.6m. This was primarily driven by proceeds from the
disposal of investment properties (£823.0m), the disposal of Trillium (£492.6m) and proceeds of £755.7m from
the Rights Issue. Capital expenditure in the year was £515.9m, which was £895.9m below last year, reflecting a
decrease in expenditure on developments and very few investment property acquisitions following the slowdown
in the commercial property market.
We invested a net £117.0m in our joint ventures, mainly on shopping centre developments in Bristol and
Cardiff. The development in Bristol was completed and opened in September 2008. The Cardiff development is
scheduled to complete in October 2009.
Table 18
Gearing
Table 17
Cash fl ow and net debt
Gearing – on book value
of balance sheet debt
Adjusted gearing*
Adjusted gearing*
– as above plus notional
share of joint venture debt
Group LTV
31/03/09
%
31/03/08
%
81.4
96.4
105.9
52.0
56.2
64.9
67.6
42.6
* Book value of balance sheet debt increased to recognise nominal
value of debt on refinancing in 2004 divided by adjusted net
asset value.
Chart 19
Funding structure
The Security Group
(Total property assets £7.5bn3)
Land Securities PLC
Subsidiaries of
Land Securities PLC
Unsecured
loans1 and
commercial
paper
Secured
loans/
notes etc2
Other lenders
Secured lenders
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e
c
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i
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d
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a
L
Asset transfers and
inter-company funding
permitted
Non-restricted Group
Joint ventures
and other assets
Dedicated third party funding
or loan from Secured Group
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 2009.
Land Securities Annual Report 2009
Operating cash infl ow after interest and tax (excluding REIT conversion charge)
REIT conversion charge
Dividends paid
Non-current assets:
Acquisitions
Disposals
Investment in fi nance leases
Capital expenditure
Trillium disposal:
Gross proceeds
Net debt divested
Loans advanced to third parties
Receipts from discontinued activities
Receipts from the disposal group (part of Trillium’s PPP activities)
Joint ventures and associates
Purchase of own share capital
Proceeds from the Rights Issue
Fair value of interest rate swaps
Other movements
Decrease/(increase) in net debt
Opening net debt
Closing net debt
Year ended
31/03/09
£m
Year ended
31/03/08
£m
367.2
–
(302.4)
(86.1)
823.0
–
(429.8)
307.1
444.0
48.6
492.6
(50.0)
–
113.5
(117.0)
–
755.7
(105.6)
(0.2)
315.4
(316.2)
(308.4)
(1,192.1)
1,080.7
(82.1)
(545.7)
(739.2)
–
–
–
–
424.9
441.0
(0.2)
(87.6)
–
(21.0)
(5.3)
1,460.9
(5,384.5)
(3,923.6)
(296.6)
(5,087.9)
(5,384.5)
Our interest cover, excluding our share of joint ventures, has increased from 1.65 times in 2008 to 1.91 times
in 2009. Under the rules of the REIT regime, we need to maintain an interest cover in the exempt business of at
least 1.25 times to avoid paying tax. As calculated under the REIT regulations, our interest cover of the exempt
business for the year to 31 March 2009 was 1.62 times.
Although net debt has decreased, gearing has increased, principally due to the impact of falling property
values on our equity. Details of the Group’s gearing are set out in Table 18, which also shows the impact of joint
venture debt, although the lenders to our joint ventures have no recourse to the Group for repayment.
Adjusted gearing, which recognises the nominal value of our debt, increased from 64.9% at 31 March
2008 to 96.4% at 31 March 2009. Adjusted gearing including our share of joint ventures increased from 67.6%
to 105.9% over the same period. In common with other property companies, we also show our Group LTV ratio.
Financing strategy
The Group monitors and adjusts its capital structure with a view to promoting the long-term success of the
business and maintaining sustainable returns for shareholders. A key element of the Group’s capital structure
is that the majority of its borrowings are secured against a large pool of our assets (the Security Group)
Chart 19. Our secured debt structure provides for different operating environments which apply in ‘tiers’
determined by levels of LTV and Interest Cover Ratios (ICR), although it is LTV which is the more likely
determinant of which operating environment applies. These ratios do not trigger an event of default until LTV
exceeds 100% or historic or projected ICR is less than 1.0 times. However, our operating environment becomes
more restrictive at higher levels of LTV/lower levels of ICR. There are minimal operational restrictions on the
Group in Tier 1 (LTV below 55%) and Tier 2 (LTV: 55% to 65%). The main additional operating restriction in Tier
2 is the requirement to maintain a level of prescribed liquidity or pre-pay debt by amortisation (includes actual
repayment and collateralisation), calculated on a 25-year mortgage annuity basis. In Initial Tier 3 (LTV: 65% to
80%), our operating environment would be more restrictive with provisions designed to encourage a reduction
Financial review
23
in gearing including mandatory debt amortisation. Furthermore, none of the Group’s credit facilities permit the
drawing of additional funds if the Group is in Initial Tier 3. As there was a risk of our moving into Initial Tier 3 if
property values continued to decline rapidly, we took the decision to draw down our available facilities in early
2009 as outlined in more detail below.
The last two years have seen an unprecedented period of instability in the financial markets which
has severely impacted investor confidence, the availability and pricing of credit, and the pricing of property
investments. During the last quarter of 2008, the pace of valuation decline exceeded the pace at which assets
could be sold to counteract the impact of falling values on the Group’s balance sheet position. This deterioration
had an adverse effect on the Group’s LTV ratios and lay behind the decision to raise £755.7m through a Rights Issue.
Rights Issue
On 19 February 2009, the Group announced its intention to raise £755.7m (net of expenses) by way of a Rights
Issue of 290,773,925 new ordinary shares at 270 pence per share on the basis of five new ordinary shares for
every eight existing ordinary shares.
The Rights Issue was approved by shareholders in a General Meeting on 9 March 2009, nil-paid rights
began trading the following day and proceeds were received shortly before the year end.
As the Land Securities closing share price on 9 March (380p) exceeded the subscription price of 270p,
the Rights Issue is deemed to include a bonus element of 11.0%. As a result, all ‘per share’ information which
pre-dates the Rights Issue is reduced by 9.0% (ignoring the restatement of the 2008 results due to the disposal
of Trillium).
Financing and capital
Over the last 12 months, we continued to focus on our cash flows, the level of available bank credit facilities and
the maturity of our debt Chart 20. During the year, we refinanced and extended our three existing committed
bilateral facilities totalling £825m and established three new committed bilateral facilities totalling £115m. All
the bilateral facilities, with the exception of a £40m facility, mature in the period from July to December 2010,
with an option to extend the maturity for a further year. The ability to refinance existing facilities and negotiate
new facilities against the current financial and economic backdrop, owes much to the quality and level of assets
within the Security Group against which these facilities and Group bonds are secured, as well as the importance
we place on our bank relationships. The average duration of the Group’s debt is 9.7 years with a weighted average
cost of debt of 4.1%.
In January 2009 the Group drew down £1.1bn of available credit facilities to ensure liquidity and provide
operational flexibility by holding the funds outside the Security Group. At 31 March 2009 our net borrowings
(including joint ventures) amounted to £4,732.6m, of which £2,298.6m was drawn under our syndicated and
bilateral bank facilities and £57.8m related to finance leases. Committed but undrawn facilities amounted to
£489.2m of which £300m cannot be drawn if we are operating in Initial Tier 3. In the Security Group, £5,720m
of debt was secured against £7,453.3m of assets, giving a Security Group LTV ratio of 76.7%, up from 50.5%
at 31 March 2008 Chart 21. As a result, we will enter Initial Tier 3 when the Security Group valuation report
for 31 March 2009 is submitted.
Although the March valuation report shows a sharp decline in property values, it was the decision to draw
down existing bank facilities and to hold high levels of cash outside the Security Group for liquidity reasons, which
will result in this tier change. At 31 March 2009, the Group had cash and short-term instruments of £1,596.5m
outside the Security Group. This cash is available to be injected into the Security Group to maintain its LTV at less
than 80% to prevent it entering Final Tier 3. Our current cash holding provides the Group with protection against
further valuation declines and the option to deploy capital should suitable opportunities arise. If all our cash and
cash equivalents at 31 March 2009 had been injected into the Security Group, the Security Group LTV would
have been 55.3% (Tier 2 regime). It is our intention to migrate back to a Tier 1 or 2 covenant regime in the
medium term.
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 fixed interest rates for the
coming five years. Specific hedges are also used in geared developments or joint ventures to fix the interest
exposure on limited-recourse debt. At 31 March 2009, we had £2,672.0m of hedges in place. Our debt (net of
cash and cash equivalents and including joint ventures) was 107% fixed. The slightly over-hedged position at the
year end arose due to the receipt in March 2009 of the Rights Issue proceeds of £755.7m. Without the Rights
Issue proceeds, we would have been 93.0% hedged.
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 charge for the year of £0.5m (2008: £15.1m
credit) comprises a prior year corporation tax charge of £0.3m and a net deferred tax charge of £0.2m. The tax
loss arising on the write-down of trading properties below cost has eliminated taxable profits on all residual
taxable activities in the period. No tax charge arose in respect of the disposal of Trillium.
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Read more about the Rights Issue. p27
Chart 20
Expected debt maturities (nominal) (£m)
2,500
2,000
1,500
1,000
500
0
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
5
-
1
0
1
5
+
1
0
-
1
5
years
Security Group
year ending March
Joint ventures
Non-restricted Group
Chart 21
Security Group LTV history (%)
90
75
60
45
30
15
0
.
9
5
4
.
7
8
4
.
5
0
5
.
4
3
5
.
9
1
2
.
8
4
5
Mar 07
Sept 07
Mar 08
Sept 08 Mar 09
Underlying LTV
Effect of holding cash outside the Security Group
Land Securities Annual Report 2009
24
Protect value
4. We are maximising
revenue through
asset management
Piccadilly Lights, London
We are getting more from existing assets by combining
experience with innovation. Take Piccadilly Lights. This year
we’ve enhanced income by enabling Barclays Bank to open
a new flagship branch and upgrading conventional neon
signage to flexible LED displays. We’re also pioneering trials
of Bluetooth technology to help retailers connect with the
one million people who visit the site each week. We expect
to gain significant rent increases as more global brands
recognise the unique value of this iconic London asset.
Land Securities Annual Report 2009
25
Protect value
5. We are developing
even stronger
customer relationships
New Street Square, London
Customer satisfaction
We have streamlined property management across the
Company, so local teams now work directly with customers.
This means we can respond faster and provide support services
based on a deeper understanding of our tenants’ business
needs. Value for money remains critical, and we’re working
with customers to ensure we maintain high levels of service
while minimising cost. We’re also introducing cost-effective
space options, increasing investment in retail promotions and
providing guidance on sustainability issues.
■
■
London Portfolio achieved an overall
customer satisfaction rating of 3.8
Retail Portfolio achieved an overall
customer satisfaction rating of 3.85
The team at New Street Square make a final check before
opening the doors to the public.
Land Securities Annual Report 2009
26
Protect value
6. We are creating high
quality products that
meet people’s needs
and aspirations
Cabot Circus, Bristol
Cabot Circus was 91% occupied on opening this year,
a remarkable feat in the current economic climate that
highlights our ability to identify and satisfy demand for
great new retail destinations. The centre inspires a powerful
sense of place, with a gigantic glass roof connecting seven
distinctive sites, and a wonderful open-air piazza integrating
with the historic buildings of Quakers Friars. The development
has become the beating heart of the city – a vibrant,
welcoming environment that provides people with
opportunities to shop, eat, relax and socialise.
The new Cabot Circus shopping centre
■
■
Developed by the Bristol Alliance, our
50:50 joint venture with Hammerson
Created 92,000m2 of city centre retail
and leisure space
■ Won BREEAM Award for Sustainability
Won British Council of Shopping
■
Centres’ Supreme Gold Award
Won ‘Best Shopping Centre of the Year’,
MAPIC EG Retail Awards
■
Land Securities Annual Report 2009
Business review
Why conduct a Rights Issue?
In February 2009 we announced a Rights Issue to raise fresh capital
to support the Company. Here we examine the reasons for the issue
and assess its results.
Why we needed to raise fresh capital
The current economic and financial environment has resulted in an unprecedented downward repricing of
commercial property assets in the UK. We have taken decisive action in response. Since April 2007 we have
sold more than £3.4bn of assets, including the disposal of Trillium, and we have repositioned our development
programme. However, the pace of decline has exceeded the pace at which assets could be sold to counteract the
impact of falling values on the Group’s balance sheet position. This represented an ongoing risk to the Company’s
ability to operate flexibly in today’s market, and its ability to take advantage of any opportunities that may arise
during current and future market conditions. In response, we announced the Rights Issue in February 2009 and
shareholders approved the measure at a General Meeting on 9 March 2009.
The key benefits of the additional capital
The additional capital has improved our ability to preserve and create shareholder value through the downturn
and into the next cycle. It helps protect us against the downside and gives us flexibility ahead of the next upturn.
In particular, the capital raised has strengthened the Group’s balance sheet and enabled us to minimise the
impact of the risk of prolonged falls in property values. It has reduced refinancing risks for debt facilities maturing
in our 2010/11 financial year, putting us in a much stronger position to refinance as and when we need to. And it
has ensured that we are able to respond quickly to the turning point in the cycle, particularly in relation to the
acquisition of assets and the start of development opportunities.
The positive effect on debt
As our gearing increases our financial and operational flexibility is reduced, particularly our freedom to make
acquisitions and disposals – and progress development – at the right time. This can impact our ability to protect
and create shareholder value. By raising additional capital through the Rights Issue we have been able to reduce
gearing and so maintain flexibility. This freedom to take action is invaluable as we navigate our way through the
current downturn and market volatility, and prepare to act on new opportunities.
Size of Rights Issue
We calculated the total figure with great care. We wanted to minimise our call on shareholders’ funds during
such difficult economic conditions. On the other hand, we had to ensure we gained the right level of capital to
ensure we could meet our commitments fully, over a reasonable period of time, and through an unpredictable
business environment. Management took action to strengthen the Company’s finances before the Rights Issue,
including the execution of asset sales, such as the disposal of Trillium. We continue to prioritise these measures.
How the Rights Issue affects the numbers
You will see two particularly significant changes. First, our balance sheet reflects the fact that we are holding a
substantial amount of cash. This includes both the capital raised by the Rights Issue and the credit facilities we
drew down during the year. Second, the Rights Issue has required us to restate previous years’ figures, and you
will see that this has affected both earnings per share (EPS) and net asset value (NAV) per share. You will find
further explanation of these effects on page 23 of the Financial review.
Successful issue underlines investor confidence
The five shares for every eight owned Rights Issue attracted 94.81% acceptances for the £755.7m placing,
with 290.8m shares issued at 270p a share. The fundraising was fully underwritten. Given very difficult market
conditions, economic uncertainty and the announcement of Rights Issues by a number of other companies in
the Real Estate sector, this represents a strong indicator of investors’ confidence in Land Securities.
In short, the Rights Issue has:
■ Strengthened our balance sheet
■
Helped protect against
downside risk
Positioned us to be able to
respond quickly to opportunities
■
The Rights Issue offered
shareholders the right to acquire
fi ve shares for every eight shares
that they held, for an issue price
of 270p.
As the issue price was below the market price of
the ordinary shares, a bonus share element of 11% was
inherent in the Rights Issue. In order to allow comparability
to prior years, the EPS and NAV per share figures for the
year ended 31 March 2008 have been restated as if these
bonus shares had always existed.
Land Securities Annual Report 2009
27
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28
Business review
Group business review
In this Group business review we outline our business model and our
approach to a number of key areas, from our customers to employees
to sustainability.
Table 22
Top 10 global REITs
Rank
Company
1
2
3
4
5
6
7
8
9
Westfield Group
Unibail-Rodamco
Public Storage
Simon Property Group
Annaly Capital Management
Vornado Realty Trust
Equity Residential Trust
Properties SHBI
Plum Creek Timber
Land Securities Group
10
Nippon Building Fund
Source: Datastream, as at 31 March 2009
Our business model
We are the ninth largest Real Estate Investment Trust (REIT) in the world and the largest in the UK Table 22.
We own, develop and manage commercial property through two business divisions – the Retail Portfolio and
the London Portfolio.
Our customers
Our business divisions work with a wide range of organisations and you will find more coverage of key
customers and current market trends in the two business review sections that follow. Across the Group, Central
Government remains our largest customer. In London, Government represents a total of 21% of the portfolio
rent roll. In Retail, our largest retail customer, Arcadia, accounts for just over 3% of our portfolio rent roll.
In response to the economic environment, we have worked very closely with customers to find new and
better ways to mitigate the effects of tough commercial conditions. This has included pioneering work on service
charges, lease arrangements, marketing and promotions, and flexible space planning. We have also worked
proactively with key customers to ensure we understand their immediate business issues and provide support
wherever possible.
We provide office space for many types of businesses and organisations Chart 23. Every day thousands
of people work in a building owned or managed by us, and thousands visit our shopping centres, retail parks and
other properties.
Mkt cap
£m
11,006
8,044
6,532
5,590
5,267
3,605
3,492
3,343
3,306
3,239
Table 24
Group development activity
Retail Portfolio
Programme
Proposed development
Total Retail Portfolio pipeline
London Portfolio
Programme
Proposed development
Total London Portfolio pipeline
Number of
projects
Floorspace
m2
4
1
5
5
4
9
252,940
92,000
344,940
164,300
157,070
321,370
TDC1
£m
812
375
1,187
1,457
1,165
2,622
ERV2
£m
44
28
72
95
98
193
1. TDC: Total Development Cost – land, capital expenditure and capitalised interest.
2.
The net ERV represents headline annual rent payable on let units plus Estimated Rental Value (ERV) at 31 March 2009 on unlet units.
Our people
The quality and commitment of our people helps to set Land Securities apart and provides us with an invaluable
competitive advantage. Our objective is 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 our employees and their resilient response to current difficult market conditions.
This year, key areas of employee development included:
■
Communication and engagement
Each year we carry out an employee engagement survey and the responses to this provide a clear indicator
of engagement levels within the Company. Despite an uncertain economy and substantial changes within the
Company, this year saw a very positive overall response rate of 82%, while more than 88% of employees who
responded were in agreement with the statement ‘Overall I am satisfied working for the Land Securities Group’.
Chart 23
Floorspace under management
(’000m2)
193
129
419
1,084
46
63
799
2,000
1,500
1,000
500
0
Retail
London
Shopping Centres
Retail Warehouses
Other Retail
Accor
London Offices
Central London shops
Other London
Land Securities Annual Report 2009
Business review
29
The improvement in engagement levels reflects additional investment in learning and development, culture
and communication throughout the year.
We continue to encourage and enable excellent communication throughout the Company. Our
Business Exchange programme has created a new way for employees to provide input and raise questions,
while our popular ‘Ask Francis’ and Board question time sessions have enabled employees to ask questions
directly to our Chief Executive and Board directors.
■ Reward and recognition
Our challenge is to ensure our packages remain competitive against a range of comparable organisations and
professions while reflecting the financial performance of the Company. We believe current levels of reward
and recognition have achieved that balance and will continue to serve us well in terms of recruiting and
retaining excellent employees.
This year the Board and Remuneration Committee took a proactive approach to bonuses by
announcing there would be no bonus payments to Executive Directors. Across the Company we did pay
bonuses, focusing on rewarding employees for their individual contribution against agreed personal targets.
This is a fair approach that ensured we rewarded exceptional contributions by individuals.
For further information on pay and rewards please see pages 68-79.
■ Employment policies
We work with a diverse range of communities, organisations and individuals, and we are committed to
ensuring that Land Securities is a diverse and vibrant place where everyone is respected, valued, encouraged
and treated fairly. Our policy is to ensure there is equal opportunities access for all and 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.
Full consideration is given to application for employment from disabled persons, having regard to their
particular aptitudes and abilities. The Group has continued the employment wherever possible of any person
who becomes disabled during their employment. Opportunities for training, career development and
promotion do not operate to the detriment of disabled employees.
In line with economic conditions, we have had to reduce employee numbers this year – a difficult
but necessary commercial measure. We supported every individual, providing full outplacement support and
as much notice as we could. We also successfully managed the complex task of transferring around 1,000
Trillium employees to the acquiring company, and communicated promptly and clearly during the hand-over
– something many Trillium employees greatly appreciated.
Our approach to corporate responsibility
Responsibility is at the heart of the way we work. Our aim is to maintain a leadership position across areas such
as sustainability, community relations and employee development so we continue to be recognised as a great
company to work with and for. Given the physical and social effect of our work, particularly development, it is
important that we take into consideration the views of the communities affected by our actions. Keeping good
and open relationships with all stakeholders remains a central principle behind our approach Table 25.
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 find further coverage of our approach to corporate responsibility on pages 54-63 of this annual
Report and in our Corporate Responsibility Reports, which are available at www.landsecurities.com. Given the sale
of the Trillium business, we are redefining our corporate responsibility strategy to ensure it fully reflects the needs,
commitments and ambitions of the London and Retail Portfolios. Our new strategy will be published during 2009.
Table 25
Development stakeholder groups
Stage
Site assembly
Design
Public consultation
Planning
Construction
Letting
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
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Land Securities Annual Report 2009
30
Business review
Our risks and how we manage them
Financial risks
We achieved over £500m of property sales in a
deteriorating market.
Risk description
Impact
Mitigation
Capital structure
■
Pace of valuation decline
continues to exceed the pace
at which assets can be sold.
■
■
Unable to counteract the
impact of falling values on
the Group’s balance sheet.
Unable to progress investment
opportunities.
Credit risk
Investment counterparty risk
■
Failure of bank and financial
institution counterparties.
■
Loss of cash and deposits.
Liquidity risk
■
Restrictive covenant regime.
■
Inability to fund operations and
capital expenditure programme.
■
■
■
■
■
■
■
■
■
■
■
The Rights Issue strengthened the Group’s balance sheet and will reduce the
potential impact of prolonged falls in property values and position the Group
to respond quickly to the turning point in the cycle.
Rights Issue strengthened the Group’s position in refinancing its debt facilities.
Liquidity and gearing kept under constant review.
Wide variety of assets and knowledge of investor appetite ensure best possibility
of achieving disposals.
Development commitments matched to sales.
Only use independently-rated banks and financial institutions with a minimum
rating of A.
Weekly review of credit ratings of all financial institution counterparties.
Group Treasury ensures that funds deposited with a single financial institution
remain within the Group’s policy limits.
As at 31 March 2009, £1.6bn of cash and short-term deposits were held
outside the Security Group. This balance is available to be injected into the
Security Group to maintain its LTV at less than 80% to avoid entering Final
Tier 3 with its additional financial and operational restrictions.
No financial covenant default is triggered until the applicable LTV ratio
exceeds 100% or the ICR is less than 1.0.
Assets available within the Security Group to sell/raise new debt.
■
Limited market debt capacity.
Inability to raise sufficient
new funding.
■ Ongoing monitoring and management of the forecast cash position.
■
Commitments are not taken on if funding is not available.
Increased borrowing costs.
■ Group Treasury monitors compliance with the Group hedging policy.
■
■
Specific hedges used in geared joint ventures to fix the interest exposure
on limited recourse debt.
Forward purchases of foreign currency to fix the Sterling value for any
construction works not priced in Sterling.
■
Increased tax payable.
■
Ongoing monitoring and management of the criteria to meet REIT status.
Market risk
■
Market risk exposure through
interest rates, currency
fluctuations and availability
of credit.
Tax risk
■
Compliance with the Real
Estate Investment Trust (REIT)
taxation regime.
Land Securities Annual Report 2009
Business review
31
Read how we have mitigated risk by widening the
appeal of One New Change, EC4. p33
Property investment risks
Risk description
Impact
Mitigation
Occupier market
conditions
■
Prolonged downturn in tenant
demand.
■
Threat of voids in the portfolio.
■
■
Reduced consumer spending
leading to lower retail sales.
■
Cutbacks in retailer opening
programme.
■
■
■
Committed development exposure limited to remaining space in St David’s 2
in Cardiff together with One New Change (due to complete in 2010) and
Dashwood House in London. Other proposed developments are not committed
and will only commence when market conditions are favourable or a pre-let of
part is in place.
Void management through temporary lettings and void mitigation strategies.
Large portfolio allows portfolio leasing deals and flexibility to further
reduce voids.
Pre-letting of key units before committing to development. Limited Retail
development pipeline concentrated primarily in Cardiff; most other schemes
completed and substantially let already.
Ongoing sales programme to divest schemes and locations most likely to suffer
adverse impact.
Market cycles
■
Property markets are cyclical.
■
Property risk
■
Asset value concentration.
■
Risks of negative interaction
between falling property values
and balance sheet gearing.
■ Target ranges for balance sheet gearing.
■
Secure income flows under UK lease structure.
Poor performance of a single
asset having material impact
on overall performance.
■
■
■
■
Large multi-asset portfolio.
Largest property (Cardinal Place) represents only 5.8% of combined portfolio.
Average investment property lot size of £44.6m.
Retail assets combine a range of highly diversified income streams in all major
sub-sectors of retail property.
■
Increased cost exposure on voids.
■
Increase in void costs.
■ Void management and empty rates mitigation.
Tenant risk
■
Tenant concentration
and failures.
■
Impact on revenue if a major
occupier fails or does not
renew leases.
■ Diversified tenant base.
■
■
■
Strong established locations and relationships with occupiers.
The Government is our largest single customer, representing 9.5% of gross rents;
the next largest represents 4.2%.
Of our income, 72% is derived from tenants who make less than a 1%
contribution to rent roll.
■ Regular credi t review of major tenants.
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 financial impact.
■
■
■
■
■
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 certified environmental system.
Active environmental programme addressing key areas of impact
(energy and waste).
Land Securities Annual Report 2009
Read more about our commitments and
performance in this area. p54-63
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32
Business review
Property development risks
Risk description
Impact
Mitigation
Site assembly risk
■
Third-party interests in part
of site cannot be acquired.
Planning risk
■
Development proposals fail
to gain sufficient support and
therefore planning consent.
Construction risk
■
■
■
Construction cost overruns
or poor management of
construction.
New and different procurement
methodologies and contract
forms for London.
Supplier capacity, capability
and financial stability.
Letting risk
■
■
Development remains unlet
after completion or fails to
meet lettings target.
Tenant requirement for
incentive packages, including
capital, increasing.
■
■
■
■
■
■
■
■
Unable to progress
development either in time,
at all, or in budget.
■
■
Policy of buying into all or part of future development sites early
as income-producing investments.
Experience of Compulsory Purchase Order procedures.
Development expertise including:
■
■
■
■
■
■
■
Skilled development management teams.
Public consultation capabilities.
Long-standing relationships with key development stakeholders.
Reputation.
Transfer of risk to specialist contractors.
Skilled in-house project management teams.
Use of specialist advisers.
■ Contingency provision in appraisals.
■
■
Forward purchase of high inflation risk items.
Closer, more open relationship with the supply chain.
Unable to progress
developments in
a timely manner.
Returns are eroded by cost
overruns or project completion
is delayed.
Different risk profiles and
unfamiliar terms and
conditions.
Cost in excess of assumptions
in appraisal.
Lack of competition in
tendering process.
Poor supplier performance.
Impact on income and
valuation.
■ Experienced and skilled in-house leasing teams.
■
Risk evaluation model to assess earnings impact of developments
remaining unlet.
Land Securities Annual Report 2009
33
Plan well ahead
7. We are managing
risk in a changing
market
One New Change, EC4
Cheapside
The City market is tough, but our mixed-use One New
Change development was designed to have a wider appeal.
It now offers both office and retail tenants flexible space
with breathtaking views of St Paul’s Cathedral, together
with a unique public realm. The shops will address an
under-served market of residents, City workers and tourists
– seven days a week. No wonder there’s already strong
interest from retailers, and 38% of the office space is pre-let.
St Paul’s
St Paul’s Cathedral
One
New
Change
Land Securities Annual Report 2009
34
Plan well ahead
8. We are continuing to
lead on sustainability
Elements Square, Livingston
Variable skins
Elements Square in Livingston is the first covered
retail scheme to receive a BREEAM ‘Excellent’ rating for
environmental performance. Sustainability informs every
corner of the scheme, from the super-lightweight roof –
designed to achieve the optimum balance between daylight
and solar heat gains – to the high proportion of recycled
and sustainable timber used in construction. Rainwater is
collected and reused and solar panels help heat water.
We even employ an ecologist to advise on landscaping.
Open
Closed
Solar and temperature
sensors cause the upper air
chamber to be pressurised
allowing light to penetrate
through the gestalt graphics.
As internal temperatures
and solar gains increase,
the lower air chamber is
pressurised reducing the
level of light and solar gain
penetrating the space.
Land Securities Annual Report 2009
35
Plan well ahead
9. We are creating
excellent opportunities
for future development
Victoria, SW1
We have been developing in Victoria for 40 years.
Now, with planning permission for our Victoria Transport
Interchange plan (VTI2) granted in February 2009, we
are set to transform the area around the railway station.
Our development will replace outdated pockets of
buildings with new offices, shops, restaurants, homes
and public space. The scheme builds on the success of
our mixed-use Cardinal Place development and provides
us with an extraordinary opportunity to rejuvenate one
of central London’s most valuable sites.
Buckingham Palace
VTI2
Development
Cardinal
Place
Victoria
Land Securities Annual Report 2009
36
Business review
Richard Akers
Managing Director,
Retail Portfolio
Retail Portfolio
Key objectives for 2008/09
■ Apply skills to support retailers and protect revenues
■ Use strong customer relationships to fi ll voids left by insolvencies
■ Make sales and recycle capital
■ Expand Harvest joint venture with J Sainsbury through acquisition
or development
■ Open and let Cabot Circus, Bristol and The Elements, Livingston
Watch Richard’s overview at:
www.landsecurities.com/annualreport2009
■ Bring forward key development opportunities
“The retail environment worsened
dramatically over the year and
we reacted accordingly, applying
all of our experience, skills and
relationships to protect income
and work with retailers to respond
to these very tough conditions.”
Richard Akers
■ Achieve IPD outperformance
How we create value
We aim to deliver attractive rental income streams, higher investment
values and future development opportunities by:
■ identifying, acquiring and enhancing shopping centre and retail park
assets with growth potential
■ using our asset management expertise to make locations more attractive
to shoppers and retailers
■ developing major new shopping and leisure assets that can transform
undervalued areas into thriving destinations
■ forming close relationships with retailers and local authorities, so we
can respond to people’s changing needs and ensure our portfolio fi ts
the market
■ recycling our capital and applying our skills to reposition assets higher
up the value hierarchy
Land Securities Annual Report 2009
Land Securities Annuauu l Report 2009
Business review
Retail Portfolio
Top 6 properties
1.
White Rose,
Leeds
2.
Cabot Circus,
Bristol
3.
The Centre,
Livingston
4.
Bullring,
Birmingham
5.
Gunwharf
Quays,
Portsmouth
6.
Princesshay,
Exeter
Award-winning shopping
centre with more than
100 stores and a range
of cafés and food outlets.
Located on the outskirts
of Leeds, it serves a large
and loyal catchment
ensuring a consistently
strong performance from
retailers.
Opened in September
2008, this exceptional
new retail, leisure and
residential space
integrates seamlessly
with the city centre.
It provides Bristol with
the quality and choice
of amenities it deserves.
Unique retail destination
in the heart of the town
centre, incorporating
Elements Square,
Wintergarden, The Avenue,
Almondvale Walk and
Almondvale Place. Each
part has its own unique
atmosphere, shops,
restaurants and cafés.
An iconic shopping
location, this partnership
development has led the
city’s retail renaissance.
It provides retail space,
with more than 160
shops and 3,100
car parking spaces.
This well known scheme
comprises a Designer
Outlet with over 80
shops and a wide range
of leisure including a
cinema, bowlplex, hotel,
restaurants and bars.
Its historic location on
Portsmouth harbour
makes it a popular
destination.
Award-winning
mixed-use development
based around a vibrant
piazza. An array of great
retail brands combines
with restaurants and
cafés to provide a great
shopping experience
in the heart of the city.
Principal occupiers
Sainsbury’s, Debenhams,
Marks & Spencer, Primark.
Principal occupiers
House of Fraser,
Harvey Nichols, H&M.
Principal occupiers
Debenhams,
Marks & Spencer, Bhs.
Principal occupiers
Debenhams, Selfridges,
Next.
Principal occupiers
Vue Cinema, Marks &
Spencer, Nike, Gap.
Principal occupiers
Debenhams, Next,
Zara, Top Shop.
Ownership interest
Ownership interest
Ownership interest
Ownership interest
Ownership interest
Ownership interest
100%
Area
63,170m2
Passing rent1
£27m
Let by income3
97%
50%
100%
33%
100%
Area
111,480m2
Area
85,940m2
Area
110,000m2
Area
41,250m2
Passing rent2
£12m
Let by income3
92%
Passing rent
£14m
Let by income3
87%
Passing rent2
£16m
Let by income3
94%
Liverpool
Passing rent
£19m
Let by income3
98%
100%
Area
37,360m2
Passing rent
£12m
Let by income3
99%
Newcastle
Birmingham
Inverness
Nottingham
Ipswich
York
Cardiff
Bristol
Leeds
Liverpool
Southampton
Birmingham
Bristol
Dundee
Stirling
Glasgow
Edinburgh
Livingston
Oxford
Central
London
Portsmouth
Cardiff
Bristol
Bournemouth
Exeter
1. A proportion of this income is paid in ground rent.
2. Refers to Land Securities’ share of total passing rent.
3.
Includes units in administration where lease has not been surrendered.
Land Securities Annual Report 2009
37
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38
Business review
Retail Portfolio
Our market
A significant reduction in sales growth hit both
retailers and landlords hard, and impacted
values heavily.
The long-term strength of the retail property market has been based on the historic
trend of retail sales growth, together with relatively tight planning controls and the
need for retailers to improve store locations to meet changing consumer demand.
This year, however, wider economic, financial and commercial pressures hit the retail
sector hard. This flowed through to the retail property market, with a particularly rapid
decline in values and pressure on income from September 2008 onwards.
The investment market saw a greatly reduced number of transactions. The low
level of debt available led to fewer buyers and continuous downward pressure on values.
Investors found it easier to raise smaller amounts of debt, so smaller lot sizes attracted
the most buying interest.
The occupational market was also impacted. While many retailers continued to
trade profitably, and shopping centre openings across the UK in 2008 generally let up
well, conditions worsened considerably in the second half of the year. Most retailers
suffered declining like-for-like sales and trading conditions proved difficult for all retail
businesses. As a result, we lost income through insolvencies and tenants not renewing
their leases. At year-end we saw higher void levels than in the downturn of the 1990s
and potential purchasers began to build in assumptions about occupiers going into
administration. These dynamics had a considerable negative effect on values.
Market outlook
We expect to see continuing difficulties for retailers in the occupational markets
while the economy is still in recession and the rate of unemployment is rising. In the
investment market we have seen early signs that buyers are returning for certain
types and sizes of asset.
We believe the present tough market dynamics will produce some cushioning
effects. For example, it is natural that the viability of a retailer is improved when a
competitor goes into administration. As we lose names from the high street, some
retailers will benefit. Our recent reviews of sales data also revealed that many value
and discount retailers have been able to maintain or increase levels of trade as more
customers have become value conscious. This trend also applies to our factory outlet
centres and looks set to continue, as the discount proposition will remain compelling
for consumers.
Chart 26
UK retail sales growth to 31 March (%)
8
6
4
2
0
-2
-4
03
04
05
06
07
08
09
Total sales
Like-for-like sales
Source: BRC/KPMG Survey (3 month average)
Table 27
Retail property – fl oorspace
Type of
retail property
Market
million m2
Shopping centres
Retail parks
Total core markets
Other retail markets
Total
16.3
15.9
32.2
87.1
119.3
Source: Property Market Analysis
Land
Securities
million m2
% market
share
1.1
0.4
1.5
0.1
1.6
6.7
2.5
4.7
0.1
1.3
Increasing attraction of value and discount
offers create opportunities for us.
Land Securities Annual Report 2009
Business review
Retail Portfolio
Our performance at a glance
■
■
Gross rental income up £4.0m (1.1%)
Voids across the like-for-like portfolio
at 5.2% (4.2% at March 2008)
We have sold more than £1bn of retail assets
since April 2007, as we anticipated more
challenging conditions.
■
■
Cabot Circus, Bristol and The Elements, Livingston
open and 91% and 80% let respectively
Outlet centres seeing rise in customer numbers
as value proposition drives footfall
Chart 28
Retail Portfolio by capital value
£4.32bn (%)
Table 29
Retail Portfolio valuation and
performance summary
Chart 30
Retail Portfolio valuations
at 31 March 2009 (£bn)
Retail warehouses
and foodstores
Other
26.0
13.2
Combined portfolio
valuation
31/03/09
£m
31/03/08
£m
4,317.6
6,673.2
Like-for-like
Investment portfolio valuation
Rental income
Gross estimated rental value
Voids by estimated rental value
Gross income yield
3,149.8
284.5
302.5
15.6
8.54%
4,849.5
281.2
316.4
13.4
5.54%
8
6
4
2
0
9
6
.
2
7
.
7
6
.
8
4
.
3
4
.
Shopping centres and shops
60.8
05
06
07
08
09
Table 31
Top 10 retail tenants
(% of total income)
Chart 32
Tenant diversifi cation
(% of total income)
Chart 33
Voids and units in administration
– Retail* (% of ERV)
Arcadia Group
DSG
Boots
J Sainsbury
Marks & Spencer
Next
New Look
Home Group
Tesco
H&M
Retail other (excluding Accor)
Total (all Retail tenants)
%
1.7
1.4
1.4
1.2
1.2
1.1
0.9
0.9
0.8
0.7
11.3
47.3
58.6
Top ten retail tenants
Other retail tenants
11.3
47.3
Accor
London offices
4.2
37.2
.
6
5
6
4
.
9
0
.
5
4
.
9
2
.
0
4
.
10
8
6
4
2
0
Mar 08
Sept 08 Mar 09
Voids
Administrations
* includes London Retail
39
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Despite tenant insolvencies, we mitigated voids and
achieved an increase in income by moving quickly to
support retailers.
Land Securities Annual Report 2009
40
Business review
Retail Portfolio
Top Retail Portfolio properties
—over £50m by location
North, North-West,
Yorkshire and Humberside
Sunderland
4 The Bridges *
Leeds
5 Leeds Plaza and Albion St ▲•
6 White Rose Centre *
Liverpool
7 St John’s Centre,
Williamson Sq and Clayton Sq *
Gateshead
3 Team Valley Retail Park *
Liverpool
4 Aintree Retail Park ▲
Chester
5 Chester and Greyhound
Retail Parks ▲
Midlands
Corby
8 Corby Town Centre •▲
Birmingham
9 Bullring3 *
3 Part of Birmingham Alliance
Wales and South-West
Exeter
14 Princesshay *
Bristol
15 Cabot Circus5 *•
Cardiff
16 St. David’s
Shopping Centre4 *•
Portsmouth
13 Gunwharf Quays *
4 Part of St. David’s 2 Partnership
5 Part of the Bristol Alliance
Scotland
Aberdeen
1 Bon Accord Centre1 ▲
St Nicholas Centre1
Glasgow
2 Buchanan Galleries 2 *
Livingston
3 The Centre *•
1 Part of Scottish Retail Property Limited
Partnership
2 Part of Buchanan Partnership
South and South-East
Welwyn Garden City
10 Howard Centre ▲
Maidstone
11 Fremlin Walk ▲
Hatfi eld
12 The Galleria ▲
Dundee
1 Kingsway West Retail Park ▲
Livingston
2 Almondvale West
Almondvale Retail Park
Almondvale South
West Thurrock
6 Lakeside Retail Park *
Thanet
7 The Fort, Westwood Cross *
Bexhill-on-Sea
8 Ravenside Retail
and Leisure Park ▲
Bracknell
9 The Peel Centre ▲
2
2
3
1
1
3
6
4
5
4
7
5
16
15
14
8
9
10
12
6
9
13
7
11
8
Key
Shopping centres
Retail warehouses
Best retail space awards
BREEAM Excellent rating
19
18
London
17
17 Stratford Centre, Stratford *
18 Lewisham Centre ▲
19 Southside, Wandsworth6 ▲
6 Part of Metro Shopping Fund LP
*
▲
•
£100m or above
£50-£100m
In development
pipeline/programme
Land Securities Annual Report 2009
Business review
Retail Portfolio
Business commentary
Overview
We recognised the early indications of a slowdown in our market some time ago
and adjusted our portfolio and development pipeline in response. In our 2007/08
financial year, for example, we sold £835m of assets at 3.1% above valuation.
We also achieved 97% occupancy on our three developments opened in 2007 –
Exeter, Corby and Cambridge.
This meant we went into the year focused on two clear priorities: first,
applying our asset management expertise and customer relationships to support
retailers and protect revenue; second, opening and letting our two new
developments completing in 2008 – Cabot Circus in Bristol and The Elements
in Livingston.
At year-end, occupation levels at Cabot Circus and The Elements were
91% and 80% respectively – a respectable performance in a challenging climate.
However, difficult market conditions impacted occupiers across the portfolio.
Although we were hit by insolvencies, we moved quickly to support occupiers and
mitigate voids, and saw a 1.1% increase in income from the portfolio. Valuations
were hit hard, and our Retail Portfolio recorded a 37.3% valuation deficit for the
year. The valuation deficit for shopping centres was 4.1% greater than for retail
warehousing, reversing the trend of the previous year. In terms of rental values, we
saw a 4.6% decline for shopping centres and shops, and 4.9% for retail warehouses.
Our Retail Portfolio underperformed its IPD Quarterly Universe sector
benchmark in relative terms by 4.7% overall. For shopping centres most of this was
attributable to our development and pre-development sites in Cardiff and Leeds,
and for retail warehouses to some retail parks where occupancy is restricted to
bulky goods users. This was offset in part by the stronger relative performance
of the Accor hotel portfolio.
Our efforts were recognised in December 2008 when we won the Property
Managers Association Retail Landlord of the Year 2008 Award. The judges praised
us for our approachability, willingness to listen to retailers’ needs and overall efforts
to collaborate in current difficult trading conditions. We believe landlords and
retailers must continue to be open-minded and realistic, responding to each other’s
position and working together for mutual benefit.
Looking at specific asset management initiatives, we executed major change
at the Bon Accord centre in Aberdeen, our joint venture with British Land. The
Woolworths unit was taken back and re-let to Topshop/Topman and River Island.
Simultaneously, four units have been let to the Mosaic brands Karen Millen, Oasis,
Coast and Warehouse, a commitment that the new parent company, Aurora,
has agreed to honour. These new fashion stores will open in 2009, along with a
5,000m2 Next and a refurbished central atrium. We also saw further advances in
Corby this year, with Primark opening a 4,460m2 store within the Willow Place
shopping centre in April 2008 and a new rail connection with London opened in
February 2009.
In retail warehousing, we made good progress at Edmonton, where we let the
last of five redeveloped units. At Bracknell we completed a 4,000m2 letting to Tesco
Home, which is the first stage of a very substantial improvement to the park. We did
see significant problems in the established furniture sector, with both MFI and Land
of Leather going into administration, but by acting quickly we were able to re-let
a number of MFI’s units. We also negotiated a substantial payment from Galiform
releasing it from guarantees related to MFI. Through our good relationships with
retailers we have been able to offset much of the negative news in this sector
and, since the year end, have let a major unit at the Commerce Centre, Poole to
John Lewis for the first of their new concept of out-of-town stores.
Sales and acquisitions
We continued to sell assets during the year. Our strategy is to manage assets
proactively, so we looked to sell assets and partnership interests where we were
not responsible for asset management or where we saw limited potential for
long-term growth.
Although a lack of available credit for buyers restricted sales activity in the
market, we once again met our objective of being a net seller with total disposals
of £177.9m at an average of 21.9% below March 2008 valuations. This means that
since April 2007, when we anticipated more challenging conditions, we have sold
over £1bn of assets from the Retail Portfolio.
At just £82.7m, acquisitions have been limited to properties with key
strategic relevance. These included a parade of shops in Exeter, which may form the
basis of another phase of development, and a Sainsbury’s store in Lincoln, which we
have added to The Harvest Limited Partnership with J Sainsbury. We have raised
debt to fund further potential acquisitions for Harvest, and we are looking for
additional ways to extend our convenience retail activity.
Asset management
This year we concentrated on addressing voids and supporting retailers in difficult
market conditions. We listened carefully to suggestions from tenants and took
the lead on responding to their concerns. We were one of the first landlords to
offer a monthly rent proposal for retailers. We introduced greater flexibility in
a number of agreements, and wherever possible, we reduced service charges.
At the White Rose shopping centre in Leeds we achieved a 13% reduction on
the charges – on top of a reduction last year – and we know this has helped our
occupiers significantly.
Development
Given deteriorating market conditions it was critical that we opened our two new
developments on time, achieved good levels of lettings at both, and made progress
on our future pipeline projects. In overview:
■ Cabot Circus, Bristol
Created as part of our 50:50 Bristol Alliance joint venture with Hammerson, this
innovative, mixed-use, large-scale development opened on 25 September 2008
and quickly established a dominant position in one of the UK’s most important
cities. It was 91% let or in solicitors’ hands on opening and, even with the outward
yield movement prior to opening, it delivered a profit on cost of approximately
14% at that date.
Integrated seamlessly with the surrounding streets and buildings – many
of which are also owned by the Bristol Alliance – the centre boasts retail, leisure,
restaurants, offices, car parking, student accommodation and a hotel. With a
wide range of brands represented in the House of Fraser and Harvey Nichols
anchor stores, and more than 100 other shops now open, this is the greatest
range of fashion retailing we have yet developed. The quality of the scheme was
recognised in its BCSC Supreme Gold Award and MAPIC EG’s Best Shopping
Centre of the Year award.
41
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Land Securities Annual Report 2009
Looking ahead
With market conditions expected to be difficult for some time, we will focus on
applying our proven strengths and capabilities. We will continue to strengthen our
well-established relationships with occupiers. We will look to acquire and transform
distressed assets. And we will work to enhance our reputation for creating excellent and
successful developments. The value of our reputation was confirmed in February 2009
when Chester City Council and ING Real Estate selected us to become their preferred
development partner on the potential future regeneration of Chester city centre.
We expect to see further insolvencies amongst retailers, so it is important
to recognise the quality and diversity of our tenants. Our largest single customer,
Arcadia Group, represents just 3.4% of the Retail Portfolio rent roll, and our top ten
tenants are well-known retail brands. We intend to maintain the breadth, depth
and quality of our tenant base and work hard to support our occupiers.
Internet retailing accounted for the entire growth in UK retail sales in 2008
and looks set to perform relatively well over time. However, we believe people will
continue to see going to the shops as an attractive leisure activity and a convenient
way to buy goods, as this year’s successful openings in Bristol and Livingston are now
demonstrating. For this reason we will pursue our strategy of investing in mixed-use
urban regeneration schemes and convenience-based schemes with good access.
However, as the market evolves over the next 12 months, we will continue taking the
tough tactical decisions required in a fast-changing environment while positioning
the business to take advantage of long-term opportunities.
Key objectives for 2009/10
■ Protect income through proactive asset management
■ Continue to make sales as appropriate
■ Identify acquisition and uplift opportunities
■
Maintain position as best-in-class for development
and customer service
Complete and maximise lettings at current developments
■
42
Business review
Retail Portfolio
■ The Elements, Livingston
This high quality extension to the existing centre opened on 16 October 2008
and is now 80% let. It has increased Livingston’s catchment area in the central
belt and moved the town up the retail hierarchy to the benefit of our other
substantial holdings at this location. The new centre provides stunning new
Marks & Spencer and Debenhams department stores and 46 other shops, leisure
facilities and restaurants, all with good parking and easy access to the motorway.
The attractive food and drink offer is proving popular with shoppers and
encourages longer stays at the centre.
■ St David’s 2, Cardiff
St David’s 2 is a development project being undertaken by St David’s Limited
Partnership – our joint venture with Liberty International. The scheme will
create a John Lewis department store – the largest outside London’s West End
– together with more than 100 new shops, 25 new cafés and restaurants, and
luxury apartments, all in the heart of Cardiff. Initial letting progress on this
scheme has been slow, reflecting both the tough environment for the retail
sector and the substantial amount of space taken up by retailers in other
schemes that opened in 2008. At year-end, however, the scheme was 46% let
or in solicitors’ hands and we expect the pace of lettings to quicken as we move
towards opening in autumn 2009. The scheme will open during a very difficult
time for the retail market but we believe St David’s 2 has excellent prospects
over the long term.
We also have a number of proposed developments which are affected by weaker
occupier demand. Our response has been to reschedule the programme for our
Trinity Quarter development in Leeds, deferring the aimed completion of this
92,000m2 scheme, depending on letting progress, to autumn 2012.
In October, The Buchanan Partnership – our joint venture with Henderson
Global Investors – received permission to increase the size of the Buchanan Galleries
shopping centre in Glasgow. And in June we secured planning permission for a
refurbishment and partial reconstruction of the St John’s centre in Liverpool.
These and other developments provide us with a strong foundation for when the
economy turns. As ever, our priority is to time our activity in line with the market
cycle to maximise returns.
Land Securities Annual Report 2009
Business review
Retail Portfolio
Retail development pipeline
2008
Cabot Circus,
Bristol
2008
The Elements,
Livingston
2009
St David’s 2,
Cardiff
2012
Trinity Quarter,
Leeds
High quality
development due
for full completion
autumn 2008.
Transformation of
retail in Livingston,
due for completion
autumn 2008.
Major mixed-use
development
incorporating urban
regeneration.
Busy city shopping
centre to be integrated
with The Plaza.
Retail development pipeline at 31 March 2009
Property
Shopping centres and shops
Developments completed
Willow Place, Corby
Cabot Circus, Bristol –
The Bristol Alliance – a limited
partnership with Hammerson
The Elements, Livingston
Developments approved and
those in progress
St David’s, Cardiff – St David’s
Partnership – a limited partnership
with Liberty International
Proposed development
Trinity Quarter, Leeds
Description
of use
Ownership
interest %
Size
m2
Planning
status
Letting
status %
Net income/
ERV
£m
Estimated/
actual
completion
date
Total
development
cost to date
£m
Forecast total
development
cost
£m
Retail
Retail
Leisure
Residential
Retail
Leisure
100
50
100
16,260
83,610
9,000
18,740
32,000
5,670
83
91
80
2
Oct 2007
17
Sept 2008
42
257
42
257
8
Oct 2008
166
166
Retail/Leisure
Residential
50
89,900
16,500
28
17
Oct 2009
240
347
Retail
75
92,000
PR
n/a
n/a
2012
n/a
n/a
Retail warehouses
Developments, let and transferred or sold
Angel Road Retail Park, Edmonton
Retail
100
3,480
100
1
Mar 2009
19
19
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 2009. Trading property development schemes are excluded from the development pipeline. Cost figures for proposed schemes are not given as
these could still be subject to material change prior to final approval.
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 financial year in which the property is added to our development programme, together with finance charges.
Net income/ERV
Net income/ERV represents headline annual rent payable on let units plus ERV at 31 March 2009 on unlet units.
Land Securities Annual Report 2009
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44
Business review
Mike Hussey
Managing Director,
London Portfolio
Watch Mike’s overview at:
www.landsecurities.com/annualreport2009
“We anticipated weaker market
conditions some time ago and
deferred the start dates for a
number of our projects. With
conditions deteriorating through
the year, we have used our
expertise and experience to
protect income, achieve sales
and position the business ready
for future opportunities.”
Mike Hussey
London Portfolio
Key objectives for 2008/09
■ Preserve income by applying asset management skills
■ Complete asset sales and recycle capital
■ Adjust development pipeline in line with market
■ Achieve planning success, especially around Victoria, SW1
■ Spot opportunities to create value through the cycle
■ Make progress on development at Ebbsfl eet Valley, Kent
■ Achieve IPD outperformance
How we create value
We aim to deliver attractive rental income streams, higher investment
values and future development opportunities over the long term by:
■ investing in and disposing of assets early in the cycle to maximise returns
■ ensuring we understand our customers’ changing circumstances,
so we can adapt and evolve our products to meet their needs
■ using a mixed-use, high quality product we mitigate risk, generate strong
demand and achieve improved rental performance
■ clustering properties so our existing assets gain from our development
work on new schemes
Land Securities Annual Report 2009
Business review
London Portfolio
Top 6 properties
1.
Cardinal
Place,
SW1
2.
New Street
Square,
EC4
3.
Queen
Anne’s Gate,
SW1
4.
Bankside
2&3,
SE1
5.
Piccadilly
Lights,
W1
6.
Portland
House,
SW1
Stunning trio of buildings
encompassing office
space and retail
accommodation. This
landmark site is home
to 24 retailers, including a
Marks & Spencer anchor
store, together with
blue-chip businesses.
Innovative offices with
retail and restaurants.
Recreating traditional
ground-level routes,
including a delightful
public square, the
property offers office
space with attractive
retail and leisure facilities.
This refurbished former
Home Office building is
now occupied by the
Ministry of Justice. It was
built by Land Securities
in 1977, to designs by
Sir Basil Spence.
A contemporary office,
retail and leisure space.
The two buildings
occupy a prime site on
the South Bank, opposite
the City and close to
the West End, served
by four major railway
termini and several
Underground lines.
Offices, retail, leisure
and a world famous
advertising landmark.
This year saw the
introduction of
enhanced LED screens
and a flagship branch
of Barclays.
This 29-storey icon of
1960s architecture is a
major element in our
regeneration of the area.
Each of the 26 floors
offers around 900m2
of open space.
Principal occupiers
Microsoft, Wellington
Management.
Principal occupiers
Deloitte, Taylor Wessing.
Principal occupiers
Government.
Principal occupiers
Royal Bank of Scotland.
Principal occupiers
Boots, Barclays.
Principal occupiers
Regus, Invensys.
Ownership interest
Ownership interest
Ownership interest
Ownership interest
Ownership interest
Ownership interest
100%
Area
47,500m2
100%
100%
Area
65,300m2
Area
30,000m2
100%
Area
38,700m2
Passing rent
£30m
Let by income
100%
Passing rent
£14m
Let by income
93%
Passing rent
£26m
Let by income
100%
Passing rent
£1m
Let by income
100%
100%
Area
7,600m2
Passing rent
£11m
Let by income
91%
Buckingham
Palace
Westminster
Cathedral
Victoria
River Thames
British
Museum
Smithfi eld
Buckingham
Palace
Westminster
Holborn
River Thames
Houses of
Parliament
River Thames
Royal
Festival
Hall
South Bank
River Thames
Lambeth
Palace
Piccadilly
Trafalgar
Square
St James’s
Park
River Thames
100%
Area
29,100m2
Passing rent
£10m
Let by income
78%
Covent
Garden
Buckingham
Palace
Victoria
SE17
River Thames
Land Securities Annual Report 2009
45
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46
Business review
London Portfolio
Our market
This year the London commercial property market experienced a structural correction
driven by a rapid weakening in UK and global debt markets and deteriorating
economic conditions.
With low levels of available debt reducing the number of buyers, the investment
market declined sharply. Equity buyers bided their time and waited for values to settle.
Good transactions could still be made, but prices were unpredictable and weakened over
the year. By year-end, values across the sector had reduced dramatically and are now
over 40% below the peak in 2007. Assets in the City suffered the greatest falls,
and this underlined the value of our strategy to spread the portfolio geographically
across the City, Midtown, central West End, Victoria, the South Bank and other key
London villages.
Wider market dynamics also impacted the occupier market. Relatively little
demand came through around lease expiries and lease events, such as break options,
with occupiers reluctant or unable to commit to relocation in such an uncertain
environment. London’s diverse mix of tenants offered partial mitigation to the
widespread downturn, with some law, accountancy and compliance organisations
providing potential for counter-cyclical demand.
Retail in London proved relatively robust. Prime West End shopping streets
outperformed the UK average significantly. As a result, our strategy of creating
mixed-use developments proved well founded. We saw negative pressure on values
for London retail properties, but there was a reasonably consistent level of demand from
occupiers for prime assets in prime streets.
Market outlook
On the investment side, relatively few buyers will re-enter the market until they feel
values have settled, although a degree of stabilisation has begun to feed through at the
end of the financial year at the prime end of the market. However, we continue to see
opportunities to achieve sales and position ourselves for future acquisitions. In the
occupational market, we are matching developments to demand for high quality space
in attractive locations. Mitigating voids will remain a priority and we will work closely
with occupiers to support each other through these tough conditions. There is a
substantial oversupply of office space in London, but, by combining flexibility on
terms with good quality product, we are well placed to compete for new tenants for
the limited space we have available.
In London, we have always responded early to market cycles and we will
continue to do the same, recycling capital to strengthen our position and maximise
potential future returns for shareholders. By taking tough decisions early we are able
to evolve with the market as it moves into the next phase of the cycle.
We have managed development carefully and have
limited space available.
Chart 34
West End and City vacancy rates (%)
16
12
8
4
0
02
03
04
05
West End
Source: Knight Frank
06
City
07
08
09
Chart 35
London offi ce portfolio1
£35ft2 – £373m2
£32ft2 – £342m2
Average rent
Average ERV
1.
Excluding voids and properties in the current development
programme.
Relative strength of prime retail in London
underlines the value of our mixed-use strategy.
Land Securities Annual Report 2009
Business review
London Portfolio
Our performance at a glance
■
■
■
Gross rental income up £10.3m (3.0%)
Property sales of £349.6m at an average of 16.6% below
March 2008 valuation (before disposal costs)
10 Eastbourne Terrace, W2, completed and 100% let;
Dashwood House, EC2, completed and 9% let
Chart 36
London Portfolio by capital value –
£5.09bn (%)
Table 37
London Portfolio valuation and
performance summary
Chart 38
London Portfolio valuations at
31 March 2009 (£bn)
31/03/09
£m
31/03/08
£m
10
Combined portfolio
valuation
Like-for-like
Investment portfolio valuation
Rental income
Gross estimated
rental value
Voids by estimated
rental value
Gross income yield
5,089.4
7,349.3
2,558.2
199.2
3,618.2
192.6
198.8
236.1
3.6%
7.7%
2.5%
5.2%
8
6
4
2
0
9
5
.
5
4
.
5
7
.
4
7
.
1
5
.
05
06
07
08
09
Chart 40
Tenant diversifi cation
(% of total income)
Chart 41
Voids and units in administration –
London offi ces (% of ERV)
Top 10 office tenants
Other office tenants
19.7
17.5
6
5
4
3
2
1
0
3
0
.
.
6
4
3
3
.
.
7
1
Central London retail
Retail Portfolio
6.5
56.3
Mar 08
Sept 08 Mar 09
Voids
Administrations
Inner London offices
London shops
Other
West End offices
City offices
Mid-town offices
Table 39
Top 10 offi ce tenants
(% of total income)
Government
Deloitte
RBS
Mellon Bank
Eversheds
Metropolitan Police
Microsoft
Lloyds TSB
Taylor Wessing
Speechly Bircham
Office other
Total (all office tenants)
The largest occupier is Central Government, which
represents 21% of the London Portfolio rent roll.
11.8
18.5
4.0
36.1
14.3
15.3
%
9.3
2.3
2.3
1.3
1.1
0.9
0.7
0.6
0.6
0.6
19.7
17.5
37.2
Land Securities Annual Report 2009
47
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48
Business review
London Portfolio
Top London Portfolio properties
—over £100m by location
WC2
1 Arundel Great Court and Howard Hotel •
W1
2 455/475 and 475/497 Oxford Street and Park House •
3 Piccadilly Lights
4 Portman House
W2
5 10/20/30/40/50 Eastbourne Terrace •
EC2
13 One Wood Street
EC4
14 New Street Square •
15 One New Change •
16 Times Square
W10
W12
W9
5
W2
4
2
W1
WC2
WC1
14
1
EC1
13
EC4
15
16
EC2
EC3
E1
W11
6
SW1
3
8 10
9
SW7
SW5
SW3
SW10
SW6
7 11
SW8
SW11
12
SE1
SE16
E14
SE11
SE17
SE10
SE18
SW1
6 50 Queen Anne’s Gate
7 Portland House
8 Eland House
9 Kingsgate House
10 Cardinal Place
11 Ashdown House
SE1
12 Bankside 2&3
Land Securities Annual Report 2009
Key
•In the development pipeline
Business review
London Portfolio
Business commentary
Overview
We did not predict the global financial crisis but we did recognise the early signs
of a slowdown in the London market some time ago and adjusted our portfolio
and development pipeline accordingly. This strengthened our position as we went
into more severe conditions from September 2008 onwards. As the environment
worsened, we accelerated the completion of developments due in the year and
adjusted the timing of some future developments.
At year-end, headline void levels in the London portfolio were at 6.8% –
a strong performance in an exceptionally difficult environment. Valuations in our
sector have been impacted heavily, however, and we have not escaped general
market movements. Our London Portfolio saw a 31.2% valuation deficit overall,
with a 35.6% deficit on office holdings and a 10.6% deficit on London retail. In
terms of rental values, London retail saw a 3.2% rise in rental values largely driven
by our asset management initiatives, but weakness in occupier demand resulted
in rental values for our London offices falling by 19.8%.
We are pleased that, despite falling values, our London Portfolio
outperformed its IPD Universe sector benchmarks with London offices
outperforming by 1.4% and London retail by as much as 5.8%. Our London
office performance was helped by the resilience of some of our assets in Victoria,
particularly those let on long leases to the Government. Our London retail assets
benefited from the positive growth in rental values created by some of our asset
management initiatives.
In recent years, growth in the financial services sector proved very attractive
to developers. We took advantage of this opportunity, but we also recognised that
growth in this area could not be sustained. As a result, we adjusted our portfolio,
moving quickly to reduce our exposure to City offices which now represent only
14.4% of our London Portfolio. In the meantime, we continued to attract a broad mix
of occupiers across a number of London’s premier villages. This diversity gave us
resilience during the year, with retail proving robust and West End assets holding up
better than those in the City.
While 16% of our occupiers were in the very hard-hit financial services sector,
Central Government remained our largest occupier, representing 21% of the London
Portfolio rent roll. We also had a substantial number of occupiers from professional
services organisations. This balanced base enabled us to generate increased income
in the year of £10.3m at £352.8m. While we would prefer to report significant
growth, this represents a sound performance.
Despite uncertainty and demanding conditions, our employees achieved
much this year. From working closely with hard-pressed occupiers to closing
transactions and achieving milestone planning approvals in Victoria, we acted
as a close-knit and highly effective team.
Sales and acquisitions
Our rationale for selling a particular asset is simple – we look to make a disposal if we
can recycle the capital into other assets with greater growth potential. This year we
sold £349.6m of properties at an average of 16.6% below March 2008 valuation
(before disposal costs), as compared to the market-wide fall in value for London
offices over the year of over 30%.
Important sales this year included:
■ Turnstile House, WC1
We completed this sale in May 2008. The property had produced good returns
for us since its conversion to an apart-hotel but it no longer fits our main focus
of activity.
■ Empress State Building, SW6, 50% share
In August we completed the sale of our holding to a 50:50 joint venture with
Liberty International. We have held the asset for a number of years but saw
limited asset management opportunities in the near future. The joint venture
with Liberty International reduces our stake while enabling us to realise further
value over time.
■ New Scotland Yard, SW1
In December we sold our freehold interest to the Metropolitan Police Authority.
As there was limited potential for us to add value to this property over the next
few years, and no further rent reviews until 2028, a release of capital offered
good value.
■ Fleet Street Estate, EC4
In January 2009 we exchanged contracts for the sale of the majority of the
estate with the rest to complete late 2009. A substantial part of the site is
occupied by the Office of Fair Trading (OFT) and we recently added value
with the extension of the OFT lease.
In terms of acquisitions, we purchased just £39.1m of investment properties.
These were strategic acquisitions required for site assembly and other purposes
around potential development sites.
Asset management
We pursued three clear asset management priorities this year. First, we focused
on addressing and minimising voids. Second, we worked to maximise short-term
income on assets targeted for redevelopment in the next cycle. Third, we continued
our work to enhance the performance of our Central London retail assets. Our
operations at the east end of Oxford Street through our joint venture with Frogmore
and our work with Piccadilly Lights were particularly effective. With Piccadilly Lights,
we have increased income by upgrading advertising signage systems and working
closely with Barclays Bank to introduce a flagship branch. Where it proved difficult to
achieve lettings, as at Thomas More Square, E1, we quickly reviewed our existing
plans and provided attractive, flexible options for potential occupiers.
Development
Having completed a number of large projects in 2007 and spring 2008, our current
development pipeline is well matched to the current economic cycle. The balance
of expenditure committed to current schemes is £258m. We have 244,950m2 of
development potential available to us over time through consented planning
applications.
During the year we completed development work and achieved 100%
occupancy at 10 Eastbourne Terrace, W2. This success was due to our ability
to respond quickly to the worsening market. We accelerated work, dedicated
considerable efforts to lettings and completed the scheme early.
At Dashwood House, EC2, we had planned to complete the refurbishment
in December 2008 but, again, responded to worsening market conditions by
accelerating work and achieving completion early, in October. Dashwood House is
not a big liability relative to the size of our portfolio and it is our only development
completed asset with significant space to let (13,290m2 or 2.1% of our total London
office income).
49
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Land Securities Annual Report 2009
50
Business review
London Portfolio
While much current work has been focused on protecting our capital, we have
one major development and two smaller development projects with committed
completion dates:
■ One New Change, EC4
Due to open in late 2010, this project will bring excellent office, retail and public
space to an historic site opposite St. Paul’s Cathedral. We have already pre-let
38% of the office space to K&L Gates for a minimum term of 15.5 years and
we have let or instructed solicitors on 25% of the retail space (by income),
with Marks & Spencer and Topshop committing to the scheme. The unique
location, quality of space and views make us confident of securing further
lettings, although the office component may reflect weaker pricing trends
in the short term.
■ Wilton Plaza, SW1
Expected to complete in May 2009, Wilton Plaza provides a vibrant mix of
market, student and affordable housing, together with ground floor retail
space. The scheme is 93% let.
■ 30 Eastbourne Terrace, W2
Strategic land portfolio
With the housing market in the South-east hit hard this year, reflected in the
write-down of our development land holdings, we have adopted a measured
approach to the development of our strategic land portfolio. The pace of works
has been slowed and we will wait for an improved lending environment before
considering a start on further construction.
Our biggest project in this sector is the urban regeneration programme at
Ebbsfleet Valley, Kent. This will ultimately transform 420 hectares of land into a
vibrant mix of residential, business, retail, leisure and public space over 25 years.
Outline planning permissions have been granted for the whole of the project.
The completed development will provide 10,000 new homes, over 640,000m2
of offices and over 320,000m2 of mixed-use space in total. This is a scheme with
immense potential but, for now, the pragmatic decision has been taken to pause
work. The economic environment has hit the housing and leasing markets hard and
we have had to adjust our targets and expectations accordingly. We have progressed
infrastructure work in preparation for the next cycle, but we will wait for signs of
better economic conditions before starting on detailed design. We remain confident
that the general lack of supply in the South-east means demand for housing will
remain strong and, as and when finance is available for homebuyers, will begin to
translate to active purchasing.
Another completion expected in May 2009, this scheme is part of our extensive
holdings opposite Paddington Station and has been refurbished to provide
4,470m2 of prime office space.
Looking ahead
There are two further projects where demolition work has commenced on site and
for which plans for developments are agreed and in place:
■ Park House, W1
This scheme will offer some of the largest office floor plates in the West End,
together with premium retail space and residential units. Demolition was
completed in December 2008. The uncertainty regarding planning permission
was finally removed in February 2009 when a High Court ruling approved
Westminster City Council’s planning consents, following a legal challenge.
Work is now taking place to assess the timescales for delivery of the scheme
which is set to be the biggest development on Oxford Street in 40 years and
the biggest office development in Mayfair in the last decade.
■ 20 Fenchurch Street, EC3
This development will offer office accommodation and retail space in a landmark
tower building in the heart of the City. Demolition and ground works are due to
complete in June 2009. We have deferred the start of construction work in line
with market dynamics.
Planning
While this year’s development and asset management activity reflected the current
economic reality, we did not stop preparing for substantial future opportunities.
We have a proven track record in design and planning, and we continued this during
the year by achieving very significant progress on planning consents.
Our VTI2 scheme received a resolution to grant permission in February 2009,
giving us the go-ahead to create some 83,200m2 of space in six buildings next to
Victoria Station, SW1. Our ‘Vision for Victoria’ is to replace outdated pockets of
post-war buildings with new offices, shops, restaurants, public amenities, open
spaces and homes. In March 2009 we received permission for two further schemes in
Victoria – Selborne House and Wellington House. Our success in Victoria is
particularly exciting as we believe this is one of the areas likely to recover quickly
as we move into the next phase of the cycle.
This year we also received a resolution to grant planning consent for the
redevelopment of 30 Old Bailey, EC4, for office accommodation and retail space.
Our proposals for Arundel Great Court, WC2, in Mid-town were refused planning
consent and we have now submitted an appeal.
In the investment market, activity will increase when buyers believe prices have
stabilised. We have seen some evidence of this recently in prime stock at smaller lot
sizes. In the occupational market, we expect that most occupiers will restrict new
activity in response to the operating environment for their businesses. We will keep
focusing on our strengths – the quality of our portfolio, our diverse tenant mix and
our skilled and experienced people. We will continue to protect our position while
preparing to take advantage when the cycle changes.
London remains a world-class city with great qualities in terms of geography,
range of property assets, skills base, culture and living conditions. This gives it an
enduring appeal to both investors and future occupiers.
The tight supply of prime assets in the West End may prove beneficial given
our extensive portfolio. We see remarkable potential around SW1, and our ‘Vision
for Victoria’ is a particularly exciting prospect. The successful Cardinal Place scheme
demonstrates our ability to revitalise this area. With VTI2 and other development
schemes approved, we have the opportunity to establish Victoria as a powerful and
vibrant part of London’s West End. We will time our developments here carefully.
Across the business, we will continue to make tough decisions and take
pragmatic action while looking to the long term. We will keep making disposals
and acquisitions as and when attractive opportunities arise. We will be flexible on
terms with occupiers while protecting our income. And we will use our strengths
to identify and exploit new opportunities. Although we are facing exceptionally
demanding conditions, our strategy has always been to address a cyclical market,
and we will act decisively to ensure we emerge in good shape from current
volatilities.
Key objectives for 2009/10
■ Protect income through active asset management
■
Maintain strong brand visibility to attract occupiers,
partners and investors
■ Continue to make sales as appropriate
■ Time development progress in line with market cycle
■
Act on opportunities to create value through the cycle
Land Securities Annual Report 2009
Business review
London Portfolio
London development pipeline
2008
10 Eastbourne
Terrace, W2
2008
New Street
Square, EC4
2008
Dashwood
House, EC2
2010
One New
Change, EC4
2013
Park House,
W1
2013
Selborne House,
SW1
Comprehensive
refurbishment, including
external envelope of the
building. In Paddington.
Innovative offices around
a public square, with
retail and restaurants.
In the Mid-town district.
Comprehensive office
redevelopment in the
City, with small retail
component. Completed.
Landmark mixed-use
development in an
extraordinary location
adjacent to St Paul’s.
Redevelopment to create
a major mixed-use
scheme. Planning
consent now granted.
Planning consent granted
for this cutting edge,
high quality mixed-use
development in Victoria.
London development pipeline at 31 March 2009
Property
Developments, let and transferred or sold
10 Eastbourne Terrace, W2
50 Queen Anne’s Gate, SW1
Developments completed
New Street Square, EC4
Dashwood House, EC2
Developments approved
and in progress
30 Eastbourne Terrace, W2
One New Change, EC4
Park House, W1
Proposed developments
Selborne House, SW1
Arundel Great Court and
Howard Hotel, WC2
20 Fenchurch Street, EC3
Wellington House, SW1
Description
of use
Ownership
interest %
Size
m2
Planning
status
Letting
status %
Net income/
ERV
£m
Estimated/
actual
completion
date
Total
development
cost to date
£m
Forecast total
development
cost
£m
Offi ce
Offi ce
Offi ce
Retail
Offi ce
Retail
Offi ce
Offi ce
Retail
Offi ce
Retail
Residential
Offi ce
Retail
Offi ce
Retail
Residential
Offi ce
Retail
Retail
Residential
100
100
100
100
100
100
100
100
100
100
100
6,150
30,140
62,340
2,980
14,110
710
4,470
30,840
19,900
15,430
8,140
5,380
23,450
1,540
36,750
2,470
22,670
61,660
2,130
250
5,650
100
100
93
82
6
100
–
38
17
–
–
–
n/a
n/a
n/a
n/a
3
July 2008
14 May 2008
33 May 2008
7
Oct 2008
2 May 2009
31
Sept 2010
22
July 2013
n/a
n/a
n/a
n/a
2013
2014
2014
2014
41
143
379
113
29
291
247
n/a
n/a
n/a
n/a
41
143
379
113
35
543
387
n/a
n/a
n/a
n/a
PR
PA
PR
PR
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 2009. Trading property development schemes are excluded from the
development pipeline. Cost figures for proposed schemes are not given as these could still be subject to material change prior to final approval.
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 financial year in which the property is added to our
development programme, together with finance charges less residential costs (totalling £109m across all categories of development).
Net income/ERV
Net income/ERV represents headline annual rent payable on let units plus ERV at 31 March 2009 on unlet units.
PA – Planning Appeal
Land Securities Annual Report 2009
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52
Board of Directors
Alison Carnwath (56)
Non-executive Chairman
Francis W Salway (51)
Chief Executive
Martin Greenslade (44)
Finance Director
Appointed as Chairman on 12 November 2008
after joining 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.
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 Officer in January
2003 and Group Chief Executive in July 2004.
Also 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.
Sir Stuart Rose (60)
Non-executive Director
Sir Christopher Bland (71)
Non-executive Director
David Rough (58)
Non-executive Director
Joined the Board as a Non-executive Director in
May 2003. Chairman of Marks & Spencer Group
plc. Chairman of Business in the Community since
2008. 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. Served as Chairman of
Land Securities Trillium until its sale in January
2009. Previously Chairman of BT Group plc and
Chairman of the Board of Governors of the BBC.
Chairman of the Royal Shakespeare Company,
Canongate Books and Leiths School of Food
and Wine.
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.
Land Securities Annual Report 2009
Board of Directors
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Richard Akers (47)
Managing Director
– Retail Portfolio
Mike Hussey (43)
Managing Director
– London Portfolio
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.
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. Trustee
of the Photographers’ Gallery and of LandAid.
Bo Lerenius (62)
Non-executive Director
Kevin O’Byrne (44)
Non-executive Director
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 Officer and Vice Chairman of
Stena Line AB. Chairman of Mouchell Group plc
and 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.
Appointed to the Board as a Non-executive
Director in April 2008. Group Finance Director
of Kingfisher plc since 2008. Previously Group
Finance Director of DSG International PLC, Chief
Financial Officer for Hemscott Publishing Group
and European Finance Director for The Quaker
Oats Company.
Land Securities Annual Report 2009
54
Corporate responsibility
Land Securities Annual Report 2009
By providing best-in-class levels of service, we can stand out from our peers
and encourage occupiers and clients to choose us as their business partner.
We are committed to taking every reasonable step to ensure the health and
wellbeing of our people, and the safety of everyone who comes into contact
with our business activities.
We employ in the region of 700 people, whose wellbeing and professional
development are crucial to our ongoing success and future growth.
By working with partners whose values and principles mirror our own,
we can maintain our high standards and minimise risk.
We encourage two-way dialogue with existing and potential investors
and analysts, to give them a better understanding of our business and
to strengthen our relationships with them.
We create civic pride and a sense of community ownership through
relationships with local government, education partners, community
organisations and residents.
The way we design, build and run our properties impacts on the world
around us, but through innovation and best practice, our developments
can be leading examples of environmental sustainability.
Corporate responsibility
55
Why corporate responsibility (CR) matters
We have a significant influence on the lives of many thousands of people across the UK, including employees,
customers, suppliers, investors and neighbours. That means we need to find a balance between the
environmental, social and economic aspects of our activities so that the positive impact we have as
a business is maximised.
Our vision is ‘bringing property to life’. We go beyond bricks and mortar, through a mixture of good design,
community engagement and first-class service, to create places where people choose to shop, are proud to
work and want to live. Put simply, we aim to be the partner, employer or provider of choice – the sort of business
people want to work with and for.
Awards and recognition
We have been included in the Dow Jones Sustainability Index each year since its launch in 2000 and are
now the global leader for sustainability in the Real Estate sector. This year Sustainable Asset Management’s
Sustainability Yearbook 2009 awarded us Gold Class and sector leader status. And Land Securities was again
voted top in the ‘property company’ category of the Britain’s Most Admired Companies survey, published by
Management Today, December 2008.
Our CR strategy
We manage our CR strategy and activities through an eight-strong CR Committee, with representatives
drawn from across the Group. Chaired by Angela Williams, our HR Director, the committee meets four
times a year to agree policies, review progress against targets and set future objectives.
In January 2009, we sold our Trillium business. This has given us the opportunity to step back and
review our approach to CR, to redefi ne our CR vision, and to focus on what we should achieve in 2009/10
and beyond. We believe good CR practices make for a stronger business, so it is essential that CR is embedded
in what we do and how we do it. The targets we set will be challenging yet attainable. By achieving them,
we will improve our performance across the business.
Our new CR strategy will be published during 2009 and will be reviewed in the next Annual Report.
During 2008/09, our activities addressed the needs of the stakeholder groups and issues outlined on
this page – Customers, Health & Safety, Employees, Suppliers, Community, Investors and Environment.
The ‘CR highlights’ content featured over the following pages focuses on three key areas, People, Buildings
and Communities, while the ‘CR performance’ section that follows analyses our CR targets and achievements.
View our Corporate Responsibility Report online at www.landsecurities.com/crreport09, which provides
even more detailed information on our CR strategy and performance.
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Land Securities Annual Report 2009
Our CR highlights in 2008/09
We believe CR is about practical, responsible and sustainable action over
the long term, using the expertise and dedication of our people to create
buildings that are good for us as a company, for our customers and for the
communities in which we operate.
People make property
From architects to builders, and investors to residents, property is all
about people. At Land Securities, we aim to attract and retain the best,
encourage and empower them to improve our business and the businesses
of our customers, and support them in achieving their personal goals.
We also like to work with like-minded partners who share our values.
Great design doesn’t guarantee great buildings
It goes without saying that good design is crucial to a good building.
But a great one needs so much more: a feel for heritage, a respect for
the environment and a supportive, collaborative owner that involves
the community to ensure its properties deliver long-term rewards for
occupiers, stakeholders and shareholders.
Modern buildings improve communities
That’s a dangerous assumption, especially if its impact on a community’s
character is overlooked. That’s why we take a long-term view. We take the
time to develop partnerships so our properties have a positive impact on
their locations, our presence is valued and we get involved in events that
bring everyone closer together.
56
Corporate responsibility
“We spend a lot of time engaging
with local authorities and others
to improve the social fabric of their
communities. If that process works
well, we have a more sustainable
investment, something vibrant,
well-integrated and enduring
for us and for local stakeholders.”
Francis Salway
Chief Executive
Land Securities Annual Report 2009
Corporate responsibility
57
People
Our intention is to be the employer of choice in the property sector. To do
that, we must attract, recruit and retain exceptional employees who will
add value to our business and our customers’ businesses. And to do that,
we need to help every one of our 700 employees to reach their full potential.
Equality
We are committed to equal opportunities and a diverse and inclusive workplace in which everyone is treated
with respect. Our adherence to the UN Declaration on Human Rights underpins all our policies, systems
and actions.
Learning and development
The vast majority of our people have a learning and development plan in place, to ensure they develop the
core skills and behaviours we need to be successful. Almost every person who took training last year reported
they were satisfi ed with the support they received.
Wellbeing
Our wellbeing programme helps employees maintain fi tness and health. Almost a quarter of our employees
have registered to use BUPA’s Positive Health online tool, which enables them to undertake a health and
wellbeing assessment and get practical advice on improving health, diet, stress, sleep and other lifestyle issues.
Employee engagement survey
This year more than four out of fi ve employees responded to our survey. Their feedback suggests we are
making progress across training, leadership, career development and community activities.
What also came through from this year’s comments was that they like the people they work with and
the jobs they do. They feel empowered to make decisions, believe the company takes corporate responsibility
seriously, and rate us highly on issues such as communication, strategy and vision.
Volunteering
Because we believe volunteering supports personal development, builds community spirit and demonstrates
our CR principles at work, we actively encourage volunteering and offer extra time off in return. This year,
326 employees (around 20% of our workforce, including Trillium) took part in volunteering activities.
We’d like that to grow to 50% by 2010.
Our regional grant programmes include our Capital Commitment Fund, which has helped 35 community
groups and projects in Southwark, Westminster, Tower Hamlets and Islington. Activities include summer play
schemes, community festivals, a trip to the seaside, homework clubs and anti-bullying workshops in schools.
Bringing our values to life
Annarose Hearsum, Gunwharf Quays’ Tenant Liaison Executive, has won the prestigious SCEPTRE Young
Achiever of the Year Award for her work on the Striving for Excellence programme. During this year-long
competition, retailers are assessed by mystery shoppers and their records scrutinised, to encourage a more
positive and memorable customer experience. Gunwharf Quays’ 2008 customer satisfaction survey revealed
that 96% of the tenants surveyed would recommend us as a landlord, with Annarose specifi cally cited by
many for understanding their needs.
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92%
The number of employees
responding to our Employee
Engagement Survey who are proud
to work for Land Securities
82%
Employee response rate
to annual survey
84%
Employees have a learning and
development plan in place
From paint pots to plant pots
During the year, employee volunteers from
our Southern Retail team helped Kids
Company, a charity that supports vulnerable
inner-city children, to paint a mural at Lark
Hall Primary School in Stockwell.
Meanwhile, the Centre Management team
at St David’s built a play area for young
visitors to Greenmeadow Community Farm
in Cwmbran. And Retail Development
employees created a garden and vegetable
patch at Kew Riverside Primary School
in Richmond.
Land Securities Annual Report 2009
58
Corporate responsibility
“Retail as a business is facing a
challenging time and more than
ever needs to be supported by a
robust approach to CR, aligning
our approach with our customers
to ensure we all benefi t. There are
no short cuts or areas that don’t
matter if we are to strive for
excellence in all that we do.”
Richard Akers
Managing Director, Retail Portfolio
9.2
Our score of 9.2 in the Corporate
Health and Safety Performance Index
(CHaSPI) placed us third overall, from
a total of 115 other UK companies
with more than 250 employees
5
Consecutive Royal Society for the
Prevention of Accidents (RoSPA)
Gold Awards
Increasing investment,
reducing emissions
Rather than investing in overseas projects to
offset our shopping centres’ emissions, we are
using the money to lower their carbon footprint
instead. The £180,000 it would have cost to
offset the 22 million kg of CO2 emissions from
our centres is being used, pro rata, to improve
energy efficiency and cut utility bills through
initiatives like harvesting rainwater and
installing low-energy, motion-triggered lighting.
Land Securities Annual Report 2009
Buildings
As a landlord, our remit stretches from providing our tenants with the
best possible service through to safeguarding the health and wellbeing
of all who come into contact with our operations. We’re never complacent
about such matters and always strive to improve our performance, but with
our Retail business winning the Property Managers’ Association 2008
Landlord of the Year title, it looks like we’re heading in the right direction.
Customer satisfaction
Happy customers are crucial to our success, and we measure customer satisfaction on three levels – overall
satisfaction, willingness to recommend and communication. In our latest annual customer satisfaction survey,
conducted among 282 participants at 15 of our shopping centres, 97% of the tenants questioned said they
would be willing to recommend us as a landlord, while all our scores for communication and responsiveness
either equalled or exceeded our highest to date.
Health and safety
Like all responsible businesses, we have a commitment to ensure the safety of staff, tenants and visitors.
We have policies and procedures in place to underpin our daily activities. We regularly report on RIDDOR
(Reporting of Injuries, Diseases and Dangerous Occurrences Regulations) accidents, events and near misses.
And we audited 153 properties last year, including those of our contractors and partners, to measure
performance across the Group and ensure our legal and contractual obligations are being met.
Our commitment extends to reminding all employees of the importance of identifying and managing
risks at work. In the last year this has involved:
■
■
■
A dedicated health and safety week
A personal health and safety e-learning course for all employees
An additional course for line managers on managing health and safety.
The training forums and safety audits that Gunwharf Quays instigated were singled out for particular praise
when it won the Gold Award for occupational health and safety from the Royal Society for the Prevention of
Accidents (RoSPA).
Cabot Circus, Bristol
leads on sustainability
Cabot Circus has been singled out as a beacon for sustainability in the retail sector, winning fi ve industry
awards since it opened in September 2008. The 92,000m2 development uses natural ventilation, saving
around 5 million kWh of energy a year on heating and cooling. Combined with one of the world’s most
advanced IT systems, low-energy ‘intelligent’ lighting and a rainwater harvesting system, this has helped
to secure an ‘Excellent’ BREEAM rating.
Cabot Circus Awards
■
■
■
British Council of Shopping Centres (BCSC)
Supreme Gold Award for 2008
BCSC Gold for large in-town retail schemes
BREEAM Retail Award
■
■
MAPIC EG Retail Award for Best Shopping Centre
of the Year
European Standard Parking Award for the safety
and customer services features incorporated into
its 2,600-space car park.
Asset management
A development with a lower carbon footprint is:
■
■
■
■
easier to gain approval for
attracts tenants with the same values as us
cheaper to run
reduces the risk of non-compliance with ever-changing environmental legislation.
One of the biggest opportunities we have for reducing our carbon footprint lies in the way we manage our
existing properties. Our London operations are recognised as leading the sector in this area, sharing both
standard procedures and best practice guidance with occupiers to improve standards, lower costs and reduce
risks for both parties.
Corporate responsibility
59
99.72%
Total waste recycled at Fremlin Walk
shopping centre in Maidstone
“We’re not just interested in
building commercial properties;
we also want to build communities.
That is why we have been
pioneering the use of art and other
improvements to the public realm
to transform sites such as Bankside
into places to be enjoyed by all.
And why we give fi nancial support
to many local groups and charities
through our recently enhanced
Capital Commitment Fund.”
Mike Hussey
Managing Director, London Portfolio
£340,093
Total charitable and community
investments and donations made
by Land Securities Group and its
businesses in 2008/09
Land Securities Annual Report 2009
One area where our London business leads the way is in devising energy management plans. With every
development, we share such a plan with occupiers, and agree who is responsible for what aspects of energy
performance. For example, we developed a plan for Eversheds LLP, the occupiers of One Wood Street, so that
they can minimise the impacts of their operations. In turn, they will supply us with energy and water use
data, which we can use to shape future schemes.
We have also been working closely with the Better Buildings Partnership’s Green Leases Working Group,
which has developed a set of principles and recommendations that allow landlords and occupiers to reduce
their buildings’ carbon footprint and improve their sustainability. These guidelines are currently being trialled
at New Street Square, EC4.
Waste
Reduce, recycle, reuse – all are viable options when it comes to managing waste, and all of our centres already
recycle cardboard, wood, plastics and metal.
At Fremlin Walk in Maidstone we wanted to go one step further and recycle all the waste it generated
– and we are very nearly there. For example, food waste from the centre’s restaurant and coffee shops now
goes into biodegradable bags, which are mulched, turned into compost and used to fertilise produce and
improve soil on local farmland. This is a great replacement for expensive and environmentally impacting
fertilisers, and it’s a wholly local operation.
With this food waste trial, 99.72% of all Fremlin’s waste is now being recycled, with the only shortfall
being sanitary waste.
Sustainable materials
To paraphrase Henry Ford, you can have a Land Securities building in any colour – as long as it’s green. All our
projects are aligned with our ISO 14001-certifi ed environmental management system, which ensures we’re
operating within the law, and in line with our own policies and targets.
Externally, a BREEAM rating of ‘Very Good’ is a minimum for us, but we like to push the boundaries
further when we can. By using sustainably sourced, low-impact materials and collecting rainwater for reuse,
our Bristol and Livingston retail centres both achieved ‘Excellent’ ratings in 2008, as did the renovation of
Dashwood House in the City of London.
Communities
Strong relationships are the lifeblood of any community, and we work
hard to ensure we play our part as a long-term partner. We start to forge
these relationships well in advance of the planning process, because
we want our schemes to foster a sense of local ownership and civic pride.
Planning and consultation
We never undertake a major scheme without listening to those likely to be affected by it. Residents can have
concerns about disruption from building works or additional pressures on parking, but we take all views on
board and try to address them appropriately.
For example, our plans for the 2.5-hectare Victoria Transport Interchange development incorporated
feedback from local residents, council representatives and the Greater London Authority, and were given the
green light by Westminster City Council. But even then, the project came in for considerable public scrutiny,
so we held a four-day public exhibition including models, video presentations, traffi c modelling and an
information pack to give everyone a chance to fi nd out more and infl uence the fi nal design.
Design and the public realm
We feel strongly that our developments should improve and enhance the public realm, so we design schemes
that incorporate eye-catching views and open vistas. In the past, buildings were often designed to look
imposing and keep the public out, but that time has passed. Today’s schemes incorporate a mix of residential,
retail and offi ce use so that they can be a productive place of work by day and a safe, restful home by night,
as well as provide room to breathe, public access and even somewhere to shop.
Buildings can create a new sense of place and community, as illustrated by New Street Square,
where an eye-catching combination of design and public art have created a more welcoming and accessible
environment. A public art strategy for the area was agreed back in 2005, and commissions from two artists
have been installed since the scheme’s opening. Jonathan Clarke’s freestanding sculptures act as a focal point
to draw the public through to the new pedestrian arcade, and provide elements to lean against or sit on.
Suspended from a canopy running the length of the arcade, Ron Haselden’s ‘Day and Night, Night and Day’
is a tapestry of curved neon lights, each of which can be programmed to change, through an infi nite number
of colours, by workers in the surrounding buildings.
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60
Corporate responsibility
ARISE and shine
We are forging partnerships to help make our
communities better places in which to live and
work. In Leeds, for example, we have provided
100 financial grants to local groups through
ARISE, a powerful charitable alliance between
Land Securities and other socially responsible
businesses. The initiative is focused in south
Leeds, where our White Rose shopping centre
is located. Each company contributes £8,000
a year to a fund, which is then divided among
organisations applying for financial support.
Create – the 100th organisation to receive a
grant from ARISE – has used its funds to provide
ex-offenders and homeless people with work
experience, skills training and employment
opportunities in food production.
Mystery shopper surveys
Four of our shopping centres scored an
exceptional 100% in mystery shopping
surveys in 2008. The Retail Eyes’ Impressions
scheme gave perfect scores to White Rose
in Leeds (in two consecutive years), The Centre
in Livingston, The Bridges in Sunderland and
Princesshay in Exeter.
£500,000
Community investment through
our Capital Commitment Fund
over four years
2,500
Visitors to our Victoria Transport
Interchange exhibition
Land Securities Annual Report 2009
Each ‘design’ is intended to stay in place for some time, providing a restful, silent work that gives the onlooker
time to refl ect on it.
Meanwhile, at Cabot Circus, Bristol, visitors will see ‘Twist’, a 65-foot, wind- and solar-powered
illuminated tower that forms part of a city-wide public art programme, and at Princesshay, there are four
permanent commissions celebrating the historical importance of Exeter.
Space for art
We are helping to address the shortage of affordable studio space in the capital through the Land Securities
Studio Award. This new, annual awards scheme will provide three promising young artists with rent-free
studio space in London for a year, a cash bursary and an exhibition featuring their work.
Community investment – Retail
Our retail schemes are a signifi cant source of local employment, which can contribute to the vibrancy of the
community. In Bristol, the development of Cabot Circus generated 3,500 construction jobs and over 4,000
permanent posts, from cleaners and caterers to security staff and sales assistants. By teaming up with West
at Work, we were able to provide job seekers with free confi dence-building courses, CV and job application
workshops, specialist retail training events, a dedicated vacancies website and the ‘Cabot Circus Jobs Bus’.
Shopping centres are also ideal places to give young people interested in retail careers a chance to
develop their skills and knowledge. For example, Buchanan Galleries, Glasgow co-runs a Retail Academy.
Participants are guaranteed work placements, interviews and other assistance by the centre and its retailers,
and most go on to get full-time jobs.
Our many other mentoring schemes and work placements include:
■
Supporting the Construction Youth Trust by hosting site visits for ‘Diploma in Construction and the Built
Environment’ students and holding career events, where students are able to discuss their plans with
industry professionals.
The national Young Enterprise scheme, where our Retail staff help young people to learn about business by
running virtual companies.
■
Our Community Link programme fosters close working relationships between our centre management teams
and key stakeholders such as schools, encouraging them to support curriculum-based activities by working
alongside local businesses. At White Rose in Leeds and Stratford Centre in London we also run study support
centres for students.
Community investment – London
Long-term commitment to communities underpins Land Securities’ investments in London. Over the last four
years, Land Securities has contributed over £500,000 to its own Capital Commitment Fund, which has been
used to help over 100 community groups. In 2008, these included Westminster Befriend a Family, which used
its grant to take 200 underprivileged families to Brighton for the day, giving vulnerable and disadvantaged
children a chance to enjoy a trip to the beach – many for the fi rst time.
During the year a review was undertaken to identify areas of improvement for charitable giving which
would enable the delivery of a strategic and coordinated approach, one that would help align our objectives
with the wider aspirations for central London Local Authorities and the Greater London Authority. The review
also informed our decision to restructure the Capital Commitment Fund into two strands, one a fl ow through
programme benefi ting groups in Tower Hamlets, Islington, Camden and Southwark. The second, the creation
of the Westminster Fund, an endowment fund established with our community partner, the Capital
Community Foundation, to benefi t community groups for many years to come.
Our investment will now be targeted at the areas in most need and in support of the most vulnerable
groups. All charitable giving will be based on three thematic criteria – Education, Housing/Homelessness and
Young people – and will be assessed via a new Corporate Community Investment Panel.
Be seen, be safe!
In January 2009, St John’s and Clayton Square shopping centres in Liverpool joined a city-wide campaign
to reduce road accidents involving children on bikes. Working in partnership with the City Council’s Road
Safety Unit, the police, the fi re service and local radio, we enabled food outlets at both centres to hand out
free high-visibility armbands and ‘slap wraps’ designed to make children more visible in the dark.
Corporate responsibility
61
Our CR performance in 2008/09
Target
Environment
% achieved
Design all new Group developments to be 20% below the prevailing Building Regulation
requirements for CO2 emissions
N/A
Refl ecting economic conditions,
all schemes that were planned to
commence on site were postponed.
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
92%
100%
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
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 Trillium’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
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
No scheme was at such an advanced
stage that we were able to measure
biodiversity enhancements.
N/A
N/A
No projects were at the appropriate
stage of design.
100%
100%
100%
94%
96%
86%
100%
100%
Ensure that Trillium’s managed PPP projects are certifi ed to ISO 14001 within the scope
of its Environmental Management System
N/A
Due to the sale of Trillium
the measurement was unable
to be completed.
Refi ne the environmental benchmarking process for managed offi ces and shopping
centres to facilitate meaningful comparisons
100%
Land Securities Annual Report 2009
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62
Corporate responsibility
Our CR performance in 2008/09
Target
Procurement
Recruit 10% of all new catering and cleaning staff into the Trillium 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
Community
Exceed the value of community investment achieved in 2007/08 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
% achieved
100%
100%
100%
96%
100%
Pilot a web-based learning system to deliver community-based safety awareness training
to schools in communities in which the Group operates
25%
Budgetary demands over the life of the
project meant that this has been halted.
Develop a structured Work Experience programme in Trillium which can be made
available to schools in the Trillium portfolio
Introduce, to a minimum of 10 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 development sites to
support a range of training and skills development initiatives aimed at promoting local
employment
Employees
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’
100%
100%
100%
100%
100%
93%
100%
100%
Land Securities Annual Report 2009
Corporate responsibility
63
63
Our CR performance in 2008/09
Target
Customers
% achieved
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
100%
100%
Develop a customer service improvement plan for each Public Private Partnership (PPP)
project managed by Trillium
N/A
This target was deemed non-applicable
due to the Trillium sale.
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 3.8 in the annual London offi ce
portfolio survey
Achieve an overall customer satisfaction rating of 3.85 in annual shopping surveys
undertaken by Retail
40%
100%
100%
Achieved on two out of fi ve measures.
Although the other three saw improvements,
progress was assessed at 40%.
In response to customer requests develop and pilot a Sustainability Guide
for retailers
75%
Draft guide produced, expected to be
published in 2009.
Investors
Conduct separate surveys of investors and analysts in order to 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
Increase from 10% to 15% the number of investors subscribing to e-communications
Health & Safety
Certify one further workstream or business activity to the international standard
OHSAS 18001 for Health and Safety Management Systems
Benchmark against the Health and Safety Executive’s Corporate Health and Safety
Performance Index (CHaSPI), and achieve a top 10% 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
One meeting in the year with the
economic downturn hampering the
engagement process.
Currently 11.5% of investors signed
up to e-communications. To sign up
for e-communications go to
www.shareview.co.uk
100%
20%
30%
100%
100%
75%
All Group businesses were monitoring
by the end of the year
Create an environment in which 50% of employees believe their health and
wellbeing is supported
100%
Land Securities Annual Report 2009
Land Securities Annual Report 2009
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64
Corporate governance
Introduction
The Directors consider that the Company has complied
fully 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 2009. 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, www.landsecurities.com 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 financial 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 defined written limits of delegated
authority across the Group.
Key matters reserved to the Board include:
■
authorisation of significant transactions in excess
of £150m
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
buybacks
treasury policy and significant fundraising
appointment/removal of Directors and
Company Secretary
■
■
■
■
■
■
■
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 its 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 five-year forecasts, the
annual budget and business plan and the balanced
scorecard, all of which are designed to support
the Company’s strategy.
■
Land Securities Annual Report 2009
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.
■
■
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 half-yearly and
final 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
Responsibility matters.
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.
The Chairman is also responsible for ensuring effective
communication with shareholders and making sure
that all Board members are aware of the views of
major investors.
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,
four Executive Directors and five Non-executive
Directors. David Rough is the Senior Independent
Director. The Board regards each of the five Non-
executive Directors as being independent and the
Chairman was independent at the time of her
appointment to that position. The Board is satisfied
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.
The Company Secretary, through the Chairman,
is responsible for advising the Board on governance
matters and for ensuring good information flows
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.
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 briefings 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 first 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 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
benefit the Company. As a matter of policy such
appointments are normally limited to one Non-
executive Directorship.
Corporate governance
65
Board performance evaluation
The formal annual evaluation of the performance
of the Board, its Committees and individual Directors
was undertaken in early 2009. 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 identified 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, at 31 March
2009, comprised the Chairman, Sir Christopher Bland,
Sir Stuart Rose, 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.
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 sufficient
time to fulfil their duties.
In addition, following the resignation of Paul
Myners as Chairman on 3 October 2008, two meetings
of a specially constituted Nominations Committee
took place to identify a successor to the position of
Chairman. A firm of external search consultants was
used to identify and help assess potential external
candidates who were then benchmarked against internal
candidates. As a result of this process Alison Carnwath
was appointed Chairman on 12 November 2008.
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
specified terms of office, after first 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.
When considering candidates the Committee
uses objective criteria and all appointments are made
on merit.
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 68 to 79.
Conflicts of interest
A new statutory duty on Directors to avoid conflicts
of interest with the Company came into force in
October 2008. The Company’s Articles of Association
were amended in July 2008 to allow the Directors to
authorise conflicts of interest. The Board has adopted
a policy and effective procedures for managing and,
where appropriate, approving conflicts or potential
conflicts of interest. Under these procedures, Directors
are required to declare all directorships or other
appointments to companies which are not part of the
Land Securities Group and which could give rise to
conflicts or potential conflicts of interest, as well as
other situations which could give rise to a potential
conflict of interest.
Table 42
Attendance at Board and Committee meetings
The number of principal Board and Committee meetings attended by each Director during
the financial year was as follows:
Paul Myners (resigned 3 October 2008)*
Alison Carnwath
Francis Salway (Chief Executive)
Martin Greenslade
Ian Ellis (resigned on 12 January 2009)*
Mike Hussey
Richard Akers
David Rough (Senior Independent Director)
Sir Stuart Rose
Bo Lerenius
Sir Christopher Bland
Kevin O’Byrne
Rick Haythornthwaite*
(resigned on 5 February 2009)
Board
(9 meetings)
4/4
9/9
9/9
9/9
6/6
8/9
9/9
9/9
7/9
9/9
8/9
8/9
7/7
Audit
Committee
(5 meetings)
Nominations
Committee
(2 meetings)
Remuneration
Committee
(2 meetings)
1/1
2/2
–
–
–
–
–
2/2
2/2
2/2
–
–
–
–
4/4
–
–
–
–
–
5/5
1/1
5/5
–
4/4
3/3
1/1
1/1
–
–
–
–
–
–
1/2
2/2
2/2
–
1/1
*Actual attendance/maximum number of meetings a Director could attend as a Board/Committee member
Land Securities Annual Report 2009
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Details of the amounts paid to PwC are set out in
note 7 to the financial statements. The level of
non-audit fees has risen over the last two years as a
consequence of the disposal of Trillium, the proposed
demerger and the Rights Issue. The Committee would
expect that the level of such fees will fall in 2009/10.
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 2008/09
valuation process.
In line with the Carsberg Committee report
we have a fixed 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 satisfied
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.
The Committee met five times during the year.
The Audit Committee Chairman invited other
Group Board Directors to attend from time to time.
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 also holds a risk workshop
on an annual basis, to which all Directors are invited,
at which risks to the business, together with potential
mitigations, are raised and reviewed.
The Committee undertook the following
activities at these meetings:
■
■
■
■
■
■
■
reviewed the half-yearly and final 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,
significant findings, 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 67 for more details)
reviewed reports on the Group’s risk management
measures and actions
in conjunction with the Board appraisal detailed
on page 65, 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 Chairman of
the Audit Committee of non-audit work above a
de minimis threshold level of £25,000. 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
due diligence and related advice in relation to the
proposed demerger
due diligence work in relation to the disposal
of Trillium
work, as required by the Listing Rules, in relation
to the Rights Issue
66
Corporate governance
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 final and half-yearly results meetings
to which investors were invited and his attendance
is notified 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 2009.
In relation to private shareholders, we actively
encourage feedback and communication, both on the
Annual Report (page 144), at the Annual General
Meeting and through regular meetings with the
United Kingdom Shareholders’ Association (UKSA).
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
At 31 March 2009, membership of the Audit
Committee comprised Kevin O’Byrne (Chairman
of the Committee), David Rough and Bo Lerenius.
Kevin O’Byrne replaced David Rough as Chairman
of the Committee on 1 January 2009. Although all
of the Committee members are considered to be
appropriately experienced to fulfil their role,
Kevin O’Byrne is considered as having significant,
recent and relevant financial experience in line with
the Code. Further details of each of the independent
Directors are set out on pages 52 and 53. 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)
financial reporting
Land Securities Annual Report 2009
Corporate governance
67
Chart 43
Risk management process
1.
Identify risks
5.
Report risks and
mitigation to Board
2.
Assess and
quantify risks
We contextualise
risk in terms of our
goals and objectives
4.
Re-assess risks
post mitigation
3.
Develop action plans
to mitigate risks
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Internal control
The Board is responsible for the Group’s system of
internal control and for reviewing its effectiveness.
Such a system is designed to manage rather than
eliminate the risk of failure to meet business objectives
and can provide only reasonable and not absolute
assurance against material misstatement or loss.
The Board confirms 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 Annual Report and financial statements.
The key features of our system of internal
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.
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: profitability, cash flow and
capital expenditure are closely monitored and key
financial 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 defined guidelines
and approval limits for capital and operating
expenditure and other key business transactions
and decisions. Operational and financial 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 43. 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.
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 confidential 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 financial,
operational and compliance controls and risk
management and no significant 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 identified 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 identified 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
quantification of selected risks.
■
■
■
The Board confirms that no significant failings or
weaknesses have been identified from that review.
Land Securities Annual Report 2009
68
Directors’ remuneration
introduction
Dear fellow shareholder,
I would like to introduce our Directors’ remuneration report for 2009.
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 strongly believe that a
remuneration policy should be aligned to shareholders’ interests and 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.
David Rough
Chairman, Remuneration Committee
Who serves on the Remuneration Committee?
The Committee is chaired by David Rough (Senior Independent Non-executive Director) who replaced Alison
Carnwath as Chairman of the Committee upon her appointment as Chairman of the Company in November
2008. The other members are Alison Carnwath and independent Non-executive Directors Sir Stuart Rose
and Bo Lerenius. The Human Resources Director provides information and advice to the Committee
and takes independent advice from specialist advisors. The Chief Executive and Human Resources Director
are invited to attend meetings but no Executive Director is involved in any decisions relating to their
own remuneration.
What are the Company’s 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 reflect an individual’s consistent performance and contribution to the business, as defined and
decided by the Remuneration Committee. We aim to pay salaries at a mid-market level. Please see page 74
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 52 and 53 on pages 74 and 75 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 pages 71 and 72 for more on long-term incentives.
Land Securities Annual Report 2009
Directors’ remuneration introduction
69
What were the Executive Directors paid this year?
The Executive Directors received only their base salary in the year. There were no bonus payments, except to
Ian Ellis on the completion of the sale of Trillium, and there will be no pay rises.
Table 44 details the salaries and annual bonuses given to our Executive Directors this year.
Why are there no bonuses or salary increases for the Executive team
this year?
Our standard policy is that annual bonuses are calculated according to specific criteria for each individual
relating to aspects of performance that they can influence directly such as performance against an independent
industry benchmark.
Salary levels are set according to market salary levels and the specific role of each Executive Director and
are not linked to the Company’s profits in any given year.
Relative performance meant that the Executive Directors would have been entitled to some bonus this year,
however in view of the current market circumstances and its impact on the performance of the Company, the
Board and the Remuneration Committee agreed that it would not be appropriate for the Executive Directors to
receive salary increases or bonuses at the present time. Under the Long-term Incentive Plan (LTIP) the Executive
Directors will qualify to receive a proportion of vested shares for meeting set performance conditions over the
course of the relevant three year period in line with the Scheme’s rules (see pages 71 and 72). Ian Ellis, who is no
longer a Director of the Company, received a bonus as part of the sale process of Trillium.
Has that been applied across the Company?
We have awarded salary increases in the business but generally only to those employees on lower grades in the
organisation where we felt it would be unfairly detrimental to their standard of living to receive no pay rise.
The average of this increase was 1.1% across the Group.
With regard to bonuses, we have paid bonuses in the organisation but on a much smaller scale than recent
years. This decision was taken because as a business we felt that despite the unprecedented market conditions
that impacted the whole sector we need to retain and motivate our people and reward them for some excellent
work in challenging circumstances. However, to reflect the current market circumstances and performance of
the Group the overall bonus payment was 59% down against last year on a comparable basis after adjustment
for the sale of Trillium.
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. In addition, all Executive Directors must, within five
years of joining the Board, own shares with a value of at least 1.5 x basic salary – and for the Chief Executive
2.0 x basic salary – to ensure their interests are aligned with those of shareholders.
How has the Rights Issue been refl ected in the Executive Directors’ share
incentive awards?
As envisaged by the rules of the relevant schemes, awards held by all employees under the Group’s share schemes
were adjusted as part of the Rights Issue so that the value of their awards was maintained at a constant level.
In the case of certain of these schemes, the adjustments were reviewed by the Group’s auditors and approved
by HM Revenue & Customs.
For the Executive Directors this meant that for any outstanding share option and LTIP Performance and
Matching Shares there was an adjustment made to the number of shares and to the award or option price to
reflect the impact of the rights. The value of the shares awarded following these adjustments remains equal to
the value of the originally awarded shares.
With regard to pledged co-investment shares which the Executive Directors had to acquire prior to the
granting of Matching Share awards, they were required to purchase the rights on their original purchased shares
in the scheme in order to trigger the increase in the Matched Share award following the Rights Issue.
How much do you pay Non-executive Directors?
We pay a base fee and in 2007 this was set at £55,000 for two years. Non-executive Directors are paid further
amounts for specific duties and responsibilities, such as chairing a Board committee, but are not paid additional
fees for attending Board Committee meetings. Please see Table 55 for more information on what we paid our
Non-executive Directors this year.
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Table 44
What was the Executive Directors’
remuneration for 2008/09? (£’000)
F W Salway
I D Ellis†
M R Hussey
R J Akers
M F Greenslade
†Resigned 12 January 2009
Salary and
benefi ts
Annual
bonuses
662
348
450
388
429
–
130
–
–
–
Land Securities Annual Report 2009
70
Directors’ remuneration report
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 Directors’ 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 16 July 2009.
PricewaterhouseCoopers LLP has audited
Tables 55, 56, 57, 59 and 60 and associated
footnotes.
Members of the Committee
The Committee was chaired by Alison Carnwath
between 1 April 2008 and 12 November 2008 and
thereafter was chaired by David Rough. The other
members of the Committee are Alison Carnwath
(Chairman of the Board who was an independent
Director at the time of her appointment as Chairman),
and independent Non-executive Directors Sir Stuart
Rose and Bo Lerenius. Details of the membership of
the Committee throughout the year to 31 March 2009
are as follows:
David Rough – Chairman from 12 November 2008
Alison Carnwath – Chairman to 12 November 2008
Paul Myners – resigned on 3 October 2008
Sir Winfried Bischoff – retired on 1 April 2008
Sir Stuart Rose
Bo Lerenius
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 her own
remuneration is discussed), Executive Directors
and senior managers
To oversee any significant changes to employee
benefits, 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 2009
2008/09 Directors’ remuneration
Executive Directors’ remuneration comprises:
■
Fixed pay, including basic salary, together with
pension payments/contributions and benefits
in kind; and
Variable pay, comprising:
■
— annual bonus
— long-term incentives.
Advisors to the Committee
The 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 Chief Executive and 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 65, 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 outperform industry performance benchmarks.
A summary of the principal components of Executive
Directors’ remuneration is set out below. Chart 45
illustrates the balance between fixed and variable
pay at the target and maximum performance levels,
assuming maximum participation in the Long-term
Incentive Plan (LTIP). This information reflects the
policy that operated during the year under review
and there was no change in the balance between
fixed and variable pay during that period.
The Group’s remuneration policy is reviewed
regularly, along with the balance between fixed 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 9. Tables 52 and
53 show how these elements are aligned.
During 2008/09, no changes were made either
to the bonus arrangements or to the share incentive
plans for Executive Directors. For LTIP grants made
from June 2009, the Remuneration Committee has
decided to make some changes to vesting conditions
to improve alignment of executive incentives with
shareholder interests. Previously, EPS growth has
governed the vesting of half the LTIP grant. However,
following Trillium’s departure from the Group, the EPS
measure is less relevant, and will be replaced by a
relative Total Shareholder Return (TSR) measure.
Specifically, Land Securities’ three-year TSR
performance (share price increase plus reinvested
dividends) will be compared against the TSR
performance of an index of a comparator group of
FTSE 350 Real Estate Companies, weighted based on
their market cap at the beginning of the performance
period. If Land Securities’ TSR performance is below
this index, this portion of the LTIP grant will lapse in
full. If Land Securities matches the index, 30% of this
Chart 45
What was the balance of fi xed
versus variable pay? (%)
Chart 46
TSR Performance Condition
(% of overall LTIP grant vesting)
Target
Maximum
0
20
40
60
80
100
Basic salary (excluding pension contributions and benefits)
Performance related bonus
Value of shares vesting
Source: Organisation
Payout
50%
15%
0%
4%
(% p.a. above weighted index of comparator companies)
Directors’ remuneration report
71
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 is 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.
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. 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 £500,000 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.
After taking into account market conditions
and the share price performance of the Group, the
Committee determined that no bonus payments
should be made to the Executive Directors in respect
of the financial year to 31 March 2009, with the
exception of Ian Ellis who received a bonus in
connection with the sale of Trillium.
The actual total bonus payouts, inclusive of
the additional bonus opportunity described above,
that were earned in respect of the financial year
ended 31 March 2008 are set out in Table 54.
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 2008/09. 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.
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portion (i.e., 15% of the overall grant) will vest. Full
vesting will occur if Land Securities’ TSR beats the
index by 4% per annum or more, with straight-line
vesting in between these points. Chart 46 shows
the vesting range.
The Committee may amend the list of
comparator companies in the Sector Index, and
relative weightings, if circumstances make this
necessary (for example, as a result of takeovers or
mergers of comparator companies or significant
changes in the composition of the Group).
Vesting conditions for the other half of the
LTIP grant, based on Total Property Return (TPR)
performance relative to a weighted TPR benchmark,
are unchanged.
■
Basic salary
Executive Directors receive a salary which reflects 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. After taking
account of market conditions, the Committee decided
that the Executive Directors should not receive a
salary increase to take effect from 1 July 2009.
The current salaries of the Executive Directors
are as shown in Table 51.
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.
The Committee calibrates 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 53.
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.
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. Any payout for
beating the IPD benchmark by more than 2%
is conditional upon the relative performance
in that year and the prior year exceeding the
IPD benchmark.
For example:
— In year one performance is 1% below the
IPD benchmark
The annual bonus opportunity was structured
— In year two performance is 3% above the
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 52.
IPD benchmark
— Payout for year two is based on performance
in that year as the aggregate performance over
the two years is at least equal to the
benchmark.
Chart 47
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 2009
72
Directors’ remuneration report
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 57.
LTIP Matching Shares
Matching share awards are linked to co-investment
by participants in shares Table 57.
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
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 two for one 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.
Awards of LTIP Performance Shares and
Matching Shares are subject to the same performance
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 reflect the sector mix of Land Securities’
investment portfolio. The targets:
■
— Growth of RPI + 3% per annum – 12.5%
NADEPS target
of the award vests;
— Growth of RPI + 5% per annum – 50%
of the award vests; and
— Straight-line vesting occurs between
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 47.
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 financial year are shown in Table 57.
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 Benefit Trust which
held 887,914 shares at 31 March 2009.
While awards of LTIP Performance and
Matching Shares are normally made in July of each
year, as a consequence of the Executive Directors
being ‘insiders’ and prohibited from being granted
share awards until the conclusion of the Rights Issue
in March 2009, such awards were not made to
■
■
Land Securities Annual Report 2009
the Executive Directors until 30 March 2009.
Notwithstanding the considerable fall in the
Company’s share price between July 2008 and
March 2009, the Committee decided that the
awards made in March 2009 should be based on the
share price prevailing in July 2008 (as adjusted for
the Rights Issue in March 2009) in order to maintain
a consistent approach and comparability with
employees below Board level who were granted
share awards in July 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 60.
Directors’ emoluments
Tables 55 and 56 set out Directors’ emoluments
for the year under review and the financial 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 financial year under review. The
Performance Shares 2007/08 column includes the
value of Performance Shares which vested in July 2008
as a result of performance measured over a three year
period ended 31 March 2008.
Ian Ellis resigned from the Board upon the sale
of Trillium on 12 January 2009. Under the terms of the
Company’s share incentive schemes, which provide
for cases where a participant’s employment is with
a company or business which is sold or transferred
outside the Group, he received the following:
■
Shares with a market value of £367,025 as a
consequence of the early vesting of awards made
in 2006 and 2007 of LTIP Performance Shares
and LTIP Matching Shares under the LTIP. These
awards were subject to pro-rating in respect of
the relevant performance conditions and to time
pro-rating to the next six month anniversary from
the date of the grant, as specified by the rules of
this Plan
Shares with a market value of £534,632 awarded
under the Deferred Bonus Plan as a consequence
of the early vesting of these awards – the value
has previously been disclosed in the Directors’
emoluments table in the year of award
A cash amount of £87,176 in respect of deferred
shares which would have been awarded in July
2008, if the Company has not been precluded
from granting such awards as a consequence of
the Directors being ‘insiders’ between July 2008
and January 2009. This amount was previously
disclosed under the heading of Deferred bonus
shares in 2007/08.
In addition, the Committee determined that a bonus
of £130,410 representing 30% of salary should be paid
to Ian Ellis in recognition of his role in securing a sale of
Trillium in extremely challenging market conditions.
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 benefits on a defined benefit 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 benefit that is
equivalent to 25% of their base salary. Executive
Directors have the flexibility to determine how this
25% of salary benefit 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 defined benefit
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 benefits 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 benefits 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 defined benefit 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 benefits 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 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 the base Non-
executive Directors’ fees were awarded during the
Directors’ remuneration report
73
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 specific responsibilities:
Chair of Audit Committee
Chair of Remuneration Committee
Senior Independent Director
£17,500
£12,500
£7,500
Sir Christopher Bland served as Non-executive
Chairman of Trillium until its sale on 12 January 2009
and received additional fees of £100,000 per annum
in respect of that role. Neither the Chairman nor the
other Non-executive Directors receive any pension
benefits from the Company, nor do they participate
in any bonus or incentive schemes. 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 48.
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 48
When were the Non-executive
Directors appointed?
Name
D Rough
Date of
appointment*
Date of
current letter
of appointment
2 April 2002
29 April 2004
Sir Stuart Rose
21 May 2003
29 April 2004
B A Lerenius
1 June 2004
6 May 2004
A J Carnwath
1 September 2004 13 November 2008
Sir Christopher Bland
1 April 2008
9 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.
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 benefits 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 49.
Table 49
When were the Executive
Directors appointed to the Board?
Name
Date of
appointment*
Date of
contract
F W Salway
2 April 2001
31 May 2001
M F Greenslade
1 September 2005
1 September 2005
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.
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 2009 are shown in Table 58.
There have been no changes in the
shareholdings of the Directors between the end of the
financial year and 12 May 2009, save that on 30 April
2009 Alison Carnwath acquired 170 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
significant 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
five 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.
In May 2007, the Committee determined that
Francis Salway 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 20 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 financial 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 16% to 54% of salary,
with an average bonus of 27% of salary.
Performance graphs
As required by legislation covering the Directors’
remuneration report, Chart 50 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 five 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 five years of the Company Chart 50.
Signed for and on behalf of the Board by
David Rough
Chairman, Remuneration Committee
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Land Securities Annual Report 2009
74
Directors’ remuneration report
Chart 50
Historical TSR performance.
A hypothetical £100 holding over fi ve years
i
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d
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l
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1
£
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£250
£200
£150
£100
£50
£0
184
172
144
211
210
157
161
150
138
128
117
126
04
05
06
07
08
Land Securities Group PLC
FTSE All-Share Real Estate Index
FTSE 100 index
Note: Comparisons to indices based on 30 trading day average values
Source: Datastream
103
53
47
09
Table 51
What are the Executive Directors’ salaries?
F W Salway
M F Greenslade
M R Hussey
R J Akers
Current
From 1 July 2009
£645,000
£645,000
£414,000
£414,000
£434,700
£434,700
£372,600
£372,600
Table 52
What were the criteria for the Directors’ 2008/09 bonuses?
F W Salway
—Total returns in excess of WACC
M F Greenslade
—Total returns in excess of WACC
M R Hussey
—Total returns in excess of WACC
R J Akers
—Total returns in excess of WACC
Group profi t
Group profi t
Performance of
all business units
Performance of Group
support functions
Disposal programme
Trillium disposal
Group profi t
Investment performance
Business unit revenue profi t
Group profi t
Investment performance
Business unit revenue profi t
Land Securities Annual Report 2009
Directors’ remuneration report
75
Table 53
What were the targets for the Directors’ additional bonus opportunities?
Executive Directors
Performance measures and range
Managing Director
of the Retail Portfolio
2%–4% outperformance of the relevant Retail business total property return
(TPR) Benchmark1
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
Finance Director
Chief Executive
Effective delivery of demerger or, if higher, aggregated performance of London
and Retail Businesses relative to the above measures
50% on effective delivery of demerger and 50% on aggregated performance
of London and Retail Businesses relative to the above measures or, if higher,
wholly on the latter measure
1.
The relevant sector benchmarks are provided by IPD and relate to ungeared total property return (reflecting 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 office lettings in excess of 4,600m2 at Ebbsfleet Valley, Kent, subject to profitability criteria.
Additional bonus
0%–200%
0%–200%
0%–200%
0%–200%
Table 54
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
% of year end salary
Total bonus
earned 2008/09
Total bonus
earned 2007/08
0
0
0
0
212
210
275
285
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Land Securities Annual Report 2009
76
Directors’ remuneration report
Table 55
What emoluments did Directors receive? (£’000) (audited)
Executive:
F W Salway
I D Ellis3
(resigned 12 January 2009)
M R Hussey
R J Akers
M F Greenslade
Non-Executive:
D Rough
W F W Bischoff
(retired 1 April 2008)
S A R Rose
B A Lerenius
A J Carnwath7
(appointed Chairman
on 12 November 2008)
P Myners8
(resigned 3 October 2008)
C Bland
R Haythornthwaite
(resigned 5 February 2009)
K O’Byrne
Basic
salary
and fees
2008/09
640
334
431
369
411
2,185
77
–
55
55
155
128
133
47
59
2,894
Benefits1
2008/09
22
14
19
19
18
92
–
–
–
–
–
51
–
–
–
143
2008/09
–
130
–
–
–
Bonuses
2007/08
791
451
686
563
501
130
2,992
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
130
2,992
Deferred
bonus shares2
Total emoluments
excluding pensions
2008/09
2007/08
2008/09
2007/08
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
535
87
509
428
340
662
478
450
388
429
1,899
2,407
–
–
–
–
–
–
–
–
–
77
–
55
55
155
179
133
47
59
1,967
969
1,627
1,365
1,243
7,171
77
65
55
55
55
360
–
–
–
1,899
3,167
7,838
Notes:
1. Benefits 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.
3.
4. Pensions of £67,902 (2008: £61,902) resulting from unfunded historic benefit obligations were paid to former Directors or their dependants.
5. The Performance Share award for 2007/08 represented the value of shares that vested as a result of performance targets satisfied during the year to 31 March 2008.
6.
Ian Ellis received fees of £29,810 from Rok plc in respect of his Non-executive Directorship of that company.
For awards made under the Performance Share Matching Plan, vesting of awards is equally dependent on the growth in EPS (defined 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.
Alison Carnwath will receive a salary of £300,000 per annum for her role as Chairman of the Company.
From 1 April 2007, the Company agreed to assume, from Marks and Spencer Group plc, the cost of supplying a driver (including all employment costs) and fleet vehicle for Paul Myners. For 2008/09, the cost of this arrangement
to the Company was £51,187.
7.
8.
Land Securities Annual Report 2009
Directors’ remuneration report
77
Table 56
What emoluments did Directors receive? (£’000) (audited)
2008/09
Pensions
2007/08
Performance
shares vested4
LTIP and matching
shares vested5
Gain on exercise
of share options
2008/09
2007/08
2008/09
2007/08
2008/09
2007/08
Executive:
F W Salway
I D Ellis3
(resigned 12 January 2009)
M R Hussey
R J Akers
M F Greenslade
Non-Executive:
D Rough
W F W Bischoff
(retired 1 April 2008)
S A R Rose
B A Lerenius
A J Carnwath
(appointed Chairman
on 12 November 2008)
P Myners6
(resigned 3 October 2008)
C Bland
R Haythornthwaite
(resigned 5 February 2009)
K O’Byrne
160
83
108
98
103
552
–
–
–
–
–
–
–
–
155
103
103
97
96
554
–
–
–
–
–
–
–
–
–
Total
552
554
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
315
260
217
122
–
914
–
–
–
–
–
–
–
–
270
367
169
122
160
601
366
355
298
652
1,088
2,272
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
914
1,088
2,272
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
1. Benefits 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.
3.
4. The Performance Share award for 2007/08 represented the value of shares that vested as a result of performance targets satisfied during the year to 31 March 2008.
5.
Ian Ellis received fees of £29,810 from Rok plc in respect of his Non-executive Directorship of that company.
For awards made under the Performance Share Matching Plan, vesting of awards is equally dependent on the growth in EPS (defined 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.
From 1 April 2007, the Company agreed to assume, from Marks and Spencer Group plc, the cost of supplying a driver (including all employment costs) and fleet vehicle for Paul Myners. For 2008/09, the cost of this arrangement to
the Company was £51,187.
6.
Pensions of £67,902 (2008: £61,902) resulting from unfunded historic benefit obligations were paid to former Directors or their dependants.
Land Securities Annual Report 2009
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78
Directors’ remuneration report
Table 57
What LTIP and Matching Shares were awarded and vested this year?* (audited)
Cycle
ending
2008
2009
2010
2012
2009
2010
2012
2008
2009
2010
2012
2009
2010
2012
2008
2009
2010
2012
2009
2010
2012
2008
2009
2010
2012
2008
2008
2009
2010
2012
Award
date
29/07/05
29/06/06
29/06/07
30/03/09
31/07/06
31/07/07
30/03/09
29/07/05
29/06/06
29/06/07
30/03/09
31/07/06
31/07/07
30/03/09
29/07/05
29/06/06
29/06/07
30/03/09
31/07/06
31/07/07
30/03/09
28/09/05
29/06/06
29/06/07
30/03/09
30/09/05
01/06/06
31/07/06
31/07/07
30/03/09
Market
price at
award
date (p)†
1393
1592†
1560†
1095†
1778†
1527†
1095†
1393
1592†
1560†
1095†
1778†
1527†
1095†
1393
1592†
1560†
1095†
1778†
1527†
1095†
1471
1592†
1560†
1095†
1479
1621†
1778†
1527†
1095†
Shares
awarded
Shares
vested
Market
price at
date of
vesting (p)
40,464
33,063†
40,070†
58,914†
33,628†
34,358†
23,434†
23,927
21,722†
26,926†
39,705†
20,136†
27,146†
16,208†
20,056
13,656†
23,079†
25,525†
16,550†
21,090†
12,330†
22,679
20,764†
25,644†
37,815†
16,666
5,057†
18,692†
23,000†
14,654†
40,464
–
–
–
–
–
–
23,927
–
–
–
–
–
–
20,056
–
–
–
–
–
–
22,679
–
–
–
16,666
–
–
–
–
1177
–
–
–
–
–
–
1177
–
–
–
–
–
–
1177
–
–
–
–
–
–
1285
–
–
–
1250
–
–
–
–
Vesting
date
29/07/08
29/06/09
29/06/10
30/03/12
31/07/09
31/07/10
30/03/12
29/07/08
29/06/09
29/06/10
30/03/12
31/07/09
31/07/10
30/03/12
29/07/08
29/06/09
29/06/10
30/03/12
31/07/09
31/07/10
30/03/12
28/09/08
29/06/09
29/06/10
30/03/12
30/09/08
01/06/09
31/07/09
31/07/10
31/03/12
F W Salway
—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 72).
† As adjusted for the Rights Issue in March 2009.
Land Securities Annual Report 2009
Directors’ remuneration report
79
Table 58
What interests in shares do Directors have?
Ordinary shares
Deferred shares
LTIP performance shares**
Matching shares**
2009
2008
2009
2008
2009
2008
2009
2008
F W Salway
M R Hussey
D Rough
S A R Rose
B A Lerenius
A J Carnwath
R J Akers
M F Greenslade
C Bland
K O’Byrne
208,568
101,487
18,524
16,250
29,250
116,926
68,715
60,542
16,250
1,625
**Subject to performance conditions (see page 72)
85,310
34,957
11,400
10,000
18,000
68,620
23,058
14,045
–
–
66,228
70,703
–
–
–
–
46,901
38,680
–
–
26,016
28,780
–
–
–
–
10,989
6,546
–
–
132,047
88,353
–
–
–
–
62,260
84,223
–
–
106,363
67,764
–
–
–
–
53,159
64,497
–
–
91,420
63,460
–
–
–
–
49,970
61,403
–
–
61,262
42,606
–
–
–
–
33,918
58,793
–
–
Table 59
Defi ned benefi t pension scheme (audited)
Increase in
accrued
benefits
excluding
inflation
£
Increase in
accrued
benefits
including
inflation
£
Transfer value
of increase
in accrued
benefits
excluding
inflation
£
Transfer value
of accrued
benefits at
01/04/08
£
Transfer value
of accrued
benefits at
31/03/09
£
Increase in
transfer
value net
of Directors’
contributions
£
1,578
2,824
22,016
352,679
387,102
28,603
Accrued
benefit at
31/03/09
£
27,741
R J Akers
The ‘Increase in transfer value net of Directors’ contributions’ differs from the ‘Transfer value of increase in accrued benefit’ in that it reflects 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 benefits 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.
Table 60
What options over ordinary shares do Directors have? (audited)
F W Salway
M R Hussey
R J Akers
Note
(2)
(2)
(3)
(1)
(2)
(2)
(3)
No of
options at
01/04/08†
47,793
26,332
1,915
11,652
8,600
12,762
829
715
M F Greenslade
(3)
1,193
Granted during year
Exercised during year
Number
Grant
price
(pence)
Number
Exercise
price
(pence)
Market
price on
exercise
(pence)
No of
options at
31/03/09†
Exercise
price
(pence)†
Exercisable
dates
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47,793
1,044 07/2007-07/2014
26,332
1,915
11,652
8,600
12,762
829
715
1,044 07/2007-07/2014
862 10/2009-04/2010
783 07/2004-07/2011
710 07/2006-07/2013
1,044 07/2007-07/2014
862 10/2011-04/2012
1,372 09/2011-03/2012
1,193
1,372 09/2011-03/2012
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, M R Hussey, R J Akers and M F Greenslade at 31 March 2009 was 47,793, 28,247, 34,558 and 1,193 respectively. The total number of options over ordinary shares held
by all Directors at 31 March 2009 was 111,791.
The range of the closing middle market prices as adjusted for the Rights Issue for Land Securities’ shares during the year was 341p to 1447p. The closing middle market price on 31 March 2009 was 437p.
† As adjusted for the Rights Issue in March 2009.
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Land Securities Annual Report 2009
Report of the Directors
—Additional disclosures
Share capital
The Company was authorised at the Annual General Meeting held on 17 July 2008 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 2009 Annual General Meeting. No shares were repurchased in the year to 31 March
2009 and following repurchases in earlier periods, the Company currently holds 5,896,000 shares in treasury.
A resolution to renew this authority in respect of an amount equal to the nominal value of the unissued ordinary
share capital will be proposed at the 2009 Annual General Meeting.
Substantial shareholders
At 12 May 2009 the interests in issued share capital which had been notified to the Company under Part VI
of the Companies Act 1985 are shown in Table 61.
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 office. The indemnity only applies to
the extent permitted by law. A copy of the deed of indemnity is available for inspection at the registered office
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 significant 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 Company has no trade creditors as at 31 March 2009.
The Group’s creditor payment days as at 31 March 2009 represented 20 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
Peter Dudgeon
Secretary
12 May 2009
80
Report of the Directors – Additional disclosures
Table 61
Which shareholders own over 3%
of the Company’s shares
Albright Investments
44,197,650
Number
of shares
%
5.85
Legal and General Investment
Management Limited
35,247,506
4.67
M&G Investment
Management Limited
ABP Investments
26,605,507
24,113,374
3.52
3.19
Land Securities Annual Report 2009
Report of the Directors
Covering the most significant
strategic, financial and operational
developments during the year.
05 Our priorities
06 All you need to know
Performance overview
08
09 Key performance indicators
10 Our Chairman’s message
12 Chief Executive’s report
Financial review
18
27 Business review
27 — Why conduct a Rights Issue?
28 — Group business review
— Our risks and how we
30
manage them
36 — Retail Portfolio
44 — London Portfolio
52 Board of Directors
54 Corporate responsibility
64 Corporate governance
68 Directors’ remuneration report
Financial statements
Including the independent auditors’
report, the income statement,
balance sheets and the notes to
the financial statements.
82
83
84
84
Directors’ statement
of responsibilities
Independent auditors’ report
Income statement
Statement of recognised income
and expense
85 Balance sheets
86 Cash flow statements
87 Notes to the financial statements
132 Business analysis
138
Investor analysis
139 Five year summary
140
142 Glossary
143
144 Contact details
Investor information
Index
Investor resource
Helpful analysis, summaries
and information on business
performance and shareholdings.
Land Securities Annual Report 2009
81
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82
Financial statements
Directors’ statement of responsibilities
in respect of the Annual Report and the fi nancial statements
The Annual Report 2009 contains the following
statements regarding responsibility for the fi nancial
statements and business review included in the
Annual Report 2009.
Directors’ responsibility statement
Each of the Directors, whose names are listed below
confi rm that, to the best of their knowledge:
■
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.
Company law requires the Directors 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. In
preparing these fi nancial statements, the Directors
have also elected to comply with IFRSs issued by the
International Accounting Standards Board (IASB).
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 the profi t or loss of the Group
for that period.
In preparing those fi nancial statements the
Directors are required to:
the fi nancial statements, prepared in accordance
with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, fi nancial position
and loss of the Company and the undertakings
included in the consolidation as a whole;
the adoption of a going concern basis for the
preparation of the fi nancial statements continues
to be appropriate based on the foregoing and
having reviewed the forecast fi nancial position
of the Group; and
the management reports (which are incorporated
into the Directors’ report) contained in the Annual
Report include a fair review of the development
and performance of the business and the position
of the Company and the undertakings included
in the consolidation as a whole, together with a
description of the principal risks and uncertainties
that they face.
■
The Directors of Land Securities Group PLC as at the
date of this announcement are as set out below:
■
■
■
■
select suitable accounting policies and then
apply them consistently;
make judgements and estimates that are
reasonable and prudent;
state that the fi nancial statements comply with
IFRSs as adopted by the European Union; and
prepare the fi nancial statements on a going
concern basis, unless it is inappropriate to presume
that the Group will continue in business, in which
case there should be supporting assumptions or
qualifi cations as necessary.
The Board of Directors
Alison Carnwath*, Chairman
Francis Salway, Chief Executive
David Rough*
Martin Greenslade
Bo Lerenius*
Mike Hussey
Sir Stuart Rose*
Richard Akers
Sir Christopher Bland*
Kevin O’Byrne*
*Non-executive Directors
By order of the Board
Peter Dudgeon
Secretary
12 May 2009
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 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 Company’s website
www.landsecurities.com. Legislation in the United
Kingdom governing the preparation and dissemination
of fi nancial statements may differ from legislation in
other jurisdictions.
Land Securities Annual Report 2009
Financial statements
83
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 2009 and of its loss and cash fl ows
for the year then ended;
the Parent Company’s 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 2009 and 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 Directors’ Report
is consistent with the fi nancial statements.
■
■
■
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
12 May 2009
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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 2009 which comprise the Group Income
Statement, the Group and Parent Company Balance
Sheets, the Group and Parent Company Cash Flow
Statements, the Group and Parent Company
Statements 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
Statement of Directors’ Responsibilities.
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 other 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 Directors’ Report 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’.
In addition we report to you if, in our opinion, the
Company has not kept proper accounting records, if we
have not received all the information and explanations
we require for our audit, or if information specifi ed by
law regarding Directors’ remuneration and other
transactions is not disclosed.
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’. 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.
Land Securities Annual Report 2009
84
Financial statements
Income statement
—for the year ended 31 March 2009
Group
Continuing activities
Group revenue2
Costs
(Loss)/profi t on disposal of non-current properties
Net defi cit on revaluation of investment properties
Impairment of trading properties
Operating loss
Interest expense
Interest income
Share of the loss of joint ventures (post-tax)
Loss before tax
Income tax
Loss for the fi nancial year from continuing activities
Discontinued operations
Loss for the fi nancial year
Attributable to:
Equity holders of the Company
Minority interests
Loss for the fi nancial year
(Loss)/earnings per share attributable to the equity holders of the Company (pence)3, 4
Basic (loss)/earnings per share
of which from: continuing activities
of which from: discontinued operations
Diluted (loss)/earnings per share
of which from: continuing activities
of which from: discontinued operations
1. Restated to reclassify the results of Trillium from continuing activities to discontinued operations.
2. Group revenue excludes the share of joint ventures’ income of £103.3m (2008: £111.6m) (see note 20).
3. Adjusted earnings per share from continuing activities is given in note 11.
4. The (loss)/earnings per share fi gures for the year ended 31 March 2008 have been restated to refl ect the bonus element inherent in the Rights Issue that was approved on 9 March 2009.
Statement of recognised income and expense
—for the year ended 31 March 2009
Group
Actuarial (losses)/gains on defi ned benefi t pension schemes
Deferred tax credit/(charge) on actuarial losses/(gains) on defi ned benefi t pension schemes
Fair value movement on cash fl ow hedges taken to equity – Group
– joint ventures
Net (expense)/income recognised directly in equity
Loss for the fi nancial year
Total recognised income and expense for the year
Attributable to:
Equity holders of the Company
Minority interests
Total recognised income and expense for the year
Company
The Company has no recognised income or expense other than that recognised in the Company’s income statement.
Land Securities Annual Report 2009
Notes
2009
£m
4
4
4
4
5
8
8
20
10
42
37
11
11
11
11
11
11
821.2
(326.4)
494.8
(130.8)
(4,113.4)
(92.3)
(3,841.7)
(365.0)
32.5
(4,174.2)
(599.0)
(4,773.2)
(0.5)
(4,773.7)
(420.9)
(5,194.6)
(5,191.3)
(3.3)
(5,194.6)
(999.04)
(918.04)
(81.00)
(999.04)
(918.04)
(81.00)
2008
(restated)1
£m
818.0
(317.4)
500.6
57.3
(1,158.4)
–
(600.5)
(312.3)
25.9
(886.9)
(101.1)
(988.0)
15.1
(972.9)
142.1
(830.8)
(830.8)
–
(830.8)
(160.90)
(188.43)
27.53
(160.90)
(188.43)
27.53
2009
£m
(11.1)
0.6
(0.2)
(21.3)
(32.0)
(5,194.6)
(5,226.6)
(5,223.3)
(3.3)
(5,226.6)
2008
£m
15.8
(0.9)
(3.2)
(3.5)
8.2
(830.8)
(822.6)
(822.6)
–
(822.6)
Financial statements
Balance sheets
—at 31 March 2009
Non-current assets
Investment properties
Operating properties
Other property, plant and equipment
Net investment in fi nance leases
Goodwill
Investment in an associate undertaking
Loans to third parties
Investments in joint ventures
Investments in Public Private Partnerships
Investments in subsidiary undertakings
Pension surplus
Deferred tax 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 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
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Capital and reserves attributable to equity holders of the Company
Ordinary shares
Share premium
Capital redemption reserve
Merger reserve
Share-based payments
Retained earnings
Own shares
Equity attributable to equity holders of the Company
Minority interest in equity
Total equity
85
R
e
p
o
r
t
o
f
t
h
e
D
i
r
e
c
t
o
r
s
P
0
1
–
8
0
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
P
8
1
–
1
3
0
I
n
v
e
s
t
o
r
r
e
s
o
u
r
c
e
P
1
3
1
–
1
4
4
Notes
2009
£m
Group
2008
£m
12,296.7
544.8
73.6
333.7
148.6
42.9
–
1,410.6
25.4
–
11.0
0.9
2009
£m
–
–
–
–
–
–
–
–
–
4,828.5
–
–
7,929.4
–
14.3
116.3
–
–
50.0
930.8
–
–
3.0
1.9
9,045.7
14,888.2
4,828.5
94.9
–
392.1
1,639.0
2,126.0
–
173.0
4.3
838.0
48.4
1,063.7
664.1
2,126.0
1,727.8
–
–
8.8
105.1
113.9
–
113.9
Company
2008
£m
–
–
–
–
–
–
–
–
–
5,054.6
–
–
5,054.6
–
–
386.2
69.5
455.7
–
455.7
11,171.7
16,616.0
4,942.4
5,510.3
(1.1)
(112.0)
(625.8)
–
(161.5)
(900.4)
–
(794.0)
(10.7)
(927.2)
(40.9)
(161.0)
(1,933.8)
(427.7)
–
–
(118.9)
–
–
(118.9)
–
(900.4)
(2,361.5)
(118.9)
–
(5,449.5)
(1.6)
(36.7)
(4,632.5)
(2.4)
(5,451.1)
(4,671.6)
–
–
–
–
–
–
(874.7)
–
(2.4)
(877.1)
–
(877.1)
–
–
–
–
(6,351.5)
(7,033.1)
(118.9)
(877.1)
4,820.2
9,582.9
4,823.5
4,633.2
76.2
785.2
30.5
–
8.1
3,935.9
(12.4)
4,823.5
(3.3)
47.1
56.6
30.5
–
11.3
9,459.7
(22.3)
9,582.9
–
76.2
785.2
30.5
373.6
8.1
3,549.9
–
4,823.5
–
4,820.2
9,582.9
4,823.5
47.1
56.6
30.5
373.6
17.5
4,107.9
–
4,633.2
–
4,633.2
13
14
15
16
17
18
19
20
21
22
33
34
23
29
24
25
26
30
29
27
28
26
28
30
34
36
37
37
37
37
37
37
37
The fi nancial statements on pages 84 to 130 were approved by the Board of Directors on 12 May 2009 and were signed on its behalf by:
F W Salway
Directors
M F Greenslade
Land Securities Annual Report 2009
86
Financial statements
Cash fl ow statements
—for the year ended 31 March 2009
Net cash generated from operations
Cash generated from operations
Interest paid
Interest received
Employer contributions to pension scheme
Corporation tax (paid)/received
Net cash infl ow/(outfl ow) from operations
Cash fl 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 proceeds/(expenditure) on properties
Net expenditure on non-property related non-current assets
Net cash infl ow/(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
Loans advanced to third parties
Investment in joint ventures
Net loans to joint ventures and cash contributed
Distributions from joint ventures
Acquisition of PPP investments
Net cash received from disposal group
Cash proceeds from disposal of Trillium (net of cash divested)
Acquisitions of Group undertakings (net of cash acquired)
Net cash received from investing activities
Cash fl ows from fi nancing activities
Proceeds from Rights Issue
Issue of shares arising from exercise of share options
Purchase of own share capital
Increase in debt
Increase in monies held in restricted accounts and deposits
Decrease in fi nance leases payable
Dividends paid to ordinary shareholders
Net cash infl ow/(outfl ow) from fi nancing activities
Increase/(decrease) in cash and cash equivalents for the year1
Cash and cash equivalents at the beginning of the year1
Cash and cash equivalents at the end of the year1
Notes
2009
£m
39
33
19
42
36
36
30
25
9
25
25
651.3
(283.6)
10.4
(4.2)
(6.7)
367.2
(208.6)
(85.3)
(174.1)
(0.8)
(46.5)
(515.3)
792.7
30.3
307.7
(0.6)
307.1
–
11.7
–
(50.0)
(21.1)
(117.5)
21.6
–
113.5
392.7
–
658.0
755.7
2.0
–
120.6
(29.9)
(9.4)
(302.4)
536.6
1,561.8
47.0
1,608.8
1. Cash and cash equivalents for the purposes of the cash fl ow statement excludes monies held in restricted accounts and deposits and includes overdrafts.
The Group cash fl ow includes the cash fl ows relating to the Trillium discontinued operations up to the date of disposal on 12 January 2009. Further details are included in note 42.
Cash and cash equivalents (cash fl ow statements)
Overdrafts
Monies held in restricted accounts and deposits
Cash and cash equivalents (balance sheet)
Land Securities Annual Report 2009
Notes
25
25
2009
£m
1,608.8
0.3
29.9
1,639.0
Group
2008
£m
696.5
(338.3)
10.7
(2.0)
(367.7)
2009
£m
(395.4)
(53.9)
20.0
–
9.6
(0.8)
(419.7)
Company
2008
£m
433.2
(26.6)
14.7
–
8.3
429.6
(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)
52.7
47.0
Group
2008
£m
47.0
1.4
–
48.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
755.7
2.0
–
–
–
–
(302.4)
455.3
35.6
69.5
105.1
2009
£m
105.1
–
–
105.1
–
5.2
–
–
–
–
(308.4)
(303.2)
126.4
(56.9)
69.5
Company
2008
£m
69.5
–
–
69.5
Financial statements
87
Notes to the fi nancial statements
—for the year ended 31 March 2009
1. Basis of preparation
These fi nancial statements have been prepared
on a going concern basis and in accordance with
International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU),
IFRIC Interpretations and 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 2008, 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 2009. In
most cases, these new requirements are not relevant
for the Group. This is the case for IFRIC12 ‘Service
Concession Arrangements’, IFRIC14 ‘IAS19 The limit
on a defi ned benefi t asset, minimum funding
requirements and their interaction’ and IFRIC13,
‘Customer loyalty programmes’.
The following new Standards and Interpretations
have been issued but are not effective for the year
ended 31 March 2009, and have not been adopted
early, IAS23 (amendment) (effective from 1 January
2009), ‘Borrowing costs’, IAS1 (revised) (effective from
1 January 2009) ‘Presentation of fi nancial statements’,
IFRS2 (amendment), ‘Share-based payment’ (effective
from 1 January 2009), IAS32 (amendment), ‘Financial
instruments: Presentation’, and IAS1 (amendment),
‘Presentation of fi nancial statements’ – ‘Puttable
fi nancial instruments and obligations arising on
liquidation’ (effective from 1 January 2009), IFRS1
(amendment), ‘First time adoption of IFRS’, and IAS27,
‘Consolidated and separate fi nancial statements’,
(effective from 1 January 2009), IFRS8 ‘Operating
Segments’ and IFRS3 (revised) ‘Business Combinations’
(effective from 1 July 2009). 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
and are disclosed in note 3.
Land Securities Annual Report 2009
As a result of the disposal of Trillium on 12 January
2009, and in compliance with IFRS5 ‘Non-current
assets held for sale and discontinued operations’,
the 2008 comparatives, where relevant, have been
restated to classify the disposed Trillium operations as
‘Discontinued Operations’. In addition, the Accor hotel
portfolio, which was previously reported as part of the
Trillium business segment and has been retained by
the Group, has been classifi ed as ‘Retail Portfolio’ and
the 2008 segmental comparatives have been restated
to refl ect this reclassifi cation.
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 £273.6m (2008: loss of £15.3m).
2. Signifi cant accounting policies
(a) Basis of consolidation
The consolidated fi nancial statements for the year
ended 31 March 2009 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
IAS31 ‘Interests in joint ventures’ and following
the procedures for this method set out in IAS28
‘Investments in associates’. Associates are also
accounted for using the equity method. The equity
method requires the Group’s share of the joint
venture’s 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 venture’s
and associate’s net assets to be presented separately
in the balance sheet. Joint ventures with net liabilities
are carried at zero value in the balance sheet where
there is no commitment to fund the defi cit and any
distributions are included in the consolidated income
statement for the year.
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.
The majority of subsidiaries and joint ventures
have the same year end as the Company; however,
a small number of subsidiaries and joint ventures have
non-coterminous year ends. In these circumstances,
management accounts prepared to 31 March are
used for the purpose of the Group consolidation.
(b) 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, the pension surplus
and deferred tax assets. Unallocated liabilities include
short-term borrowings and overdrafts, and certain
non-current liabilities (borrowings and deferred
tax liabilities).
(c) 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 re-measurement 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 re-measured to fair value as at
the date of the transfer with any gain or loss being
taken to the income statement. The re-measured
amount becomes the deemed cost at which the
property is then carried in trading properties.
R
e
p
o
r
t
o
f
t
h
e
D
i
r
e
c
t
o
r
s
P
0
1
–
8
0
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
P
8
1
–
1
3
0
I
n
v
e
s
t
o
r
r
e
s
o
u
r
c
e
P
1
3
1
–
1
4
4
88
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
2. Signifi cant accounting policies continued
(c) Investment properties continued
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 re-measured to
fair value at each reporting date. Any gain or loss on
re-measurement 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 re-measurement accounted for in
accordance with the foregoing policy.
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.
(d) Property, plant and equipment
Operating properties
These were properties owned and managed by Trillium,
which do not satisfy the defi nition of an investment
property. Operating properties were stated at cost less
accumulated depreciation. Depreciation was charged
to the income statement on a straight-line basis over
the estimated useful lives of the properties concerned.
The estimated useful lives were 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.
Land Securities Annual Report 2009
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.
(e) 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.
In accordance with IFRS3 ‘Business combinations’,
the goodwill is not amortised but is reviewed for
impairment at each reporting date.
(f) 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.
(g) 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.
(h) 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.
(i) 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 cash fl ows.
(j) 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.
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.
(k) Trade and other payables
Trade and other payables are stated at cost; cost
equates to fair value.
(l) 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 cash
fl 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.
(m) 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 IAS39), 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.
(n) Pension 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
Financial statements
89
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
are recognised immediately in the statement of
recognised income and expense.
Contributions to defi ned contribution schemes
are charged to the income statement as incurred.
(o) 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 from the proceeds.
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.
(p) 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 if the performance criteria are
not market related.
(q) Revenue
The Group recognises revenue on an accruals
basis 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, 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.
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
Land Securities Annual Report 2009
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.
(r) Expenses
Property and contract expenditure is expensed
as incurred with the exception of expenditure on
long-term development contracts (see (g) 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 IAS40 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 (q) above) are charged as an expense
in the periods in which they are incurred.
(s) Impairment
The carrying amounts of the Group’s non-fi nancial
assets, other than investment properties (see (c)
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.
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 cash fl 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.
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4
(t) 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.
Where hedge accounting is applied the Group
documents, at the inception of the transaction, the
relationship between the hedging instruments and
the 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 cash fl ows of hedged items.
All derivatives are initially recognised at fair
value at the date the derivative is entered into and are
subsequently re-measured 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 cash fl 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.
■
Cash fl 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.
Where 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.
■
(u) 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.
90
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
2. Signifi cant accounting policies continued
(u) Income tax continued
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.
(v) 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.
(w) 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.
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
Land Securities Annual Report 2009
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) Investment property valuation
The Group uses the valuation performed by its
external valuers, Knight Frank LLP, as the fair value
of its investment properties.
The valuation of the Group’s property portfolio
is inherently subjective due to, among other factors,
the individual nature of each property, its location
and the expected future rental revenues from that
particular property. As a result, the valuations the
Group places on its property portfolio are subject to
a degree of uncertainty and are made on the basis of
assumptions which may not prove to be accurate,
particularly in periods of volatility or low transaction
fl ow in the commercial property market, as has
recently been the case.
The investment property valuation contains a
number of assumptions upon which Knight Frank LLP
has based its valuation of the Group’s properties as
at 31 March 2009. The assumptions on which the
Property Valuation Report has been based include,
but are not limited to, matters such as the tenure and
tenancy details for the properties, ground conditions
at the properties and the structural condition of the
properties, prevailing market yields and comparable
market transactions. These assumptions are market
standard and accord with the RICS Valuation Standards.
However, if any assumptions made by the property
valuer prove to be false, this may mean that the value
of the Group’s properties differs from their valuation,
which could have a material effect on the Group’s
fi nancial condition.
Investor sentiment towards property
investment weakened during 2008 and so far in 2009,
and there were relatively fewer property acquisitions
and disposals than in 2007. Assessing property
valuations is therefore inherently more uncertain in
current market conditions as there is a more limited
number of comparable transactions against which to
assess the value of a particular property. Therefore, it
is likely that, in the current environment, commercial
property prices and values may continue to be subject
to heightened volatility.
(b) 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.
(c) 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 valuations performed
by its external valuer, Knight Frank LLP.
The estimation of the net realisable value of the
Group’s trading properties, especially the development
land and infrastructure programmes, is inherently
subjective due to a number of factors, including their
complexity, unusually large size, the substantial
expenditure required and long timescales to
completion. In addition, as a result of these timescales
to completion, the plans associated with these
programmes could be subject to signifi cant variation.
As a result, and similar to the valuation of investment
properties, the net realisable values of the Group’s
trading properties are subject to a degree of
uncertainty and are made on the basis of assumptions
which may not prove to be accurate.
If the assumptions upon which the external
valuer has based their valuation prove to be false, this
may have an impact on the net realisable value of the
Group’s properties, which would in turn have an effect
on the Group’s fi nancial condition.
(d) 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.
(e) Valuation of interest-rate swaps
The fair value of fi nancial instruments that are not
traded in an active market is determined by using
valuation techniques. The Group uses its judgement
to select a variety of methods and make assumptions
that are mainly based on market conditions existing
at the balance sheet date.
(f) 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.
Financial statements
91
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
4. Segmental information
Group
Income statements
Rental income
Service charge 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
Cost of sales of trading properties
Depreciation
Underlying segment operating profi t
(Loss)/profi t on disposal of non-current properties
Net defi cit on revaluation of investment properties
Impairment of trading properties
Segment result
Demerger costs
Unallocated expenses
Operating loss
Net interest expense (note 8)
Share of the loss of joint ventures (post-tax)
– Retail Portfolio
– London Portfolio
Loss before tax from continuing activities
Retail
Portfolio
£m
London
Portfolio
£m
302.8
48.6
8.8
–
2.7
362.9
(11.6)
(79.9)
(33.8)
–
(6.6)
(1.9)
338.9
64.8
0.4
48.9
5.3
458.3
(4.6)
(83.2)
(30.4)
(45.1)
(0.1)
(4.8)
2009
Total
£m
641.7
113.4
9.2
48.9
8.0
821.2
(16.2)
(163.1)
(64.2)
(45.1)
(6.7)
(6.7)
229.1
(54.8)
(1,923.1)
–
290.1
(76.0)
(2,190.3)
(92.3)
519.2
(130.8)
(4,113.4)
(92.3)
(1,748.8)
(2,068.5)
(3,817.3)
Retail
Portfolio
£m
London
Portfolio
£m
302.9
47.5
1.3
–
2.9
354.6
(11.0)
(65.9)
(35.7)
–
(0.9)
(2.3)
238.8
16.4
(693.7)
–
(438.5)
335.2
53.7
42.3
26.3
5.9
463.4
(5.3)
(73.5)
(30.3)
(24.3)
(39.9)
(5.5)
284.6
40.9
(464.7)
–
(139.2)
(10.2)
(14.2)
(3,841.7)
(332.5)
(4,174.2)
(554.7)
(44.3)
(599.0)
(4,773.2)
2008 (restated)1
Total
£m
638.1
101.2
43.6
26.3
8.8
818.0
(16.3)
(139.4)
(66.0)
(24.3)
(40.8)
(7.8)
523.4
57.3
(1,158.4)
–
(577.7)
(9.8)
(13.0)
(600.5)
(286.4)
(886.9)
(86.7)
(14.4)
(101.1)
(988.0)
1.
In compliance with IFRS5, the 2008 Group comparatives have been restated as the Trillium discontinued operations have been removed from continuing activities and the operations of the Accor hotels contract has been included
within Retail Portfolio. In addition, following a review of the Group’s management structure the ‘Other Investment Portfolio’ segment has been reallocated to ‘Retail Portfolio’ and ‘London Portfolio’ on the basis of how they
are managed.
Included within rents payable is fi nance lease interest payable of £2.5m (2008: £2.0m) and £1.8m (2008: £2.8m) respectively for Retail Portfolio and London Portfolio.
R
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4
4
Land Securities Annual Report 2009
92
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 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 associate undertaking
Investments in joint ventures
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
Segment liabilities
Unallocated liabilities
Total liabilities
Other segment items
Capital expenditure
Retail
Portfolio
£m
3,205.4
–
4.7
48.5
–
–
–
906.9
10.0
201.4
–
London
Portfolio
£m
4,724.0
–
9.6
67.8
–
–
–
23.9
84.9
190.7
–
2009
Total
£m
7,929.4
–
14.3
116.3
–
–
–
930.8
94.9
392.1
–
Retail
Portfolio
£m
5,100.6
–
8.0
53.2
–
–
–
1,377.4
16.5
215.0
–
Discontinued
operations
£m
126.5
544.8
53.9
175.7
148.6
25.4
42.9
5.1
4.0
211.5
664.1
2008 (restated) 2
Total
£m
12,296.7
544.8
73.6
333.7
148.6
25.4
42.9
1,410.6
173.0
837.7
664.1
London
Portfolio
£m
7,069.6
–
11.7
104.8
–
–
–
28.1
152.5
411.2
–
4,376.9
5,100.9
9,477.8
6,770.7
7,777.9
2,002.5
16,551.1
1,693.9
11,171.7
64.9
16,616.0
(335.9)
–
(241.3)
–
(577.2)
–
(286.7)
–
(243.9)
–
(334.1)
(77.6)
(864.7)
(77.6)
–
–
–
–
–
(427.7)
(427.7)
(335.9)
(241.3)
(577.2)
(286.7)
(243.9)
(839.4)
(1,370.0)
(5,774.3)
(6,351.5)
(5,663.1)
(7,033.1)
147.6
272.0
419.6
220.1
368.5
51.7
640.3
2. The 2008 Group comparatives have been restated to include the Accor hotels contract within the Retail Portfolio following the disposal of the Trillium discontinued operations.
All the Group’s operations are in the UK and, following the disposal of Trillium on 12 January 2009, are organised into two main business segments against which the Group
reports its primary segmental information, being Retail Portfolio and London Portfolio.
Company
The Company’s business is to invest in its subsidiaries, and therefore it operates in a single segment.
5. Operating loss
Group
The following items have been charged or (credited) in arriving at operating loss from continuing activities:
Depreciation:
Investment properties (note 13)
Other property, plant and equipment (note 15)
Impairment of trading properties (note 23)
Loss/(profi t) on disposal of non-current properties
Bad debts written off and provision for doubtful debts (note 24)
Employee costs – continuing activities (note 6)
Auditor remuneration (note 7)
1.
In compliance with IFRS5, the 2008 Group comparatives have been restated to remove the items charged/(credited) in relation to the Trillium discontinued operations.
2009
£m
2008
(restated)1
£m
2.1
4.6
92.3
130.8
10.5
59.9
1.4
2.9
4.9
–
(57.3)
3.6
56.8
3.1
Land Securities Annual Report 2009
Financial statements
93
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
6. Employee costs
Group
The average monthly number of employees during the year,
excluding Directors were:
Indirect property or contract and administration
Direct property or contract services:
Full-time
Part-time
Group
Employee costs
Salaries
Social security
Other pension (note 33)
Share-based payments (note 35)
Continuing
activities
Number
Discontinued
operations
Number
471
173
51
695
165
780
20
965
Continuing
activities
£m
Discontinued
operations1
£m
46.3
5.2
3.6
4.8
59.9
43.4
4.9
–
3.8
52.1
2009
Total
Number
636
953
71
1,660
2009
Total
£m
89.7
10.1
3.6
8.6
112.0
1. The employee costs for discontinued operations relates to the employee costs of Trillium for the period from 1 April 2008 to 12 January 2009, the date of disposal.
Group
Directors
Aggregate emoluments excluding pensions
Company contributions to pension schemes
Continuing
activities
Number
Discontinued
operations
Number
461
193
49
703
154
772
18
944
Continuing
activities
£m
Discontinued
operations
£m
45.1
5.0
3.9
2.8
56.8
46.0
5.3
0.2
2.2
53.7
2009
£m
3.2
0.6
3.8
2008
Total
Number
615
965
67
1,647
2008
Total
£m
91.1
10.3
4.1
5.0
110.5
2008
£m
10.9
0.6
11.5
With the exception of the Directors, who are employed by Land Securities Group PLC, all employees are employed by subsidiaries of the Group.
Four Directors (2008: fi ve) have retirement benefi ts accruing under money purchase pension schemes. Retirement benefi ts accrue to one Director (2008: 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 76 to 79.
7. Auditor remuneration
Group
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 disposal of Trillium1
Other services in relation to the sale of Trillium Investment Partners LP
Other services in relation to the Rights Issue2
2009
£m
2008
£m
0.4
0.3
0.1
0.1
0.5
0.6
–
0.3
1.4
2.3
0.6
0.4
0.1
0.2
1.1
–
0.7
–
1.8
3.1
Included within discontinued operations.
1.
2. Charged directly to equity.
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 Chairman of the
Audit Committee.
Land Securities Annual Report 2009
R
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t
o
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t
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e
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i
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1
–
8
0
i
F
n
a
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c
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a
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s
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a
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m
e
n
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8
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–
1
3
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I
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P
1
3
1
–
1
4
4
94
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
8. Net interest expense
Interest expense
Bond and debenture debt
Bank borrowings
Other interest payable
Fair value losses on interest-rate swaps
Amortisation of bond exchange de-recognition
Interest on pension scheme liabilities
Interest capitalised in relation to properties under development
Total interest expense
Interest income
Short-term deposits
Long-term investment loans
Gain on disposal of foreign-exchange contract
Other interest receivable
Interest receivable from joint ventures
Expected return on pension scheme assets
Total interest income
Net interest expense
Group
2008
(restated)1
£m
(195.1)
(127.1)
(2.0)
(21.9)
(7.6)
(7.1)
(360.8)
48.5
(312.3)
1.6
–
–
1.3
15.0
8.0
25.9
2009
£m
(191.1)
(95.4)
(0.9)
(102.1)
(11.7)
(7.5)
(408.7)
43.7
(365.0)
2.7
0.7
2.7
1.5
16.8
8.1
32.5
Company
2008
£m
–
–
(26.6)
–
–
–
(26.6)
–
(26.6)
–
–
–
14.7
–
–
14.7
2009
£m
–
–
(53.9)
–
–
–
(53.9)
–
(53.9)
0.5
–
–
19.5
–
–
20.0
(332.5)
(286.4)
(33.9)
(11.9)
1.
In compliance with IFRS5, the 2008 Group comparatives have been restated to remove the net interest expense in relation to the Trillium discontinued operations.
Included within rents payable (note 4) is fi nance lease interest payable of £4.3m (2008: £4.8m).
9. Dividends
Group and Company
Ordinary dividends paid
For the year ended 31 March 2007:
Final dividend
For the year ended 31 March 2008:
First quarter
Second quarter
Third quarter
Final quarter
For the year ended 31 March 2009:
First quarter
Second quarter
Payment
date
Restated1
per share
pence
Actual
per share
pence
2009
£m
2008
£m
23 July 2007
30.6
34.0
–
159.5
26 October 2007
7 January 2008
25 April 2008
28 July 2008
24 October 2008
12 January 2009
14.4
14.4
14.4
14.4
14.9
14.9
16.0
16.0
16.0
16.0
16.5
16.5
–
–
74.4
74.4
76.8
76.8
74.5
74.4
–
–
–
–
302.4
308.4
1. The restated dividend per share represents the theoretical dividend per share that would have been paid had the bonus shares inherent in the Rights Issue been in existence at the relevant dividend dates.
The Board has proposed a fi nal quarterly dividend for the year ended 31 March 2009 of 7.0p per share (2008: 16.0p) which will result in a further distribution of £53.3m
(2008: £74.4m). It will be paid on 24 July 2009 to shareholders who are on the Register of Members on 19 June 2009. The fi nal dividend is in addition to the third quarterly
dividend of 16.5p or £76.8m paid on 24 April 2009 (2008: 16.0p or £74.4m). The total dividend paid and proposed in respect of the year ended 31 March 2009 is 56.5p
(2008: 64.0p). All numbers relate to actual dividends paid or proposed as opposed to restated dividends.
Land Securities Annual Report 2009
Financial statements
95
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
10. Income tax
Current tax
Corporation tax credit for the year
Adjustment in respect of prior years
Corporation tax in respect of property disposals
Total current tax expense/(credit)
Deferred tax
Origination and reversal of timing differences
Total deferred tax expense/(credit)
Group
2008
(restated)1
£m
(14.9)
(0.6)
0.5
(15.0)
(0.1)
(0.1)
2009
£m
–
0.3
–
0.3
0.2
0.2
Company
2008
£m
(6.6)
–
–
(6.6)
–
–
2009
£m
(15.2)
–
–
(15.2)
–
–
Total income tax expense/(credit) in the income statement
0.5
(15.1)
(15.2)
(6.6)
1.
In compliance with IFRS5, the 2008 Group comparatives have been restated to remove the taxes which related to the Trillium discontinued operations.
The tax for the year is lower than the standard rate of corporation tax in the UK of 28% (2008: 30%). The differences are explained below:
Loss on activities before taxation
Loss on activities multiplied by the rate of corporation tax in the UK of 28% (2008: 30%)
Effects of:
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
Losses carried forward
Exempt property rental profi ts and revaluations in the year
Exempt property gains in the year
Total income tax expense/(credit) in the income statement (as above)
Group
2008
(restated)1
£m
2009
£m
2009
£m
(4,773.2)
(988.0)
(288.8)
(1,336.5)
(296.4)
(80.9)
Company
2008
£m
(21.9)
(6.6)
–
–
0.3
(1.1)
4.5
25.7
1,343.1
(35.5)
0.5
5.1
0.9
(0.6)
(0.4)
12.0
–
283.5
(19.2)
(15.1)
–
–
–
–
65.7
–
–
–
–
–
–
–
–
–
–
–
(15.2)
(6.6)
1.
In compliance with IFRS5, the 2008 Group comparatives have been restated to remove the taxes which related to the Trillium discontinued operations.
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.
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 £211.0m (2008: £216.0m) could be released in the future.
11. (Loss)/earnings per share
Group
(Loss)/profi t for the fi nancial year attributable to the equity holders of the Company
of which from: continuing activities attributable to the equity holders of the Company
of which from: discontinued operations attributable to the equity holders of the Company
2009
£m
(5,191.3)
(4,770.4)
(420.9)
2008
(restated)1
£m
(830.8)
(972.9)
142.1
1.
In compliance with IFRS5, the 2008 Group comparatives have been restated to reclassify the profi t arising from the Trillium discontinued operations from continuing activities to discontinued operations.
R
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t
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8
0
i
F
n
a
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c
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s
t
a
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m
e
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8
1
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1
3
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P
1
3
1
–
1
4
4
Land Securities Annual Report 2009
96
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
11. (Loss)/earnings per share continued
Management has chosen to disclose adjusted earnings per share from continuing activities 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. 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.
Loss for the fi nancial year from continuing activities attributable to equity holders of the Company
Revaluation defi cits – Group
– joint ventures
Loss/(profi t) on non-current property disposals after current and deferred tax
Impairment of development land and infrastructure3 – Group (note 23)
Mark-to-market adjustment on interest-rate swaps – Group
– joint ventures
Adjustment due to net liabilities on joint ventures4
Demerger costs (net of taxation)
– joint ventures
EPRA adjusted earnings from continuing activities attributable to equity holders of the Company
Eliminate effect of debt restructuring charges (net of taxation)
Eliminate effect of bond exchange de-recognition
Adjusted earnings from continuing activities attributable to equity holders of the Company
2009
£m
(4,770.4)
4,113.4
630.3
127.9
92.0
12.3
102.1
15.4
(17.7)
7.2
312.5
0.8
11.7
325.0
2008
(restated)2
£m
(972.9)
1,158.4
134.2
(49.7)
–
–
21.9
7.2
–
6.9
306.0
1.0
7.6
314.6
In compliance with IFRS5, the 2008 Group comparatives have been restated to remove the elements arising from the Trillium discontinued operations from continuing activities.
2.
3. The impairment in relation to the development land and infrastructure programmes within trading properties has been removed from both our and the EPRA adjusted earnings due to the long-term nature of these programmes.
4.
The adjustment to net liabilities on joint ventures is the result of valuation defi cits and as such restricts the recognition of the full valuation defi cit. Hence, this adjustment is required to refl ect that the valuation defi cit has not been fully
recognised in the Group’s income statement.
Weighted average number of ordinary shares
Effect of weighted average number of treasury shares
Effect of weighted average number of own shares
Weighted average number of ordinary shares for calculating basic earnings per share
Effect of share options which are dilutive for diluted earnings per share
Weighted average number of ordinary shares for calculating diluted earnings per share
Effect of share options which are dilutive for adjusted diluted earnings per share
Weighted average number of ordinary shares for calculating adjusted diluted earnings per share
2009
Number
million
526.7
(5.9)
(1.2)
519.6
–
519.6
0.3
519.9
2008
(restated)5
Number
million
521.8
(4.1)
(1.4)
516.3
–
516.3
1.2
517.5
5. The weighted average number of ordinary shares for the year ended 31 March 2008 has been adjusted for the bonus element inherent in the Rights Issue that was approved on 9 March 2009 in compliance with IAS33 ‘Earnings per Share’.
Basic (loss)/earnings per share
of which from: continuing activities
of which from: discontinued operations
Diluted (loss)/earnings per share
of which from: continuing activities
of which from: discontinued operations
Adjusted earnings per share from continuing activities
Adjusted diluted earnings per share from continuing activities
EPRA adjusted earnings per share from continuing activities
2009
Pence
(999.04)
(918.04)
(81.00)
(999.04)
(918.04)
(81.00)
2008
(restated)6
Pence
(160.90)
(188.43)
27.53
(160.90)
(188.43)
27.53
62.60
62.57
60.93
60.79
60.20
59.26
6.
The loss per share for the year ended 31 March 2008 has been adjusted for the bonus element inherent in the Rights Issue that was approved on 9 March 2009 and for the reclassifi cation of the Trillium discontinued operations from
continuing activities to discontinued operations.
Land Securities Annual Report 2009
Financial statements
97
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
12. Net assets per share
Group
Net assets attributable to equity holders of the Company
Cumulative mark-to-market adjustment on interest-rate swaps – Group
– joint ventures
– an associate undertaking
EPRA adjusted net assets
Reverse bond exchange de-recognition adjustment
Adjusted net assets attributable to equity holders of the Company
Reinstate bond exchange de-recognition adjustment
Cumulative mark-to-market adjustment on interest-rate swaps – Group
– joint ventures
– an associate undertaking
Excess of fair value of debt over book value (note 30)
EPRA triple net assets
Number of ordinary shares in issue
Bonus share element inherent in the Rights Issue that was approved on 9 March 2009
Number of ordinary shares in issue adjusted for bonus shares
Number of treasury shares
Number of own shares1
Number of ordinary shares used for calculating basic net assets per share
Dilutive effect of share options1
Number of ordinary shares used for calculating diluted net assets per share
1.
The number of own shares and dilutive effect of share options for the year ended 31 March 2008 have been restated to refl ect the bonus element inherent in the Rights Issue that was approved on 9 March 2009.
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
– diluted triple net assets per share
2009
Pence
639
639
593
593
659
637
2. The net assets per share as at 31 March 2008 has been adjusted to refl ect the bonus element inherent in the Rights Issue that was approved on 9 March 2009.
Adjusted net assets per share excludes mark-to-market adjustments on fi nancial instruments used for hedging purposes and the bond exchange de-recognition adjustment
as management consider that this better represents the expected future cash fl 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 holders of the Company is more indicative of underlying performance.
Land Securities Annual Report 2009
2009
£m
4,823.5
112.0
38.2
–
4.973.7
(499.8)
4,473.9
499.8
(112.0)
(38.2)
–
(13.4)
2008
£m
9,582.9
10.7
1.5
0.5
9,595.6
(511.5)
9,084.1
511.5
(10.7)
(1.5)
(0.5)
(208.7)
4,810.1
9,374.2
2009
Number
million
761.9
–
761.9
(5.9)
(0.9)
755.1
–
755.1
2008
(restated)1
Number
million
470.9
51.1
522.0
(5.9)
(1.5)
514.6
0.8
515.4
2008
(restated)2
Pence
1862
1859
1765
1763
1862
1819
R
e
p
o
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t
o
f
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h
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D
i
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e
c
t
o
r
s
P
0
1
–
8
0
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
P
8
1
–
1
3
0
I
n
v
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s
t
o
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s
o
u
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c
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P
1
3
1
–
1
4
4
98
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
13. Investment properties
Group
Net book value at 1 April 2007
Properties transferred from portfolio management into the development programme
Developments transferred from the development programme into portfolio management
Property acquisitions
Capital expenditure
Capitalised interest
Disposals
Transfers to joint ventures
Transfers to trading properties
Transfer from operating properties
Surrender premiums received
Depreciation
Defi cit on revaluation – continuing activities
– discontinued operations
Net book value at 31 March 2008
Developments transferred from the development programme into portfolio management
Accor hotel properties transferred from Trillium to portfolio management
Property acquisitions
Capital expenditure
Capitalised interest
Disposals
Transfer from operating properties
Surrender premiums received
Depreciation
Defi cit on revaluation – continuing activities
Disposals included as part of the disposal of Trillium
– discontinued operations
Net book value at 31 March 2009
Portfolio
management
£m
Development
programme
£m
10,607.4
(218.7)
1,491.5
714.2
117.5
1.4
(1,099.4)
(228.2)
–
–
(6.2)
(2.9)
(1,038.3)
–
10,338.3
410.3
435.9
101.9
174.1
14.0
(681.9)
–
(2.0)
(2.1)
(3,573.1)
–
–
2,284.3
218.7
(1,491.5)
0.2
467.3
43.7
(2.2)
–
(17.4)
–
–
–
(107.1)
–
1,396.0
(410.3)
–
1.3
245.5
23.1
(1.3)
–
–
–
(540.3)
–
–
Trillium
£m
427.6
–
–
149.4
6.8
–
(0.6)
–
–
4.1
–
–
(13.0)
(11.9)
562.4
–
(435.9)
–
6.0
–
(41.4)
11.9
–
–
–
(10.0)
(93.0)
Total
£m
13,319.3
–
–
863.8
591.6
45.1
(1,102.2)
(228.2)
(17.4)
4.1
(6.2)
(2.9)
(1,158.4)
(11.9)
12,296.7
–
–
103.2
425.6
37.1
(724.6)
11.9
(2.0)
(2.1)
(4,113.4)
(10.0)
(93.0)
7,215.4
714.0
–
7,929.4
The following table reconciles the net book value of the investment properties to the market value. The components of the reconciliation are included within their relevant
balance sheet headings.
Portfolio
management
£m
Development
programme
£m
10,338.3
156.3
(65.3)
149.2
10,578.5
1,216.5
1,396.0
24.3
(2.0)
–
1,418.3
373.4
11,795.0
1,791.7
7,215.4
148.8
(56.5)
104.7
7,412.4
950.0
714.0
40.5
(1.4)
–
753.1
291.5
8,362.4
1,044.6
Trillium
£m
562.4
–
–
–
562.4
–
562.4
–
–
–
–
–
–
–
Total
investment
properties
£m
12,296.7
180.6
(67.3)
149.2
12,559.2
1,589.9
14,149.1
7,929.4
189.3
(57.9)
104.7
8,165.5
1,241.5
9,407.0
Net book value at 31 March 2008
Plus: amount included in prepayments in respect of lease incentives
Less: head leases capitalised (note 32)
Plus: properties treated as fi nance leases
Market value at 31 March 2008 – Group
– plus: share of joint ventures (note 20)
Market value at 31 March 2008 – Group and share of joint ventures
Net book value at 31 March 2009
Plus: amount included in prepayments in respect of lease incentives
Less: head leases capitalised (note 32)
Plus: properties treated as fi nance leases
Market value at 31 March 2009 – Group
– plus: share of joint ventures (note 20)
Market value at 31 March 2009 – Group and share of joint ventures
Land Securities Annual Report 2009
Financial statements
99
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
13. Investment properties continued
Included in investment properties are leasehold properties with a net book value of £994.0m (2008: £1,368.1m).
The fair value of the Group’s investment properties at 31 March 2009 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, was arrived at by reference to market evidence of transaction prices for similar properties. Fixed asset properties include capitalised
interest of £181.1m (2008: £211.7m). The average rate of capitalisation is 5.5% (2008: 5.5%). The historical cost of investment properties is £7,721.8m (2008: £7,813.2m).
The current value of investment properties in respect of proposed developments is £524.8m (2008: £639.6m). Developments are transferred out of the development
programme when physically complete and 95% let. The schemes completed during the year were Queen Anne’s Gate, London SW1, 10 Eastbourne Terrace, London W2
and Angel Road, Edmonton N18.
The Group has outstanding capital commitments of £280.5m at 31 March 2009 (2008: £234.5m).
2009
£m
544.8
0.8
18.1
(13.5)
–
(11.9)
(16.7)
(521.6)
–
2009
£m
73.6
8.4
(7.8)
(4.6)
(0.9)
(54.4)
14.3
2008
£m
551.5
8.9
32.4
(16.9)
(4.1)
(4.1)
(22.9)
–
544.8
2008
£m
78.2
16.1
(0.7)
(4.9)
(15.1)
–
73.6
14. Operating properties
Group
Book value at the beginning of the year
Property acquisitions
Capital expenditure
Disposals
Transfers to trading properties
Transfer to investment properties (Trillium)
Depreciation – discontinued operations
Disposals included as part of the disposal of Trillium
Book value at the end of the year
15. Other property, plant and equipment
Group
Book value at the beginning of the year
Capital expenditure
Disposals
Depreciation – continuing activities
– discontinued operations
Disposals included as part of the disposal of Trillium
Book value at the end of the year
Land Securities Annual Report 2009
R
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–
1
4
4
100
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
16. 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
2009
£m
2008
£m
277.7
(187.1)
25.7
116.3
7.0
(6.2)
0.8
117.1
7.0
34.9
242.8
284.7
(193.3)
25.7
117.1
692.8
(385.6)
26.5
333.7
27.4
(20.3)
7.1
340.8
27.4
129.3
563.5
720.2
(405.9)
26.5
340.8
2008
£m
129.6
13.5
5.5
–
148.6
233.5
(84.9)
148.6
The Group has leased out a number of investment properties under fi nance leases, which ranged from 35 to 100 years in duration from the inception of the lease.
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.
17. Goodwill
Group
At the beginning of the year
Arising on acquisitions during the year
Arising on acquisitions in prior years
Impaired in the year1
At the end of the year
Represented by:
Gross goodwill recognised
Total accumulated impairment losses
2009
£m
148.6
–
–
(148.6)
–
–
–
–
1. The impairment charge in the year is included within the post-tax loss of Trillium within discontinued operations as the goodwill relates to the Trillium operations that were disposed of on 12 January 2009.
As a result of adverse economic conditions impacting Trillium’s new business prospects, particularly the reduced availability of long-term debt funding at a reasonable cost,
an impairment review was undertaken in compliance with IAS36 ‘Impairment of Assets’ to assess whether the goodwill carried in the Group’s balance sheet was impaired.
As a result of this review, an impairment loss of £148.6m was recognised in the fi rst half of the year. This impairment is included within discontinued operations (note 42).
The carrying value was tested by comparing the carrying amount of the business’ assets and liabilities with their recoverable amount. The latter was calculated by reference
to the cash fl ow projections for the entire term of each of Trillium’s contracts. The cash fl ow projections had been prepared on the basis of strategic plans, knowledge of the
market and management’s views on achievable new business gains over the longer term. The main assumptions underlying the forecasts were the relative infl ation rates
applying to costs and revenues, the amount of expenditure required to fulfi l the service level commitments, the vacation rate under the DWP contract and the value of
new business from Property Partnerships and PPP. The cash fl ows were discounted using Trillium’s weighted average cost of capital of 9.0% (31 March 2008: 7.5%).
Land Securities Annual Report 2009
Financial statements
101
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
18. Investment in an associate undertaking
Group
At the beginning of the year
Transferred from non-current assets classifi ed as held for sale
Share of post-tax results1
Disposals included as part of the disposal of Trillium
At the end of the year
2009
£m
42.9
–
(16.6)
(26.3)
–
2008
£m
–
43.4
(0.5)
–
42.9
1.
The Group’s share of post-tax results from an associate undertaking is included within the post-tax loss of Trillium within discontinued operations as it relates to Trillium Investment Partners LP that was disposed of as part of the
disposal of Trillium on 12 January 2009.
The Group’s share of the assets and liabilities of Trillium Investment Partners LP is as follows:
Group
Assets
Liabilities
Group’s share of net assets
19. Loans to third parties
Group
At the beginning of the year
Additions
At the end of the year
2009
£m
–
–
–
2009
£m
–
50.0
50.0
2008
£m
257.7
(214.8)
42.9
2008
£m
–
–
–
In conjunction with the disposal of Trillium, the Group has made an unsecured loan to Semperian PPP (formerly Trillium Investment Partners LP), which is repayable by
instalments between 2015 and 2035.
20. Investments in joint ventures
The Group’s signifi cant joint ventures are described below:
Name of joint venture
The Scottish Retail Property
Limited Partnership
Metro Shopping Fund Limited Partnership
Buchanan Partnership
St. David’s Limited Partnership
The Bull Ring Limited Partnership
Bristol Alliance Limited Partnership
The Harvest Limited Partnership
The Oriana Limited Partnership
Percentage
owned
Business
segment
Year end date
Joint venture partners
50.0%
50.0%
50.0%
50.0%
33.3%
50.0%
50.0%
50.0%
Retail Portfolio
Retail Portfolio
Retail Portfolio
Retail Portfolio
Retail Portfolio
Retail Portfolio
Retail Portfolio
London Portfolio
31 March
31 March
31 December
31 December
31 December
31 December
31 March
31 March
The British Land Company PLC
Delancey Real Estate Partners Limited
The Henderson UK Shopping Centre Fund
Liberty International PLC
The Henderson UK Shopping Centre Fund
Hammerson plc
Hammerson plc
J Sainsbury plc
Frogmore Real Estate Partners Limited Partnership
R
e
p
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r
t
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e
D
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c
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s
P
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–
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i
F
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a
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c
i
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4
4
Land Securities Annual Report 2009
Income statement
Rental income
Service charge income
Property services income
Trading property sale proceeds
Revenue
Rents payable
Other direct property
expenditure
Indirect property expenditure
Impairment of trading properties
Cost of sales of trading properties
(Loss)/profi t on disposal
of non-current properties
Net defi cit on revaluation of
investment properties
Operating loss
Net interest
(expense)/income
Loss before tax
Income tax
Net liabilities adjustment3
Share of losses of joint
ventures after tax
Balance sheet
Investment properties2
Current assets
Current liabilities
Non-current liabilities
Net liabilities adjustment3
Net assets
Capital commitments
Market value of
102
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
20. Investments in joint ventures continued
Year ended 31 March 2009 and at 31 March 2009
Summary fi nancial
information of Group’s
share of joint ventures
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
9.1
1.5
–
–
10.6
(0.2)
(3.6)
(0.4)
–
–
6.4
(0.1)
(54.0)
(47.7)
(3.2)
(50.9)
(0.2)
(51.1)
–
12.9
2.5
–
–
15.4
–
(4.0)
(1.2)
–
–
10.2
0.2
(78.1)
(67.7)
(10.6)
(78.3)
(0.8)
(79.1)
16.5
9.2
1.8
–
–
11.0
–
(2.9)
(0.1)
–
–
8.0
–
(66.5)
(58.5)
(3.8)
(62.3)
–
(62.3)
–
5.0
0.7
–
–
5.7
–
(1.2)
(0.3)
–
–
4.2
–
(184.6)
(180.4)
0.3
(180.1)
–
(180.1)
–
15.5
2.5
–
–
18.0
–
(5.1)
(0.3)
–
–
12.6
0.4
(87.8)
(74.8)
–
(74.8)
–
(74.8)
–
10.8
–
–
–
10.8
(0.2)
(3.8)
(0.1)
–
–
6.7
1.7
(106.3)
(97.9)
0.3
(97.6)
–
(97.6)
–
4.4
0.2
–
–
4.6
–
(0.3)
(0.4)
–
–
3.9
–
(11.5)
(7.6)
(1.4)
(9.0)
–
(9.0)
–
4.3
0.3
–
–
4.6
–
(0.5)
(0.6)
–
–
3.5
–
(4.8)
(1.3)
(11.7)
(13.0)
–
(13.0)
–
Other1
£m
6.5
0.1
–
16.0
22.6
(0.1)
(1.1)
(0.4)
(12.3)
(10.5)
(1.8)
0.7
(36.7)
(37.8)
(11.6)
(49.4)
(0.3)
(49.7)
1.2
Total
£m
77.7
9.6
–
16.0
103.3
(0.5)
(22.5)
(3.8)
(12.3)
(10.5)
53.7
2.9
(630.3)
(573.7)
(41.7)
(615.4)
(1.3)
(616.7)
17.7
(51.1)
(62.6)
(62.3)
(180.1)
(74.8)
(97.6)
(9.0)
(13.0)
(48.5)
(599.0)
82.3
6.4
88.7
(3.1)
(68.1)
(71.2)
–
17.5
1.6
171.5
7.5
179.0
(5.6)
(189.9)
(195.5)
16.5
–
0.7
112.3
6.0
118.3
(3.9)
–
(3.9)
–
114.4
0.4
147.6
119.0
266.6
(25.6)
(0.4)
(26.0)
–
240.6
53.1
200.0
12.2
212.2
(9.4)
–
(9.4)
–
202.8
–
230.8
33.6
264.4
(17.3)
(2.9)
(20.2)
–
244.2
12.9
investment properties2
83.8
172.6
115.0
147.5
205.0
253.4
Net (debt)/cash
(63.3)
(185.1)
1.9
2.7
2.8
1.9
Net investment
At 1 April 2008
Properties contributed
Cash contributed
Distributions
Fair value movement on
cash fl ow hedges
Disposals
Loan advances
Loan repayments
Disposal of Trillium
Share of losses of joint
ventures after tax
At 31 March 2009
73.0
–
0.4
–
(4.8)
–
–
–
–
(51.1)
17.5
69.9
–
5.8
(1.1)
(12.0)
–
–
–
–
(62.6)
179.6
–
1.4
(4.3)
–
–
–
–
–
346.7
–
–
–
–
–
74.0
–
–
(62.3)
(180.1)
289.3
–
–
–
–
–
0.3
(12.0)
–
(74.8)
–
114.4
240.6
202.8
284.4
–
–
–
–
–
61.1
(3.7)
–
(97.6)
244.2
69.5
44.3
113.8
(1.0)
(46.9)
(47.9)
–
65.9
–
70.0
(46.1)
64.5
–
17.6
(3.0)
(4.2)
–
–
–
–
(9.0)
65.9
83.9
3.1
87.0
(4.3)
(75.6)
(79.9)
–
7.1
–
84.0
(74.8)
9.0
–
11.2
(0.1)
–
–
–
–
–
(13.0)
7.1
110.1
55.7
165.8
(29.0)
(99.7)
(128.7)
1.2
38.3
1.9
1,208.0
287.8
1,495.8
(99.2)
(483.5)
(582.7)
17.7
930.8
70.6
110.2
1,241.5
(99.4)
(459.4)
94.2
27.3
4.1
(13.1)
(0.3)
(17.9)
0.2
(2.4)
(5.3)
(48.5)
38.3
1,410.6
27.3
40.5
(21.6)
(21.3)
(17.9)
135.6
(18.1)
(5.3)
(599.0)
930.8
1. Other principally includes The Martineau Galleries Limited Partnership, The Ebbsfl eet Limited Partnership and Millshaw Property Co. Limited.
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.
3.
Joint ventures with net liabilities are carried at zero value in the balance sheet where there is no commitment to fund the defi cit and any distributions are included in the consolidated income statement for the year.
Land Securities Annual Report 2009
Financial statements
103
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
20. Investments in joint ventures continued
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
Share of (losses)/profi ts of
joint ventures after tax
– continuing activities
– discontinued
operations
Balance sheet
Investment properties
Current assets
Current liabilities
Non-current liabilities
Net assets
Capital commitments
Market value of
Net investment
At 1 April 2007
Properties contributed
Cash contributed
Distributions
Fair value movement on
cash fl ow hedges
taken to equity
Loan advances
Loan repayments
Share of post-tax results:
– continuing activities
– discontinued
operations
At 31 March 2008
Land Securities Annual Report 2009
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
9.9
0.7
–
–
10.6
–
(1.9)
(0.1)
–
8.6
–
(12.1)
(11.5)
0.6
(12.5)
(11.9)
(0.6)
(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
145.8
–
–
(42.5)
1.8
–
–
95.3
–
6.6
(14.2)
(5.3)
–
–
176.0
6.1
182.1
(2.5)
–
(2.5)
179.6
2.9
180.0
0.7
188.6
–
3.4
(6.0)
–
–
–
244.1
118.7
362.8
(15.7)
(0.4)
(16.1)
346.7
127.4
244.0
5.3
308.1
–
–
–
–
55.4
–
288.4
9.1
297.5
(8.2)
–
(8.2)
289.3
–
293.3
3.1
321.1
–
–
–
–
–
(13.5)
(18.3)
–
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
294.5
(0.3)
198.6
–
–
–
–
79.5
(3.4)
9.7
–
(32.1)
(12.5)
(6.4)
(16.8)
–
73.0
–
69.9
–
–
179.6
346.7
289.3
284.4
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)
–
Other
£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)
(1.9)
(101.1)
–
–
0.1
0.1
62.7
2.3
65.0
(0.5)
–
(0.5)
64.5
–
62.8
1.5
–
39.7
33.2
–
–
–
–
87.3
1.5
88.8
(79.7)
(0.1)
(79.8)
9.0
–
87.3
1.4
–
205.8
–
(0.8)
–
–
(181.6)
55.9
73.7
129.6
(10.7)
(24.7)
(35.4)
94.2
8.3
55.5
(6.5)
81.3
–
26.3
(11.6)
–
–
–
1,579.0
273.3
1,852.3
(142.3)
(299.4)
(441.7)
1,410.6
169.8
1,589.9
(253.5)
1,338.8
245.5
69.5
(75.1)
(3.5)
134.9
(198.5)
(8.4)
(14.4)
(1.9)
(101.1)
–
64.5
–
9.0
0.1
94.2
0.1
1,410.6
investment properties
125.9
246.6
Net (debt)/cash
(53.1)
(205.6)
R
e
p
o
r
t
o
f
t
h
e
D
i
r
e
c
t
o
r
s
P
0
1
–
8
0
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
P
8
1
–
1
3
0
I
n
v
e
s
t
o
r
r
e
s
o
u
r
c
e
P
1
3
1
–
1
4
4
104
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
21. Investments in Public Private Partnerships
Group
At the beginning of the year
Arising on acquisitions during the year
Additions
Transferred to non-current assets classifi ed as held for sale
Disposals included as part of the disposal of Trillium
At the end of the year
The Group’s share of the assets and liabilities of the PPP investments is as follows:
Group
Assets
Liabilities
Group’s share of net assets
22. Investments in subsidiary undertakings
Company
At the beginning of the year
Capital contributions relating to share-based payments (note 35)
Impairment to reduce net assets of the Company to net assets of the Group attributable to equity shareholders
At the end of the year
2009
£m
25.4
–
–
(17.2)
(8.2)
–
2009
£m
–
–
–
2008
£m
–
17.2
8.2
–
–
25.4
2008
£m
216.4
(191.0)
25.4
2009
£m
5,054.6
8.6
(234.7)
4,828.5
2008
£m
5,049.6
5.0
–
5,054.6
In accordance with IFRIC11 ‘IFRS2 – 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.
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 are:
Wholly owned subsidiary undertakings
Group operations
Land Securities Properties Limited
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
All principal subsidiary undertakings operate in Great Britain and are registered in England and Wales.
A full list of subsidiary undertakings at 31 March 2009 will be appended to the Company’s next annual return.
Land Securities Annual Report 2009
Financial statements
105
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
23. Trading properties and long-term development contracts
Group
Trading properties:
Development land and infrastructure
Other trading properties
Long-term development contracts
Cost
£m
Impairment
provision
£m
159.1
26.0
2.1
187.2
(92.0)
(0.3)
–
(92.3)
2009
Realisable
value
£m
67.1
25.7
2.1
94.9
Cost
£m
Impairment
provision
£m
128.2
44.8
–
173.0
–
–
–
–
2008
Realisable
value
£m
128.2
44.8
–
173.0
The realisable value of the Group’s trading properties at 31 March 2009 has been arrived at on the basis of a valuation carried out at that date by Knight Frank LLP,
external valuers.
Long-term development contracts
Income statement:
Contract revenue recognised as revenue in the year
Balance sheet:
Contract costs incurred and recognised profi ts (less recognised losses) to date
Advances received from customers
Plus: gross amount due to customers for contract work (included in accruals and deferred income)
Balance at the end of the year
24. Trade and other receivables
Trade receivables
Less: allowance for doubtful accounts
Trade receivables – net
Property sales receivables
Other receivables
Prepayments and accrued income
Current tax assets
Finance leases receivable within one year (note 16)
Amounts due from joint ventures
Loans to Group undertakings
Group
Movement in allowances for doubtful accounts
At the beginning of the year
Additions/reversal of allowance
Write-offs charged against the allowances account
Allowance included as part of disposal of Trillium discontinued operations
At the end of the year
2009
£m
2008
£m
48.9
26.3
383.8
(390.8)
(7.0)
9.1
2.1
2009
£m
–
–
–
–
–
0.1
3.2
–
–
5.5
8.8
2009
£m
15.0
10.5
(3.3)
(1.9)
20.3
332.8
(346.0)
(13.2)
13.2
–
Company
2008
£m
–
–
–
–
–
0.3
–
–
–
385.9
386.2
2008
£m
15.2
3.6
(3.8)
–
15.0
2009
£m
53.6
(20.3)
33.3
64.9
35.6
212.9
–
0.8
44.6
–
392.1
Group
2008
£m
161.1
(15.0)
146.1
205.2
53.9
314.6
–
7.1
111.1
–
838.0
R
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8
0
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4
Land Securities Annual Report 2009
106
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
24. Trade and other receivables continued
Group
Accounts receivable past due
As at 31 March 2009
Past due but not impaired
Past due and impaired
As at 31 March 20081
Past due but not impaired
Past due and impaired
1-30 days
past due
£m
Up to
6 months
past due
£m
Up to
12 months
past due
£m
More than
12 months
past due
£m
15.4
15.1
30.5
16.1
17.0
33.1
2.6
10.5
13.1
1.9
5.3
7.2
–
5.5
5.5
–
3.4
3.4
Group
2008
£m
25.7
–
25.7
22.7
–
22.7
–
–
–
–
4.5
4.5
–
5.3
5.3
2009
£m
105.1
–
105.1
–
–
–
–
–
–
Total
£m
18.0
35.6
53.6
18.0
31.0
49.0
Company
2008
£m
69.5
–
69.5
–
–
–
–
–
–
1. The balance for the year ended 31 March 2008 excludes £112.1m that relates to the Trillium discontinued operations.
In accordance with IFRS7, the amounts shown as past due represent the total credit exposure, not the amount actually past due.
25. Cash and cash equivalents
Cash at bank and in hand:
Unrestricted
Restricted
Short-term deposits:
Unrestricted
Restricted
Liquidity funds:
Unrestricted
Restricted
2009
£m
108.1
0.1
108.2
750.0
29.8
779.8
751.0
–
751.0
1,639.0
48.4
105.1
69.5
Liquidity funds
The liquidity funds are AAA rated cash-investment funds with constant net asset values, offering the Group same day access to the funds deposited. These investments
yield a return of between 0.5% and 1.3% at 31 March 2009.
Short-term deposits
The effective interest rate on short-term deposits was 1.2% at 31 March 2009 (2008: 5.1%) and had an average maturity of 91 days (2008: one day).
Restricted cash and deposits
Restricted cash represents amounts held within the Security Group which requires the consent of the Security Group Trustee in order to be released for use by the Group.
The requirement to hold restricted cash is an operating requirement under the terms of the Security Group’s debt programme, which encourages a reduction in gearing
when either LTV or interest cover exceeds prescribed levels. This does not prevent the Group from optimising returns by putting this money on short-term deposit.
Restricted balances do not meet the defi nition of cash and cash equivalents for the purposes of the cash fl ow statement.
Land Securities Annual Report 2009
Financial statements
107
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
25. Cash and cash equivalents continued
For the purposes of the cash fl ow statement, cash and cash equivalents comprise the following:
Cash at bank and in hand
Short-term deposits
Liquidity funds
Bank overdrafts (note 30)
26. 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
2009
£m
108.1
750.0
751.0
(0.3)
1,608.8
Group
2008
£m
25.7
22.7
–
(1.4)
47.0
2009
£m
105.1
–
–
–
105.1
2009
£m
–
–
–
Company
2008
£m
69.5
–
–
–
69.5
2008
£m
664.1
(427.7)
236.4
Non-current assets and liabilities held for sale at 31 March 2008 represented a number of PPP investments owned by Trillium which were to be sold to Trillium Investment
Partners LP or to third parties. These investments were held as a disposal group within the Trillium operations that were divested on 12 January 2009. The Group has not
recognised any profi ts or losses in respect of these investments in the year ended 31 March 2009, other than the £23.0m profi t on disposal of projects sold to Trillium
Investment Partners LP and a £2.8m impairment charge, both of which are included within discontinued operations.
Set out below is an analysis of the movements within the disposal group for the year ended 31 March 2009:
Book value at the beginning of the year
Projects transferred from Investments in Public Private Partnership contracts
Projects sold to Trillium Investment Partners LP
Project acquisitions
Impairments
Profi t from discontinued operations
Cash received from the disposal group
Disposals included as part of the disposal of Trillium
Book value at the end of the year
27. Trade and other payables
Trade payables
Capital payables
Other payables
Accruals and deferred income
Amounts owed to joint ventures
Loans from Group undertakings
Total
£m
236.4
17.2
(97.3)
7.5
(2.8)
1.1
(1.8)
(160.3)
–
Company
2008
£m
–
–
–
0.2
–
874.5
874.7
2009
£m
2.7
129.7
46.6
278.2
168.6
–
625.8
Group
2008
£m
28.5
116.8
73.3
574.4
134.2
–
927.2
2009
£m
–
–
–
5.2
–
113.7
118.9
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.
R
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–
8
0
i
F
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1
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1
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–
1
4
4
Land Securities Annual Report 2009
108
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
28. Provisions
Group
At 1 April 2007
Net charge to income statement for the year (included in discontinued operations)
Release of discount (included in discontinued operations)
Utilised in the year
At 31 March 2008
Net charge to income statement for the year (included in discontinued operations)
Release of discount (included in discontinued operations)
Utilised in the year
Provisions included in the disposal of Trillium
At 31 March 2009
Included in the balance above, the following amounts are anticipated to be utilised within one year:
At 31 March 2009
Dilapidations
£m
20.9
7.2
–
(7.9)
20.2
6.0
–
(2.4)
(23.8)
–
–
Onerous
leases
£m
39.8
0.4
1.6
(11.6)
30.2
5.5
1.2
(8.3)
(28.6)
–
–
Other
£m
20.0
7.2
–
–
27.2
1.4
–
–
(28.6)
–
–
Total
£m
80.7
14.8
1.6
(19.5)
77.6
12.9
1.2
(10.7)
(81.0)
–
–
At 31 March 2008
14.8
10.6
15.5
40.9
Dilapidations
Provisions for dilapidations were made in respect of certain leasehold properties held within the Trillium operations that were disposed of on 12 January 2009. A provision
was established where the Group anticipated incurring future expenditure at the end of the lease. The amounts provided were 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 occurred once agreement was reached with
the parties to the lease.
Onerous leases
An onerous lease provision related to leasehold properties held within the Trillium operations that were disposed of on 12 January 2009. A provision was established
in respect of leasehold properties that were unoccupied or where the expected future rental income was not expected to meet the Group’s rental obligations.
The provisions were based on assumptions about expected future rentals and voids.
Other
Other provisions included liabilities that arose from the contractual arrangements with clients of the disposed Trillium operations that included specifi c performance
measurement targets and life cycle capital expenditure requirements. Settlement of the amounts provided followed agreement with the clients.
Land Securities Annual Report 2009
Financial statements
109
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
29. Derivative fi nancial instruments
Group
Interest-rate swaps (cash fl ow hedges)
Interest-rate swaps (non-designated)
Forward foreign-exchange contracts (cash fl ow hedges)
Total
2009
Assets
£m
Liabilities
£m
–
–
–
–
–
112.0
–
112.0
Assets
£m
–
–
4.3
4.3
2008
Liabilities
£m
0.8
9.9
–
10.7
Non-designated derivatives are classifi ed as a current asset or liability. The full fair value of a hedging derivative is classifi ed as a non-current asset or liability if the
remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the maturity of the hedged item is less than 12 months.
Interest-rate swaps
The Group uses interest-rate swaps to manage its exposure to interest-rate movements on its interest-bearing loans and borrowings. The fair value of these contracts is
recorded in the balance sheet and is determined by discounting future cash fl ows at the prevailing market rates at the balance sheet date.
The change in fair value of the contracts that are not designated as hedging instruments is taken to the income statement. For contracts that are designated as cash fl ow
hedges the change in the fair value of the contracts is recognised directly in equity. There was no ineffectiveness to be recognised from the designated cash fl ow hedges.
The deferred asset or liability assumed is released to the income statement during the term of each relevant swap.
Forward foreign-exchange contracts
The Group uses forward foreign-exchange contracts to manage its exposure to exchange-rate movements in relation to debt raised in currencies other than sterling, or
to lock in the sterling equivalent of future committed expenditure denominated in foreign currencies. The fair value of these contracts is recorded in the balance sheet.
The change in fair value of designated cash fl ow hedging instruments is recognised directly in equity. The asset acquired or liability assumed is released to the income
statement in the period to which it relates.
At the balance sheet date, the notional amount of outstanding derivative fi nancial instruments was as follows:
Interest-rate swaps
Forward foreign-exchange contracts
2009
£m
2,225.0
–
2,225.0
2008
£m
2,025.7
35.5
2,061.2
R
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P
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1
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–
1
4
4
Land Securities Annual Report 2009
110
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
30. Borrowings
Group
Short-term borrowings and overdrafts
Sterling
Bank overdrafts
Amounts payable under fi nance leases (note 32)
Total short-term borrowings and overdrafts
Non-current borrowings
Sterling
4.625 per cent MTN due 2013
5.292 per cent MTN due 2015
4.875 per cent MTN due 2019
5.425 per cent MTN due 2022
4.875 per cent MTN due 2025
5.391 per cent MTN due 2026
5.391 per cent MTN due 2027
5.376 per cent MTN due 2029
5.396 per cent MTN due 2032
5.125 per cent MTN due 2036
Bond exchange de-recognition adjustment
Syndicated bank debt
Bilateral facilities
Amounts payable under fi nance leases (note 32)
Total non-current borrowings
Total borrowings
Secured/
unsecured
Fixed/
fl oating
Effective
interest rate
%
Nominal/
notional
value
£m
Unsecured
Floating
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Floating
Floating
Fixed
LIBOR+ margin
LIBOR+ margin
5.5
2009
Book
value
£m
0.3
0.8
1.1
299.8
391.0
396.5
254.6
297.2
209.9
608.5
316.4
321.1
498.6
(499.8)
3,093.8
1,658.6
640.0
57.1
Fair
value
£m
0.3
0.8
1.1
294.3
383.4
370.0
230.9
237.2
175.9
509.6
256.1
258.6
376.1
–
3,092.1
1,662.8
640.0
68.0
–
5.5
4.7
5.3
5.0
5.5
4.9
5.4
5.4
5.4
5.4
5.1
0.3
0.8
1.1
300.0
391.5
400.0
255.3
300.0
210.7
611.1
317.9
322.9
500.0
–
3,609.4
1,662.8
640.0
57.1
5,969.3
5,462.9
5,449.5
5,970.4
5,464.0
5,450.6
Medium term notes (MTN)
The MTN are secured on the fi xed and fl oating pool of assets of the Security Group. Debt investors benefi t from security over a pool of investment properties valued
at £7.5bn at 31 March 2009 (2008: £11.0bn). The secured debt structure has a tiered operating covenant regime which gives the Group substantial fl exibility when the
loan to value and interest cover in the Security Group are less than 65% and more than 1.45 times respectively. If these limits are exceeded the operating environment
becomes more restrictive with provisions to encourage the reduction in gearing (see note 31). The interest rate is fi xed until the expected maturity, being two years
before the legal maturity date for each MTN, whereupon the interest rate for the last two years is LIBOR plus a step-up margin. The effective interest rate includes the
amortisation of issue costs. The MTN are listed on the Irish Stock Exchange and their fair values are based on their respective market prices.
Syndicated bank debt
At 31 March 2009 the Group had two syndicated bank facilities:
1. £1.5bn authorised credit facility with a maturity of August 2013, which has been fully drawn. This facility is committed and is secured on the assets of the Security
Group. The interest rates are fl oating at LIBOR plus a margin of between 0.15% and 0.25%; and
2. £352.0m committed development facility with a maturity of May 2013. This facility was taken out to fund the development of Leeds Trinity Quarter and is secured
on this property; this facility is currently £162.8m drawn. The interest rates are fl oating at LIBOR plus a margin of 2.35%. There are £5.0m of issue costs which are
being written off over the life of this facility.
Land Securities Annual Report 2009
Financial statements
111
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
30. Borrowings continued
Bilateral facilities
Committed Bilateral facilities totalling £940.0m are available to the Group and are secured on the assets of the Security Group. These facilities mature between July and
December 2011, with the exception of one undrawn facility for £40m which matures in September 2009. The Group has the option to extend any drawings for a further
year past maturity, or two years in the case of the £40m facility. The interest rates are fl oating at LIBOR plus a margin of between 0.25% and 0.75%.
Bond exchange de-recognition
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 MTN with higher
nominal values. The new MTN did not meet the IAS39 requirement to be substantially different from the debt that it replaced. Consequently the book value of the new
debt is reduced to the book value of the original debt by the ‘bond exchange de-recognition’ adjustment which is then amortised to zero over the life of the new MTN.
The amortisation is charged to net interest expenses in the income statement.
Fair values
The fair values of any fl oating rate fi nancial liabilities are assumed to be equal to their nominal value.
Secured/
unsecured
Fixed/
fl oating
Effective
interest rate
%
Nominal/
notional
value
£m
Unsecured
Unsecured
Unsecured
Unsecured
Secured
Secured
Secured
Floating
Floating
Floating
Floating
Floating
Floating
Fixed
Fixed
Unsecured
Floating
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Floating
Floating
Floating
Floating
Fixed
5.4
5.8
5.7
–
6.4
5.9
5.5
–
4.7
4.7
5.3
5.0
5.5
4.9
5.4
5.4
5.4
5.4
5.1
6.4
6.4
5.8
5.9
5.5
106.4
19.8
45.0
1.4
30.0
565.4
2.2
–
35.5
805.7
300.0
391.5
400.0
255.3
300.0
210.7
611.2
317.9
322.9
500.0
–
3,609.5
15.5
94.4
865.0
500.0
65.1
2008
Book
value
£m
106.4
19.8
45.0
1.4
30.0
565.4
2.2
(11.7)
35.5
794.0
299.7
390.9
396.1
254.5
297.0
209.8
608.5
316.3
321.0
498.5
(499.8)
3,092.5
15.5
94.4
865.0
500.0
65.1
Fair
value
£m
106.4
19.8
45.0
1.4
30.0
565.4
–
–
35.5
803.5
292.9
384.0
369.9
240.0
257.2
190.5
547.6
283.4
285.2
426.6
–
3,277.3
15.5
94.4
865.0
500.0
79.5
5,149.5
4,831.7
4,632.5
5,955.2
5,635.2
5,426.5
Group
Short-term borrowings and overdrafts
Sterling
Acquisition loan notes
Euro Commercial Paper
Money-market borrowings
Bank overdrafts
DWP term loan
Bilateral facilities
Amounts payable under fi nance leases (note 32)
Bond exchange de-recognition adjustment
Euro
Commercial paper
Total short-term borrowings and overdrafts
Non-current borrowings
Sterling
4.625 per cent MTN due 2013
5.292 per cent MTN due 2015
4.875 per cent MTN due 2019
5.425 per cent MTN due 2022
4.875 per cent MTN due 2025
5.391 per cent MTN due 2026
5.391 per cent MTN due 2027
5.376 per cent MTN due 2029
5.396 per cent MTN due 2032
5.125 per cent MTN due 2036
Bond exchange de-recognition adjustment
Bank facility due 2010
DWP term loan
Syndicated bank debt
Bilateral facilities
Amounts payable under fi nance leases (note 32)
Total non-current borrowings
Total borrowings
Land Securities Annual Report 2009
R
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8
0
i
F
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a
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c
i
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s
t
a
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m
e
n
t
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P
8
1
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1
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P
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1
–
1
4
4
112
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
30. Borrowings continued
Group
Reconciliation of the movement in borrowings
At the beginning of the year
(Decrease)/increase in overdrafts
Repayment of loans
Proceeds from new loans
Capitalisation of fi nance fees
Amortisation of fi nance fees
Amortisation of bond exchange de-recognition adjustment
Net movement in fi nance lease obligations
Borrowings included within the disposal of Trillium
At the end of the year
2009
£m
5,426.5
(1.1)
(1,612.0)
1,737.6
(5.0)
2.2
11.7
(9.4)
(99.9)
2008
£m
5,155.2
1.4
(1,485.0)
1,748.9
–
2.1
7.6
(3.7)
–
5,450.6
5,426.5
31. Financial risk management
Introduction
A review of the Group’s objectives, policies and processes for managing and monitoring risk is set out in the Financial review on pages 18 to 23 and Our risks and how
we manage them on pages 30 to 32. This note provides further detail on fi nancial risk management and includes quantitative information on specifi c fi nancial risks.
The Group is exposed to a variety of fi nancial risks: market risks (principally interest-rate risk), credit risk and liquidity risk. The Group’s overall risk management strategy
seeks to minimise the potential adverse effects on the Group’s fi nancial performance, which includes the use of derivative fi nancial instruments to hedge certain
risk exposures.
Risk management is carried out by Group Treasury under policies approved by the Board of Directors.
Capital structure
The capital structure of the Group consists of shareholders’ equity and net borrowings, including cash held on deposit. The type and maturity of the Group’s borrowings
are analysed further in note 30 and the Group’s equity is analysed into its various components in note 37. Capital is managed so as to promote the long-term success of the
business and to maintain sustainable returns for shareholders. The Group’s objective is to navigate a prudent course through the current downturn and market volatility.
Whilst the Group is maintaining a strong focus on the business actions which are within its infl uence, a number of factors affecting the market in which the Group
operates are beyond the Group’s control. The pace of valuation decline has, in recent months, exceeded the pace at which assets can be sold to counteract the impact
of falling values on the Group’s balance sheet position, and this represents an ongoing risk.
Given the prevailing market conditions and the Group’s fi nancing arrangements, the Group undertook a Rights Issue in March 2009 to improve the Group’s ability to
preserve and create shareholder value through the downturn and into the next cycle by strengthening the Group’s balance sheet and providing fl exibility to react quickly
to pricing and timing opportunities.
The additional capital raised by the Rights Issue reduces the impact of the risk of prolonged falls in property values. Furthermore, the Group is now in a position to
respond quickly to the turning point in the cycle, particularly in relation to the acquisition of assets and the commencement of development opportunities, and that
fl exibility on timing is key to the creation of value. The Rights Issue also strengthens the Group’s position in refi nancing its debt facilities.
The Group’s strategy is to maintain an appropriate net debt to total equity ratio (gearing) to ensure that asset level performance is translated into enhanced returns
for shareholders whilst maintaining an appropriate risk reward balance to accommodate changing fi nancial and operating market cycles. The following table details
the Group’s adjusted gearing, which includes the effects of our share of our joint ventures’ net debt.
Land Securities Annual Report 2009
Financial statements
113
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
31. Financial risk management continued
Group
Adjusted net debt
Borrowings (note 30)
Cash and cash equivalents (note 25)
Cumulative mark-to-market adjustment on fi nancial derivatives
– Group
Net debt
Share of joint ventures’ net debt (note 20)
Less: Cumulative mark-to-market adjustment on fi nancial derivatives – Group
Reverse Bond exchange de-recognition
– joint ventures
Adjusted total equity
Total equity
Cumulative mark-to-market adjustment on fi nancial derivatives
Reverse Bond exchange re-recognition
– Group
– joint ventures
Gearing
Adjusted gearing
The Group is not subject to any externally imposed capital requirements.
2009
£m
2008
£m
5,450.6
(1,639.0)
112.0
3,923.6
459.4
(112.0)
(38.2)
499.8
5,426.5
(48.4)
6.4
5,384.5
253.5
(6.4)
(2.0)
511.5
4,732.6
6,141.1
4,820.2
112.0
38.2
(499.8)
9,582.9
6.4
2.0
(511.5)
4,470.6
9,079.8
81.4%
105.9%
56.2%
67.6%
Financial risk factors
(i) Credit risk
The Group’s principal fi nancial assets are cash and cash equivalents, trade and other receivables, fi nance lease receivables, amounts due from joint ventures and loans to
third parties.
Bank and fi nancial institutions
One of the principal credit risks of the Group arises from cash and cash equivalents, fi nancial derivative instruments and deposits with banks and fi nancial institutions.
In line with the policy approved by the Board of Directors, only independently-rated banks and fi nancial institutions with a minimum rating of A are accepted. In light of
market conditions, Group Treasury currently performs a weekly review of the credit ratings of all its fi nancial institution counterparties. Furthermore, Group Treasury
ensures that funds deposited with a single fi nancial institution remain within the Group’s policy limits.
Trade receivables
Trade receivables are presented in the balance sheet net of allowances for doubtful receivables. 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
owing to the long-term nature and diversity of its tenancy arrangements, with central Government being the single largest tenant, the credit risk of trade receivables is
considered to be low. Furthermore, a credit report is obtained from an independent rating agency prior to the inception of a lease with a new counterparty. This report
is used to determine the size of the deposit that is required from the tenant at inception. In general these deposits represent between three and six months’ rent.
Property sales
Property sales receivables primarily relate to the sale of fi ve properties, for which all payments to date have been received when due. The credit risk on outstanding
amounts is considered low.
Finance lease receivables
This balance relates 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.
Loans to third parties
A loan maturing in 2035 was made to Semperian PPP (formerly Trillium Investment Partners LP) as part of the disposal of the Trillium business. This loan is not considered
a signifi cant credit risk as it is repayable from dividends from investments in government infrastructure projects.
(ii) Liquidity risk
The Group actively maintains a mixture of Notes with fi nal maturities between 2013 and 2036, and long-term and short-term committed bank facilities that are
designed to ensure that the Group has suffi cient available funds for its operations and its committed capital-expenditure programme. The Group’s core fi nancing
structure is in the Security Group, although the remaining Non-Restricted Group may also secure independent funding.
Land Securities Annual Report 2009
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114
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
31. Financial risk management continued
Security Group
The Group’s principal fi nancing arrangements utilise the credit support of a ring-fenced group of assets (the Security Group) that comprises the majority of the Group’s
investment property portfolio. These arrangements operate in ‘tiers’ determined by Loan-to-value ratio (LTV) and Interest cover ratio (ICR). This structure is fl exible at
lower tiers (with a lower LTV and a higher ICR) and allows property acquisitions, disposals and developments to occur with relative freedom. In higher tiers, the requirements
become more prescriptive. No fi nancial covenant default is triggered until the applicable LTV exceeds 100% or the ICR is less than 1.0.
As at 31 March 2008, the reported LTV for the Security Group was 50.5%, meaning that the Group was operating in Tier 1 and benefi ted from maximum operational
fl exibility. In January 2009, the Group borrowed a further £1,130.0m from its existing committed facilities to preserve operational fl exibility and currently holds the
majority of the funds outside the Security Group. As a result, the Security Group moved into Tier 2 which imposes limited additional restrictions, such as liquidity
requirements which require liquidity facilities or cash reserves to be put in place, or debt to be prepaid over an agreed amortisation period. After 31 March 2009, the
Group expects to operate within Initial Tier 3 in the short to medium term, a more restrictive covenant regime which restricts, for example, payments being made from
the Security Group to members of the wider Group.
Management monitors the key covenants attached to the Security Group on a monthly basis, including LTV, ICR, sector and regional concentration and disposals.
Non-Restricted Group
The Non-Restricted Group obtains funding when required from a combination of inter-company loans from the Security Group and external bank debt. Bespoke credit
facilities are established with banks when required for the Non-Restricted Group projects and joint ventures, usually on a limited-recourse basis.
The Group’s objective is to navigate a prudent course through the current downturn and market volatility to avoid the Security Group moving into Final Tier 3 (80% LTV).
As at 31 March 2009, as a result of the above decision to increase borrowings and fall in property values, the LTV was 76.7%. However, £1,596m of cash equivalents was
held in the Non-Restricted Group and is available to be applied within the business, including being injected into the Security Group to maintain its LTV at less than 80%
if further falls in property values are experienced. The Security Group would thus avoid entering Final Tier 3 and the signifi cant additional fi nancial and operational
restrictions that would be imposed. The Group’s aim in the medium term is to return to Tier 1 or Tier 2 to allow greater access to the debt markets and avoid the
restrictions imposed in Tier 3.
The table below analyses the Group’s fi nancial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the expected
maturity date. The amounts disclosed in the table are the contractual undiscounted cash fl ows.
Between
1 and 2
years
£m
640.0
0.5
480.0
–
–
Between
2 and 5
years
£m
1,962.8
0.7
1,705.0
–
–
2009
Over 5
years
£m
3,309.4
55.9
–
–
–
1,120.5
3,668.5
3,365.3
Between
1 and 2
years
£m
500.0
2.4
46.7
–
–
549.1
Between
2 and 5
years
£m
315.5
6.4
1,721.9
–
–
2,043.8
2008
Over 5
years
£m
4,268.9
56.3
78.2
–
–
4,403.4
Less than
1 year
£m
0.3
0.8
40.0
2.7
129.7
173.5
Less than
1 year
£m
803.5
2.2
214.4
28.5
116.8
1,165.4
Borrowings (excluding fi nance lease liabilities)
Finance lease liabilities
Derivative fi nancial instruments
Trade payables
Capital payables
Borrowings (excluding fi nance lease liabilities)
Finance lease liabilities
Derivative fi nancial instruments
Trade payables
Capital payables
Land Securities Annual Report 2009
Financial statements
115
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
31. Financial risk management continued
(iii) 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 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 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. Where specifi c hedges are used in geared joint ventures to fi x the interest exposure on limited-recourse debt these qualify for hedge accounting.
At 31 March 2009, the Group (including joint ventures) had £2.7bn (2008: £2.3bn) of hedges in place, and its debt was 107% fi xed (2008: 80%). Consequently, based on
year end balances, a 1% increase in interest rates would decrease the net interest payable in the income statement by £3.5m (2008: increased by £12.4m), and if interest
rates fall by 1% then the reverse occurs. The sensitivity has been calculated by applying the interest rate change to the variable rate borrowings, net of interest-rate swaps
and cash and cash equivalents.
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, where committed expenditure in foreign currencies is identifi ed, it is
the Group’s policy to hedge 100% of that exposure by entering into forward purchases of foreign currency to fi x the Sterling value. Therefore the Group’s foreign-exchange
risk is low.
The Group had no foreign-currency exposure at 31 March 2009 and was fully hedged at 31 March 2008.
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
The expected 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 expected 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
2009
Total
£m
Fixed
rate
£m
Floating
rate
£m
2008
Total
£m
4,662.2
1,308.2
5,970.4
4,402.5
1,552.7
5,955.2
Fixed
rate
£m
1.1
740.2
947.3
2,973.6
Floating
rate
£m
–
200.3
1,107.9
–
2009
Total
£m
1.1
940.5
2,055.2
2,973.6
Fixed
rate
£m
172.2
464.4
321.9
3,444.0
Floating
rate
£m
633.5
38.0
–
881.2
4,662.2
1,308.2
5,970.4
4,402.5
1,552.7
Interest
rate
swaps
£m
40.0
480.0
1,705.0
–
2,225.0
Foreign
currency
swaps
£m
–
–
–
–
–
2009
Total
£m
40.0
480.0
1,705.0
–
Interest
rate
swaps
£m
178.9
46.7
1,721.9
78.2
2,225.0
2,025.7
Foreign
currency
swaps
£m
35.5
–
–
–
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
2,061.2
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Land Securities Annual Report 2009
116
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
32. 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
The present value of fi nance lease liabilities is as follows:
Not later than one year
Later than one year but not more than fi ve years
More than fi ve years
2009
£m
2008
£m
4.7
16.3
426.6
447.6
(389.7)
57.9
0.8
1.2
55.9
57.9
6.6
24.8
393.3
424.7
(357.4)
67.3
2.2
8.8
56.3
67.3
The fair value of the Group’s lease obligations, using a discount rate of 5.5% (2008: 5.5%), is £68.8m (2008: £79.5m).
33. Net pension surplus
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
2009
£m
2.3
2008
£m
2.0
Defi ned benefi t schemes
Land Securities Scheme
The Pension & Assurance Scheme of the Land Securities Group of Companies (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 was updated to 31 March 2009. 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.
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
2009
%
3.40
3.40
7.00
3.40
6.14
2008
%
3.60
3.60
6.90
3.60
6.44
Land Securities Annual Report 2009
Financial statements
117
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
33. Net pension surplus continued
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.
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
2009
Years
28.5
31.7
29.7
32.7
2008
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
2009
%
7.50
5.24
0.50
2008
%
7.50
5.35
5.25
2007
%
7.50
4.80
5.25
2009
£m
43.9
62.6
0.6
107.1
(104.1)
–
3.0
(1.6)
1.4
2008
£m
70.5
68.0
0.5
139.0
(123.9)
(4.1)
11.0
(0.8)
10.2
2009
%
41
59
2007
£m
70.8
71.6
2.0
144.4
(150.0)
–
(5.6)
0.4
(5.2)
2008
%
51
49
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 £0.1m (2008: £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
2009
£m
1.3
1.3
(8.1)
7.5
(0.6)
2008
£m
2.1
2.1
(9.0)
8.1
(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.
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Land Securities Annual Report 2009
118
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
33. Net pension surplus continued
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 £2.0m
Increase by 2.5% or £2.6m
2009
£m
123.9
1.3
7.5
(11.0)
(4.2)
0.2
(13.6)
104.1
2009
£m
139.0
8.1
4.2
(26.2)
(4.2)
0.2
(14.0)
107.1
2009
£m
11.0
(1.3)
8.1
(7.5)
4.2
(11.1)
(0.4)
3.0
2009
£m
(26.2)
11.0
4.1
(11.1)
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
–
139.0
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
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
Defi ned-benefi t obligation included in the disposal of Trillium
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
Pension assets included in the disposal of Trillium
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 (losses)/gains
Transfer of defi ned-benefi t pension scheme on the disposal of Trillium
At the end of the year
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
Decrease/(increase) in non-permissible surplus
Actuarial (losses)/gains
Actuarial gains and losses are recognised immediately through the statement of recognised income and expense.
Land Securities Annual Report 2009
Financial statements
119
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
33. Net pension surplus continued
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)
2009
£m
2008
£m
2007
£m
2006
£m
(26.2)
24.5%
(12.1)
8.7%
(2.6)
1.8%
15.5
10.3%
11.0
10.6%
(104.1)
107.1
–
3.0
(32.0)
25.8%
(123.9)
139.0
(4.1)
11.0
(1.3)
0.9%
20.5
13.1%
(150.0)
144.4
–
(5.6)
(156.5)
150.0
–
(6.5)
(136.6)
125.7
–
(10.9)
2005
£m
3.1
2.5%
7.8
5.7%
The contributions expected to be paid in respect of the defi ned-benefi t schemes during the fi nancial year ending 31 March 2010 amount to £4.4m.
The Company did not operate any defi ned-contribution schemes or defi ned-benefi t schemes during the fi nancial year ended 31 March 2009 or in the previous
fi nancial year.
34. Deferred taxation
Group
At 1 April 2007
– Assets
– Liabilities
(Charged)/credited to income statement for the year1
Charged to equity
At 31 March 2008 – Assets
– Liabilities
Disposal of Trillium
(Charged)/credited to income statement for the year
Credited to equity
At 31 March 2009 – Assets
– Liabilities
Pension
defi cit/(surplus)
£m
Accelerated
tax
depreciation
£m
Capitalised
interest
£m
0.4
–
0.4
(0.3)
(0.9)
–
(0.8)
(0.8)
–
(1.4)
0.6
–
(1.6)
(1.6)
–
(4.4)
(4.4)
3.7
–
–
(0.7)
(0.7)
1.4
1.2
–
1.9
–
1.9
–
(0.9)
(0.9)
–
–
–
(0.9)
(0.9)
–
0.9
–
–
–
–
1. £3.3m of the net credit to the income statement for the year ended 31 March 2008 relates to Trillium and in compliance with IFRS5 has been reclassifi ed to discontinued operations.
Group
Deferred tax is provided as follows:
Excess/(defi cit) of capital allowances over depreciation – operating properties
Capitalised interest – operating properties
Pension surplus
Other temporary differences
Total deferred tax asset/(liability)
The Group has unutilised trading losses carried forward as at 31 March 2009 of approximately £92.0m (2008: nil).
Other
£m
0.9
–
0.9
–
–
0.9
–
0.9
–
(0.9)
–
–
–
-–
2009
£m
1.9
–
(1.6)
–
0.3
Total
£m
1.3
(5.3)
(4.0)
3.4
(0.9)
0.9
(2.4)
(1.5)
1.4
(0.2)
0.6
1.9
(1.6)
0.3
2008
£m
(0.7)
(0.9)
(0.8)
0.9
(1.5)
Land Securities Annual Report 2009
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120
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
35. 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 IFRS2 ‘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.
The total cost recognised in the income statement is shown below:
Group
Savings Related Share Option Schemes*
Executive Share Option Schemes*
Performance Shares*
Deferred Bonus Share Scheme*
Long-Term Incentive Plan*
Attributed to:
Continuing activities
Discontinued operations
*Credited to equity as equity settled.
2009
£m
0.2
1.8
1.2
1.1
4.3
8.6
4.8
3.8
8.6
2008
£m
0.3
0.9
(0.1)
0.7
3.2
5.0
2.8
2.2
5.0
Impact of Rights Issue on share schemes
The Rights Issue that completed in March 2009 offered shareholders the right to acquire fi ve shares for every eight shares that they held, for an issue price of 270p.
As the issue price was below the market price of the ordinary shares a bonus share element was inherent in the Rights Issue. Both the number and exercise price of the
share schemes outstanding at the date of the Rights Issue have therefore been adjusted to account for the dilutive impact of the bonus share element.
Savings Related Share Option Schemes
Under the 1993 and 2003 Savings Related Share Option Schemes 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 Banking Group. 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
At the beginning of the year
Exercised
Forfeited
Lapsed
Rights Issue adjustment
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
2009
2008
35,287
(18,951)
(831)
(3,397)
1,323
147,433
(111,548)
(293)
(305)
–
13,431
35,287
–
3,312
2009
Pence
677
690
651
707
–
585
–
Years
0.50
2008
Pence
656
649
650
650
–
677
650
Years
0.87
The options outstanding under the scheme are exercisable at 585p seven years from the date of grant during 2009. The weighted average share price at the date of
exercise during the year was 1291p (2008: 1647p).
Land Securities Annual Report 2009
Financial statements
121
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
35. Share-based payments continued
2003 Savings Related Share Option Scheme
At the beginning of the year
Granted
Exercised
Forfeited
Lapsed
Rights Issue adjustment
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
2009
2008
507,472
–
(56,303)
(68,284)
(66,258)
34,300
462,116
175,605
(75,748)
(21,979)
(32,522)
–
350,927
507,472
86,563
14,919
2009
Pence
1248
–
746
1356
1356
–
1162
1016
Years
1.51
2008
Pence
1121
1460
937
1173
1376
–
1248
957
Years
2.33
The options outstanding under the scheme are exercisable at prices between 610p and 1372p after three, fi ve or seven years from the date of grant. 11,989 of the options
outstanding are exercisable at 610p, 38,654 at 862p, 112,426 at 1032p, 113,149 at 1315p and 74,709 at 1372p during the periods 2009 to 2010, 2009 to 2011, 2009 to
2012, 2010 to 2014 and 2009 to 2013, respectively.
The weighted average share price at the date of exercise during the year was 1129p (2008: 1559p). No options were granted during the year (2008: options were granted
on 1 October 2007). The estimated fair value of the options granted in the previous year was £0.9m.
Executive Share Option Schemes
2000 Executive Share Option Scheme
At the beginning of the year
Exercised
Forfeited
Rights Issue adjustment
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
2009
2008
237,692
(43,548)
(16,806)
19,451
247,400
(8,660)
(1,048)
–
196,789
237,692
196,789
237,692
2009
Pence
839
855
850
–
752
752
Years
2.83
2008
Pence
839
835
869
–
839
839
Years
3.70
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.
The options outstanding under the scheme are exercisable at prices between 732p and 783p up to 2012. The weighted average share price at the date of exercise for
share options exercised during the year was 1286p (2008: 1650p).
R
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i
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a
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s
t
a
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Land Securities Annual Report 2009
122
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
35. Share-based payments continued
2002 Executive Share Option Scheme
At the beginning of the year
Exercised
Forfeited
Rights Issue adjustment
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
2009
2008
1,581,872
(114,005)
(83,890)
151,865
1,977,946
(348,832)
(47,242)
–
1,535,842
1,581,872
1,535,842
1,581,872
2009
Pence
1036
996
1082
–
934
934
Years
4.94
2008
Pence
1036
1047
964
–
1036
1036
Years
5.94
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.
20,530, 483,608 and 1,031,704 of the options outstanding under the 2002 Executive Share Option Scheme are exercisable at 681p, 710p and 1044p 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 1278p (2008: 1658p).
2005 Executive Share Option Scheme
At the beginning of the year
Granted
Exercised
Forfeited
Rights Issue adjustment
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
2009
2008
967,791
819,405
–
(82,647)
185,007
589,039
450,656
(4,478)
(67,426)
–
1,889,556
967,791
280,509
–
2009
Pence
1640
1213
–
1470
–
1301
1280
Years
8.30
2008
Pence
1569
1731
1500
1636
–
1640
–
Years
8.41
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.
The options outstanding under the scheme are exercisable at 1095p, 1280p, 1560p and 1565p during the periods 2011 to 2018, 2009 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 previous year was 1870p. During the year, 807,988 options were granted on
10 July 2008 and 11,417 options were granted on 30 March 2009 (2008: 29 June 2007). The estimated fair value of the options granted on those dates was £1.4m (2008: £1.2m).
Land Securities Annual Report 2009
Financial statements
123
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
35. Share-based payments continued
Performance Shares
At the beginning of the year
Exercised
Lapsed
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of shares
2009
2008
137,334
(136,684)
(650)
–
–
Years
–
244,710
(102,562)
(4,814)
137,334
–
Years
0.26
Under the Performance Shares plan approved by shareholders in 2002, senior executives of the Group received up to two shares for each deferred share received under
the separate management bonus scheme depending on the extent to which performance criteria were satisfi ed. Half of these Performance Shares were 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 were subject to the
Group’s total property return equalling or exceeding the Investment Property Databank (IPD) 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.
The weighted average share price at the date of exercise for Performance Shares exercised during the year was 1176p (2008: 1745p).
Deferred Bonus Shares Scheme
At the beginning of the year
Granted
Capitalisation of dividends
Exercised
Forfeited
Rights Issue adjustment
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of shares
2009
2008
198,106
165,415
6,559
(153,252)
(356)
6,040
221,064
46,386
7,565
(73,468)
(3,441)
–
222,512
198,106
–
–
Years
2.41
Years
1.05
Under the Executive Director and senior management bonus plans, 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.
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 1090p (2008: 1741p). During the year, rights over 165,415 deferred shares
were granted on 30 March 2009 (2008: 46,386 deferred shares were granted on 29 June 2007). The estimated fair value of the rights over shares granted on that date
was £1.5m (2008: £0.7m).
Land Securities Annual Report 2009
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124
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
35. Share-based payments continued
2005 Long-Term Incentive Plan
At the beginning of the year
Granted
Exercised
Forfeited
Rights Issue adjustment
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of shares
2009
2008
1,263,526
508,527
(565,424)
(220,908)
80,301
756,629
517,103
–
(10,206)
–
1,066,022
1,263,526
–
–
Years
1.57
Years
1.46
The 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.
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 year was 983p. Rights to receive 180,957 Performance Shares were granted on
10 July 2008 and 200,066 on 30 March 2009 (2008: 288,121 Performance Shares were granted on 29 June 2007). Rights to receive 60,878 Matching Shares were
granted on 31 July 2008 and 66,626 on 30 March 2009 (2008: 228,982 Matching Shares were granted on 31 July 2007). The estimated fair value of the rights over the
shares granted on those dates was £2.6m (2008: £4.1m).
Fair-values inputs
Fair values are calculated using the Black-Scholes option pricing model. Inputs into this model for each scheme are as follows:
Range of share prices at grant date
Range of exercise prices
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
2003 Savings
Related Share
Option Scheme
2002 Executive
Share Option
Scheme
2005 Executive
Share Option
Scheme
846p to 1903p
677p to 1523p
19%
3 to 7 years
4.19% to 5.67%
3.02% to 4.37%
756p to 1159p
756p to 1159p
19%
3 to 5 years
3.60% to 5.10%
4.11% to 4.34%
1095p to 1737p
1095p to 1737p
19% to 21%
2.3 to 5 years
2.04% to 5.67%
3.02% to 6.53%
Performance
Shares
787p to 1405p
nil p
19%
3 years
4.17%
3.81%
Deferred
Bonus
Shares
2005
Long-Term
Incentive Plan
787p to 1737p
nil p
19% to 21%
3 to 5 years
2.04% to 5.67%
3.02% to 6.53%
1095p to 1737p
nil p
19% to 21%
2.3 to 5 years
2.04% to 5.67%
3.02% to 6.53%
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.
Land Securities Annual Report 2009
Financial statements
125
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
36. 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
Authorised
Allotted and fully paid
2009
Number
million
1,000.0
38.9
0.1
2008
Number
million
600.0
38.9
0.1
2009
£m
76.2
–
–
76.2
2008
£m
47.1
–
–
47.1
On 9 March 2009, an ordinary resolution was passed at a General Meeting that approved the increase in the authorised ordinary shares of 10p each from 600.0 million to
1,000.0 million.
Movements in the share capital were:
At the beginning of the year
Issued on the exercise of options
Rights Issue
At the end of the year
Number of shares
2009
2008
470,901,478
232,807
290,773,925
761,908,210
470,356,546
544,932
–
470,901,478
On 9 March 2009, a special resolution was passed that allowed the Company to proceed with a Rights Issue which provided shareholders with the right to acquire fi ve
additional shares at an issue price of 270p for every eight shares held on 5 March 2009. The Rights Issue resulted in the issue of an additional 290,773,925 ordinary shares
on 25 March 2009 and raised net proceeds of £755.7m, consisting of gross proceeds of £785.1m net of issue costs of £29.4m.
The number of ordinary shares that would be issued if all options were exercised at 31 March 2009 is 3,986,545 (2008: 3,330,114).
In July 2007 and 2008 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 2009 the Group owned 5,896,000 ordinary shares (2008: 5,896,000 ordinary shares) with a market value
of £25.8m (2008: £87.6m).
37. Equity attributable to equity holders of the Company
Group
At 1 April 2007
Exercise of options
Fair-value movement on cash fl ow hedges – Group
– joint ventures
Fair value of share-based payments (note 35)
Release on exercise/forfeiture of share options
Treasury shares acquired
Actuarial gains on defi ned-benefi t pension schemes (net)
Loss for the fi nancial year
Dividends paid (note 9)
Own shares acquired
Transfer of shares to employees on exercise of share schemes
At 31 March 2008
Rights Issue (note 36)
Exercise of options
Fair-value movement on cash fl ow hedges – Group
– joint ventures
Fair value of share-based payments (note 35)
Release on exercise/forfeiture of share options
Actuarial losses on defi ned-benefi t pension schemes (net)
Loss for the fi nancial year
Dividends paid (note 9)
Transfer of shares to employees on exercise of share schemes
Ordinary
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
Share-
based
payments
£m
47.0
0.1
–
–
–
–
–
–
–
–
–
–
47.1
29.1
–
–
–
–
–
–
–
–
–
51.5
5.1
–
–
–
–
–
–
–
–
–
–
56.6
726.6
2.0
–
–
–
–
–
–
–
–
30.5
–
–
–
–
–
–
–
–
–
–
–
30.5
–
–
–
–
–
–
–
–
–
–
7.9
–
–
–
5.0
(1.6)
–
–
–
–
–
–
11.3
–
–
–
–
8.6
(11.8)
–
–
–
–
Retained
earnings*
£m
10,668.9
–
(3.2)
(3.5)
–
1.6
(78.2)
14.9
(830.8)
(308.4)
–
(1.6)
9,459.7
–
–
(0.2)
(21.3)
–
11.8
(10.5)
(5,191.3)
(302.4)
(9.9)
Own
shares
£m
(14.5)
–
–
–
–
–
–
–
–
–
(9.4)
1.6
(22.3)
–
–
–
–
–
–
–
–
–
9.9
Total
£m
10,791.3
5.2
(3.2)
(3.5)
5.0
–
(78.2)
14.9
(830.8)
(308.4)
(9.4)
–
9,582.9
755.7
2.0
(0.2)
(21.3)
8.6
–
(10.5)
(5,191.3)
(302.4)
–
At 31 March 2009
76.2
785.2
30.5
8.1
3,935.9
(12.4)
4,823.5
*Included within retained earnings are cumulative losses in respect of cash fl ow hedges (interest-rate swaps) of £17.1m (2008: gains of £4.4m).
Land Securities Annual Report 2009
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126
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
37. Equity attributable to equity holders of the Company continued
Company
At 1 April 2007
Shares issued on exercise of options
Fair value of share-based payments (note 35)
Loss for the fi nancial year
Dividends paid (note 9)
At 31 March 2008
Rights Issue (note 36)
Shares issued on exercise of options
Fair value of share-based payments (note 35)
Release on exercise/forfeiture of share options
Loss for the fi nancial year
Dividends paid (note 9)
At 31 March 2009
*Available for distribution.
Ordinary
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
47.0
0.1
–
–
–
47.1
29.1
–
–
–
–
–
51.5
5.1
–
–
–
56.6
726.6
2.0
–
–
–
–
30.5
–
–
–
–
30.5
–
–
–
–
–
–
Merger
reserve
£m
373.6
–
–
–
–
373.6
–
–
–
–
–
–
Share-
based
payments
£m
12.5
–
5.0
–
–
17.5
–
–
8.6
(18.0)
–
–
Retained
earnings*
£m
4,431.6
–
–
(15.3)
(308.4)
4,107.9
–
–
–
18.0
(273.6)
(302.4)
Total
£m
4,946.7
5.2
5.0
(15.3)
(308.4)
4,633.2
755.7
2.0
8.6
–
(273.6)
(302.4)
76.2
785.2
30.5
373.6
8.1
3,549.9
4,823.5
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.
38. Own shares
Group
Cost at the beginning of the year
Acquisition of ordinary shares
Transfer of shares to employees on exercise of share schemes
Cost at the end of the year
2009
£m
22.3
–
(9.9)
12.4
2008
£m
14.5
9.4
(1.6)
22.3
Own shares consist of shares in Land Securities Group PLC held 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 35).
The number of shares held by the ESOP at 31 March 2009 was 887,914 (2008: 1,336,275). The market value of these shares at 31 March 2009 was £3.8m (2008: £20.2m).
Land Securities Annual Report 2009
Financial statements
127
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
39. Cash fl ow from operating activities
Reconciliation of operating profi t to net cash infl ow from operating activities:
Cash generated from operations
Loss for the fi nancial year from continuing activities
Income tax
Loss before tax
Share of losses of joint ventures (post-tax)
Interest income
Interest expense
Operating loss from continuing activities
Operating (loss)/profi t from discontinued operations
Adjustments on continuing and discontinued operations for:
Depreciation
Loss/(profi t) on disposal of non-current properties
Net defi cit on revaluation of investment properties
Goodwill impairment
Impairment of trading properties
Impairment to investment in subsidiary undertakings
Share-based payment charge
Pension scheme charge
Changes in working capital:
(Increase)/decrease in trading properties and long-term development contracts
Decrease/(increase) in receivables
Increase/(decrease) in payables and provisions
Net cash generated from operations
2009
£m
(4,773.7)
0.5
(4,773.2)
599.0
(4,174.2)
(32.5)
365.0
(3,841.7)
(79.0)
Group
2008
£m
(972.9)
(15.1)
(988.0)
101.1
(886.9)
(25.9)
312.3
(600.5)
108.2
2009
£m
(273.6)
(15.2)
(288.8)
–
(288.8)
(20.0)
53.9
(254.9)
–
(3,920.7)
(492.3)
(254.9)
24.3
129.1
4,123.4
148.6
92.3
–
8.6
1.3
45.8
(75.4)
1,170.3
–
–
–
5.0
2.1
–
–
–
–
–
234.7
–
–
Company
2008
£m
(15.3)
(6.6)
(21.9)
–
(21.9)
(14.7)
26.6
(10.0)
–
(10.0)
–
–
–
–
–
–
–
–
606.9
655.5
(20.2)
(10.0)
(34.0)
69.5
8.9
651.3
0.2
(26.3)
67.1
696.5
–
0.1
(375.3)
(395.4)
–
(0.3)
443.5
433.2
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Land Securities Annual Report 2009
128
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
40. Related party transactions
Subsidiaries
In accordance with IAS27 ‘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 20, 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
The Martineau Galleries Limited Partnership
The Bull Ring Limited Partnership
Bristol Alliance Limited Partnership
The Martineau Limited Partnership
A2 Limited Partnership
Parc Tawe I Unit Trust
Hungate (York) Regeneration Limited
Countryside Land Securities (Springhead) Limited
Investors in the Community
The Ebbsfl eet Limited Partnership
The Harvest Limited Partnership
The Oriana Limited Partnership
Millshaw Property Co. Limited
Fen Farm Developments Limited
The Empress State Limited Partnership
HNJV Limited
Year ended 31 March 2009 and at 31 March 2009
Year ended 31 March 2008 and at 31 March 2008
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
0.5
0.8
5.3
8.0
0.2
–
7.0
0.1
–
–
–
–
–
–
0.6
0.4
–
0.1
–
–
0.4
4.7
(2.9)
74.0
(5.9)
(11.7)
57.4
–
(3.7)
–
–
0.9
0.2
–
14.6
11.1
–
(3.5)
28.1
–
23.0
163.7
0.3
–
1.6
12.3
0.4
–
14.2
–
–
–
–
0.6
–
0.2
0.6
2.5
–
11.1
0.1
0.7
44.6
(0.1)
–
–
(115.1)
–
–
–
–
–
–
–
–
–
–
(43.0)
–
(10.4)
–
–
–
(168.6)
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)
Further detail of the above transactions and balances can be seen in note 20.
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
IAS24 ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ remuneration report
on pages 76 to 79.
2009
£m
3.2
0.6
2.6
6.4
2008
£m
7.7
0.6
3.2
11.5
Short-term employee benefi ts
Post-employment benefi ts
Share-based payments
Land Securities Annual Report 2009
Financial statements
129
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
41. 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
2009
£m
534.0
1,981.5
3,818.7
6,334.2
2008
£m
547.6
2,123.0
4,284.4
6,955.0
The total of contingent rents recognised as income during the year was £41.2m (2008: £38.8m).
42. Discontinued operations
On 8 January 2009 Land Securities announced the sale of Trillium, its property outsourcing business, to Telereal. The sale was completed on 12 January 2009. The
transaction included all of Trillium’s contracts with the exception of the Accor hotel portfolio, which is now included within the Retail Portfolio business segment.
The Trillium operations represented a separate major line of business for Land Securities. As a result of the sale and in accordance with IFRS5, these operations have been
treated as discontinued operations for the year ended 31 March 2009. A single amount is shown on the face of the income statement comprising the post-tax result of
discontinued operations and the post-tax loss arising on the disposal of the discontinued operation. As a result, the income and expenses of Trillium are reported separately
from the continuing activities of the Land Securities Group. The table below provides further details of the amount shown on the income statement. The income statement,
and relevant notes, for the prior year have been restated to conform with this style of presentation.
(Loss)/profi t for the fi nancial year from discontinued operations
Loss on disposal
Income statement of Trillium discontinued operations
Revenue
Costs
Goodwill impairment
Profi t on disposal of non-current properties
Net defi cit 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 profi t of joint ventures (post-tax)
(Loss)/profi t before tax
Income tax
(Loss)/profi t for the fi nancial year
Discontinued operations within Trillium
2009
£m
(87.3)
(333.6)
(420.9)
20091
£m
558.1
(480.2)
77.9
(148.6)
1.7
(10.0)
(79.0)
(6.1)
2.1
(83.0)
(16.6)
–
(99.6)
(7.9)
(107.5)
20.2
2008
£m
142.1
–
142.1
2008
£m
743.2
(641.2)
102.0
–
18.1
(11.9)
108.2
(12.1)
3.5
99.6
(0.5)
0.1
99.2
(4.6)
94.6
47.5
(Loss)/profi t for the fi nancial year from discontinued operations
(87.3)
142.1
1. The 2009 income statement is for the period from 1 April 2008 to 12 January 2009, the date of the disposal of Trillium.
Land Securities Annual Report 2009
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130
Financial statements
Notes to the fi nancial statements
—for the year ended 31 March 2009 continued
42. Discontinued operations continued
Loss on disposal
Consideration received or receivable:
Cash
Present value of deferred sales proceeds
Total disposal consideration
Less: carrying amounts of net assets divested
Less: cost of disposal
Loss on sale before related income tax benefi t
Income tax benefi t
Loss on disposal
Net cash infl ow on disposal
Cash and cash equivalents consideration
Less: cash and cash equivalents balance divested
Reported in the cash fl ow statement
2009
£m
2008
£m
444.0
25.0
469.0
(792.8)
(9.8)
(333.6)
–
(333.6)
2009
£m
444.0
(51.3)
392.7
–
–
–
–
–
–
–
–
2008
£m
–
–
–
The cash consideration includes the repayment of inter-company balances of £435.8m that were outstanding between the Group and Trillium at 12 January 2009.
The Group cash fl ow statement contains the cash fl ows from the Trillium discontinued operations. The cash fl ows attributable to the operating activities of the Trillium
discontinued operations are detailed in the following table:
Operating cash fl ows
Investing cash fl ows
Financing cash fl ows
Total cash fl ows
2009
£m
138.7
106.9
(24.4)
221.2
2008
£m
102.8
(195.5)
(48.8)
(141.5)
Land Securities Annual Report 2009
Report of the Directors
Covering the most significant
strategic, financial and operational
developments during the year.
05 Our priorities
06 All you need to know
Performance overview
08
09 Key performance indicators
10 Our Chairman’s statement
12 Chief Executive’s report
Financial review
18
27 Business review
27 — Why conduct a Rights Issue?
28 — Group business review
— Our risks and how we
30
manage them
36 — Retail Portfolio
44 — London Portfolio
52 Board of Directors
54 Corporate responsibility
64 Corporate governance
68 Directors’ remuneration report
Financial statements
Including the independent auditors’
report, the income statement,
balance sheets and the notes to
the financial statements.
82
83
84
84
Directors’ statement
of responsibilities
Independent auditors’ report
Income statement
Statement of recognised income
and expense
85 Balance sheets
86 Cash flow statements
87 Notes to the financial statements
132 Business analysis
138
Investor analysis
139 Five year summary
140
142 Glossary
143
144 Contact details
Investor information
Index
Investor resource
Helpful analysis, summaries
and information on business
performance and shareholdings.
Key analysis
Business analysis
p132–137
Clear, detailed information on operational
performance, including portfolio analysis.
Investor analysis
p138–139
An overview of our institutional investors,
together with a five year summary.
Land Securities Annual Report 2009
131
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132
132
C6_Small Page Links
C1_Section Header
Business analysis
A1_Page Header
—A2_Page Subheading
Our performance in detail
In this section we provide a detailed, transparent picture of our business performance.
We include comprehensive information on our portfolio, occupiers and rental income.
And we show our performance relative to the IPD industry benchmark.
Table 62
% Portfolio by value and number of
property holdings at 31 March 2009
£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
3.6
5.8
13.2
18.8
17.0
12.7
28.9
87
34
36
26
13
7
9
100.0
212
Table 63
Like-for-like reversionary potential
at 31 March 2009
Reversionary potential
Gross reversions
Over-rented
Net reversionary potential
31/03/09
% of rent roll
31/03/08
% of rent roll
7.0
(4.8)
2.2
15.5
(1.1)
14.4
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, £14.4m is subject to a lease expiry or break clause in the
next fi ve years.
Table 65
Long-term performance versus IPD
– ungeared total property returns
to 31 March 2009
Table 66
One year performance versus IPD
– ungeared total property returns
to 31 March 2009
Land
Securities
% pa
(7.5)
2.8
6.2
IPD
% pa
(7.8)
1.9
6.2
3 years
5 years
10 years
Source: IPD Quarterly Universe
Land
Securities
% pa
(34.8)
(30.6)
(28.2)
(12.0)
(29.7)
IPD
% pa
(29.8)
(27.9)
(29.2)
(16.8)
(25.5)
Retail – Shopping centres
and shops
Retail warehouses
Central London offi ces
Central London Retail
Total portfolio
Source: IPD Quarterly Universe
Table 68
Combined portfolio value by location
Shopping
centres and
shops
%
Retail
warehouses
and food stores
%
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
Total
13.5
3.7
3.1
6.6
6.5
4.5
37.9
0.8
3.7
1.1
0.9
4.1
1.3
11.9
% fi gures calculated by reference to the combined portfolio value of £9.4bn
42.3
–
0.1
0.1
0.2
–
42.7
4.5
1.3
0.5
0.1
0.8
0.3
7.5
Total
%
61.1
8.7
4.8
7.7
11.6
6.1
100.0
Table 64
Average rents
at 31 March 2009
Retail
Shopping centres and shops
Retail warehouses
and food stores
Offi ces
London offi ce portfolio
Average rent
£/m2
Average ERV
£/m2
n/a
203
373
n/a
207
342
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.
Table 67
Top 12 occupiers
Central Government
Accor Hotels
Royal Bank of Scotland
Deloitte
Arcadia Group
Boots
DSG
Mellon Bank
Marks & Spencer
J Sainsbury
Eversheds
Next
Total portfolio
Includes share of joint venture properties
Current
gross rent
roll %
9.5
4.2
2.7
2.3
1.7
1.4
1.4
1.3
1.2
1.2
1.1
1.1
29.1
Land Securities Annual Report 2009
Land Securities Annual Report 2009
Business analysis
133
133
Chart 69
Combined portfolio value by location
Scotland and
Northern Ireland
Retail warehouses
and food stores
1.3%
Shopping centres
and shops
4.5%
Offices
–
Other
0.3%
Total
6.1%
Midlands
Retail warehouses
and food stores
1.1%
Shopping centres
and shops
3.1%
Offices
0.1%
Other
0.5%
Total
4.8%
Wales and South-west
Retail warehouses
and food stores
0.9%
Shopping centres
and shops
6.6%
Total by use
Retail warehouses
and food stores
11.9%
Shopping centres
and shops
27.5%
Central London
Retail
10.4%
Offices
0.1%
Other
0.1%
Total
7.7%
Offices
42.7%
Other
7.5%
Total
100.0%
Land Securities Annual Report 2009
Land Securities Annual Report 2009
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North, North-west,
Yorkshire and Humberside
Retail warehouses
and food stores
4.1%
Shopping centres
and shops
6.5%
Offices
0.2%
Other
0.8%
Total
11.6%
South-east and Eastern
Retail warehouses
and food stores
3.7%
Shopping centres
and shops
3.7%
Offices
–
Other
1.3%
Total
8.7%
6.1%
11.6%
4.8% 8.7%
7.7%
61.1%*
*Retail and London Portfolios combined
Central, inner and
outer London
Retail warehouses
and food stores
0.8%
Shopping centres
and shops
13.5%
Offices
42.3%
Other
4.5%
Total
61.1%
134
Business analysis
Summary income statement and balance sheet based on proportional consolidation
The following pro-forma information is unaudited and does not form part of the consolidated
fi nancial statements or the associated notes. They present the results of the Group, with the
Group’s share of joint ventures and associates proportionately consolidated on a line-by-line basis.
Consolidated income statement
Revenue
Costs
(Loss)/profi t on disposal of non-current properties
Impairment of trading properties
Net defi cit on revaluation of investment properties
Operating loss
Net interest expense
Loss before tax
Income tax (expense)/credit
Adjustment due to net liabilities
Loss for the year from continuing activities
Consolidated balance sheet
Investment properties
Other tangible fi xed assets
Net debt
Investments in joint ventures*
Other net assets
Unadjusted net assets
Minority interest
EPRA adjustments
EPRA adjusted net assets
Reverse bond exchange de-recognition adjustment
Adjusted net assets attributable to equity shareholders
Gearing
Adjusted gearing (excluding JVs)
Adjusted gearing (including JVs)
*Excludes investments in associates of £nil (31 March 2008: £68.3m)
Year ended 31/03/09
Year ended 31/03/08
Group
(excl. JVs)
£m
JVs
£m
Total
£m
Group
(excl. JVs)
£m
JVs
£m
Total
£m
821.2
(326.4)
103.3
(37.3)
924.5
(363.7)
818.0
(317.4)
494.8
(130.8)
(92.3)
(4,113.4)
66.0
2.9
(12.3)
(630.3)
560.8
(127.9)
(104.6)
(4,743.7)
500.6
57.3
–
(1,158.4)
(3,841.7)
(332.5)
(573.7)
(41.7)
(4,415.4)
(374.2)
(4,174.2)
(0.5)
(615.4)
(1.3)
(4,789.6)
(1.8)
(4,174.7)
–
(616.7)
17.7
(4,791.4)
17.7
(600.5)
(286.4)
(886.9)
15.1
(871.8)
–
111.6
(47.3)
64.3
(7.1)
–
(134.2)
(77.0)
(21.0)
(98.0)
(3.1)
(101.1)
–
929.6
(364.7)
564.9
50.2
–
(1,292.6)
(677.5)
(307.4)
(984.9)
12.0
(972.9)
–
(4,174.7)
(599.0)
(4,773.7)
(871.8)
(101.1)
(972.9)
At 31/03/09
At 31/03/08
Group
£m
JVs
£m
Total
£m
Group
£m
JVs
£m
Total
£m
7,929.4
14.3
1,208.0
–
9,137.4
14.3
12,296.7
618.4
1,579.0
–
13,875.7
618.4
7,943.7
(3,923.6)
930.8
(130.7)
1,208.0
(459.4)
(930.8)
182.2
9,151.7
(4,383.0)
–
51.5
12,915.1
(5,384.5)
1,410.6
641.7
1,579.0
(253.5)
(1,410.6)
85.1
14,494.1
(5,638.0)
–
726.8
4,820.2
3.3
150.2
4,973.7
(499.8)
4,473.9
81.4%
96.4%
–
–
–
–
–
–
4,820.2
3.3
150.2
9,582.9
–
12.7
4,973.7
(499.8)
9,595.6
(511.5)
4,473.9
9,084.1
90.9%
105.9%
56.2%
64.9%
–
–
–
–
–
–
9,582.9
–
12.7
9,595.6
(511.5)
9,084.1
58.8%
67.6%
Reconciliation of net book value of the investment properties to the market value
Net book value
Plus: amount included in prepayments in respect of lease incentives
Less: head leases capitalised
Plus: properties treated as fi nance leases
Market value
Land Securities Annual Report 2009
Group
(excl. JVs)
£m
7,929.4
189.3
(57.9)
104.7
At 31/03/09
At 31/03/08
JVs
£m
Total
£m
Group
(excl. JVs)
£m
JVs
£m
Total
£m
1,208.0
31.6
(4.9)
6.8
9,137.4
220.9
(62.8)
111.5
12,296.7
180.6
(67.3)
149.2
1,579.0
6.6
(4.4)
8.7
13,875.7
187.2
(71.7)
157.9
8,165.5
1,241.5
9,407.0
12,559.2
1,589.9
14,149.1
Business analysis
135
Combined portfolio reconciliation
Retail
Portfolio
£m
London
Portfolio
£m
Other
£m
31/03/09
£m
Retail
Portfolio
£m
London
Portfolio
£m
Other
£m
31/03/08
£m
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
Other
Less fi nance lease adjustment
374.5
(42.8)
0.8
1.5
40.6
374.6
(2.7)
306.1
42.8
(0.8)
0.2
4.5
352.8
(5.3)
Total rental income for combined portfolio
371.9
347.5
46.8
–
–
(1.7)
(45.1)
–
–
–
727.4
–
–
–
–
727.4
(8.0)
373.5
(45.4)
0.8
2.3
39.4
370.6
(2.9)
282.1
45.4
(0.8)
–
15.8
342.5
(5.9)
719.4
367.7
336.6
57.5
–
–
(2.3)
(55.2)
–
–
–
713.1
–
–
–
–
713.1
(8.8)
704.3
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
Other
4,687.3
(939.2)
9.8
51.1
508.6
3,969.0
939.2
(9.8)
–
191.0
750.7
–
–
(51.1)
(699.6)
9,407.0
–
–
–
–
6,851.9
(1,008.0)
18.0
79.6
731.8
6,124.0
1,008.0
(18.0)
–
235.3
1,046.7
–
–
(79.6)
(967.1)
14,022.6
–
–
–
–
Per business unit
4,317.6
5,089.4
–
9,407.0
6,673.3
7,349.3
–
14,022.6
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
Other
Per business unit
Development pipeline fi nancial summary
455.5
(85.7)
0.9
5.0
40.1
325.6
85.7
(0.9)
–
8.5
53.6
–
–
(5.0)
(48.6)
415.8
418.9
–
834.7
–
–
–
–
834.7
451.6
(70.1)
1.0
5.7
46.3
431.6
70.1
(1.0)
–
11.5
434.5
512.2
63.5
–
–
(5.7)
(57.8)
–
946.7
–
–
–
–
946.7
Cumulative movements on the development programme to 31/03/09
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
(defi cit)/
surplus
and other
to date1 adjustments
£m
£m
Market
value at
31/03/09
£m
Estimated
total
capital
expenditure4
£m
Estimated
total
capitalised
interest
£m
Estimated
total
cost less
residential2
£m
Net
income/
ERV3
£m
Valuation
defi cit
for year
ended
31/03/09 1
£m
Development programme
transferred or sold
Retail warehouses
London Portfolio
Development programme completed,
approved or in progress
Shopping centres and shops
London Portfolio
11.9
16.0
27.9
6.7
152.0
158.7
52.5
441.7
622.2
564.5
494.2
1,186.7
0.1
10.6
10.7
38.3
52.7
91.0
(6.7)
55.7
49.0
0.2
2.2
2.4
12.2
236.5
248.7
6.7
157.1
163.8
0.1
10.6
10.7
18.7
183.7
202.4
1.1
16.7
17.8
(4.6)
(24.9)
(29.5)
(315.9)
(321.3)
5.5
67.4
402.6
805.0
752.6
1,019.6
43.7
103.8
811.7
1,456.5
44.4
95.2
(289.9)
(453.7)
(637.2)
72.9
1,207.6
1,772.2
147.5
2,268.2
139.6
(743.6)
Movement on proposed developments for the year ended 31/03/09
Proposed developments
Shopping centres and shops
London Portfolio
207.0
426.8
633.8
36.2
46.9
83.1
11.6
2.4
14.0
(161.8)
(228.2)
(390.0)
(8.0)
28.9
20.9
85.0
276.8
260.1
1,181.2
30.1
158.5
375.2
1,165.0
27.5
97.8
(161.8)
(228.2)
361.8
1,441.3
188.6
1,540.2
125.3
(390.0)
Notes:
1.
2.
Includes profit realised on the disposal of property.
Includes the property at the market valuation at the start of the financial 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 2009 is included in the estimated total cost. Estimated total cost is stated net of the cost of residential properties for Shopping Centres and shops of £37.1m for developments in progress.
The London Portfolio development programme and proposed developments are stated net of the cost of residential properties of £108.6m and £451.5m 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 2009 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 2009.
R
e
p
o
r
t
o
f
t
h
e
D
i
r
e
c
t
o
r
s
P
0
1
–
8
0
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
P
8
1
–
1
3
0
I
n
v
e
s
t
o
r
r
e
s
o
u
r
c
e
P
1
3
1
–
1
4
4
Land Securities Annual Report 2009
136
Business analysis
Combined portfolio analysis
The like-for-like portfolio2
Shopping centres and shops
Shopping centres and shops
Central London shops
Retail warehouses
Open market value8
Valuation defi cit1
Gross rental income
Annual net rent9
Annual net estimated
rental value10
31/03/09
£m
31/03/08
£m
31/03/09
£m
31/03/09
%
31/03/09
£m
31/03/08
£m
31/03/09
£m
31/03/08
£m
31/03/09
£m
31/03/08
£m
1,883.8
622.3
2,951.1
693.7
(1,089.2)
(77.8)
(36.8)
(11.1)
192.1
35.0
2,506.1
3,644.8
(1,167.0)
(31.9)
227.1
192.0
32.2
224.2
168.2
35.9
204.1
170.3
30.2
200.5
182.9
39.5
222.4
191.4
38.2
229.6
Retail warehouses and food stores
1,018.2
1,538.1
(543.5)
(35.5)
79.5
76.6
81.3
80.1
87.1
91.5
3,524.3
5,182.9
(1,710.5)
(33.0)
306.6
300.8
285.4
280.6
309.5
321.1
Total retail
London offi ces
West End
City
Mid-town
Inner London
Total London offi ces
Rest of UK
Total offi ces
Other
999.3
414.9
306.5
197.0
1,917.7
42.1
1,959.8
223.8
1,500.0
670.9
462.3
289.3
(511.4)
(263.8)
(147.4)
(92.5)
2,922.5
67.1
(1,015.1)
(25.3)
2,989.6
295.2
(1,040.4)
(77.9)
(34.3)
(38.9)
(37.8)
(32.0)
(35.6)
(37.4)
(35.7)
(26.1)
85.7
36.7
25.5
16.8
164.7
1.4
166.1
11.0
Like-for-like portfolio2
5,707.9
8,467.7
(2,828.8)
(33.7)
483.7
Proposed developments3
Completed developments4
Acquisitions5
Sales and restructured interests6
Development programme7
361.8
1,352.7
777.0
–
1,207.6
662.7
1,782.1
863.4
723.3
1,523.4
(390.0)
(458.8)
(322.5)
–
(743.6)
(52.3)
(26.4)
(29.2)
–
(39.3)
18.2
95.9
66.3
23.2
40.1
Combined portfolio
9,407.0
14,022.6
(4,743.7)
(34.2)
727.4
713.1
655.6
650.9
Properties treated as fi nance leases
Combined portfolio
Total portfolio analysis
Shopping centres and shops
Shopping centres and shops
Central London shops
Retail warehouses
(8.0)
(8.8)
719.4
704.3
2,587.6
976.1
3,987.3
1,060.8
(1,675.0)
(125.9)
(39.7)
(11.4)
233.8
45.7
3,563.7
5,048.1
(1,800.9)
(33.9)
279.5
229.3
48.0
277.3
212.4
47.4
259.8
196.7
40.4
237.1
256.5
86.6
343.1
Retail warehouses and food stores
1,123.6
1,803.8
(603.7)
(35.6)
95.0
96.2
87.7
93.9
96.1
84.9
36.3
24.1
15.8
161.1
1.4
162.5
10.5
473.8
28.4
59.1
46.5
80.9
24.4
80.8
37.6
26.2
17.2
161.8
4.2
166.0
15.2
466.6
16.0
77.3
63.3
–
32.4
80.8
37.1
25.5
16.2
159.6
3.6
163.2
14.4
458.2
29.7
57.1
55.2
41.1
9.6
79.0
33.3
25.5
17.5
155.3
4.8
160.1
16.9
486.5
26.7
87.9
69.9
–
141.4
812.4
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
Represented by:
Investment portfolio
Share of joint ventures
Combined portfolio
Land Securities Annual Report 2009
4,687.3
6,851.9
(2,404.6)
(34.3)
374.5
373.5
347.5
331.0
439.2
1,841.7
732.7
783.2
611.4
3,969.0
51.1
4,020.1
699.6
2,745.6
1,155.5
1,272.0
950.9
(849.9)
(516.7)
(463.2)
(267.7)
6,124.0
79.6
(2,097.5)
(28.6)
6,203.6
967.1
(2,126.1)
(213.0)
(32.2)
(41.7)
(40.5)
(31.3)
(35.7)
(34.4)
(35.7)
(23.4)
141.0
53.9
62.4
48.8
306.1
1.7
307.8
45.1
9,407.0
14,022.6
(4,743.7)
(34.2)
727.4
126.5
52.5
52.1
51.0
282.1
2.3
284.4
55.2
713.1
132.7
51.5
40.6
30.3
255.1
4.2
259.3
48.8
655.6
124.0
51.8
50.4
35.1
261.3
3.9
265.2
54.7
650.9
126.7
76.0
66.5
50.5
319.7
4.9
324.6
48.6
812.4
(8.0)
(8.8)
719.4
704.3
8,165.5
1,241.5
12,432.7
1,589.9
(4,113.4)
(630.3)
(34.2)
(34.3)
649.7
77.7
9,407.0
14,022.6
(4,743.7)
(34.2)
727.4
646.9
66.2
713.1
569.1
86.5
655.6
582.7
68.2
650.9
693.5
118.9
812.4
807.6
121.3
928.9
104.6
40.0
31.4
18.8
194.8
5.0
199.8
16.3
537.2
37.6
102.0
68.2
46.4
137.5
928.9
257.0
73.0
330.0
108.1
438.1
185.8
87.3
88.9
65.5
427.5
5.5
433.0
57.8
928.9
Business analysis
137
Combined portfolio analysis continued
The like-for-like portfolio2
Gross income yield11
Equivalent yield12
Annual gross estimated
rental value13
Voids (by ERV)14
Lease length
at 31/03/0915
31/03/09
%
31/03/08
%
31/03/09
%
31/03/08
%
31/03/09
£m
31/03/08
£m
31/03/09
%
31/03/08
%
Median
years (i)
Mean
years (ii)
8.9
5.8
8.1
8.0
8.1
8.1
9.1
8.5
8.7
8.4
10.0
8.5
6.8
8.2
3.0
5.8
8.1
–
3.1
7.0
8.2
4.9
7.3
7.8
7.4
7.2
7.0
5.2
5.0
6.4
8.2
6.5
7.0
7.0
6.7
8.6
7.0
5.8
4.4
5.5
5.2
5.4
5.4
5.5
5.5
5.6
5.5
5.4
5.5
4.9
5.4
4.5
3.2
6.4
5.7
0.6
4.6
4.9
3.8
4.7
5.2
4.8
4.5
4.5
4.0
3.7
4.3
4.9
4.3
5.7
4.6
4.3
7.5
4.6
8.1
5.8
7.5
8.1
7.7
7.5
8.0
7.6
8.4
7.7
9.8
7.8
7.8
7.7
5.3
6.7
7.2
–
7.5
7.5
7.9
5.8
7.4
8.0
7.5
7.2
7.8
7.4
7.7
7.4
9.6
7.4
7.1
7.5
7.5
7.2
7.5
5.7
5.0
5.5
5.5
5.5
6.1
6.3
6.0
7.6
6.1
7.0
6.2
5.8
5.8
6.1
5.9
6.2
–
5.4
5.7
5.6
5.0
5.5
5.5
5.5
5.9
6.2
5.8
7.6
6.0
7.0
6.0
5.9
5.7
5.8
5.4
5.7
Shopping centres and shops
Shopping centres and shops
Central London shops
Retail warehouses
Retail warehouses and food stores
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
Proposed developments3
Completed developments4
Acquisitions5
Sales and restructured interests6
Development programme7
Combined portfolio
Total portfolio analysis
Shopping centres and shops
Shopping centres and shops
Central London shops
Retail warehouses
Retail warehouses and food stores
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 2009
193.3
39.7
233.0
202.6
38.5
241.1
87.8
92.3
320.8
333.4
79.4
35.4
26.2
17.5
158.5
4.9
163.4
16.9
501.1
26.7
89.8
70.4
–
146.7
834.7
105.0
42.1
31.8
18.8
197.7
5.1
202.8
16.3
552.5
37.6
103.0
68.5
46.7
138.4
946.7
7.0
0.8
6.0
0.9
4.6
7.2
3.0
0.5
1.9
4.6
12.6
4.8
2.1
4.6
44.1
1.0
7.3
n/a
n/a
n/a
4.8
7.0
5.1
2.7
4.5
1.4
2.9
0.9
1.5
1.7
12.6
1.9
2.6
3.5
9.1
3.6
6.1
n/a
n/a
n/a
6.5
4.3
5.9
11.2
7.5
5.3
1.8
3.8
4.9
4.0
3.3
4.0
12.9
5.8
0.8
12.5
9.6
n/a
n/a
n/a
7.6
5.8
7.3
11.6
8.6
7.1
3.6
7.4
5.7
6.2
3.8
6.1
12.5
7.8
7.1
12.9
9.8
n/a
n/a
n/a
Notes:
1.
2.
3.
4.
5.
6.
7.
The valuation deficit is stated after
adjusting for the effect of SIC 15
under IFRS, but before restating for
finance leases.
The like-for-like portfolio includes
all properties which have been in
the portfolio since 1 April 2007 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 reflect this capital
expenditure as well as the disclosed
valuation deficits.
Proposed developments are
properties which have not yet
received final Board approval or
are still subject to main planning
conditions being satisfied.
Completed developments represent
those properties previously included
in the development programme,
which have been completed, let and
removed from the development
programme since 1 April 2007.
Includes all properties acquired in
the period since 1 April 2007.
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 2007.
Ongoing developments are properties
in the development programme. They
exclude completed developments
as defined in note 4 above. For the
statutory accounts, Park House has
been transferred back to Portfolio
Management at 31 March 2009
following deferral of this scheme. For
comparative purposes, Park House
has been included in the development
programme in the combined portfolio
analysis and will be transferred on
1 April 2009.
8.
9.
The open market value figures
include the Group’s share of the
various joint ventures.
Annual net rent is annual cash rents
at 31 March 2009 (including units in
administration where leases have not
yet been disclaimed) after deduction
of ground rents. It excludes the value
of voids and current rent-free periods.
10. 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.
11. The gross income yield represents the
annual cash net rent (including units
in administration where leases have
not yet been disclaimed) expressed
as a percentage of the market value
ignoring costs of purchase or sale.
12. 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.
13. Annual gross estimated rental value
is calculated in the same way as net
estimated rental value before the
deduction of ground rents.
14. 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 defined in
note 13 above.
15. The definition for the figures in each
column is:
(i)
(ii)
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.
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138
Investor analysis
Our investors
Here we provide analysis of our shareholder community. We include breakdowns by geography,
size and type. We show how the nature of our investors compares to share ownership within our
industry and the FTSE 100. And we present a fi ve year results summary.
Chart 70
Geographical spread of
equity shareholders
European breakdown
– Company versus Real Estate
& FTSE 100
North American breakdown
– Company versus Real Estate
& FTSE 100
Chart 71
Company
Chart 72
Company
Asia
Other
Unidentified
UK
France
Netherlands
Europe other
USA and Canada
8.52
0.43
10.74
44.64
3.46
7.19
12.32
12.70
Table 73
Analysis of equity shareholdings
by size of holding
Range
Number of
holdings
Balance as at
31/03/09
%
1 – 500
11,155
42.90
2,902,106
501 – 1,000
6,111
23.50
4,461,644
%
0.38
0.59
1,001 –
5,000
5,001 –
10,000
10,001 –
50,000
50,001 –
100,000
100,001 –
500,000
500,001 –
1,000,000
1,000,001
– highest
6,854
26.37
13,821,117
1.81
664
2.55
4,666,066
0.61
600
2.31
12,850,432
1.69
144
0.55
10,296,555
1.35
261
1.00
60,579,155
7.95
86
0.33
59,165,248
7.77
127
0.49 593,165,887
77.85
Totals
26,002
100.00 761,908,210
100.00
Land Securities Annual Report 2009
Netherlands
Isle of Man
France
Switzerland
Luxembourg
Norway
Belgium
Others
Chart 74
Real Estate average
Netherlands
Isle of Man
France
Switzerland
Luxembourg
Norway
Belgium
Others
Chart 76
FTSE 100 average
Luxembourg
Norway
Others
Netherlands
Germany
Sweden
Switzerland
France
USA
Canada
12.1%
0.6%
Rest of World
87.3%
Chart 75
Real Estate average
USA
Canada
8.8%
0.5%
Rest of World
90.7%
Chart 77
FTSE 100 average
USA
Canada
15.3%
0.7%
Rest of World
84.0%
7.2%
5.9%
3.5%
1.8%
1.0%
0.9%
0.8%
2.1%
6.1%
1.9%
2.1%
1.3%
0.6%
0.5%
0.7%
1.3%
1.0%
0.6%
1.2%
4.0%
1.4%
1.3%
1.2%
1.1%
Investor analysis
Five year summary
Income statement
Before exceptional items
Group revenue
Costs
Loss/(profit) on disposal of non-current asset properties
Net (deficit)/surplus on revaluation of investment properties
Operating (loss)/profit
Net interest expense
Share of the (loss)/profit of joint ventures and associates (post-tax)
(Loss)/profit before tax
Income tax
(Loss)/profit after tax
Exceptional items
Goodwill impairment
Profit 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)/profit for the financial year from continuing activities
Discontinued operations
(Loss)/profit for the financial year
Revaluation (deficit)/surplus for the year
Group
Joint ventures
Total
Revenue profit
Balance sheet
Investment properties
Operating properties
Net investment in finance leases
Goodwill
Investment in joint ventures, associates, Public Private Partnerships and loans
Other property, plant and equipment
Net pension benefit assets
Deferred tax assets
Total non-current assets
Trading properties and long-term development contracts
Cash, cash equivalents, short-term borrowings, overdrafts and derivative financial instruments
Other current assets and liabilities
Non-current assets classified as held for sale (net)
Total current assets and liabilities
Provisions
Borrowings
Net pension benefits obligation
Deferred tax liabilities
Total non-current liabilities
Net assets
Net debt
Results per share from continuing activities
Total dividend payable in respect of the financial year (actual)
Total dividend payable in respect of the financial year (restated)4
Basic (loss)/earnings per share2,3
Diluted (loss)/earnings per share2,3
Adjusted earnings per share2,3
Adjusted diluted earnings per share2,3
Net assets per share2,3
Diluted net assets per share2,3
Adjusted net assets per share2,3
Adjusted diluted net assets per share2,3
139
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2009
£m
20081
£m
2007
£m
2006
£m
2005
£m
1,641.1
(1,046.2)
1,828.7
(1,267.8)
1,627.1
(1,134.7)
821.2
(418.7)
402.5
(130.8)
(4,113.4)
(3,841.7)
(332.5)
(4,174.2)
(599.0)
(4,773.2)
(0.5)
(4,773.7)
–
–
–
–
–
–
–
818.0
(317.4)
500.6
57.3
(1,158.4)
(600.5)
(286.4)
(886.9)
(101.1)
(988.0)
15.1
(972.9)
–
–
–
–
–
–
–
(4,773.7)
(420.9)
(5,194.6)
(972.9)
142.1
(830.8)
(4,113.4)
(630.3)
(1,158.4)
(134.2)
(4,743.7)
(1,292.6)
314.9
284.8
594.9
118.2
1,307.6
2,020.7
(220.9)
1,799.8
81.3
1,881.1
(445.0)
1,436.1
–
–
–
98.0
98.0
1,994.2
2,092.2
3,528.3
–
3,528.3
1,307.6
75.1
1,382.7
392.2
560.9
74.5
1,579.5
2,214.9
(194.5)
2,020.4
110.3
2,130.7
(593.3)
1,537.4
(64.5)
293.0
–
–
228.5
(90.0)
138.5
1,675.9
–
1,675.9
1,579.5
105.5
1,685.0
391.3
7,929.4
–
116.3
–
980.8
14.3
3.0
1.9
9,045.7
94.9
1,525.9
(395.2)
–
1,225.6
–
(5,449.5)
–
(1.6)
12,296.7
544.8
333.7
148.6
1,478.9
73.6
11.0
0.9
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
–
–
14,888.2
15,679.8
13,175.0
173.0
(752.0)
(250.2)
236.4
(592.8)
(77.6)
(4,632.5)
–
(2.4)
148.3
(1,615.9)
(677.9)
819.3
(1,326.2)
(80.7)
(3,472.0)
(5.6)
(4.0)
255.9
(148.0)
(218.6)
–
(110.7)
(58.2)
(3,537.9)
(6.5)
(1,967.8)
492.4
112.0
827.9
1,432.3
(189.0)
1,243.3
141.5
1,384.8
(265.8)
1,119.0
(12.7)
–
(64.6)
–
(77.3)
19.2
(58.1)
1,060.9
–
1,060.9
827.9
69.5
897.4
361.8
8,240.1
546.3
163.4
34.3
854.9
57.9
–
–
9,896.9
164.0
(45.8)
(101.6)
–
16.6
(42.0)
(2,392.3)
(10.9)
(1,418.0)
(5,451.1)
(4,712.5)
(3,562.3)
(5,570.4)
(3,863.2)
4,820.2
9,582.9
10,791.3
7,493.9
6,050.3
(3,923.6)
(5,384.5)
(5,087.9)
(3,685.9)
(2,438.1)
56.50p
51.61p
(918.04)p
(918.04)p
62.60p
62.57p
639p
639p
593p
593p
64.00p
57.68p
(188.43)p
(188.43)p
60.93p
60.79p
1862p
1859p
1765p
1763p
53.00p
47.76p
679.04p
676.29p
63.51p
63.26p
2076p
2070p
1972p
1965p
46.70p
42.08p
322.54p
321.23p
63.76p
63.50p
1439p
1433p
1730p
1723p
43.25p
38.97p
204.83p
204.05p
60.49p
60.25p
1165p
1161p
1345p
1341p
1. The income statement and earnings per share figures for the year ended 31 March 2008 have been restated, in compliance with IFRS5, to reclassify the results of Trillium from continuing activities to discontinued operations.
2. The (loss)/earnings per share and the net asset per share for the year ended 31 March 2007, 31 March 2006 and 31 March 2005 have been adjusted for the bonus element inherent in the Rights Issue that was approved on 9 March 2009.
The (loss)/earnings per share and the net asset per share for the year ended 31 March 2008 have been adjusted for the bonus element inherent in the Rights Issue that was approved on 9 March 2009 and the reclassification of the
3.
Trillium discontinued operations from continuing activities to discontinued operations.
The restated total dividend payable represents the theoretical dividend per share that would have been paid had the bonus shares inherent in the Rights Issue been in existence at the relevant dividend dates.
4 .
Land Securities Annual Report 2009
140
Investor information
Table 78
Financial calendar
Ex-dividend date – 2008/09 fi nal dividend
Record date – 2008/09 fi nal dividend
Payment date – 2008/09 fi nal dividend
Date
17 June 2009
19 June 2009
24 July 2009
Quarter One Interim Management Statement announcement
15 July 2009
AGM – London
Ex-dividend date – 1st interim dividend
Payment date – 1st interim dividend
2009/10 Half-yearly results announcement
Ex-dividend date – 2nd interim dividend
Payment date – 2nd interim dividend
16 July 2009
September 2009
October 2009
November 2009
December 2009
January 2010
Quarter Three Interim Management Statement announcement
January 2010
Ex-dividend date – 3rd interim dividend
Payment date – 3rd interim dividend
2009/10 Preliminary results announcement
March 2010
April 2010
May 2010
Table 79
REIT balance of business tests
Adjusted profi t before tax (£m)
Balance of business – 75% profi ts test
Adjusted total assets (£m)
Balance of business – 75% assets test
For the year ended/as at 31/03/09
For the year ended/as at 31/03/08
Tax-
Exempt
Business
174.8
190.8%
9,229.5
78.8%
Residual
Business
(83.2)
(90.8)%
2,487.3
21.2%
Adjusted
Results
91.6
11,716.8
Tax-
Exempt
Business
351.1
97.3%
14,766.8
88.3%
Residual
Business
9.7
2.7%
1,962.9
11.7%
Adjusted
Results
360.8
16,729.7
REIT dividend payments
As a UK REIT, the Company is exempted from
corporation tax on rental income and gains on its
property rental business but is required to pay
Property Income Distributions (PIDs). UK shareholders
will generally be taxed on PIDs received at their full
marginal tax rates. A REIT may in addition pay normal
dividends and the Company currently expects that its
first three quarterly dividends will be paid entirely as
PIDs, while its final dividend may have both a PID and
a normal dividend element.
For most shareholders, PIDs will be paid after
deducting withholding tax at the basic rate. However,
certain categories of shareholder are entitled to
receive PIDs without withholding tax, principally UK
resident companies, UK public bodies, UK pension
funds and managers of ISAs, PEPs and Child Trust
Funds. 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
Balance of business tests
REIT legislation specifies 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 profits must
be derived from REIT qualifying activities (the 75%
profits 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. For the results of these tests for the Group
for the financial year, and at the balance sheet date,
see Table 79.
Our website
The report and financial statements, share price
information, company presentations, primary financial
statements as Excel downloads, the financial 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 2128
Textphone: 0871 384 2255
International dialling: +44 (0)121 415 7049
Website: www.shareview.co.uk
Land Securities Annual Report 2009
Investor information
141
Share price information
The latest information on Land Securities Group PLC
share price is available on our website
www.landsecurities.com
Unsolicited mail
The Company is obliged by law to make its share
register available on request to other organisations.
This may result in you receiving unsolicited mail. If you
wish to limit the receipt of unsolicited mail you can
write to the Mailing Preference Service, an independent
organisation whose services are free to you. If you
would like more details, you should write to:
The Mailing Preference Service
FREEPOST 29
LON 20771
London W1E 0ZT
Or telephone their helpline on 0845 703 4599 or
register on their website at www.mpsonline.org.uk
Registered office
5 Strand, London WC2N 5AF
Registered in England and Wales
No. 4369054
Offices
5 Strand, London WC2N 5AF
and at:
City Exchange, 11 Albion Street, Leeds LS1 5ES
120 Bath Street, Glasgow G2 2EN
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4
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 2268
International dialling: +44 (0)121 415 7049
For participants in the plan, key dates can be found
in the online financial calendar 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 0845 603 7037
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 certificate.
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 benefit. 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,
17 Carlton House Terrace,
London SW1Y 5AH
Telephone: 020 7930 3737
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 2244
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 and the Scheme of Arrangement in September
2002, was 203p. The appropriate value to be used as
a base cost in respect of these shares, assuming you
took up the 5 for 8 Rights Issue in full, is 229p.
Unclaimed Assets Register
The Company participates in the Unclaimed Assets
Register, which provides a search facility for financial
assets which may have been forgotten. For further
information, contact:
The Unclaimed Assets Register,
PO Box 9501, Nottingham NG80 1WD
Telephone: 0870 241 1713
Fax: 0115 976 8785
Website: www.uar.co.uk
Land Securities Annual Report 2009
142
Glossary
Adjusted earnings per share (EPS)
Earnings per share based on revenue profit plus profits/(losses) 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 the adjustment arising from the
de-recognition of the bond exchange, together with cumulative mark-to-market
adjustment arising on interest swaps and similar instruments used for hedging
purposes.
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 financial statements.
BREEAM
Building Research Establishment’s Environmental Assessment Method, the
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.
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).
Interest Cover Ratio (ICR)
A calculation of a company’s ability to meet its interest payments on
outstanding debt.
Interest rate swap
A financial 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 floating rate debt to fixed rates.
Investment portfolio
The investment portfolio comprises the Group’s wholly-owned investment
properties together with the properties held for development.
Joint venture (JV)
An entity in which the Group holds an interest on a long-term basis and is
jointly controlled by the Group and one or more venturers under a contractual
arrangement whereby decisions on financial and operating policies essential to
the operation, performance and financial position of the venture require each
venturer’s consent.
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 fit-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 financial year.
Loan-to-value (LTV)
Group LTV is the ratio of the sum of investment properties, net investment in
finance leases and trading properties of both the Group and joint ventures to net
debt, including joint ventures, expressed as a percentage. For the Security Group,
LTV is the ratio of debt lent to the Security Group divided by the value of
secured assets.
London Portfolio
This business includes all London offices 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.
Diluted figures
Reported amount adjusted to include the effects of potential dilutive shares
issuable under employee share schemes.
Net asset value (NAV) per share
Equity attributable to equity holders of the Company divided by the number
of ordinary shares in issue at the period end.
Earnings per share (EPS)
Profit after taxation attributable to ordinary shareholders divided by the
weighted average number of ordinary shares in issue during the year.
Open A1 planning consent
Planning permission for the retail sale of any goods.
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), reflecting
reversions to current market rent, and such items as voids and expenditures
but disregarding potential changes in market rents and reflecting the actual
cash flow 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 sufficiently 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.
Gearing (net)
Total borrowings, including bank overdrafts, less short-term deposits, corporate
bonds and cash, at book value, plus cumulative mark-to-market adjustment on
financial derivatives as a percentage of total equity.
Gross income yield
The annual cash net rent on investment properties (including those tenants in
administration) 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.
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 valuer’s report valuations net, after the deduction of
the prospective purchaser’s costs, including stamp duty, agent and legal fees.
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 profits.
A REIT is required to distribute at least 90% of its qualifying profits as a PID to
its shareholders.
Proposed developments
Schemes that are not yet included in the development programme but which
are more likely to proceed than not.
Pre-let
A lease signed with an occupier prior to completion of a development.
Qualifying activities/Qualifying assets
The ownership (activity) of property (assets) which is held to earn rental income
and qualifies 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
profits 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 profits 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,
Accor hotel portfolio 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.
Retail Price Index (RPI)
An indicator of inflation in the UK. It measures the average change from month
to month in the prices of goods and services in the UK.
Return on average capital employed
Group profit before interest, plus joint venture profit before tax, divided by the
average capital employed (defined as shareholders’ funds plus net debt).
Return on average equity
Group profit before tax plus joint venture tax divided by the average equity
shareholders’ funds.
Revenue profit
Profit before tax, excluding profits on the sale of non-current asset and trading
properties, profits 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 de-recognition, 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 year.
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 finance costs
less residential costs.
Total property return (TPR)
Valuation surplus, profit/(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 year, on the investment property portfolio.
Total shareholder return
The growth in value of a shareholding over a specified 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 profit
Operating profit before profit on disposal of non-current properties, revaluation
of investment properties, and exceptional items stated within operating profit.
Voids
The area in a property or portfolio, excluding developments, which is currently
available for letting.
Weighted average cost of capital (WACC)
Weighted average 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.
Land Securities Annual Report 2009
N
Notes to the financial statements
P
Payment policy
People
Communication and engagement
Reward and recognition
Employment policies
Performance overview
Our performance at a glance
KPIs
Principal risks
Financial
Property Investment
Property development
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
Key objectives
Top 6 properties
Our market
Our performance
Top Retail Portfolio properties over £50m by location
Development
Looking ahead
Development pipeline
Development timeline
Rights Issue
Risk management
T
Total shareholder returns
W
What would you like to know about Land Securities?
Annual Report
Corporate Responsibility Report
Website
6-7
6
6
7
7
52-53
132-137
132-133
136-137
135
135
28
28-51
10-11
12-14
144
1, 81, 131
64-67
64
64
64
64
65
65
65
66
66
66
66
66
66
67
67
54-63
55
57
58-59
59-60
61-63
28
D
Development stakeholders
Directors’ statements of responsibilities
Directors’ remuneration report
Introduction and compliance Q and A
Compliance
The Committee
Remuneration policy and philosophy
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
F
Financial calendar
Financial review
Headline results
Loss before tax
Valuation deficit
Impairment of trading properties
Interest rate swaps
Revenue profit
(Loss)/earnings per share
Total dividend
Net assets
Net pension surplus
Cash flow, net debt and gearing
Financing strategy
Rights Issue
Financing and capital
Hedging
Taxation
Financial statements
Income statement
Statement of recognised income and expense
Balance sheets
Cash flow statements
Five year summary
G
Glossary
I
Independent auditors’ report
Index
Investor analysis
Investor information
L
London Portfolio
Key objectives
Top 6 properties
Our market
Our performance
Top London Portfolio properties over £100m by location
Development
Looking ahead
Development pipeline
Development timeline
29
82
68-79
68-69
70
70
70
70-79
71
71
71
72
72
72
72-73
73
73
73
73
73
140
18-23
19
19
20
20
20
20
20
21
21
22
22
22-23
23
23
23
23
84-130
84
84
85
86
139
142
83
143
138-139
140-141
44-51
44
45
46
47
48
49
50
51
51
143
67-130
80
28-29
28
29
29
8-9
8
9
30-32
30
31
32
1-80
80
80
80
80
80
80
36-43
36
37
38
39
40
41
42
43
43
27
67
11
IBC
IBC
IBC
IBC
R
e
p
o
r
t
o
f
t
h
e
D
i
r
e
c
t
o
r
s
P
0
1
–
8
0
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
P
8
1
–
1
3
0
I
n
v
e
s
t
o
r
r
e
s
o
u
r
c
e
P
1
3
1
–
1
4
4
Index
A
All you need to know
Group structure
Strategy
Values
Vision
B
Board of Directors
Business analysis
Our performance in detail
Investment property business
– combined portfolio analysis
Investment property business
– combined portfolio reconciliation
Development pipeline financial summary
Business model
Business review
C
Chairman’s message
Chief Executive’s report
Contact details
Contents
Corporate governance
Introduction
Role of the Board
Board balance and independence
Information and professional development
Board performance evaluation
Nominations Committee
Remuneration Committee
Investor Relations
Audit Committee
External auditors
Valuers
Financial reporting
Going concern
Internal control
Risk Management process
Corporate responsibility
Strategy
People
Buildings
Communities
Performance during 2008/09
Customers
Land Securities Annual Report 2009
Contact details
If you have any comments about 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: investor.relations@landsecurities.com
W: www.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 person.
144
to
read
Forward-looking statements
By their nature, the statements concerning the risks and
uncertainties facing the Group in the 2009 Annual Report
involve uncertainty since future events and circumstances
can cause results and developments to differ materially
from those anticipated. The statements reflect 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 profit 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 Directors’ 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 6 to 80.
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 6 to 80 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 2009
Corporate Responsibility Report
www.landsecurities.com/crreport09
Corporate website
www.landsecurities.com
■ Our approach to corporate responsibility
■ Our response to climate change
■ Corporate responsibility stakeholders
■ 2008/09 activities and achievements
■ Future challenges
Information on our Retail Portfolio and London Portfolio
■ Our vision, strategy, objectives and values
■
■ Structure and Senior Management at Land Securities
■ Latest information for investors
■ Corporate responsibility
■ Media centre
■ Working at Land Securities
■ Frequently asked questions
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Land Securities Group PLC
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