Annual Report 2015
William Stovin, President, Markel International
20 Fenchurch Street, EC3
LAND SECURITIES AT A GLANCE
We are the largest listed commercial property company in the UK by market capitalisation.
Our purpose is to provide the right space for our customers and our communities – helping businesses
to succeed, the economy to grow and people to thrive.
Our goal is to outperform our peer group, in terms of total shareholder return, through the property cycle.
Our vision is to be the best property company in the UK in the eyes of our customers, our communities,
our employees and our partners. Here we show our performance over the last 12 months.
Combined Portfolio value
Profit before tax
including valuation surplus
£2,416.5m
2014: £1,108.9m
£14.0bn
London
West End offices
City offices
Central London shops
Mid-town offices
Inner London offices
Other
Retail
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
20.8%
11.8%
9.7%
9.1%
3.4%
0.5%
25.4%
8.8%
10.3%
0.2%
Total business return1
30.7%
2014: 15.5%
Total property return
23.0%
2014: 12.8%
Dividend per share3
31.85p
2014: 30.7p
Total shareholder return1
26.3%
2014: 27.2%
Revenue profit2,4
£m
299.4 290.7
274.7
Adjusted diluted earnings
pence per share
Adjusted diluted NAV
pence per share
319.6
329.1
40.5
41.5
38.5
36.8
36.3
1,293
1,013
903
863
826
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Valuation surplus4
£m
Adjusted net debt and LTV ratio
since March 20114
2,036.9
908.8
763.8
190.9
217.5
2011
2012
2013
2014
2015
m
£
t
b
e
d
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A
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4,400
4,200
4,000
3,800
3,600
3,400
3,200
3,000
2,800
2,600
2,400
%
V
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50
45
40
35
30
25
20
2011
2012
2013
2014
2015
Notes
1. Total shareholder return and total business return provide shareholders with the clearest guide to the Group’s progress in financial terms.
2. Revenue profit is our measure of the underlying pre-tax profit of the Group.
3. We aim to deliver a progressive dividend.
4. Includes proportionate share of joint ventures and subsidiaries.
The five charts above show the main components of our most important indicator of progress – total return.
THIS YEAR WE ASKED PEOPLE
TO TELL US ABOUT THE EFFECT
OUR PROPERTIES HAVE ON THEM.
OVER THE FOLLOWING PAGES
WE SHARE WHAT THEY SAID,
AND WE DESCRIBE WHAT WE
ARE DOING TO PROVIDE EVEN
BETTER SPACE THAT MEETS
OUR CUSTOMERS’ CHANGING
NEEDS AND EXPECTATIONS.
001
Strategic report
How the Company sets out to
create value and how we performed
during the year.
006 Chief Executive’s statement
008 Our market
010 Our business model
012 Our top properties
014 Our development pipeline
016 Our strategy and performance
018 Adding value through the lifecycle
019 Our people strategy
020 People performance
022 Our strategy in action
024 Key performance indicators
026 Financial review
030 Retail Portfolio review
032 London Portfolio review
034 Our principal risks
Governance
Including information on our Board, its
Committees and our high governance
standards.
038 Letter from the Chairman
040 Board of Directors
042 Executive Committee
043 Leadership
046 Letter from the Chairman of
the Nominations Committee
Effectiveness
047
049 Letter from the Chairman of
the Audit Committee
050 Accountability
054 Governance in action
057 Relations with shareholders
058 Directors’ Remuneration Report
079
Report of the Directors
Financial statements
Our primary financial statements
and supporting notes.
082 Statement of Directors’
Responsibilities
083 Independent Auditor’s Report
086 Income statement
086 Statement of comprehensive
income
087 Balance sheets
088 Statement of changes in equity
090 Statement of cash flows
091
Notes to the financial
statements
Additional information
Further analysis of our business
and practical information for
shareholders.
138 Business analysis – Group
142 Business analysis – Retail
143 Business analysis – London
144 Sustainability and responsibility
146 Sustainability reporting
148 Combined Portfolio analysis
150 Lease lengths
150
152 Five year summary
154
156 Glossary
IBC Cautionary statement
Contact details
Development pipeline
Investor information
Online annual report
www. landsecurities.com /annualreport2015
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
002
Land Securities Annual Report 2015
IN RETAIL, WE WORK IN A FAST-MOVING
AREA WHERE IT’S VITAL TO UNDERSTAND
AND ANTICIPATE PEOPLE’S CHANGING
TASTES AND NEEDS. OUR TRANSFORMED
PORTFOLIO IS WELL MATCHED TO THE
EVER-EVOLVING REQUIREMENTS OF OUR
CUSTOMERS AND COMMUNITIES.
WE ARE
DELIGHTED
WITH TRADE
IN WAHACA
CARDIFF
Mark Selby
Co-founder Wahaca
A MAGNIFICENT
NEW SPACE
TO SHOWCASE
THE BRAND
Meryl Dolan
Marketing Director, Ralph Lauren,
Gunwharf Quays, Portsmouth
A GREAT
OPPORTUNITY
FOR THE BRAND –
WE CANNOT
WAIT TO OPEN
Jeremy Hackett
Chairman of Hackett London
on the opening of his store at Bluewater
Land Securities Annual Report 2015
003
AMAZING FOOD,
GREAT DRINKS
AND FIRST-
CLASS DANCING
James Flint
Lewisham Street Feast visitor
DESIGN AND
ARCHITECTURE
OF THE HIGHEST
QUALITY
Bob Price, Council Leader
Oxford City Council, on
Westgate, Oxford
WE ARE DELIGHTED
THAT BLUEWATER
HAS CHOSEN THE
LEGION AS ITS
CHARITY OF THE YEAR
Charles Byrne
The British Legion,
Director of Fundraising
A GREAT
ATMOSPHERE
FOR PRACTISING
MY BOARDING
LAND SECURITIES
CONTINUES TO BE A
FIRST CLASS PARTNER
– AN INNOVATIVE,
FORWARD LOOKING
LANDLORD
Andy Street
Managing Director, John Lewis
LAND SECURITIES
ARE CALLING
THE FUTURE
SHAPE OF THE
RETAIL MARKET
Kevin Vale
Snowboarder at Xscape,
Milton Keynes
Charlie Barke, Partner
Cushman & Wakefield
THIS IS
WITHOUT
DOUBT THE
BEST CINEMA
IN LEEDS
Rachel Booth
Everyman Cinema goer,
Trinity Leeds
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004
Land Securities Annual Report 2015
IN LONDON, WE’RE CONSTANTLY
REFRESHING OUR PORTFOLIO TO PROVIDE
THE MODERN, TECHNICALLY RESILIENT
SPACE EXPECTED BY OUR CUSTOMERS.
AND AS WE DO THIS, WE CAN SHAPE NOT
ONLY THE BUILDING ITSELF, BUT ALSO
THE COMMUNITIES THAT WORK AND LIVE
WITHIN IT AND AROUND IT.
LAND SECURITIES
HELPED ME TO
SET UP MY OWN
PRACTICE AS
AN INDEPENDENT
ARTIST IN LONDON
Nika Neelova, Creator
of art installation at
1 & 2 New Ludgate, EC4
LOVE OUR NEW
SPACE – IT FITS
WITH ALL OF
OUR STRATEGIC
OBJECTIVES
Maarten Slendebroek
Chief Executive Officer, Jupiter
The Zig Zag Building, SW1
THE UK FOOD SCENE
IS UP THERE WITH
THE MOST EXCITING
IN THE WORLD AND
WE ARE EXCITED TO
BE PART OF IT, WITH
LAND SECURITIES
Jamie Oliver, Barbecoa
One New Change, EC4
Land Securities Annual Report 2015
005
THE FRONT OF
LOREM IUM
HOUSE STAFF
LISVID REST
ARE OFF-THE-
ECERA NA ET
CHARTS
TESISDOLA
BRILLIANT!
Simon Ruddick
Chief Executive Officer,
NAME HERE
Albourne Partners Limited
LOCATION HERE
16 Palace St, SW1
LAND SECURITIES
HAS TAKEN
THE TIME TO
UNDERSTAND THE
FASHION WORLD
Donna Ida
Founder of Donna Ida Boutique,
Elizabeth Street, SW1
THE OBVIOUS
LANDLORD AND
DEVELOPER TO
CONSOLIDATE OUR
BUSINESS WITH
David Gill
Managing Partner, Deloitte LLP
New Street Square, EC4
MADISON
HAS TRADED
ITS SOCKS
OFF HERE
Des Gunewardena
Chairman and CEO, D&D London
One New Change, EC4
I CAN SEE
THE SEAGULLS
SO CLOSE UP!
GREAT TO SEE
VICTORIA’S LOCAL
TALENT BEING
CELEBRATED
LAND SECURITIES
ARE EQUIPPING
LONDONERS WITH
THE SKILLS NEEDED
TO OBTAIN WORK
Jasper, age 5
Sky Garden visitor,
20 Fenchurch St, EC3
Richard Lusted
Inside Out Victoria event attendee
and Victoria resident, SW1
Boris Johnson, MP
Mayor of London
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006
Land Securities Annual Report 2015
CHIEF
EXECUTIVE’S
STATEMENT
Robert Noel reports on
our performance during the
year and shares his outlook
for the next 12 months.
Our results
Total business return
30.7%
23.0%
Ungeared total property return
Increase in adjusted diluted
NAV per share
27.6%
Our highlights
— £42.6m of development lettings
— £36.8m of investment lettings
— Acquisitions of £951.4m including
the managing stake in Bluewater
— Development and refurbishment
expenditure of £441.9m
— Disposals of £1,081.2m
— Further developments
committed with total
development costs of £220m
(our share)
Chief Executive’s statement
007
With record leasing levels across our London
development programme, combined with a
reshaped retail portfolio and continued financial
discipline, we have delivered very strong results.
Revenue profit was up 3.0% to £329.1m. Adjusted
diluted net asset value per share was up 27.6% to
1,293p driven by a particularly strong rise in the
valuation of our assets. Our total business return –
the increase in adjusted net asset value plus dividend
paid per share – was 30.7%.
Land Securities’ purpose is to provide the right
space for our customers and our communities –
helping businesses to succeed, the economy to grow
and people to thrive. Our goal is to outperform our
peer group in terms of total shareholder return
through the property cycle. To achieve this, we need
to anticipate our markets and understand customers’
and communities’ changing needs, then create value
by taking an active approach to buying, developing,
managing and selling assets.
Our markets are cyclical and changing. This was
clearly illustrated over the past year as the supply-
constrained conditions in London have enabled
strong development lettings with rising rents, longer
lease lengths and an upward swing in values. In retail
markets, the rapid evolution of omni-channel
retailing demonstrates the extent to which
consumer behaviour is changing.
Over the last five years we have followed a clear
plan to fund acquisitions and our significant push
into speculative development through asset
disposals rather than increased debt. This is enabling
us to reduce our financial gearing and strengthen the
business as we move through the cycle. In March
2010, our adjusted net debt was £4.2bn and the
portfolio was valued at £9.5bn. At 31 March 2015,
adjusted net debt was
also £4.2bn but the
portfolio is now valued
at £14.0bn.
Delivering into
supply-constrained
conditions
in London
During the year we
reached the peak of
our construction activity
in our committed
programme, just as
the vacancy rate of
quality office space in
London was heading
towards all-time lows.
Our sizeable development programme is proving to be
well-timed and well-executed, producing a valuation
surplus for the year of 38.7% or £594.4m. Key events
included the opening of 20 Fenchurch Street, EC3,
which is 92% let and pre-letting the entirety of
1 New Street Square, EC4, to Deloitte. Elsewhere,
we achieved significant letting progress at The Zig
Zag Building, SW1, and 1 & 2 New Ludgate, EC4.
We are now focused on leasing the remaining
space in our programme. At the start of the financial
year we had 1.7m sq ft of committed but unlet space
in the capital. At 31 March 2015 we had reduced this
to 1.1 m sq ft, with the total space let during the year
amounting to a future rent roll of £39.7m (our share)
at a weighted average lease term of 19 years.
We are very confident in the prospects for this
remaining space.
Navigating a changing retail market
This year we continued to sell shopping centres less
well equipped for the future and to focus our capital
and expertise on those that offer a great experience
for customers and are dominant within their area.
We sold assets in Sunderland, Bristol, Exeter and
Livingston. We acquired a 30% interest in Bluewater,
Kent, and the 50% we did not already own at
Buchanan Galleries, Glasgow. These actions have
substantially transformed our shopping centre
portfolio, which is now first class.
Our retail parks trade well, have few voids and
offer convenience to our customers. Following our
move into the leisure sector we are continuing to
invest in line with our strategic themes of
dominance, experience and convenience and where
we see value. In February, we committed to the
redevelopment of Westgate, Oxford, a joint venture
with The Crown Estate. And we are working on our
plans for the extension of Buchanan Galleries,
Glasgow. Both will provide standout retail and
leisure destinations.
Building a sustainable business
Our strategy is designed to ensure we are a
sustainable business through the market cycles,
providing the right space for our customers – those
who occupy or visit our properties – and our
communities. In everything we do we strive to shape
the future for good. By investing in the built
environment we improve the public realm while
enhancing the economic and social environment
through employment. Our properties then help to
this agenda through the business. Across the
business we are also working to ensure the culture,
values and career opportunities at Land Securities
attract and inspire great people, because
ultimately it is our employees who transform
strategy into results.
Outlook
The business is in excellent shape. Our broadly net
debt neutral approach has been a bedrock of our
strategy this cycle and with values having risen
strongly over the last two years, we have moved
into a period of lower financial and operational
gearing as planned.
There remains economic and political uncertainty
in Europe and elsewhere. Despite this uncertainty,
we remain confident in the prospects for the
1.1 m sq ft remaining to be let in our development
programme in London because there is currently a
significant lack of available, efficient, technically
resilient space for businesses. With development
starts picking up as expected, we still anticipate any
development commitments beyond the current
programme will be based on pre-lettings. We will
continue to build our pipeline for the future and we
are delighted to have acquired 21 Moorfields, EC2
– a significant development site over the western
entrance of the Liverpool Street Crossrail station.
After two exceptionally active years in our Retail
Portfolio, our focus on owning and managing great
destinations will continue. We will recycle capital as
required. Consumer spending increased during the
year, which is always welcome news for retail
businesses and the outlook is more positive.
However, we still do not expect this to translate into
rental growth across the entire sector. We have
talked about winners and losers before, and it is the
locations which are most in tune with shoppers’
evolving tastes and needs that are set to benefit from
consumer spending growth.
We go into a new financial year with a strong
balance sheet. Our portfolios are well matched to
customer demand, with plenty of new space to let in
great locations and some fantastic new development
opportunities for the future.
Robert Noel
Chief Executive
With record leasing levels
across our London
development programme,
combined with a reshaped
retail portfolio and continued
financial discipline, we have
delivered very strong results.”
generate and sustain local
economic activity. Our
shopping centres are
major employers and our
offices create demand for
local services. In turn, a
vibrant local economy
and environment is more
attractive to the
customers who sustain
our business.
Our work in Victoria,
SW1, demonstrates
this strategy in action.
Whether it is helping
disadvantaged
Londoners get access to
jobs, creating new
public thoroughfares, or building essential power
infrastructure to ensure a fast-growing neighbourhood
has reliable electricity – we are investing in smart
long-term initiatives that will benefit our customers
and communities for years to come.
We continue to work hard to anticipate the
changing needs and expectations of society, and
adapt our business accordingly. We have set even
higher environmental and socio-economic targets
for the business, and we aim to be number one for
sustainability in the listed real estate sector. We have
appointed a new Director of Corporate Affairs and
Sustainability to the Executive Committee to drive
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 008
OUR MARKET
UK commercial property market
The commercial property market provides
built infrastructure for business and offers
an alternative to other investment markets,
including stocks and bonds. Historically, the
market’s performance has broadly tracked
GDP growth. Interest rates also influence
the market. For example, rising interest
rates tend to put downward pressure on
property values. This may be balanced by
growth in rental values if higher interest
rates are accompanied by a higher level
of inflation.
The market is cyclical, particularly the London office
market which currently accounts for 45.1% of our
assets by value. The balance between supply and
demand is the single most powerful driver of
property values (see page 17 for more on the market
cycle). Structural changes in a sector – for example,
the change in retail consumer shopping habits –
also influence market behaviour and values.
To enhance returns, property companies use
financial gearing, for example through bonds and
bank debt. They also use operational gearing by
developing or refurbishing properties, which
carries more risk than investing in completed or let
assets. Access to finance varies according to the
market cycle, and buying and selling property has
significant friction costs compared to buying stocks
and bonds.
Due to the cyclical nature of the property market,
the timing of investment is critical to future returns.
Timing is also important in developments, and in
addition, capacity in the construction market is
particularly key to property companies’ margins.
Land Securities prefers to be an early cycle developer,
acting when others find it harder to access finance,
and when construction contracts can be secured on
relatively favourable terms.
Across investment and development, costs and
risk can also be affected by a range of other factors
such as changing customer requirements, the needs
and views of local residents and the wider community,
the availability of natural resources used in
construction and the effects of climate change on
buildings, together with new regulation. Property
companies are also increasingly expected to
generate wider social benefits.
Retail Portfolio – market
We invest in and develop retail and leisure space,
in town and out of town.
Dynamics
Supply and demand in the sector are
influenced by a range of economic factors
and ongoing structural changes in retailing.
First and foremost, economic conditions
determine consumers’ confidence and
spending power. This translates into retailers’
appetite for expansion and ability to finance
new space. We are seeing demand from a
broad range of retail businesses for locations
with high footfall.
Due to low interest rates, increasing
consumer confidence and improvements in
the economy, there is broad-based interest
from investors across most types of retail
property. There is strong interest from
investors for retail assets that can consistently
attract consumers and retailers.
Opportunities
Changes in the sector are creating a range of
opportunities for those best able to understand
the changing requirements of retailers and
consumers. These dynamics include:
• Shift in shopper mindset to the ‘Considered
Consumer’ – people who tend to shop less
often, travel further, expect greater choice,
stay longer and want to be entertained.
Landlords offering the full shopping
experience can benefit.
• Catering and leisure offer is becoming ever
more important. According to a recent
survey (CACI), shoppers who also use
catering facilities spend 26% more on retail
than non-catering users, so those centres
with the right retail and leisure mix can profit.
• Click and collect seeing increased usage.
Users of click and collect are more valuable
than non-users, as they often purchase
additional items to those being collected.
Centres which are able to facilitate click and
collect are ideally positioned to benefit from
additional spend.
London Portfolio – market
We invest in and develop office, retail, leisure
and residential space in central London.
Dynamics
The market in London is cyclical, with
pronounced fluctuations in property values in
response to changing levels of supply and
demand. We are currently in supply-
constrained conditions, with a relatively
healthy level of occupiers looking to move
in a market that has a relatively low level of
new building completions.
The market is also driven by the evolution
in the needs and expectations of customers
and communities around areas such as open
plan space; occupation density; energy
efficiency; high quality design and facilities;
and imaginative improvements to the
environment around buildings, including the
public realm. In addition, local authorities are
increasingly requiring developers to take a
mixed-use approach, incorporating retail and
sometimes residential space into their
schemes.
Enduring appeal
Central London has enduring appeal for
investors and occupiers offering:
• The capabilities and opportunities of a
global financial centre
• A deep and liquid property investment
market
• An international gateway
• Reasonable and relatively stable tax rates
• Strong business infrastructure
• A diverse community
• English-speaking population
• Excellent quality of life
• Access to top universities.
Land Securities Annual Report 2015 Our market
009
• Customers have a greater appetite for
personalisation and are more prepared
to share their personal data in exchange.
Greater understanding of your consumers
means centres can tailor their offer to
shoppers’ needs.
Challenges
Significant challenges in the sector include:
• Growing segmentation of the types of
stores required – experiential stores
require large units in dominant locations,
while convenience stores are smaller and
often located near transport hubs.
Landlords unable to offer space meeting
one of these criteria will struggle.
• Black Friday distorted the pattern of
Christmas spending and retailers saw mixed
success. For some, early sales meant longer
periods of discounting and reduced margins,
while others held out for the traditional
sales periods and tended to fare better.
• Increasing use of digital technology, which
is influencing around a third of in-store
retail sales in the UK, equivalent to almost
£100 billion. Consumers now have instant
access to comparable data, and can find
where to buy cheaper/better products
online while in store.
Market during the year
Consumer confidence increased steadily
throughout the year due to low interest
rates and wage increases resulting in greater
disposable incomes. In March 2015, the GfK
NOP UK Consumer Confidence poll stood
at +4, up from -5 in March 2014 (the highest
in 13 years).
Omni-channel retailing continues to
evolve at pace, although the rate of growth
in online sales is expected to reduce, based
on data from Verdict (see chart 1 opposite).
Sales growth in traditional bricks and
mortar stores will remain low, and
concentrated in dominant shopping centres
and areas of dense population.
Outlook
We expect occupier demand and property
values for the best locations to improve.
Shopping habits will continue to evolve and
retailers will respond with new approaches
to space and services. Online sales growth is
likely to further impact all retail property,
but prospects remain positive for those who
are able to seamlessly integrate with digital
technology and establish a role within the
multichannel customer journey. The most
successful retail property owners will be those
who provide the right trading environments
for retailers to respond to consumer trends
in smart, efficient and innovative ways.
Strengths
London’s strengths are attracting a large
and diverse mix of property investors, many
from overseas. This is currently helping us
when selling assets but it is increasing our
competition when buying.
Challenges
Challenges for London include:
• Limitations on economic growth due to
restrictions on immigration
• The impact of a growing population
leading to high costs, both for businesses
and residents
• Lack of housing at affordable or
attractive prices
• Pressure on an ageing infrastructure,
including power and sewerage
• Lack of clarity around airport expansion
• Uncertainty over residual property taxes
• Uncertainty around the UK’s relationship
with the EU.
Market during the year
• Take-up of office space in central London
for the 12 months to 31 March 2015
totalled 15.2m sq ft compared to the
10-year average rate of 12.5m sq ft
• At 31 March 2015 the vacancy rate stood
at 3.3% compared to a long-term trend
of 4.8%
• Over the 12 months to 31 March 2015
prime headline office rents grew by 11.1%
in the city and by 11.9% in the West End.
• Following the introduction of increased
taxation on residential property
transactions, and uncertainty in the
lead-up to the General Election, the
volume of high value residential sales
decreased markedly during the year.
Outlook
We expect supply-constrained conditions
to continue for the foreseeable future.
Although the volume of new development
has picked up considerably, schemes
projected to complete over the next 24
months are not expected to satisfy the
forecast level of demand for new space.
In the absence of an external event which
severely impacts demand, rental values
are set to continue their upward path as
competition for available space remains.
In the prime residential market, we expect
volumes to improve over last year.
Source: CBRE (all data)
Retail sales growth
Online vs. Bricks & Mortar
Chart 1
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Retail sales Bricks & Mortar growth (%)
Forecast for retail sales Bricks & Mortar growth (%)
Retail sales Online growth (%)
Forecast for retail sales Online growth (%)
Source: Verdict
For more information about our Retail Portfolio,
go to: pages 30–31
Central London supply
Development completions and vacancy
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1
0
2
Completed
Under construction
Potential Fringe London
Proposed
(RHS) Vacancy rate (all grades)
Average completions
Source: CBRE, Knight Frank, Land Securities
Active demand in Central London
Sector and location requirement
Chart 3
Total: 8.8m sq ft
sq ft
2.25m
2.00m
1.75m
1.50m
1.25m
1.00m
0.75m
0.50m
0.25m
0.00m
Financial Professional Insurance Media
Corporates
IT &
Telecoms
Public
Sector
Misc
City
Docklands
West End
Flexible
Source: Knight Frank
For more information about our London Portfolio,
go to: pages 32–33
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
010
OUR BUSINESS MODEL
Our goal is to outperform our peer group in terms of total
shareholder return through the property cycles. In everything
we do we aim to shape the future for good.
Sources of capital
Activity
Finance capital
This includes the different types
of funds we use to invest in our
business, from shareholder capital
to borrowings.
Social capital
This includes the relationships we
have with customers, communities
and partners and the capabilities of
our employees.
Sources and uses of
financial capital
Primary
activity
Supporting
activity
Shareholder capital
We can raise additional capital by issuing more
shares and can return capital to shareholders
through dividends or buying-back shares.
Debt
This is the capital lent to the Company primarily
through bank loans and corporate bonds. The
majority of debt has to be repaid at a specific
point in the future, and the Company pays
interest/coupons on the debt.
Gearing
This is the ratio of our debt to the current
value of our investment and trading properties
(recalculated every six months).
Capital reinvestment
Reinvesting capital from disposals and
undistributed earnings back into the business
in order to create further value.
Generating returns over time
Shareholders receive a return on capital through
the movement in share price and the dividends
they are paid over time.
Our purpose is to provide the right space to our
customers and the wider community.
Buy
We create value by acquiring buildings or land
that will generate returns above our cost of
capital through the application of our expertise.
Develop
We create value by building successful spaces
and vibrant places well matched to the
changing needs of customers and communities.
Manage
We create value by improving buildings to
meet our customers’ and communities’ needs,
running them efficiently and considerately,
and keeping them occupied.
Sell
We create value by holding or improving assets
then selling when greater returns can be gained
through investment elsewhere.
Finance
We secure funds for acquisitions and
development at key points in the cycle. We
also use debt to enhance shareholder value.
Planning
We foster relationships with local authorities
and communities so we can create successful,
revenue-generating developments that benefit
local communities.
Risk management
We anticipate and mitigate potential threats
to value creation, with a focus on ensuring
assets are well let through the cycle.
Technology
We acquire, develop and deploy technologies
that help to maximise the performance of our
buildings and our business.
Advisers, suppliers and contractors
We work with the best partners, gaining
competitive advantage from their expertise.
Land Securities Annual Report 2015CAPITAL REINVESTMENTCAPITAL REINVESTMENTSELLMANAGEDEVELOPBUY Our business model
Land Securities Annual Report 2015
011
Financial aims
Growth
in income
The total rent paid to
us by our occupiers.
Growth in
asset value
The increase in the value of
our portfolio generated by
our actions and market
influences.
Outcome
Dividend
The quarterly
payments we make
to our shareholders.
Capital
return
The overall change in
value of our portfolio.
Measure
Total
business return
Dividend
The quarterly
payments we make
to our shareholders.
Plus
Change in net
asset value
The overall change in
value of our net assets.
Influences
Market
sentiment
External responses to:
— Economic conditions
— Property market
conditions
— Our reputation
— Our management team
— Our portfolio of assets
— Our levels of gearing
Goal
Total
shareholder
return
Dividend payments
The financial value
of the payments we
make to shareholders.
Plus
Share price growth
The increase in the
financial value of our shares.
Non-financial aims
Customers
Provide the right space at the right time,
and in the right place at the right price.
Environment
Improve the built environment while
minimising environmental impact.
Communities
Help local areas thrive economically,
socially and environmentally.
Employees
Attract, recruit and develop smart,
skilled and commercially astute people.
Reputation
The external trust and
understanding we need in
order to do business.
Sustainable
future
The prospects we have as
a company that is valued
by its stakeholders.
Creating sustainable,
long-term value
We aim to create reliable returns through the
market cycle. This requires us to anticipate and
respond quickly to market dynamics, adjusting
the way we buy, develop, manage and sell
assets. But we also look beyond current
conditions, responding now to how our
markets and the wider world might develop
over time. This is essential if we are to ensure
our portfolios evolve in the right way and we
continue to create value.
For example, we think about changing
political, economic, social, technological and
environmental conditions, and what these
might mean for our assets and for the
customers who occupy or visit our properties.
We also think about the changing needs and
expectations of our communities – our
neighbours and those who live and/or work
in the areas we do business. We consider
everything from the socio-economic
contribution property development and
management can make to a neighbourhood
through to the impact such activity may have
on the natural environment.
And we consider how a changing world may
influence our employees and our partners –
those who have a direct working or contractual
relationship with Land Securities, and those
who share a mutual interest with us – so we
can be sure we have the capabilities needed to
do what we do best.
This long-term perspective informs our
sustainability commitments – tangible actions
we are taking to ensure the company helps to
shape the future for good. These include a
commitment that all new developments will
meet or exceed best practice for energy use,
water and materials. We aim to send zero
waste to landfill, recycle more and maximise the
biodiversity potential on all our sites. In terms
of socio-economic commitments, we want a
more appropriately diverse employee mix
within the company in terms of background,
gender, ethnicity and disability. We have
also set out commitments to ensure our
working environments are safe, healthy and
fair. And we aim to help 1,200 disadvantaged
people secure jobs.
Our vision is to be the best property
company in the UK in the eyes of our
customers, our communities, our employees
and our partners.
You can read about our progress
on these commitments on pages:
pages 144–145
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Land Securities Annual Report 2015
OUR TOP PROPERTIES
ONE NEW CHANGE
London EC4
An office and leisure destination
in an iconic building in the City
of London, with a roof terrace
offering striking views of St Paul’s
Cathedral. Developed by Land
Securities and including a ground
source energy system for on-site
energy generation, the retail and
leisure space opened in October
2010. Offices BREEAM ‘Excellent’
and retail ‘Very Good’.
Principal occupiers
K&L Gates, CME, H&M,
Topshop, Next
Key facts
Ownership interest
100%
Annualised net rent
£27.6m
CARDINAL PLACE
London SW1
Trio of buildings completed in 2006
by Land Securities, encompassing
BREEAM ‘Very Good’ office space
and retail accommodation. This
landmark site is home to blue-chip
businesses and retailers including
an M&S anchor store.
Principal occupiers
Microsoft, Wellington Asset
Management, M&S
Key facts
Ownership interest
100%
Annualised net rent
£35.8m
BLUEWATER
Kent
The dominant shopping centre in the south east
of England, this 1.8m sq ft centre offers a great mix
of retail and leisure located just outside the M25.
Significant investment in energy efficient lighting
and green roof areas has been made over the last
five years.
Principal occupiers
John Lewis, M&S, House of Fraser, Next
Key facts
Ownership interest
30%
Annualised net rent
£28.6m (LS share)
QUEEN ANNE’S GATE
London SW1
Built by Land Securities
in 1977, comprehensively
refurbished in 2008, it is
the headquarters of the
Ministry of Justice.
BREEAM ‘Excellent’
offices.
Principal occupier
Central Government
Key facts
Ownership interest
100%
Annualised net rent
£30.1m
NEW STREET SQUARE
London EC4
Offices with retail and
restaurants. Recreating
traditional ground-level
routes, including a public
square and a green wall to
enhance biodiversity, the
property offers office
space with attractive
retail and leisure facilities.
Developed by Land
Securities and completed
in 2008. Designed as an
environmental exemplar
with a focus on energy
efficiency and low impact
materials. BREEAM
‘Excellent’ offices.
Principal occupiers
Deloitte, Taylor Wessing,
Speechly Bircham
Key facts
Ownership interest
100%
Annualised net rent
£32.6m
Our top properties
Land Securities Annual Report 2015
013
20 FENCHURCH ST
London EC3
This distinctive addition to
the City of London skyline
was completed in 2014 and
comprises 688,100 sq ft of
offices and a unique public
Sky Garden. BREEAM
‘Excellent’ offices, featuring
a hydrogen fuel cell, roof
mounted photovoltaic panels
and one of the UK’s largest
living walls.
Principal occupiers
Markel, Kiln, Liberty
Syndicates, RSA
Key facts
Ownership interest
50%
Annualised net rent
£nil
1 & 2 NEW LUDGATE
London EC4
Completed in April 2015,
1 & 2 New Ludgate comprises
355,300 sq ft of modern,
technically resilient office space.
The scheme is 68% let (including
retail space), with the offices let
on 19 year leases. 1 New Ludgate
uses photovoltaics to generate
electricity for on-site use and
has a green roof terrace for
biodiversity enhancement.
Principal occupiers
Mizuho, Ropes and Gray
Key facts
Ownership interest
100%
Annualised net rent
£nil
GUNWHARF QUAYS
Portsmouth
Offering a blend of outlet
shopping, leisure and
entertainment on a waterfront
location, this landmark
scheme is a bustling centre of
mixed-use space.
Principal occupiers
Paul Smith, Jack Wills,
Ted Baker, Polo Ralph Lauren,
Jamie’s Italian
Key facts
Ownership interest
100%
Annualised net rent
£22.8m
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PICCADILLY LIGHTS
London W1
Offices, retail, leisure and a world
famous advertising landmark.
2009 saw the introduction of
enhanced energy-efficient LED
screens and in 2013 a new
advertising screen was added.
Principal occupiers
Hyundai, Barclays, Boots
Key facts
Ownership interest
100%
Annualised net rent
£16.9m
TRINITY
Leeds
Located in a prime
position, this 777,000
sq ft retail destination
achieved BREEAM
‘Excellent’ when it was
developed by Land
Securities and opened
in March 2013.
Principal occupiers
H&M, Topshop, Next,
Primark, River Island
Key facts
Ownership interest
100%
Annualised net rent
£26.5m
014
Land Securities Annual Report 2015
OUR
DEVELOPMENT
PIPELINE
2015
April
1 & 2 NEW LUDGATE
London EC4
Two office buildings united by a new public space.
Situated where the capital’s financial, legal and
professional worlds meet, and at the intersection of
Crossrail and Thameslink, this 355,300 sq ft office
and 26,200 sq ft retail scheme was more than 60%
let at completion.
Environment
1 New Ludgate uses photovoltaics to generate electricity
for on-site use and has a green roof terrace for biodiversity
enhancement.
Key facts
Percentage let
68%
Development cost
£254m
2016
July
KINGS GATE (TRADING PROPERTY)
London SW1
Kings Gate is our second significant residential
contribution to Victoria after Wellington House, which
completed in 2012. The 108,700 sq ft scheme consists
of 100 apartments, 85 of which have been pre-sold. The
scheme completes in July 2015.
Environment
Sustainable design features, including the use of
combined heat and power, mean that this luxury
residential property will achieve Code for Sustainable
Homes Level 4.
Key facts
Percentage units pre-sold
85%
Development cost
£161m
April
20 EASTBOURNE TERRACE
London W2
The redevelopment of 20 Eastbourne Terrace will
provide 92,700 sq ft of high quality office space located
opposite Paddington Station and the new Crossrail
entrance. Completion is due in April 2016.
Environment
Closed loop ground source heat pumps will provide 10%
reduction in carbon emissions.
Key facts
Percentage let
nil
Development cost
£67m
July
THE ZIG ZAG BUILDING
London SW1
188,700 sq ft of stunning commercial office space, with
terraces on seven floors and a communal roof garden
offering views of the Royal Parks and famous London
landmarks. The scheme provides new public realm,
gardens and 44,500 sq ft of retail space.
Environment
Façade designed to limit solar heat gain. The design
includes embedded pipework in the slab construction
which can be used as part of a low energy fit out design.
Key facts
Percentage let*
34%
Development cost*
£177m
*Includes Kings Gate retail space
June
1 NEW STREET SQUARE
London EC4
Building on the success of our New Street Square
development, 1 New Street Square is a significant
development of new office and retail space. The
274,800 sq ft scheme is due to complete in June 2016
and has been pre-let in its entirety to Deloitte on a 20
year lease.
Environment
The base building is designed to achieve a BREEAM
‘Excellent’ rating. We are working closely with our
customer, Deloitte, to target a BREEAM ‘Outstanding’
rating for the fit out works.
Key facts
Percentage let
100%
Development cost
£180m
Our development pipeline
Land Securities Annual Report 2015
015
2017
July
NOVA, VICTORIA – PHASE I
London SW1
Our development of this 5.5 acre site directly opposite
Victoria station will create an exciting destination in
which to work, live and play. Phase I comprises 480,000
sq ft of office, 79,900 of retail and 166,400 sq ft of
residential space, due to complete in July 2016.
Environment
Onsite energy centre will provide low carbon cooling,
heating and electricity to the buildings and low carbon
heating for 3,000+ homes in the area via the proposed
link to Westminster’s Pimlico district heating network.
Key facts
Percentage commercial pre-let
4%
Percentage residential units pre-sold (by number)
78%
Development cost
Commercial*
£248m
*LS 50% share
Residential*
£141m
October
WESTGATE
Oxford
This development will provide a new shopping, leisure
and dining destination. A joint venture with The Crown
Estate, the 800,000 sq ft scheme will feature rooftop
restaurants providing new and unique views across the
city. The development will be anchored by John Lewis.
Environment
An ‘ultra low carbon’ development with a suite of 45
sustainability commitments and a partnership with
local industry to use ground breaking new zero carbon
technologies.
Key facts
Percentage pre-let
29%
Development cost
£220m (LS 50% share, including residential)
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Beyond 2017
Portland House
London SW1
We have planning consent to convert this
1960s office tower into over 200
residential apartments with stunning
views across London. We are continuing to
roll our office income over to 2016 in this
popular office building, retaining flexibility
while we finalise our plans for this asset.
Nova – Phase II
London SW1
We have planning permissions for an
additional 171,000 sq ft of space on the
land currently occupied by LUL at Nova.
We are revising the original planning
consents and plan to take the development
to grade to increase flexibility on the
timing of the completion of the scheme.
21 Moorfields
London EC2
We have planning permission to deliver
over 500,000 sq ft of commercial space at
this key location above the future western
entrance to Liverpool Street Crossrail
station. We will prepare the site for
redevelopment by demolishing the
existing buildings and building to grade.
Worcester Woods
We submitted a planning application
for a 240,000 sq ft retail development.
The scheme is now 69% pre-let.
Selly Oak
Birmingham
We have planning permission for a
200,000 sq ft retail development as
part of a mixed use scheme. Remediation
of the site is currently ongoing by our joint
venture partner, J Sainsbury.
Proposed development
Buchanan Galleries
Glasgow
This proposed 500,000 sq ft extension to
our existing Buchanan Galleries shopping
centre has outline planning consent and
we are currently progressing contractual
arrangements.
For more information about our
development pipeline go to:
pages 150–151
016
OUR STRATEGY
AND PERFORMANCE
OUR STRATEGY
IS DESIGNED TO
ENSURE WE ARE
A SUSTAINABLE
BUSINESS THROUGH
THE MARKET CYCLE.
Our strategic objectives
To deliver our strategy we have set clear
objectives that relate to specific financial
and operational outcomes:
– Deliver sustainable long-term
shareholder returns
– Maximise the returns from the
investment portfolio
– Manage our balance sheet effectively
– Maximise development performance
– Ensure high levels of customer satisfaction
– Attract, develop, retain and motivate
high performance individuals
– Continually improve our sustainability
performance.
We work hard to anticipate and respond to changes in our markets.
We make understanding our customers’ needs our top priority,
so we provide the space businesses and people need to thrive.
We also look beyond our buildings, shaping the future for good by
ensuring our activities meet the expectations of our customers,
communities, partners and employees.
Our approach is to buy assets and start development early in
the cycle; manage assets actively to ensure they generate strong
income; and sell at the right time to maximise profit and recycle
capital. We are risk aware, not risk averse. Across the portfolio we
have a clear plan for every asset.
You can read more about our strategic choices below. You can
see our strategy in action across the Retail Portfolio and London
Portfolio on pages 22–23. And you can see the progress against our
KPIs for the year on pages 24–25.
Our strategic choices
Relationships
We aim to create and protect value
by being the company people prefer
to work with and for. To succeed, we
need our communities and partners
to trust that our activity benefits their
area. We need our customers and
investment partners to trust us to
deliver space on time and to plan.
And we need the public to trust that
our sites are safe and we use natural
resources carefully. Acting with
integrity in this way helps us to attract
and retain great people. It also makes
sound commercial sense.
Market
We focus on two geographically
defined sectors of the UK commercial
property market – offices, retail,
leisure and residential in central
London, and retail and leisure assets
located outside London. We believe
being active in these two sectors
rather than one provides us with
greater financial stability as they
work to different cycles.
Timing
We aim to own high quality assets
– with enduring appeal to customers
– that can generate strong income
through the cycle. And we carefully
time our development, buying and
selling activities in line with the cycle.
See the Q&A opposite for more on
market timing.
Scale
We are currently the UK’s largest Real
Estate Investment Trust (REIT) on the
basis of equity market capitalisation.
Scale enables us to make large
acquisitions and develop a number of
major assets at the appropriate time.
We can acquire sites then wait to
deploy our capital at the most
advantageous point in the cycle.
Locations
We choose to buy and develop in
thriving locations, or places with
excellent potential, where an under-
performing building or plot of land can
be transformed to generate income
and value. Placemaking – the long-term
regeneration of an area into a thriving
location – is an increasingly important
part of what we do.
Finance
We have been following a net debt
neutral financial approach as we move
through the cycle. So we have broadly
balanced the proceeds we received
from disposals with outgoings on
acquisitions and capital expenditure for
developments. This approach creates
strong competition for capital within
the Group, so only the best options are
pursued and financial gearing reduces
steadily as values rise as we move
through the cycle.
Risk
We are risk aware, not risk averse.
Our main risk is that space in our
developments will be left unlet –
or let at low rents – if the market turns
unexpectedly and supply outstrips
demand. We mitigate this through the
quality of our new buildings, developing
early in the cycle, and using our
excellent market knowledge and
occupier relationships. We also respond
to the long-term risks affecting our
industry, including climate change,
environmental regulation and resource
constraints, including energy supply.
Long-term
We aim to make sound, long-term
investments in our buildings so
their performance meets changing
regulation, they continue to attract
strong demand from customers and
they generate sustainable returns in
the years ahead.
Land Securities Annual Report 2015 Our strategy and performance
Land Securities Annual Report 2015
017
Market cycle
How we aim to match our activity to the movements of the market.
Diagram 4
DEVELOP
Starting schemes at the
right point in a rising
market helps maximise
value and minimise risk.
SELL
Selling some assets at
the right point in a rising
market means value can
be crystallised and the
portfolio can be biased
towards high quality
assets with long lease
lengths.
BUY
Falling values
bring opportunities
to buy assets at
attractive prices.
PROPERTY VALUES
P
R
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R
T
Y
V
A
L
U
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S
MANAGE
Active management of assets
through the cycle helps to reduce
voids and ensure space meets
occupiers’ changing needs.
Q&A
Why is there a property
market cycle?
If demand for space is greater than
supply rents tend to rise, leading to
higher property values. In turn this
encourages developers to create more
supply. At a certain point the supply of
new space is likely to outstrip demand
– particularly if economic and financial
factors also serve to limit demand.
Rents and property values may then
fall quickly.
What challenges are created by
the cycle?
Given that large properties take time
to build, the main challenge for
developers is to secure lower
construction costs and then time
construction so that buildings
complete in a rising market, while
demand for space is strong. In terms
of investment (owning property),
companies must understand
customers’ changing needs so their
space attracts occupiers and produces
good income through the cycle, even
when supply is high and demand low.
the cycle turns. We aim to buy assets
when values are falling or low. We start
to develop early in the cycle so we
benefit from lower construction costs,
and we aim to deliver completed
schemes while demand from
customers is rising and levels of
available space are low. We monitor
changing conditions carefully and aim
to stop our speculative development
programme well ahead of over supply
in the market.
How do you manage gearing
through the cycle?
Our gearing is a measure of our debt
relative to the value of our assets.
It has a multiplier effect, with high
gearing generating higher returns in a
rising market and greater losses in a
shrinking market. Our objective is to
have higher gearing at the bottom of
the market cycle and then to keep debt
relatively constant, so that rising
property values then reduce gearing as
the market improves. As the market
nears the top of the cycle we may
also sell further assets to reduce debt
so we can take advantage of buying
opportunities when values have fallen.
Selling quickly at scale can be
challenging so it is important we read
the market well and act decisively.
Do the cycles in the London offices
market and the retail market differ?
The London offices market sees
marked periods of over- and under-
supply, and demand can move from
one phase to another quite quickly.
We usually develop speculatively in
London – that is, without
commitments from customers to take
space. Our decision to move ahead is
based on confidence in our ability to
read the supply/demand balance.
Speculative development is necessary
as potential occupiers generally start to
look for space up to two years before
moving, while large schemes can take
more than two years to complete. The
retail market is less volatile as it is
fundamentally driven by long-term
structural changes within the sector,
such as the effect of the economy on
consumers or the impact of online
retailing. It is harder to predict demand
or create competition for space within
a new retail scheme, so we reduce risk
by achieving significant pre-lettings
before commencing construction.
What is your strategic response
to the cycle?
We manage assets actively through
the entire cycle, ensuring voids are kept
low and lease lengths are maintained
so we maximise rental income. We
sell assets when we see better
opportunities to use the proceeds to
create value elsewhere, particularly if
an asset may not perform so well when
How do you know where you
are in the cycle?
Being an active player at the heart of
the market enables us to see what’s
changing and assess the likely impact
on future supply and demand. We get
out and about to talk to people, and we
analyse new data carefully, particularly
information on lease expiries,
customer intentions, construction
costs and new development starts.
We also look closely at changing
patterns in rental values and their likely
effect on investment in development.
For more information on our
markets go to: pages 8–9
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ADDING VALUE THROUGH THE LIFECYCLE
We aim to buy, develop, manage and sell assets in a way that benefits those
closest to the company – our customers, communities, partners and employees.
We believe that responding to people’s needs – and
giving careful consideration to the environment,
economy and community – helps us to create enduring
value over the long term. Or put another way, if we
look after our cities, our cities will look after us.
Where we acquire or develop, we work closely with
our customers and communities to ensure the new
space meets their needs and expectations. We
manage most of the buildings we own which means
we get to see how people interact with them and
hear their views. So we gain a strong sense of what
people really want from a particular building. And,
because we have control, we can then take decisive
action to improve things for the better.
Adding value through the lifecycle
Diagram 5
The diagram below illustrates some of the ways in which we work to create value through the lifecycle of a typical asset.
REFURBISH OR RETROFIT TO RE-LET
INVEST
CAPITAL
REINVEST
CAPITAL
BUY
DEVELOP
MANAGE
SELL
Buy
Sustainability impact
We acquire an asset if it has
the potential to meet the
evolving needs of our
customers and communities,
can be acquired at the right
price, and is likely to generate
value for us over time. With
an eye on sustainable value,
our investment manager
will assess physical and
environmental due diligence
information on the state of
the building. This will include
details on physical risks that
could decrease the value of
the property and legislative
risk that may affect its
performance and value.
When we commit to
buying a property, we bring
long-term economic
investment to that area.
Develop
Sustainability impact
We develop when we see
an opportunity to create
space that will appeal to
customers, enhance the area
and create financial value for
us. We design for safety,
health and wellbeing,
considering things such as air
quality and natural lighting.
And we design for efficiency
and productivity behind the
scenes, considering areas such
as reception, loading bays, lift
service and power supply,
with an emphasis on their
effect on the customers’
experience, operational
resilience and energy use.
We also design to improve
the public realm around our
buildings, with health and
safety in mind. And we
consider the place within its
context, including transport
and communication
connectivity, urban
biodiversity and wider
infrastructure.
Manage
Sell
Sustainability impact
We sell an asset when we
see an opportunity to deploy
our capital more effectively
elsewhere. As a result of our
investment and activity, we
will sell a better performing
building than we bought. This
should make it more valuable,
which is good news for our
shareholders.
We aim to build a positive
legacy, leaving a place in a
better state than when we
arrived. By helping to make
people’s lives better, we
strengthen our reputation
and add value to our asset.
Our development activity
supports economic prosperity
by helping to create job
opportunities, both through
construction and the ongoing
use of the space. We work
with the local authority to
identify areas of social need,
help people access
opportunities and collaborate
with our partners to address
key issues. In particular, our
activity enables young people
to raise their aspirations,
improve their skills and
educational standards, and
stand a better chance of
getting a job.
For more on our approach
to development and
sustainability see page 144.
Sustainability impact
We work with customers and
the community to ensure a
building operates as it was
designed to. We redesign and
refurbish space if we spot an
opportunity to make it more
attractive, useful and valued.
We work with occupiers to
manage energy, water and
waste as cost efficiency and
environmental factors, which
helps to protect the building
from external risks such as
price volatility, changing
regulation, supply issues and
premature obsolescence.
In this stage of the building’s
lifecycle our activities are the
same as the development
phase, from working with local
authorities and groups to
helping to increase aspirations
and prosperity.
For more on our approach
to asset management and
sustainability see page 144.
Land Securities Annual Report 2015 People Strategy
OUR PEOPLE
STRATEGY
The capabilities and commitment
of our employees help set us
apart. Our people strategy is
about creating the conditions
where they can flourish and
employees can make the
greatest possible difference to
the company’s performance.
The strategy aims to ensure we:
• Truly understand the changing needs of our
customers, whether they are retail or office
occupiers, or people who visit our buildings.
This means developing deep and enduring
relationships with our customers; having access
to and sharing current insights on business and
consumer trends; and measuring the experience
we deliver for our customers and acting on
the results.
• Accurately read the cycle of the markets in
which we operate, then anticipate and respond
accordingly. This means investing in ‘best in class’
research and analytical skills. It also means being
clear on who has accountability for decision
making so we can maximise the opportunities
presented by the market, and manage risks
appropriately.
• Deliver complex projects by drawing on our
depth of technical expertise and building
sustained and trusting relationships with a
variety of stakeholders, some of whom will
have conflicting interests.
• Apply our commercial dexterity to maximise
the value of our investment portfolio. This
means being nimble so we spot commercial
opportunities, restructuring deals at pace
where needed, and having the courage to
take difficult decisions when necessary.
To make these happen we do four key things
(see right):
Land Securities Annual Report 2015
019
019
Organisation
We work to ensure that the organisation
is well matched to the current market
environment and the world we see ahead,
particularly the changing needs of our
customers and communities. We also work
to create a structure that provides clarity
on who is accountable for what at all levels,
while promoting the rapid sharing of
knowledge and cross-team collaboration.
Talent management
We invest to ensure we can attract the best
talent and that we are widely recognised as
a great place to develop a career. We aim
to build a deep understanding of the talent
pools from which we recruit, both now and
in the future. And to keep our employees
engaged, we work to provide great career
opportunities through effective succession
planning, training, education and other
development activities.
Reward for performance
We put in place total reward packages
(including base pay, benefits, annual bonus
plans and long-term incentives) designed to
motivate our people to make the biggest
possible contribution to the performance
of the company as a whole, and to inspire
them to be the best they can be in their
individual roles.
Engagement
We provide a clear framework that defines
the culture of Land Securities (purpose, goal,
vision and values) while giving people the
opportunity to bring it to life in different
ways, both inside the business and in the
way they interact with customers,
communities and partners. We recognise
and celebrate great examples of our values
at work, and encourage the sharing of
knowledge and experience. We value
different backgrounds and perspectives, and
give all our people the opportunity to put
forward ideas and have a voice in making
Land Securities a great place to work.
Over the course of 2014 and 2015 we have put in place new human resources initiatives
designed to support our strategy and deliver the business capabilities that differentiate us.
For more on our actions in the year see
pages 20–21
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Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
020
PEOPLE
PERFORMANCE
Organisation
Following last year’s reorganisation of the Executive
Committee, we took further steps this year to improve
our organisational structure. Our objective was to
better support the core skills outlined in the People
Strategy on page 19, and to start to embed our newly
refined purpose, goal, vision and values.
The management structure, in particular our
creation of two new Managing Director roles and the
appointments of Scott Parsons and Colette O’Shea
to those roles, is now well established. Both have
built strong leadership teams with broadly
consistent structures.
In Retail, we have evolved the Business Unit
structure over the course of the year in line with our
transformation of the portfolio. This has included the
full integration of the Operations and Portfolio teams,
who now manage our assets as one team. We have
also appointed a new Head of Commercial for
Retail, who is responsible for developing a deeper
understanding of our customers’ changing
requirements and embedding this in marketing,
leasing and customer relationship management.
This year we created a new Corporate Affairs and
Sustainability team, which included the recruitment
of Miles Webber in May 2015 to head that team and
join the Executive Committee. His appointment as
Director of Corporate Affairs and Sustainability
reflects our ambition to lead the industry on
sustainability and the need for all environmental
and socio-economic matters to be represented
at Executive Committee level by one person.
Talent management
Our Learning and Development Strategy is built around
the core capabilities required by the business. This year
we focused on building a leadership pipeline for the
future. This recognises that technical and functional
skills, although very important, are not enough.
During the year we launched two new large-scale
development programmes – ‘Positive Impact’, aimed
at all those who manage teams of people; and
‘Positive Influence’ for our 20 or so most senior
leaders below the Executive Committee. More than
100 people have commenced these programmes,
which focus on the broader skills essential to leading
the business through the next phase of the market
cycle – leading through change, coaching for
performance, and engaging teams. The ‘Positive
Influence’ programme has also given leaders the
opportunity to work in cross-business teams to
broaden their skills by tackling live business projects.
For the first time, we also joined forces with two
other organisations in our sector, the Grosvenor
Group and the Peabody Trust, to provide a joint
development activity for high potential, ‘early career’
professionals from all three businesses.
We believe that the creation of a learning-
focused organisation, and the nurturing of talent,
is about more than training, however. By clarifying
our organisation’s structure, holding inspiring
open events, including on the communication
of the Group’s results, and using new internal
communications technology like Yammer, we are
supporting ongoing development for all employees.
We are also applying insights from teams that have
joined us through acquisition. For example, our
Bluewater team has brought additional insights on
effective ways to engage consumers on a large scale.
Reward for performance
The creation of new development programmes is only
one strand of the way we retain our best people. This
year we also conducted a fundamental review of our
reward structures. This focused on making our annual
bonus scheme more engaging for employees and more
suited to the varying roles we have within the company.
The new arrangements, which will apply for 2015/16,
will help people to prioritise Group objectives, as
opposed to Business Unit objectives, fostering a sense
of ‘one company’. The scheme is more flexible and
provides an additional bonus opportunity to those in
commercial and delivery roles who deliver truly
outstanding results.
We have continued to review our full range of
financial benefits, including our ‘People Into Action’
recognition programme. This has gone from strength
to strength over the year and culminated in a group of
quarterly winners coming together for a celebration
dinner. A number of ‘best in class’ winners were
rewarded for achievements that truly went above and
beyond day-to-day expectations.
We also believe that one of the most powerful ways
in which we can retain our best talent is by providing
the opportunity to work on some of the most
groundbreaking and complex developments in the UK.
Lower resignation rates, particularly in London,
suggest this is working. In our most recent employee
Pulse Survey 96% of people in the London Business
Unit said they were proud to work for Land Securities.
Engagement
Our values form the cornerstone of the Land Securities
culture. Feedback from our employees indicates that,
in the main, our values are very well embedded, but
we have more to do to ensure that we are a truly
inclusive organisation. This year we gave attention to
re-articulating and bringing to life the values as a
framework to guide behaviour. We added
‘Accountability’ as a value to promote a real sense of
responsibility for the performance of the business,
and many of the actions we have taken this year have
helped to crystallise team and individual responsibilities.
As we reported last year, the diversity statistics
for the property industry are not what we would like
them to be. Internally, we have tried to break down
the barriers, whether real or perceived, to anyone
having a fulfilling career with us, irrespective of
background, ethnicity, gender or disability. Our actions
have included the extension of ‘unconscious bias’
training to all hiring managers, and the introduction
of a new induction module about inclusive culture.
Our statistics on gender are positive, with women
now making up 51% of our workforce, and with some
very strong senior role models (29% of the Executive
Committee, 42% of the London, and 57% of the
Retail Executive Committees are women). Further
diversity information can be found in the governance
report on page 44. However, our ethnic mix has not
improved, and we are convinced that the key to
changing this is for us to work even more closely with
the communities in which we operate. Along with our
existing range of employment initiatives, this year we
created a Land Securities school leaver trainee
academy. Although small, this has provided a very
welcome injection of new talent into the business.
The Employee Forum (previously known as the
Exchange Forum) is supporting the Executive
Committee on clearly defining and communicating
our commitment to diversity.
Safety, health and wellbeing
We are committed to having an exceptional
standard of safety, health and wellbeing in all
the working environments we control. We aim
to make the following three objectives standard
across our construction sites by 2020:
Safety – zero reportable health and safety
incidents (this includes our managed operations)
Health – every worker to have a transferable,
occupational health record
Wellbeing – key construction and managed
portfolio partners to have implemented a
wellbeing policy.
We are working hard across the company and
with our key partners to make this happen.
Values in short
Customer Service
Be sure you understand your customers and
don’t let them down.
Innovation
Be open to new ways of doing things.
Excellence
Be the best possible version of you.
Integrity
Be open, honest, reliable and consistent.
Accountability
Be responsible for your actions.
Respect
Be fair with everyone.
Human rights
Last year the Board approved our human
rights policy which aims to recognise and
safeguard the human rights of all citizens in
the business areas in which we operate. This
year we extended the policy to key supply
chain partners. The policy was issued to our
principal suppliers and we have received a
compliance statement from 56%. Over the
next 12 months we will look further into our
supply chain to see how the issues are
managed and how we can influence best
practice through procurement.
Land Securities Annual Report 2015
People Performance
Land Securities Annual Report 2015
021021
ENGAGEMENT
SURVEY RESULTS
of our people are proud to work for
Land Securities.
93%
89%
would recommend Land Securities as a
good place to work.
87%
feel that the Executive Committee
provide a strong sense of direction.
83%
feel that decisions are consistent with
the values.
THE POWER OF
COLLABORATION
Mizuho Group will occupy our 2 New
Ludgate, EC4 development, making it
their European headquarters. This will
represent a further milestone in a
remarkable collaboration. The building
needed to meet Mizuho’s exact
specifications and schedule. A resilient
power supply was essential to support
its 24/7 financial operations, for
example. To meet the customer’s
needs we brought together experts in
development, engineering, leasing,
property management and project
management to work as one team
– from day one. By creating strong
relationships within the company,
we have been able to create a strong
relationship outside the company,
overcoming tough technical challenges
along the way.
MENCAP STORY
We partner with other organisations to create
training, work experience and job opportunities
for people who are finding it difficult to enter
employment, including those with a learning
disability. This year we worked particularly closely
with Mencap, our national charity partner. We’ve
seen for ourselves how difficult it can be for people
with these disabilities to gain employment. We’ve
also seen that those individuals often make superb
employees. Over the 12 months our collaboration
with Mencap and supply chain partners helped 15
people with a learning disability get permanent jobs.
ROUTES TO EMPLOYMENT
Candidates via
locally identified
Schools/colleges
– School children <16 yrs
– At school or in further
education 16–18 yrs
– School leavers
– Undergraduates
– Graduates
– Post-graduates
Candidates via
locally identified
Referral partners
– Not in education,
employment or
training (NEETs)
– Long-term unemployed
– Learning disability
– Homeless
– Offenders
ACADEMIC
PROGRAMMES
COMMUNITY
EMPLOYMENT
PROGRAMMES
Academic programmes
Land Securities’ initiated activity to
raise awareness of opportunities
and improve skills facilitated by
Land Securities’ volunteers.
‘New or returning to work’
programmes
Land Securities’ initiated structured
programmes designed to prepare
young adults or those returning to work.
Employability hubs
Initiatives driven by Land Securities
but working in partnership with
referral partners and relying on
supply chain job placements.
Grants / volunteers
Financial grants or Land Securities’
time contributed to charitable
or social enterprises designed to
deliver employment outcomes.
Industry
exposure, skills
and experience
Opportunities
and outcomes
Land Securities
and its peers
With retail or
office occupiers
Through supply chain
or other partners
Progress to further
education
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Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
022
Land Securities Annual Report 2015
OUR STRATEGY
IN ACTION 2014–15
Retail Portfolio – strategy
We create value by providing customers with new or
more efficient space that helps drive their business.
We operate across the UK but focus on assets in
thriving locations that are a destination or
convenient for shoppers.
We de-risk developments by seeking substantial
pre-lettings before we start construction, so we, and
our customers, are both committed to the scheme.
We use our close relationships with retailers to ensure
we understand their changing needs. We help them
to pursue multi-channel strategies and ensure our
retail environments use new technology to enhance
the shopper’s experience. And we develop good
relationships with local communities and contribute to
the social and economic fabric of the local area, which
helps to make our centres busy and well regarded.
Increasing consumer demand for great shopping
experiences is a fundamental driver within our
market, so we are managing our portfolio to ensure
our assets provide a great day out. We are also seeing
rising demand for convenience from shoppers and
new formats from retailers, so we are evolving
our edge-of-town and out of town assets.
Geographically, we are focusing our activity in
the south east and the best regional destinations.
For more information about our Retail Portfolio
go to: pages 30–31
BUY
DEVELOP
MANAGE
SELL
BLUEWATER
Kent
We acquired a 30% stake in Bluewater,
Kent for £657.0m. In addition, we
acquired the full asset management of
the centre and 110 acres of surrounding
land for £40.0m. The acquisition forms
part of the strategic shift of our Retail
Portfolio towards dominance, experience
and convenience and brings with it
management of the UK’s pre-eminent
shopping centre outside London.
BUCHANAN GALLERIES
Glasgow
We increased our interest in Buchanan
Galleries, Glasgow to 100% by buying
the remaining 50% stake for £137.5m.
BISHOP CENTRE
Taplow
Construction of this 105,000 sq ft
edge-of-town scheme completed
in July last year, and the centre is now
100% let.
WESTGATE
Oxford
In February, we committed to proceed
with work on the re-development of
Westgate, Oxford, together with our
partners The Crown Estate. This 800,000
sq ft centre will provide a world-class
retail and leisure destination in Oxford,
with around 100 stores, 25 restaurants,
cafes and bars, a boutique cinema, roof
top terrace dining, new public spaces
and over 60 residential apartments.
The centre is now 29% pre-let, and
will be anchored by John Lewis.
BUCHANAN GALLERIES
Glasgow
Following our acquisition of the
remaining 50% and close liaison with
local partners, we achieved planning
consent for a major extension to
Buchanan Galleries, Glasgow, and we
are currently progressing contractual
arrangements.
Our focus on dominance, experience
and convenience has driven our disposals
strategy.
THE BRIDGES
Sunderland
We sold this 550,000 sq ft shopping centre
for £152.3m. We took advantage of
strong market conditions for retail assets
to crystallise value from this asset which
was no longer part of our strategic focus.
CABOT CIRCUS
Bristol
We demonstrated the pace at which we
are reshaping the Retail Portfolio to focus
on the very best shopping environments
with the disposal of our 50% stake in Cabot
Circus shopping centre, Quakers Friars and
surrounding shops in Bristol for £267.8m.
PRINCESSHAY
Exeter
In line with our strategy of focusing on
shopping centres which are dominant
in their location, we sold our 50% stake
in Princesshay shopping centre and
surrounding properties in Exeter for
£127.9m, as part of a swap for 50%
of Buchanan Galleries, Glasgow.
THE CENTRE AND ALMONDVALE
WEST RETAIL PARK
Livingston
We sold these two assets in Livingston for
£224.1m. With this sale, we completed
the disposal of our last secondary
shopping centre and our shopping centre
portfolio now consists of dominant
regional and Greater London assets.
BLUEWATER
Kent
At Bluewater we see opportunities to
reformat space to better meet the needs
of customers. We have already enabled
Next to increase its presence by turning
three separate units into a new flagship
store. We are also upgrading the quality
and mix of catering at the centre.
GUNWHARF QUAYS
Portsmouth
We are continuing to see healthy
sales growth as we focus our asset
management plans on premium brands
taking new space at the centre. We have
begun works to relocate Polo Ralph
Lauren to a new 16,500 sq ft store which
will be their largest standalone outlet
store in the UK.
ST DAVID’S
Cardiff
Our focus is on bringing new retail and
catering brands to Cardiff and highlights
include the first Wahaca in the south
west, Scotts, a leading branded
menswear offer and Discovery Adventure
Golf, a new indoor leisure destination.
BLACKPOOL RETAIL PARK
Blackpool
Work has commenced to reconfigure
a number of units allowing the
introduction of new occupiers to the
park. We have submitted a planning
application for a convenience food store
on some redundant industrial units
adjoining the park.
Our strategy in action
Land Securities Annual Report 2015
023
London Portfolio – strategy
We create value by developing office, retail, leisure
and residential space; strengthening income through
smart, rigorous asset management; and recycling
our capital through well-timed disposals and
acquisitions. We operate in central London in areas
we know well.
We manage the balance between development
and property investment carefully, with a current
emphasis on development as it has the potential
to deliver greater returns at this point in the cycle.
We generally develop speculatively, which requires
us to have a very clear understanding of customers’
changing needs and the likely balance between supply
and demand on completion. Our current development
programme is well matched to market conditions.
Everything we do is driven by the need to
understand our customers, partners and
communities. We respond to people’s ever-evolving
expectations in the way we plan, design, build and
manage our buildings. We give particular attention
to placemaking, so that the public realm and facilities
in and around our buildings make the area more
attractive and enjoyable for everyone.
For more information about our London Portfolio
go to: pages 32–33
BUY
DEVELOP
MANAGE
SELL
We strengthened our pipeline of future
opportunities by making two key
acquisitions in the year:
21 MOORFIELDS
EC2
This development opportunity sits over
the future western entrance to Liverpool
Street Crossrail station and will deliver
over 500,000 sq ft of commercial space.
We acquired this asset at an attractive
price, and are working up our plans for
the future development.
THOMAS MORE SQUARE
E1
We secured our partner’s 50% interest
in Thomas More Square, E1. The
acquisition will enable us to capture
greater value as we refurbish the main
office tower, add new retail space and
enhance the public realm.
20 FENCHURCH STREET
EC3
We started construction in 2010 and
completed the office space last year with
the Sky Garden opening to the public in
January 2015. The scheme is now 92% let,
achieving longer leases and higher rents
than anticipated. As a result, this new
addition to the London City skyline
delivered a valuation surplus of over 90%
since the start of the scheme.
1 & 2 NEW LUDGATE
EC4
Our mixed-use development at 1 & 2 New
Ludgate, EC4, has created two exceptional
buildings near the planned Crossrail/
Thameslink interchange. The offices are
now 71% let with average lease lengths of
19 years – again, reflecting the supply
constrained nature of this part of the City.
The development completed in April 2015.
KINGS GATE
SW1
This 100 apartment scheme will complete
in July 2015. 85 apartments are pre-sold.
THE ZIG ZAG BUILDING
SW1
Construction of this commercial office
and retail scheme is now due to complete
in July 2015. The office space is already
32% pre-let and 52% of the retail space
at The Zig Zag Building, SW1, and Kings
Gate, SW1, is now pre-let to Jamie’s
Italian, Iberica and Mango.
1 NEW STREET SQUARE
EC4
This 275,000 sq ft scheme was pre-let in
its entirety to Deloitte in March on a 20
year lease. The development is located
within a ten minute walk of Blackfriars
and Farringdon, where Crossrail meets
Thameslink. The letting success, some
15 months ahead of project completion,
reflects the product and supply-
constrained conditions into which we
are delivering our assets.
NOVA, VICTORIA
SW1 – Phase I
Construction of this 726,000 sq ft office,
retail and residential scheme is progressing
well. 12% of the office space is in
solicitors’ hands and we have sold 133 of
the 170 apartments. Seven of the 18 retail
units are pre-let with a further six in
solicitors’ hands, creating London’s newest
and most exciting restaurant quarter.
TIMES SQUARE
EC4
We successfully lengthened the income
by restructuring two leases. This enabled
us to maximise value prior to disposal.
DASHWOOD HOUSE
EC2
Over 81% of the income at Dashwood
House, EC2, is subject to rent review by
March 2016. Ahead of these reviews,
we have achieved a new benchmark
rent through some surrender and
re-leasing activity.
130 WOOD STREET
EC4
Through agreeing a surrender of a lease
of the top floor, and subsequently
re-letting to the majority occupier for
10 years, we increased the ERV and
weighted average unexpired lease
term on this building.
Void rate and lease length
Our like-for-like void rate increased to
4.3% at 31 March 2015 compared to
1.6%. The main contributors were a digital
sign at Piccadilly Lights, W1, where the
lease expired before the year end, Thomas
More Square, EC1, New Street Square,
EC4, Holborn Gate, EC4, where we are
refurbishing the space, and Portland
House, SW1, a pre-development
property. Lease extensions and renewals
in the portfolio have maintained the
weighted average unexpired office lease
length at 9.2 years.
47 MARK LANE
EC3
We sold 47 Mark Lane, EC3 for £73.2m,
taking advantage of the strong
investment market to crystallise the
valuation gain created by letting and
lease re-gearing activity.
TIMES SQUARE
EC4
Following the recent asset initiative to
lengthen the income, and maximise
value, we exchanged contracts to sell
our 95% stake in Times Square, EC4,
for £268.4m.
ORIANA
W1
Following a lease extension to Primark,
we have sold Phase I of Oriana for
£126.8m (our share) and agreed a
forward sale of Phase II on completion.
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024
KEY PERFORMANCE INDICATORS
We work to turn our strategic objectives into tangible performance,
using individual key performance indicators to measure our progress.
Strategic objective
KPI for the year
Performance
Remuneration
Read more
KPI for 2015/16
Deliver sustainable long-term
shareholder returns
Maximise the returns from
the investment portfolio
Three year Total Shareholder Return (TSR)
performance compared to the TSR performance
(weighted) of a comparator group of property
companies within the FTSE 350 Real Estate Index
One year and three year Total Property Return
(TPR) performance compared to the IPD Quarterly
Universe, weighted to the sectors in which the
Group is invested
TSR outperformance of 2.3% per annum for the three year period
from April 2012
Outperformance versus the benchmark of 3.1% over one year and
outperformance over three years of 1.0% per annum
One year and three year TPR compared to all
March valued properties within IPD
See page 70
Three year TSR performance compared to the
TSR performance (weighted) of a comparator
group of property companies within the FTSE
350 Real Estate Index
Linked to
remuneration
Read more
See page 70
50% of the award of long-term share
investment plans is determined by the three
year TSR performance compared to the
comparator group
50% of the award of long-term share investment
plans is determined by the three year TPR
performance compared to our benchmark.
The same measure, on a one year basis, also
determines part of the annual bonus
The outturn is adjusted to take account of the performance of
trading properties and the capital and income extracted from
Queen Anne’s Gate, SW1, through a bond issue in 2009
Revenue profit to exceed an internal threshold
Achieved. Revenue profit of £329.1m was above an internal threshold
Forms part of the specific business targets which
determine a proportion of annual bonus
Revenue profit to exceed a rebased internal
See page 70
threshold
Forms part of the specific business targets which
determine a proportion of annual bonus
Disposal of specific assets to fund our
investment activity
Manage our balance sheet effectively
Manage Retail Portfolio acquisitions and disposals
within a maximum net disinvestment target
Increase the geographical concentration limit for
London assets within our secured lending pool to
at least 80%
Achieved. Retail Portfolio net investment of £12.2m over the year
Achieved. Concentration limit increased to 100%
Maximise development performance
Secure a minimum of £28.6m of development
lettings and conditional lettings
£47.6m of development lettings and conditional lettings achieved
in the year
Forms part of the specific business targets which
determine a proportion of annual bonus
Achieve planning milestones for five specific London
and Retail assets
Planning milestones achieved for four out of five assets
Ensure high levels of customer
satisfaction
Maintain overall customer satisfaction rates in Retail
and London customer surveys of 4 (out of 5) or over
Retail 4.2
London 4.2
Forms part of the specific business targets which
determine a proportion of annual bonus
Attract, develop, retain and motivate
high performance employees
60% of people managers to have commenced/
completed Management Development Programme
Achieved. 79% of people managers have commenced/completed
the Management Development Programme
Forms part of the specific business targets which
determine a proportion of annual bonus
50% of the Top 50 Leaders to have accessed the
Leadership Development Programme
Achieved. 50% of the Top 50 leaders have accessed the Leadership
Development Programme
Continually improve
sustainability performance
Reduce the absolute energy consumption of our five
largest energy consuming managed buildings by 15%
by 2020 against a 2014 baseline
Reductions achieved at each property, resulting in an overall
reduction of 7%
Zero waste to landfill (at least 70% recycled)
London: Diverted – 100%. Recycled – 50.6%
Retail: Diverted – 99.8%. Recycled – 71.1%
Reduce the absolute water use of our five largest
water consuming managed buildings by 15% by
2020 against a 2014 baseline
Reductions achieved at two office properties, increases seen at two
retail properties, resulting in an overall reduction of 1%
Secure employment for 125 candidates through our
Community Employment Programmes
157 people secured employment through our Community Employment
Programmes
No direct link to remuneration
No direct link to remuneration
No direct link to remuneration
Forms part of the specific business
targets which determine a proportion
of annual bonus
See page 71
See page 71
See page 71
See page 71
See page 71
Progress development lettings within
our development programme
Progress on planning applications
Maintain overall customer satisfaction
rates in Retail and London customer
surveys of 4 (out of 5) or over
Embedding of the Purpose, Vision and Values
throughout the business with positive
effect on engagement
Leadership in gender and ethnic diversity
Reduce the absolute energy consumption of our
five largest energy consuming managed buildings
by 15% by 2020 against a 2014 baseline
Send zero waste to landfill with at least 70%
recycled across all our operational and
construction activities by 2020
Reduce the absolute water use of our five largest
water consuming managed buildings by 15% by
2020 against a 2014 baseline
170 people through training and into jobs via our
Community Employment Programmes
Embedding of the Purpose, Vision and Values
throughout the business
Leadership in gender and ethnic diversity
Mandatory health and safety training (M1 & M2)
to be completed within six months of joining
(M1 100%, M2 80%)
Remuneration
see page 75
Remuneration
see page 74
Our principal risks
see page 35
Remuneration
see page 74
Our principal risks
see page 35
Remuneration
see page 74
Our principal risks
see page 35
Remuneration
see page 74
Our principal risks
see page 36
Remuneration
see page 74
Our principal risks
see page 36
Remuneration
see page 74
Our principal risks
see page 36
Remuneration
see page 74
Our principal risks
see page 36
Land Securities Annual Report 2015 Key performance indicators
025
For more information on our
Remuneration policy go to:
pages 58–67
Strategic objective
KPI for the year
Performance
Remuneration
Read more
KPI for 2015/16
Deliver sustainable long-term
shareholder returns
Three year Total Shareholder Return (TSR)
performance compared to the TSR performance
(weighted) of a comparator group of property
companies within the FTSE 350 Real Estate Index
TSR outperformance of 2.3% per annum for the three year period
from April 2012
Maximise the returns from
the investment portfolio
One year and three year Total Property Return
Outperformance versus the benchmark of 3.1% over one year and
(TPR) performance compared to the IPD Quarterly
outperformance over three years of 1.0% per annum
Universe, weighted to the sectors in which the
Group is invested
Revenue profit to exceed an internal threshold
Achieved. Revenue profit of £329.1m was above an internal threshold
Manage our balance sheet effectively
Manage Retail Portfolio acquisitions and disposals
Achieved. Retail Portfolio net investment of £12.2m over the year
within a maximum net disinvestment target
Increase the geographical concentration limit for
London assets within our secured lending pool to
at least 80%
Achieved. Concentration limit increased to 100%
50% of the award of long-term share
investment plans is determined by the three
year TSR performance compared to the
comparator group
50% of the award of long-term share investment
plans is determined by the three year TPR
performance compared to our benchmark.
The same measure, on a one year basis, also
determines part of the annual bonus
The outturn is adjusted to take account of the performance of
trading properties and the capital and income extracted from
Queen Anne’s Gate, SW1, through a bond issue in 2009
Forms part of the specific business targets which
determine a proportion of annual bonus
Forms part of the specific business targets which
determine a proportion of annual bonus
Maximise development performance
Secure a minimum of £28.6m of development
£47.6m of development lettings and conditional lettings achieved
lettings and conditional lettings
in the year
Forms part of the specific business targets which
determine a proportion of annual bonus
Achieve planning milestones for five specific London
Planning milestones achieved for four out of five assets
and Retail assets
Ensure high levels of customer
satisfaction
Maintain overall customer satisfaction rates in Retail
and London customer surveys of 4 (out of 5) or over
Retail 4.2
London 4.2
Forms part of the specific business targets which
determine a proportion of annual bonus
Attract, develop, retain and motivate
high performance employees
60% of people managers to have commenced/
Achieved. 79% of people managers have commenced/completed
completed Management Development Programme
the Management Development Programme
Forms part of the specific business targets which
determine a proportion of annual bonus
50% of the Top 50 Leaders to have accessed the
Achieved. 50% of the Top 50 leaders have accessed the Leadership
Leadership Development Programme
Development Programme
Continually improve
sustainability performance
largest energy consuming managed buildings by 15%
reduction of 7%
by 2020 against a 2014 baseline
Reduce the absolute energy consumption of our five
Reductions achieved at each property, resulting in an overall
No direct link to remuneration
Zero waste to landfill (at least 70% recycled)
London: Diverted – 100%. Recycled – 50.6%
Retail: Diverted – 99.8%. Recycled – 71.1%
Reduce the absolute water use of our five largest
water consuming managed buildings by 15% by
Reductions achieved at two office properties, increases seen at two
retail properties, resulting in an overall reduction of 1%
2020 against a 2014 baseline
Secure employment for 125 candidates through our
157 people secured employment through our Community Employment
Community Employment Programmes
Programmes
No direct link to remuneration
No direct link to remuneration
Forms part of the specific business
targets which determine a proportion
of annual bonus
Remuneration
see page 75
Remuneration
see page 74
Our principal risks
see page 35
Remuneration
see page 74
Our principal risks
see page 35
Remuneration
see page 74
Our principal risks
see page 35
Remuneration
see page 74
Our principal risks
see page 36
Remuneration
see page 74
Our principal risks
see page 36
Remuneration
see page 74
Our principal risks
see page 36
Remuneration
see page 74
Our principal risks
see page 36
Three year TSR performance compared to the
TSR performance (weighted) of a comparator
group of property companies within the FTSE
350 Real Estate Index
Linked to
remuneration
Read more
See page 70
One year and three year TPR compared to all
March valued properties within IPD
See page 70
See page 70
See page 71
See page 71
See page 71
See page 71
See page 71
Revenue profit to exceed a rebased internal
threshold
Disposal of specific assets to fund our
investment activity
Progress development lettings within
our development programme
Progress on planning applications
Maintain overall customer satisfaction
rates in Retail and London customer
surveys of 4 (out of 5) or over
Embedding of the Purpose, Vision and Values
throughout the business with positive
effect on engagement
Leadership in gender and ethnic diversity
Reduce the absolute energy consumption of our
five largest energy consuming managed buildings
by 15% by 2020 against a 2014 baseline
Send zero waste to landfill with at least 70%
recycled across all our operational and
construction activities by 2020
Reduce the absolute water use of our five largest
water consuming managed buildings by 15% by
2020 against a 2014 baseline
170 people through training and into jobs via our
Community Employment Programmes
Embedding of the Purpose, Vision and Values
throughout the business
Leadership in gender and ethnic diversity
Mandatory health and safety training (M1 & M2)
to be completed within six months of joining
(M1 100%, M2 80%)
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 026026
Land Securities Annual Report 2015
FINANCIAL
REVIEW
Martin Greenslade reports
on our financial performance
in detail and explains the
movements in our key
financial measures.
Financial highlights
Our highlights
Total business return
30.7%
23.0%
Ungeared total property return
Increase in adjusted diluted
NAV per share
27.6%
– Profit before tax £2,416.5m
(2014: £1,108.9m)
– Revenue profit £329.1m
(2014: £319.6m)
– Adjusted diluted earnings
per share 41.5p, up 2.5%
– Adjusted diluted NAV per
share 1,293p, up 27.6%
– Recommended total
dividend for the year
31.85p, up 3.7%
Land Securities Annual Report 2015 Financial review
027
Overview and headline results
This year we delivered a profit before tax of
£2,416.5m, compared with £1,108.9m last year,
driven by a valuation surplus of £2,036.9m (including
our proportionate share of subsidiaries and joint
ventures). Basic earnings per share were 306.1p
compared with 142.3p. Underlying earnings were
also up; revenue profit was £329.1m compared with
£319.6m last year and adjusted diluted earnings per
share improved to 41.5p from 40.5p.
Our Combined Portfolio increased in value from
£11.9bn at 31 March 2014 to £14.0bn, principally as a
result of our valuation surplus of £2,036.9m. Net
assets per share increased by 25.6% to 1,343p at
31 March 2015. Adjusted diluted net assets per share
were up by 27.6% over the year, increasing from
1,013p to 1,293p. This 280p increase in adjusted
diluted net assets per share together with the
dividend paid in the year represents a 30.7% total
business return.
Presentation of financial information
A number of our financial measures include the
results of our joint ventures and subsidiaries on a
proportionate basis. Measures that are described
as being presented on a proportionate basis include
the Group’s share of joint ventures on a line by line
basis, but exclude the non-owned elements of
our subsidiaries. This is in contrast to the Group’s
statutory financial statements, where the Group’s
interest in joint ventures is presented as one line
on the income statement and balance sheet, and
all subsidiaries are consolidated at 100%. Our joint
operations are presented on a proportionate basis
in all financial measures.
Revenue profit
Revenue profit is our measure of underlying pre-tax
profit, which is used internally to assess the Group’s
income performance. It excludes all items of a capital
nature, such as valuation movements and profits and
losses on the disposal of investment properties, as well
as one-off items. A full definition of revenue profit
is given in the glossary. The main components of
revenue profit are presented on a proportionate basis
in the table below and a more detailed reconciliation
of revenue profit to our IFRS profit before tax is
included in note 4 to the financial statements.
Revenue profit
Retail
Portfolio
£m
London
Portfolio
£m
Gross rental income1
Net service charge expense
Net direct property expenditure
Net rental income
Indirect costs
367.7
(2.8)
(25.3)
339.6
(29.7)
Segment profit before interest
309.9
273.1
0.6
(13.8)
259.9
(21.6)
238.3
Net unallocated expenses
Net interest expense – Group
Net interest expense – joint
ventures
Revenue profit
31 March
2015
£m
640.8
(2.2)
(39.1)
599.5
(51.3)
548.2
(39.4)
(155.4)
(24.3)
329.1
Retail
Portfolio2
£m
London
Portfolio2
£m
31 March
2014
£m
368.4
263.0
(3.4)
(28.5)
336.5
(28.0)
–
(5.5)
257.5
(19.2)
631.4
(3.4)
(34.0)
594.0
(47.2)
308.5
238.3
546.8
(36.5)
(168.0)
(22.7)
319.6
Table 6
Change
£m
9.4
1.2
(5.1)
5.5
(4.1)
1.4
(2.9)
12.6
(1.6)
9.5
1. Includes finance lease interest, after rents payable.
2. The split of net rental income and segment profit before interest between the London Portfolio and the Retail Portfolio has been restated by £1.3m in
the prior year to reflect the impact of properties transferred from the London Portfolio to the Retail Portfolio during the current year.
Valuation analysis
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
London offices
Central London shops
Other (Retail and London)
Total like-for-like portfolio
Proposed developments
Completed developments
Acquisitions
Development programme
Non-current assets held for sale
Market value
31 March
2015
£m
Valuation
surplus
%
Rental value
change1
%
Net initial
yield
%
Equivalent
yield
%
Table 7
Movement in
equivalent
yield
bps
2,025.7
1,130.8
797.2
4,051.6
1,094.7
102.7
9,202.7
290.0
962.1
1,425.1
2,151.5
n/a
19.5
2.2
17.5
18.3
16.4
20.4
16.0
1.0
14.2
6.2
38.7
12.2
17.3
0.3
(0.9)
4.3
10.0
2.5
2.7
4.3
n/a
(0.6)
n/a
n/a
n/a
3.8
4.6
5.4
5.4
4.0
3.6
1.6
4.3
4.7
4.1
4.7
0.2
n/a
3.7
4.8
5.5
5.5
4.5
4.4
3.1
4.8
n/a
4.7
5.4
4.4
n/a
4.8
(81)
(20)
(80)
(52)
(55)
(51)
(58)
n/a
(60)
n/a
n/a
n/a
(67)
Total Combined Portfolio
14,031.4
1. Rental value change excludes units materially altered during the year and Queen Anne’s Gate, SW1.
Table 6 shows the composition of our revenue profit
including the contributions from London and Retail.
Revenue profit increased by £9.5m from £319.6m
last year to £329.1m in the year ended 31 March
2015. The 3.0% increase was mainly due to higher
net rental income, which was up £5.5m, and a
decrease in net interest expense of £11.0m, offset by
£7.0m of net indirect expenditure. The increase in net
rental income is largely due to the acquisition of 30%
of Bluewater, Kent, with the benefit of development
completions largely offset by prior and current year
disposals. The assets sold during the year contributed
£47.6m of net rental income to this year’s results.
Further information on the net rental income
performance of the London and Retail portfolios
is given in the respective business reviews.
The indirect costs of London and Retail and
net unallocated expenses need to be considered
together as, collectively, they represent the net
indirect expenses of the Group including joint
ventures. In total, net indirect expenses were £90.7m
compared with £83.7m last year. The £7.0m increase
in these costs is due to a £2.8m increase in feasibility
costs associated with properties we did not own
during the year, principally 21 Moorfields, EC2, with
the balance largely due to higher variable pay and
long-term incentives. Further information on our
total costs is given in table 69.
Our net interest expense has decreased by
£11.0m to £179.7m, largely due to the repayment
of more expensive asset specific debt with cheaper
group facilities.
Valuation surplus and profits on disposal
The movement in the values of our investment
properties and any profits or losses on disposals are
key components of our pre-tax profit. Over the year,
the valuation surplus on our Combined Portfolio was
£2,036.9m. We made a profit on the disposal of
investment properties and joint ventures of £136.0m
(on a proportionate basis), compared with £18.5m
last year. The profit on disposals represented a 15.3%
surplus over 31 March 2014 values and was largely
attributable to The Centre, Livingston and The Bridges,
Sunderland. A breakdown of the valuation surplus by
category is shown in table 7.
Over the year to 31 March 2015, we have seen
yields fall and values rise across every category of our
Combined Portfolio as a result of strong investor
demand for commercial property. Overall, values
were up by 17.3%, with the like-for-like portfolio up
by 16.0% driven by a combination of a 58 basis
points reduction in equivalent yields and a 4.3%
increase in rental values.
Our shopping centres increased in value by 19.5%
predominantly due to yields declining by 81 basis
points. Our retail warehouses and food stores were
up 2.2% in value as yields reduced by 20 basis points.
Partly offsetting this yield movement, overall rental
values were down 0.9% as the occupational market
remained challenging with limited demand for larger
units. Leisure and hotels reported a 17.5% valuation
surplus as equivalent yields reduced by 80 basis points
and rental values grew by 4.3%. Consumer spending
in this sector continues to increase as economic
confidence grows and consumer behaviour evolves.
Strong investment demand for London offices has
reduced yields by 52 basis points, with rental values
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
028
also improving by 10.0%, contributing to an overall
increase in value of 18.3%. The value of central
London shops rose by 16.4% with a rise in rental
values of 2.5%, and a 55 basis points yield reduction.
Outside the like-for-like portfolio, completed
developments increased in value by 14.2% due to a
60 basis points reduction in yields, although rental
values decreased marginally due to Trinity Leeds
where retailer administrations have led to some lower
appraised rents. Within acquisitions, the value of
Bluewater, Kent was unchanged while our X-Leisure
assets were up 9.9%. The development programme
valuation surplus was 38.7% due to continued
construction and pre-letting progress on our major
schemes particularly 1 & 2 New Ludgate, EC4, The Zig
Zag Building, SW1 and 1 New Street Square, EC4.
Earnings per share
Basic earnings per share were 306.1p, compared
with 142.3p last year, primarily due to the significant
increase in the valuation surplus.
Similar to the adjustments we make to profit
before tax, which remove capital and one-off items
to give revenue profit, we also report adjusted
earnings per share figures. Adjusted diluted earnings
per share increased by 2.5% from 40.5p last year to
41.5p per share this year as a result of the increase in
revenue profit, partly offset by a small impact from
the additional shares issued under the scrip dividend
scheme which we operated until April 2014.
Total dividend
We are recommending a final quarterly dividend of
8.15p per share to be paid on 24 July 2015 entirely as
a Property Income Distribution (PID) to shareholders
registered at the close of business on 19 June 2015.
Taken together with the three quarterly dividends of
7.9p already paid, our full year dividend will be up 3.7%
at 31.85p per share (2014: 30.7p) or £251.6m
(2014: £241.5m).
Net assets
Net assets at the beginning of the year
Adjusted earnings
Valuation surplus on investment properties
Profit on disposal of investment properties
Profit on disposal of investments in joint ventures
Profit on disposal of trading properties
Impairment of goodwill
Impairment on long-term contract
Fair value movement on interest-rate swaps
Other
Profit after tax
Cash dividends
Purchase of own shares and treasury shares
Other reserve movements
Net assets at the end of the year
Fair value of interest-rate exchange swaps
Debt adjusted to nominal value
Deferred tax liability
Goodwill on deferred tax liability
Adjusted net assets at the end of the year
To the extent tax is payable, all items are shown post-tax.
The Company operated a scrip dividend scheme in
respect of the quarterly dividend paid in April 2014 and
the scrip dividend amount of £17.2m (2014: £61.1m)
comprised a wholly non-PID distribution. A dividend
reinvestment plan (DRIP) was introduced in place of
the scrip dividend scheme and was operated for the
first time in respect of last year’s final dividend paid
on 22 July 2014.
For certain shareholders, it is more efficient to
receive dividends as a non-PID. However, there is a
limit to the amount of non-PID dividend we can pay
as we are required to distribute 90% of our earnings
(calculated on a tax basis) as a PID. As a result, we
expect our dividends over time to comprise a mix of
PID and non-PID elements. Further information on
the dividends paid and payable in respect of the year
is given in note 12.
Net assets
At 31 March 2015, our net assets per share were 1,343p,
an increase of 274p or 25.6% from 31 March 2014. The
increase in our net assets was primarily driven by the
increase in value of our investment properties, profits
on disposal of investment properties and our adjusted
earnings, partly offset by the dividends we paid.
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 increase our debt to its nominal
value. At 31 March 2015, adjusted diluted net assets
per share were 1,293p per share, an increase of 280p
or 27.6% from 31 March 2014.
Table 8 summarises the main differences
between net assets and our adjusted measure
of net assets together with the key movements
in the year.
Table 8
Year ended
31 March 2015
£m
Year ended
31 March 2014
£m
8,418.3
329.1
2,036.9
132.7
3.3
31.5
(29.7)
(11.3)
(34.8)
(40.9)
2,416.8
(229.4)
(12.0)
12.6
7,486.7
319.1
763.8
16.0
2.5
2.4
–
–
15.2
(2.4)
1,116.6
(175.6)
(16.0)
6.6
10,606.3
8,418.3
39.8
(391.7)
5.8
(5.8)
3.6
(413.2)
–
–
10,254.4
8,008.7
Long-term contracts and trading properties
During the year the Group recognised profits of
£31.5m on the disposal of trading properties,
primarily due to the sale of a parcel of land at Harrow
following receipt of planning permission for
residential development.
In relation to our long-term contract at Lodge Hill,
Chattenden, where we have been working on behalf
of the Ministry of Defence to obtain the necessary
permissions to enable residential development, we
have recognised a loss of £11.3m due to increased
uncertainty over the recoverability of our costs to
date following the disappointing decision by the
Secretary of State to call in the proposed scheme for
public inquiry.
Bluewater, Kent
In June, the Group acquired a 30% interest in Bluewater,
together with full asset management rights for the
centre, and 110 acres of surrounding land for £697.0m
including business combination costs of £2.7m.
The Group has accounted for the transaction in
accordance with IFRS 3 ‘Business Combinations’ and
therefore applied purchase accounting. Goodwill of
£35.5m arose on the transaction, primarily
representing the difference between the value of the
investment property as assessed by our external
valuer, and the consideration paid. The difference is
largely due to prospective purchasers’ costs, which
are deducted by the external valuer in determining
the investment property value, as well as a lower
value being attributed to the 110 acres of surrounding
land, where we felt it was appropriate to pay a
premium for the land on the basis of its long-term
potential and adjacency to the Group’s land at
Ebbsfleet. The Group has considered whether this
element of goodwill is recoverable, and has
concluded that it is not. £29.5m of the goodwill has
therefore been written off to the income statement
in the year. This left an initial balance of £6.0m of
goodwill, of which £0.2m was impaired in the year.
Further details on the goodwill and the assets and
liabilities acquired as part of the transaction are given
in note 41 to the financial statements.
The Group’s investment in Bluewater represents a
joint operation. Therefore, in accordance with IFRS,
the Group’s share of the results, assets and liabilities
of Bluewater are included in the Group’s financial
statements on a line by line basis. This is in contrast
to the Group’s joint ventures, where the Group’s
interest in joint ventures is presented on one line in
the income statement and balance sheet.
Net debt and gearing
Over the year, our net debt increased by £470.0m to
£3,800.5m. The main elements behind this increase
are set out in our statement of cash flows.
Operating cash inflow after interest and tax was
£233.5m, higher than the £158.6m received last
year primarily due to the timing of interest payments
in the prior year. We spent £805.0m on acquisitions
including a 30% interest in Bluewater, Kent and
our partners’ 50% interest in Buchanan Galleries,
Glasgow and Thomas More Square, E1. Capital
expenditure was £270.3m, largely relating to our
wholly owned developments in Victoria, SW1 and
1 & 2 New Ludgate, EC4, and we contributed a net
£133.6m to our joint ventures to fund developments
at 20 Fenchurch Street, EC3 and Nova, Victoria, SW1
Land Securities Annual Report 2015 Financial review
029
and enable St David’s, Cardiff to repay its external
debt. Offsetting these investments in our portfolio
were disposals proceeds of £741.9m, primarily from
Cabot Circus, Bristol, The Centre, Livingston,
The Bridges, Sunderland, and Princesshay, Exeter.
We paid cash dividends of £229.4m in the year.
Adjusted net debt, which is presented on a
proportionate basis and includes the nominal value
of our debt but excludes the mark-to-market on our
swaps, was up £223.4m to £4,171.7m (31 March
2014: £3,948.3m). A reconciliation between net debt
and adjusted net debt is given in note 21 to the
financial statements.
Table 9 below sets out various measures of our
gearing.
All our gearing measures have decreased compared
to last year as the increase in the value of our assets
was more than enough to offset the small rise in our
adjusted net debt. The measure most widely used in
our industry is loan-to-value (LTV). We focus most
on Group LTV, presented on a proportionate basis.
This LTV measure decreased from 32.5% at 31 March
2014 to 28.5% at 31 March 2015. This is consistent
with our strategy at this stage in the property cycle
of allowing gearing to decline as property values rise.
Our Security Group LTV decreased to 31.5%
(31 March 2014: 35.5%) largely as a result of capital
growth in the secured asset pool, partly offset by an
increase in Security Group debt.
Financing
The total capital of the Group consists of
shareholders’ equity and adjusted net debt. Since
IFRS requires us to state a large part of our net debt
at below its nominal value, we view our capital
structure on a basis which adjusts for this. Details of
our main sources of capital are given in notes 21 and
22 to the financial statements.
During the year, we put in place a £500m
acquisition facility that expires in September 2016 to
fund the investment in Bluewater, Kent, replacing an
existing facility that was due to expire in September
2014. In March 2015, we replaced our £1,085m
revolving credit facility with a new £1,255m facility.
The new facility has a term of five years which may
be extended to a maximum of seven years at the
Group’s request and upon approval from each
participating bank. The pricing of our debt facilities,
all of which fall due in more than one year, ranges
from LIBOR +75 basis points to LIBOR +120 basis
points. In addition, we raised £180m through the
issue of unsecured Euro Commercial Paper at
approximately LIBOR +20 basis points.
The weighted average duration of the Group’s
debt (on a proportionate basis) is 8.3 years with a
weighted average cost of debt of 4.5%, with 90.9%
at fixed interest rates. At 31 March 2015, we had
£1.4bn of cash and available facilities. As we
demonstrated with the Bluewater acquisition this
year, we have considerable flexibility to deploy capital
quickly should an acquisition opportunity arise.
Environmental reporting
Reduction of energy consumption within
commercial properties is key to meeting the
Government’s carbon reduction targets.
Commercial properties account for approximately
18% of the total UK energy consumption and recent
Gearing
Adjusted gearing1 – on a proportionate basis
Group LTV
Group LTV – on a proportionate basis
Security Group LTV
1. Adjusted net debt divided by adjusted net asset value.
Our approach to gearing
Table 9
31 March 2015
%
31 March 2014
%
40.7
31.6
28.5
31.5
49.3
35.7
32.5
35.5
legislation is aimed at driving reductions within the
industry. Energy reduction is one of the areas where
we can engage with our customers to ensure that our
buildings are efficient.
We are reporting an overall reduction of 8% in
energy consumption across our like-for-like portfolio,
with the London and Retail portfolios reducing their
energy consumption by 8% and 10% respectively.
During the year, DEFRA issued new carbon conversion
factors as a consequence of a more carbon intensive UK
fuel mix, which has resulted in a marginal 1% increase
in normalised equivalent CO2 emissions from our
like-for-like portfolio against our 2014 baseline (down
8% had we used 2014 carbon conversion factors).
This year we have focused our corporate targets
on energy reduction. To this end, we are targeting
our five highest consuming properties which
collectively account for 37% and 18% of our
portfolio’s energy and water consumption
respectively with the aim of obtaining a 15%
reduction in absolute energy consumption and
landlord water consumption by 2020. Customer
and service partner engagement is key in meeting
these goals and we are working closely with all
stakeholders to ensure these targets are met.
For our mandatory carbon report see page 146 and
our performance page 144. For baseline adjustments
see www.landsecurities.com/sustainability.
Taxation
As a consequence of the Group’s REIT status, income
and capital gains from our qualifying property rental
business are exempt from UK corporation tax. There
was a tax credit of £0.3m in the year, £0.2m relating
to deferred tax arising on the acquisition of
Bluewater, Kent and £0.1m relating to prior year
adjustments (31 March 2014: £7.7m).
Martin Greenslade
Chief Financial Officer
Table 10
When we consider gearing, we need to recognise that we have both financial gearing and operational gearing. We aim to use both forms of gearing to enhance our
returns without taking excessive risk.
How it arises
The potential benefits and risks
How we measure it
How we manage it
Financial
• Debt we have
on our balance
sheet or in joint
ventures.
• Magnifies the financial
effects of income and
valuation movements
• Accentuates negative as
• Assess in terms of
interest cover ratios
(ICR) and loan-to-
value (LTV) ratios.
Operational
• Principally
from
development
of properties,
particularly
if speculative.
well as positive
movements.
• Magnifies the potential
returns available from
capital invested
in property
• Higher volatility of
valuation movements
and potential income
shortfalls.
• Assess in terms of
income at risk from
capital invested
• The proportion of
capital deployed in
development
• Level of committed
capital expenditure.
• In normal market conditions: 35% to 45% LTV (inner range)
• Certain stages in the cycle: 25% to 55% LTV (outer range)
• Increased pace at which market factors influence asset values is
encouraging us towards lower financial leverage
• We also consider LTV including unspent but committed development
capital expenditure.
• Using conservative letting assumptions, the income impact from the
unlet element of our development programme should not exceed
underlying retained earnings for the year
• Total development cost of current developments should not exceed 20%
of total assets unless significantly pre-let
• Committed development expenditure not to exceed 90% of available
cash and undrawn bank facilities.
For our mandatory carbon report see
pages 146–147
For further performance details see
pages 144–145
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
030
030
Land Securities Annual Report 2015
RETAIL
PORTFOLIO
REVIEW
Highlights
Valuation surplus
11.1%
Investment lettings
£17.4m
Development lettings
£2.9m
Objectives for 2014/15
Outperform IPD sector
benchmark
Progress at 31 March 2015
The total return of the Retail
Portfolio was 17.7% outperforming
its IPD sector benchmark at 14.7%
Objectives for 2015/16
Outperform IPD sector
benchmark
Complete the letting of
Bishop Centre, Taplow
100% let
Progress pre-lettings at
Buchanan Galleries,
Glasgow and Westgate,
Oxford
Achieve reserved matters
consent at Buchanan
Galleries, Glasgow;
Westgate, Oxford; and
Ealing Filmworks
Progress on conditional
pre-lettings on our
edge-of-town
development programme
Buchanan Galleries extension 36%
pre-let; Westgate 29% pre-let
All achieved
Progress lettings at
Buchanan Galleries
and Westgate
Resolution to grant
planning consent at
Worcester Woods
Worcester Woods 69% pre-let;
planning refused at Newnham
Court, Maidstone
Progress to time and to
budget at our committed
developments
Continue the
transformation of the
portfolio to dominance,
experience and
convenience
Acquisition of 30% interest in
Bluewater, Kent and 50% of
Buchanan Galleries, with disposals
including Exeter, Bristol, Sunderland
and Livingston
Progress key disposals
according to plan
Expand Community
Employment Programme
into retail service
providers
Infrastructure established for
programme in Oxford
Implement programme at
Westgate, Oxford
Land Securities Annual Report 2015 Retail Portfolio review
031
By taking decisive action, we have
transformed our shopping centre
portfolio. We now have a set of prime
assets well matched to the ever-
changing needs of our customers
and communities.
Buy
In June we acquired a 30% stake in the Bluewater
shopping centre, Kent and the rights to manage the
centre. We also increased our interest in Buchanan
Galleries, Glasgow, to 100% by buying the 50%
stake we did not already own. This demonstrates our
strategy in action, shifting the portfolio towards
prime assets that offer dominance, experience and
convenience. Put simply, these are places where our
customers most want to be.
Develop
In February, with our partners The Crown Estate, we
committed to proceed with the redevelopment of
Westgate, Oxford. This 800,000 sq ft centre will
provide a first class retail and leisure destination, with
around 100 stores, 25 restaurants, cafes and bars, a
boutique cinema, roof top terrace dining, new public
spaces and over 60 residential apartments.
Construction started in spring 2015. This follows
more than four years of complex preparation work,
including extensive consultation with the local
community. The centre is 29% pre-let and will be
anchored by John Lewis.
In March, we secured detailed planning consent for a
major extension to Buchanan Galleries, Glasgow and
we continue to progress contractual arrangements.
During the year we completed The Bishop Centre,
Taplow – a 105,000 sq ft scheme – which is now 100%
let. At Worcester, we submitted a planning application
for a 240,000 sq ft development, which is now 69%
pre-let. At Ealing, we secured detailed planning consent
for a 77,000 sq ft leisure scheme, which is now 29%
pre-let, and 161 residential units. Disappointingly,
at Maidstone, we were refused planning permission
for a 225,000 sq ft retail park development and have
no plans to pursue this further.
Manage
We work closely with our customers to provide them
with space that meets their needs. Over the year, we
worked with many of our customers who wanted to
increase the size of their units in our centres. This
demonstrates the high quality and appeal of our
portfolio, as retailers require flagship units in the best
locations to showcase their brands and appeal to
their customers.
At Bluewater, Kent, for example, we are
combining three units and expanding into the service
yard to provide Next with a new flagship store. H&M
need more space at St David’s in Cardiff, and we will
commence work shortly to create a new 45,000 sq ft
statement store to meet their requirements. Polo
Ralph Lauren also need a larger unit in Gunwharf
Quays, our designer outlet centre in Portsmouth
Harbour, and work is currently underway to provide
them with what will be one of their largest outlet
stores in Europe.
Sell
This year we made £826.3m of disposals at a surplus
to the 31 March 2014 valuation of 14.3%, including
The Centre and Almondvale West in Livingston; The
Bridges, Sunderland; Cabot Circus, Bristol; and our
50% share of Princesshay, Exeter.
Outlook
With omni-channel retailing continuing to evolve,
and an increasingly demanding consumer, we expect
the retail environment as a whole to remain
challenging. The polarisation between winning and
losing locations is ongoing, with demand for retail
space focusing on the best trading locations. These
are the only locations, in our view, which are likely to
see meaningful rental growth in the short and
medium-term.
With this in mind, we will continue to be relentless
in our asset management, rigorous in our investment
decisions, and passionate about working with our
customers to deliver the space they need. We are
confident that the changes we have made to our
portfolio over the past few years have positioned us
well for the future.
Net rental income
Table 11
At a glance
31 March 2015
£m
31 March 20141
£m
Change
£m
Like-for-like investment properties
203.4
203.3
Proposed developments
Development programme
Completed developments
Acquisitions since 1 April 2013
Disposals since 1 April 2013
Non-property related income
Net rental income
11.8
1.6
26.2
60.6
27.5
8.5
7.7
1.3
22.5
30.4
65.3
6.0
339.6
336.5
0.1
4.1
0.3
3.7
30.2
(37.8)
2.5
3.1
1. The split of net rental income and segment profit before interest between the London Portfolio and the Retail Portfolio has been restated by £1.3m in
the prior year to reflect the impact of properties transferred from the London Portfolio to the Retail Portfolio during the current year.
Net rental income increased by £3.1m from £336.5m to £339.6m with lost income from disposals more than
offset by increases in other categories. Acquisitions contributed £30.2m of the increased rental income,
primarily due to our 30% stake in Bluewater, Kent and the increase in our interest in X-Leisure in September
2013. At our completed developments, Trinity Leeds and The Bishop Centre, Taplow, income increased by
£3.7m while net rental income from our like-for-like properties was virtually unchanged. Both these
categories saw higher gross rental income growth offset by higher bad debt provisions, up £2.7m compared to
last year, following the insolvency of a number of retailers including Paul Simon, Internacionale and Strada.
Proposed developments contributed an additional £4.1m, which reflects our acquisition of the 50% of
Buchanan Galleries, Glasgow that we did not already own.
These increases in net rental income are partially offset by rents on properties we sold since March 2013.
These disposals include Bon Accord, Aberdeen, the Overgate Centre, Dundee, and the Designer Outlet
Centre, Livingston, all sold in the second half of last year as well as The Bridges, Sunderland, The Centre and
Almondvale West Retail Park, Livingston, our 50% share of Cabot Circus, Bristol and our 50% share of
Princesshay, Exeter in the current year.
Valuations
• Valuation surplus of 11.1%
• Ungeared total property return of 17.7%
• The portfolio outperformed its IPD Quarterly
Universe sector benchmark at 14.7%
• £17.4m investment lettings
• £2.9m development lettings
Voids
• Like-for-like voids were 2.7% (2014: 1.9%)
• Units in administration were 1.0% (2014: 0.6%)
Footfall and sales
• Footfall in our shopping centres was up 1.5%
(national benchmark down 1.0%)
• Same store sales were up 3.3% (national
benchmark up 2.3%)
• Same centre sales, taking into account new lettings
and tenant changes, were up 6.3%
• Measured retailers’ rent to sales ratio was 10.0%
• Total occupancy costs (including rent, rates, service
charges and insurance) represented 17.3% of sales
For more information on our Retail Portfolio go to:
pages 138–151
For more information on our approach to sustainability
go to: pages 144–147
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015
032032
Land Securities Annual Report 2015
LONDON
PORTFOLIO
REVIEW
Highlights
Valuation surplus
23.2%
Investment lettings
£19.4m
Development lettings
£39.7m
Objectives for 2014/15
Outperform IPD sector
benchmark
Complete the letting of
62 Buckingham Gate, SW1
and 20 Fenchurch Street,
EC3
Progress development
lettings at 1 & 2 New
Ludgate, EC4 and The Zig
Zag Building, SW1
Progress at 31 March 2015
The total return of the London
Portfolio was 27.7% outperforming
its IPD sector benchmark at 23.4%
62 Buckingham Gate 69% let and
20 Fenchurch Street 92% let
Objectives for 2015/16
Outperform IPD sector
benchmark
Complete the letting of
62 Buckingham Gate,
20 Fenchurch Street,
1 & 2 New Ludgate and
The Zig Zag Building
1 & 2 New Ludgate 64% let and
The Zig Zag Building 34% let
Progress development
lettings at Nova, SW1
Progress planning
applications and obtain
planning permission at
6 Castle Lane, SW1
Planning submission at Piccadilly
Lights, W1 delayed; planning
permission at 6 Castle Lane
obtained
Progress to revised time
and to budget at our
committed developments
20 Fenchurch Street completed to
time and budget. 1 & 2 New Ludgate,
The Zig Zag Building, Kings Gate
and Nova, SW1, on time and budget.
20 Eastbourne Terrace, W2 delayed
from February 2016 to April 2016
Progress planning
applications and obtain
planning permission at
Nova, SW1 – Phase II,
21 Moorfields, EC2 and
Harrow Phase 1A
Progress to revised time
and to budget at our
committed developments
Secure employment for
125 candidates via our
Community Employment
Programme
Disposal of specific assets
to fund our investment
activity
Secured employment for 157
candidates
Secure employment for
145 candidates
Disposals of 47 Mark Lane, EC3,
12/24 Oxford Street and
3-5 Tottenham Court Road, W1
and Harrow Phase 1B post
planning consent and exchanged
contracts to sell Times Square, EC4
Disposal of specific assets
to fund our investment
activity
Land Securities Annual Report 2015 London Portfolio review
033
We have delivered record levels of
lettings in our well-timed, well-
executed development programme,
and made tactical acquisitions to
strengthen the future pipeline. Our
activity has been funded by disposals
of more mature assets into a strong
investment market.
Buy
At a time of high investor competition for London
properties, we were delighted to make two important
acquisitions. 21 Moorfields, EC2, was a rare opportunity
to secure a City site at an attractive price. It sits over
the future western entrance to Liverpool Street
Crossrail station and will deliver over 500,000 sq ft
of space. The complex, technically demanding
location will require us to work in close partnership
with the local community and Transport for London.
We also acquired our partner’s 50% interest in
Thomas More Square, E1 where refurbishment of the
offices, creation of new retail space and work on a
redesigned public realm is now underway. This will
enable us to capture greater value.
Develop
Our London development programme is firing on
all cylinders with capital invested over the year of
£335.6m. 20 Fenchurch Street, EC3, was 92% let
at 31 March 2015 and the Sky Garden opened to the
public in January 2015. We are delighted with the
response from our customers and the community.
The project has delivered a valuation surplus of
over 90%, underlining the benefits of early cycle
development.
Our mixed-use development at 1 & 2 New
Ludgate, EC4, has created two exceptional
buildings near the planned Crossrail/Thameslink
interchange. We have worked closely with the local
community, local authority partners and customers
during construction to meet their needs. The
development was completed last month and is
already 84% let or in solicitors’ hands. At nearby
1 New Street Square, EC4, we are extending our
successful campus with a new building due for
completion in June 2016. During the year we pre-let
the entire building to Deloitte.
Our transformation of Victoria, SW1, continues at
pace. 62 Buckingham Gate is 87% let or in solicitors’
hands. Lettings have taken longer to secure than we
expected but rents and lease lengths are ahead of
appraisal levels. The Zig Zag Building is 37% pre-let
or in solicitors’ hands and on schedule for completion
in July 2015. Within the retail element, Jamie’s Italian,
Mango and Iberica have taken space, which will add
yet more colour to this fast-changing neighbourhood.
At Kings Gate, 85 of the 100 apartments are
pre-sold. Work at Nova is progressing well. 133 of the
170 apartments are pre-sold, and 12% of the office
space is already in solicitors’ hands. The retail space,
which is 66% pre-let or in solicitors’ hands, will create
London’s newest and most exciting restaurant
quarter. And at 20 Eastbourne Terrace, W2, we are
delivering 93,000 sq ft of refurbished space in early
April 2016.
Manage
Voids increased from 1.6% to 4.3%. The main
contributors were a digital sign at Piccadilly Lights, W1
where the lease expired just before the year end;
Thomas More Square, E1, 5 New Street Square, EC4,
and Holborn Gate, WC1 where we are refurbishing
the space; and Portland House, SW1, a pre-
development property. At both Times Square, EC4
and 130 Wood Street, EC2 we have lengthened and
increased income during the year. And at Dashwood
House, EC2 we have established a new benchmark
rent through some surrender and re-leasing activity.
Sell
Our strategy remains unchanged: we are prepared to
sell any asset at the right price, recycling capital into
the development programme. This year we made
disposals of £199.0m at a surplus to the 31 March 2014
valuation of 22.7%. Disposals included 47 Mark Lane,
EC3 post leasing activity and our 50% interest in
12/24 Oxford Street and 3-5 Tottenham Court Road,
W1 post extension of the Primark lease. Within our
trading property portfolio, we sold part of our
strategic land holding in Harrow post planning, for
£50.0m. In addition, we exchanged contracts in
March to sell Times Square, EC4, for £284.6m.
Outlook
Our view on supply in the short-term is unchanged:
there will remain a shortage of prime office space to
let in London and we expect rental values to continue
to rise. Our focus is on completing and letting our
development programme. We have 1.1 m sq ft of
well-specified space to let in well-connected
locations, so we have plenty of opportunity to capture
rising rental values in these market conditions.
Net rental income
Table 12
At a glance
31 March 2015
£m
31 March 20141
£m
Change
£m
Like-for-like investment properties
202.2
203.2
Proposed developments
Development programme
Completed developments
Acquisitions since 1 April 2013
Disposals since 1 April 20132
Non-property related income
Net rental income
–
21.2
11.4
1.4
20.1
3.6
259.9
–
0.3
9.7
–
39.6
4.7
257.5
(1.0)
–
20.9
1.7
1.4
(19.5)
(1.1)
2.4
1. The split of net rental income and segment profit before interest between the London Portfolio and the Retail Portfolio has been restated by £1.3m in
the prior year to reflect the impact of properties transferred from the London Portfolio to the Retail Portfolio during the current year.
2. Includes Non-current assets held for sale.
Net rental income increased by £2.4m as income from developments more than offset lost income on
disposals. Net rental income on like-for-like properties declined by £1.0m; gross rental income on these
properties was £6.0m higher but this was more than offset by £3.7m of development feasibility expenditure
at Piccadilly Lights, W1, where the scheme was not sufficiently advanced for costs to be capitalised, £0.8m of
void related costs for space which is undergoing refurbishment and a £1.7m reduction in other income where
the prior year benefitted from a surrender receipt and a rights of light receipt.
The development programme is driven by new lettings at 62 Buckingham Gate, SW1 and the recognition
of rent at 20 Fenchurch Street, EC3 following practical completion. Completed developments contribute a
further £1.7m following lettings achieved at 123 Victoria Street, SW1. Net rental income on properties sold
since 1 April 2013 declined by £19.5m largely due to the disposals in the prior year with the most significant
being Bankside 2 & 3, SE1.
Non-property related income decreased by £1.1m driven by a provision against management fees in
respect of our long-term contract at Lodge Hill, Chattenden.
• Valuation surplus of 23.2%
• Ungeared total property return of 27.7%
• The portfolio outperformed its IPD Quarterly
Universe sector benchmark at 23.4%
• £19.4m investment lettings
• £39.7m development lettings
• Like-for-like voids were 4.3%
(2014: 1.6%)
For more information on our London Portfolio go to:
pages 138–151
For more information on our approach to sustainability
go to: pages 144–147
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 034
OUR PRINCIPAL RISKS
Current assessment of principal risks
Diagram 13
We identify and monitor the full
range of financial and non-financial
risks facing the business. By regularly
reviewing the risk appetite of the
business, the Board ensures that
our risk exposure is well matched to
the cycle. Overall responsibility for
the risk management framework
rests with the Board, but the
management of risk is embedded
in our everyday business activities
and culture, with all our employees
having an important role to play.
For us, a risk is anything that might stop us from
meeting our objectives. Importantly, the Board
perceives risk not only as having a potential negative
influence on the business but also as an opportunity
that can be a source of financial outperformance,
particularly where we have expertise to take and
manage risks others cannot. We also consider
significant risks that may affect our customers,
communities and partners. We assess each risk on
three factors: likelihood; financial impact, both to
income and capital values; and reputational impact,
from the local level through to national. We also
consider the inherent risk (the impact of the risk
before any mitigating action is taken) and the
residual risk (the risk that remains after the effect of
mitigating action is taken into account). Alongside
our assessment of current risks, we also consider
emerging risks (risks where we don’t yet fully
understand the extent and implications for us).
Diagram 13 shows our current principal risks and the
emerging risks we are monitoring.
We never stop looking out for new risks and
thinking about existing risks from new angles. That
process involves discussions with stakeholders as
well as open discussion and challenge within the
company. Our Executive committees carry out a
review of our risks four times a year and from this,
together with feedback from external advisers, we
update our register of principal risks and emerging
risks. These are presented to the Audit Committee
quarterly to ensure members know about, and
contribute to, the latest thinking on risk within the
company. In addition, the full Board holds a full risk
review session every two years.
H N O L O G Y
C
E
T
HEALTH & SAFETY
13
7
1
12
11
16
6
MENT
N
O
VIR
N
E
P
E
O
P
L
E
14
P
O
L
I
T
I
C
A
L
8
10
HIGH
LIKELIHOOD
LOW
2
3
5
4
15
L
CIA
O
S
Impact
High
Medium
Low
Increase from last year
Decrease from last year
Current principal risk areas
1 Customers
2 Market cyclicality
3 Acquisitions
4
5 Development
6 People
7
Environment
8 Health & safety
Liability structure
Emerging risks
9
Increased financial
regulation
10 Political uncertainty
11
Resilience of portfolio to
climate change
Energy regulation, cost and
security of supply
12
9
ECONOMIC
E
F I N A N C
13 Cyber-terrorism
14
Pandemic disease
15 Organised crime
16 Demographic changes
Risk management process
Diagram 14
D
R
A
O
B
A
N
R
E
T
E X
L A U D I T
TI V
EXE C U
E N V I R O N M E NT
E C O M M I T T E E
Identify
1st line of defence
2nd line of defence
3rd line of defence
T
E
C
H
N
O
L
O
G
Y
S
E
N
I
O
R
L
E
A
D
E
R
S
Assess &
quantify
A
FETY
H & S
T
L
A
E
H
I
N
T
E
R
N
A
L
P
O
L
I
C
I
E
S
Report risks
& mitigation
to the board
We contextualise
risk in terms of our
goals & objectives
Re-assess risk
post mitigtation
Develop action
plans to mitigate
L
A
G
E
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Land Securities Annual Report 2015
Our principal risks
Risks in the context of our strategic goal and objectives
As set out on pages 24–25, we have set ourselves clear strategic objectives against which we measure our performance:
1 Deliver sustainable long-term shareholder returns.
2 Maximise the returns from the investment portfolio.
3 Manage our balance sheet effectively.
4 Maximise development performance.
5 Ensure high levels of customer satisfaction.
6 Attract, develop, retain and motivate high performance employees.
7 Continually improve sustainability performance.
In the same way that we measure our performance against these objectives, we also consider our risks and
their potential impact on these objectives as well as our approach to mitigating those risks. We have set out our
principal risks below and grouped them together under the strategic objectives most likely to be impacted.
035
Table 15
Change from last year
Increased
No change
Reduced
Maximise the returns from the investment portfolio
Risk description
Impact
Mitigation
Change from 2013/14
Customers
• Concerns over the
economic recovery
• Pressure on consumer
spending.
• Shift in customer demand
with consequent impact
on new lettings, renewal
of existing leases and
rental growth
• Retailers unable to meet
existing rental
commitments.
Market cyclicality
• Volatility and speed
of change of asset
valuations and market
conditions.
• Reduces liquidity and
impacts relative property
performance.
• Large and diversified customer base (no single customer represents more than
5% of rents);
• Of our income 72% is derived from occupiers who make less than a 1%
contribution to rent roll;
• Consistent demand for the best retail properties in terms of experience and/or
convenience;
• Active development programme to maintain a modern office portfolio well
suited to occupier requirements;
• Experienced asset management team;
• Strong relationships with occupiers.
• Large multi-asset portfolio;
• Monitor asset concentration (our largest asset is only 6% of the total portfolio);
• Average investment property lot size of £96.8m;
• Generally favour full control and ownership of assets (10% of assets currently in
joint ventures);
• Average unexpired lease term of 8.5 years with a maximum of 11% of gross rental
income expiring or subject to break clauses in any single year.
Acquisitions
• Inability to acquire
new assets to replace
properties that have
been sold.
• Reduction in revenue profits
• Reduction in potential future
development sites.
• Experienced investment team;
• Flexibility to invest in either of the two largest sectors in the UK property market;
• Ability to control the level of property disposals.
Acquisition of
Bluewater.
Manage our balance sheet effectively
Liability structure
• Lack of availability of
bank funding.
• Increased cost of borrowing
• Limits ability to refinance
existing debt maturities
and fund forward cash
requirements.
• £1,255m revolving credit facility in place, which matures in 2020 and a total
of £985m of bilateral facilities which mature between September 2016 and
September 2018;
• Access to different sources of finance with most of our funding on a long-term
basis and with a spread of maturity dates. The weighted average life of our debt
at 31 March 2015 is 8.3 years;
• Modest gearing (Security Group LTV at 31 March 2015 of 31.5%).
The Group refinanced
its main revolving
credit facility for five
years at a significantly
lower cost.
• Liability structure is
unable to adapt to
changing asset
strategy or property
values.
• Bank debt not able to be
• The Group’s Asset and Liability Committee meets three times a year to monitor
drawn
both sides of the balance sheet and recommend strategy to the Board;
• Unable to raise new debt or
no flexible debt to repay
• Potentially constrains
business decisions.
• Continuous review of level of drawn bank debt to ensure flexibility maintained;
• Our principal debt funding structure benefits from financial default only being
triggered at 1 times Security Group ICR (currently 4.1 times) or 100% Security
Group LTV (currently 31.5%);
• Aim to align length of bank facilities with our view on property cycle;
• The existing revolving credit facility provides flexibility as it allows debt to be
drawn in certain circumstances even when the Security Group LTV exceeds 65%.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 036
Maximise development performance
Risk description
Impact
Mitigation
Change from 2013/14
Development
• Occupiers reluctant
to enter into
commitments to
take new space in
our developments.
• Negative valuation
movements
• Reduction in income
• Amount of speculative development restricted so that the impact of failing to
lease the un-let element of our development programme does not exceed the
Group’s retained earnings;
• Proportion of capital employed in development programme (based on total
costs to completion) will not exceed 20% of our total capital employed, save
that where a material part of the development programme is pre-let, this
proportion can rise to 25%;
• Monitor market cycle and likely occupier demand before committing to new
developments and secure pre-lets where appropriate;
• Assessment of developments against hurdle rates.
• Subcontractor failure.
• Delay to development
• Under Design and Build contracts the risk of subcontractor failure resides
increasing costs.
primarily with the principal contractor;
• Principal contractors are responsible for monitoring ongoing viability of
subcontractors;
• Experienced development and project management teams ensuring delivery
of developments to programme.
Refer to the table on
our development
programme on
page 151.
Subcontractors under
increasing pressure as a
consequence of buying
at the bottom of the
market, but having to
pay current labour and
material rates.
Attract, develop, retain and motivate high performance employees
People
• Inability to attract,
retain and develop
the right people.
• Lack the skills necessary
to deliver the business
objectives.
• Competitive remuneration plans;
• Appropriate mix of insourcing and outsourcing;
• Clear employee objectives and development plans;
• Clear organisation and individual accountabilities;
• Annual employee engagement survey to identify issues early;
• Succession planning and talent management;
• High profile, cutting edge developments and assets to manage.
Continually improve sustainability performance
Environment
• Properties do
not comply with
legislation or
meet customer
expectations.
• Increased cost base
• Inability to attract or retain
occupiers
• Premature obsolescence
and loss of asset value.
• Dedicated specialist personnel;
• ISO 14001 certified environmental management system;
• Active involvement in legislative working parties;
• Active environmental programme addressing key areas of energy, water
and waste.
Health and safety
• Accidents causing
injury to employees,
contractors, occupiers
and visitors to our
properties.
• Criminal/civil proceedings
and resultant reputational
damage
• Delays to building projects
and can restrict access to
shopping centres.
• CEO chairs Group Health & Safety Committee;
• Regular Board reporting;
• Dedicated specialist personnel;
• Annual cycle of health and safety audits;
• Established policy and procedures including ISO 18001 certification.
• Terrorist incident at
• Loss of consumer
a property
confidence with consequent
impact on new lettings,
renewal of existing leases
and rental growth
• Loss of income.
• Strong relationship with the National Counter Terrorism Security Office;
• Dedicated property security teams supported by CCTV and other physical
security measures;
• Experienced property management teams;
• Regular on-site and national training;
• Group insurance programme protects against losses of rent and service charge
due to terrorism.
Terrorist groups have
recently called for
attacks on UK
shopping areas.
Intelligence services
consider an attack
‘highly likely.’
This Strategic Report was approved by the Board of Directors on 18 May 2015 and signed on its behalf by:
Robert Noel
Chief Executive
Land Securities Annual Report 2015 GOVERNANCE
LEADERSHIP
How the Board and its Committees lead
from the front.
For more information go to:
pages 40–45
EFFECTIVENESS
How this year’s Board evaluation was
conducted and its outcome.
For more information go to:
pages 46–48
ACCOUNTABILITY
How the Audit Committee fulfils its oversight
responsibilities.
For more information go to:
pages 49–53
RELATIONS WITH
SHAREHOLDERS
How we maintain relations with our investors.
For more information go to:
page 57
REMUNERATION
How we align Executive pay with our
performance and the interests of shareholders.
For more information go to:
pages 58–78
Land Securities Annual Report 2015
037
037
Governance
Including information on our Board, its
Committees and our high governance
standards.
038 Letter from the Chairman
040 Board of Directors
042 Executive Committee
043 Leadership
046 Letter from the Chairman of
the Nominations Committee
Effectiveness
047
049 Letter from the Chairman of
the Audit Committee
050 Accountability
054 Governance in action
057 Relations with shareholders
058 Directors’ Remuneration Report
079
Report of the Directors
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Financial statementsGovernanceAdditional informationStrategic reportGovernanceLand Securities Annual Report 2015
038
LETTER FROM
THE CHAIRMAN
“At Land Securities, governance is not just confined
to the boardroom. It is an integral part of the way
we manage our business and control our activities
every day.”
Dear Shareholder
In his Chief Executive’s statement, Robert Noel
reported on a very strong set of results for the year.
He noted that the business was in excellent shape,
with our developments and portfolios well matched
to customer demand. I endorse his view and thank
my colleagues at Land Securities for what they have
achieved. Their dedication and hard work have not
only made this year’s results possible, they have laid
the foundations for long-term success.
Governance
I am pleased to report that your Company has once
again complied in full with the 2012 UK Corporate
Governance Code. We are also taking steps to
achieve compliance with the Code changes
introduced in 2014.
In a year that saw our markets continue to
change, much of the Board’s activity has been
around positioning the business for the next stage of
the property cycle. We devoted significant agenda
time to consider our options for the redevelopment
of two shopping centres – Westgate, Oxford, and
Buchanan Galleries, Glasgow – and to the acquisition
and disposal of high value properties.
Making the right call on the property cycle
requires the best data, the best people, good
judgement and clear communication between
management and the Board. This is critical. Critical
because when the property cycle turns, which it will,
our markets are likely to move quickly and our
business must already be well positioned and
well prepared.
Across all areas, the Board should be able to
contribute to key operational decisions and provide
challenge to management in a meaningful and
timely way. This will be essential for truly effective
stewardship at Land Securities over the coming
years. We spent much time discussing this as part of
our most recent Board evaluation.
One of the keys to good communication between
management and the Board is an effective
relationship between the Chairman and Chief
Executive. Robert and I have regularly scheduled
meetings to discuss the progress of the business.
We speak, email and meet frequently in between.
We are appreciative of the differences in our roles
and responsibilities and are conscious of what
shareholders expect from each of us.
This year has seen stability at Board and Executive
level following the changes which took place last
year. Our focus therefore changed from
appointments to succession planning, both at Board
and senior management level. I explain more about
this in my report to shareholders on the work of the
Nominations Committee.
Investor meetings
During the year, I offered to meet a number of our
largest investors to hear their views on Land Securities,
its strategy, management and governance. I was
delighted that the majority agreed to see me.
During these meetings we discussed a wide
range of topics. These included the property market,
the lessons learned from mistakes of the past,
remuneration policy, our approach to environmental
issues and capital allocation. I also gained their
perspectives on governance in general and how it will
Land Securities Annual Report 2015 change. I found it particularly helpful when issues we
had not considered before were raised, and where
our attention was drawn to practices at other
companies that investors opposed or championed.
It is clear that our investors are devoting more
resources to governance and that we will have a lot
more to consider and assimilate going forward. In
response, we have amended the terms of reference
of the Nominations Committee to give it formal
responsibility for monitoring trends in governance
and making recommendations to the Board.
Remuneration
In last year’s Directors’ Remuneration Report we
flagged that we may seek shareholder support for
a new remuneration policy. This was because our
Matching Share Plan needed replacing, as some
investors had told us they did not like it, and 2015
represented the third anniversary of our current
arrangements. We therefore took the opportunity
this year to review all aspects of our remuneration
structure and to look at our policy in the light of
changing investor requirements. We also reviewed
the pay of our Chief Executive following three
successful years in post and revisited our long-term
performance measures to ensure they continue to
be properly aligned with investors’ interests and
promote the long-term success of the Company.
Our remuneration policy is matched to our
strategy. Central to this is our aim to outperform our
peers both in terms of total shareholder and total
property returns. In this way, our Executives will only
receive upper quartile rewards for corresponding
outperformance.
In recent times, remuneration outturns have not
reflected the strong performance of the business,
such that upper quartile performance has not been
matched with commensurate rewards. In seeking to
address this, we are further aligning remuneration
with investors’ interests by increasing the Executive
Directors’ share ownership guideline levels, requiring
the shares they receive under our long-term
incentives to be held for longer periods and widening
our ability to ‘clawback’ variable pay awards made
to them.
We approached investors who collectively held
more than 50% of our shares. The challenges they
raised were similar to those discussed by the
Committee during its extensive evaluation of the
proposals. Where new issues were raised we
amended our proposals to cater for them. Investors
were pleased with the transparency, clarity and
thought we put into the consultation process. We
could not accommodate every suggestion raised,
but all of those investors who engaged with us have
agreed to support our proposals at the AGM. You
will find details of the proposals and their impact on
pay set out in the Directors’ Remuneration Report.
I would like to thank the Remuneration Committee
members for their efforts in bringing these proposals
to shareholders.
Board effectiveness
During this year’s Board performance evaluation
I was keen to gain Directors’ perspectives on
our coverage of key topics at Board meetings,
information flows and whether geo-political events
might disrupt our business model and the strong
liquidity within our markets. I sought examples of
where there may have been ‘group-think’ amongst
the Board and where we may be vulnerable to it
going forward. We considered the balance of skills
amongst Board members and how we might address
any gaps in our longer-term succession planning.
Directors complimented the quality of
information and coverage of key topics. In order to
reduce the possibility of ‘group-think’, Directors asked
to hear more from specialists with contrary views
to management. They suggested that background
information for some agenda items be provided
without a recommendation or conclusion, which
will assist Directors in forming their own views.
During the year, I circulated a list of my
expectations of the Board. These set out my
requirements in terms of the Directors’ preparation
before meetings, the challenge and conduct required
during meetings, and how they might assist the
business outside meetings. They were well received.
Whilst I am not expecting any significant changes,
as Directors’ preparation and conduct at meetings
is already of a high standard, I believe it is now clear
which Non-executives will provide the lead on
challenging management during discussions on
particular topics. I am also expecting the time
Non-executives devote to interacting with the
business to become more efficiently spent. You will
see a more detailed account of the outcome of the
Board evaluation in the ‘Effectiveness’ section of
this report.
Outcome from last year’s Board evaluation
In my letter as Chairman of the Nominations
Committee, I describe the progress we have
made against the areas identified for improvement
during last year’s Board evaluation. There is
one specific area I would like to draw out which
illustrates the benefit of devoting significant
resources to Board evaluations.
Last year, some Directors felt that the amount
of time spent at meetings reviewing operational
matters should reduce. Non-executives, in particular,
found it difficult to participate in those discussions.
They asked that the focus of the meetings become
more forward-looking, with priority given to
decisions in the pipeline, unresolved issues facing the
business and the execution of strategy. In response,
our Executive Directors shortened their papers and
I extended Board meetings by 45 minutes to
facilitate broader discussion. The result has been
an improvement in the quality and richness of
discussions. More insights are offered by Non-
executives, who feel better able to influence the
direction of the business. Management have found
the new approach very helpful too. I also continued
our practice of not receiving PowerPoint
presentations at meetings.
039
Health and safety
The health and safety of our customers, employees,
contractors and visitors to our premises is of
paramount importance. Our safety record remains
well ahead of industry benchmarks and we continue
to pursue our goal of zero accidents or injuries at our
properties.
The business is undergoing extensive health and
safety training, not just in connection with our
development programme but also in the day-to-day
activities of all members of staff. Everyone in the
business is required to attend a tailored programme
to suit their particular role. The Board has been keen
to show its support for this initiative, with every
Director attending different development sites to
gain an understanding of the work being undertaken
by our health and safety teams and to show their
support, visibly, for the initiatives. You will find more
information on this later in the report, in the
‘Governance in action’ section on pages 54 to 56.
Diversity
I am encouraged to see continued progress amongst
companies towards meeting Lord Davies’ target set
in 2011. Since then, Land Securities has been ranked
5th amongst the most improved companies within
the FTSE100. Overall, Land Securities is ranked 10th
in terms of gender diversity within the index. These
are achievements of which I am very proud.
Across the business world there remains some
way to go though, with 59 FTSE100 companies still
to meet Lord Davies’ target at March of this year. We
at Land Securities also have more to do on improving
other aspects of diversity within our own business.
You will see in ‘Our people strategy’ section on
page 19 how we are addressing this.
Further information
Over the following pages we describe our corporate
governance framework in more detail and, again this
year, we include examples of how our governance
works in practice. You will find more on our
corporate responsibility activity as part of our 2015
Sustainability Report which can be found at
www.landsecurities.com/sustainability. I hope
you find these helpful in understanding our
commitment to our stakeholders and to excellence
in governance.
Dame Alison Carnwath
Chairman
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GovernanceLand Securities Annual Report 2015
We have a highly
experienced Board
of Directors. The
Non-executives
represent a robust and
independent element
of the Board bringing
sound judgement
and objectivity to our
deliberations and the
decision-making
process.”
Dame Alison Carnwath, Chairman
040040
Land Securities Annual Report 2015
BOARD OF
DIRECTORS
Executive Directors
Robert Noel
Chief Executive
Robert was appointed to the Board in
January 2010 as Managing Director,
London Portfolio, and became Chief
Executive in April 2012.
Age: 51
Career
A chartered surveyor and graduate of
the University of Reading, Robert was
Property Director at Great Portland
Estates plc between August 2002 and
September 2009. Prior to that, he was a
director of the property services group,
Nelson Bakewell. He is a former director
of the New West End Company and the
Central London Business Improvement
District and former Chairman of the
Westminster Property Association.
Robert is a trustee of the property
industry charity, LandAid.
Skills, competencies and experience
Robert has nearly 30 years’ experience in
a number of sectors within the property
market and extensive knowledge of the
London commercial property market in
particular. He has substantial executive
leadership and listed company experience.
Committees
Chairman of the Group’s Executive,
Asset and Liability, Health and Safety,
Investment and Sustainability
Committees. He attends the Audit,
Remuneration and Nominations
Committees at the invitation of the
Committee Chairmen.
Martin Greenslade
Chief Financial Officer
Martin joined the Board as Chief Financial
Officer in September 2005.
Age: 50
Career
A chartered accountant, having trained
with Coopers & Lybrand, Martin was
previously Group Finance Director of Alvis
plc. He has also worked in corporate
finance serving as a member of the
executive committee of Nordea’s
investment banking division and Managing
Director of its UK business.
Martin is a trustee of International
Justice Mission UK.
Skills, competencies and experience
Martin brings extensive and wide-ranging
financial experience to the Group from the
property, engineering and financial sectors
in the UK and overseas. He also has
extensive financial expertise, particularly
in relation to corporate finance and
investment arrangements, and significant
listed company experience at board level.
His oversight responsibilities cover the
Group’s finance, tax, treasury, risk
management and internal audit, insurance
and information technology teams.
Committees
A member of the Group’s Executive, Asset
and Liability and Investment Committees.
He attends Audit Committee meetings at
the invitation of the Committee Chairman.
Non-executive Directors
Dame Alison Carnwath
Chairman of the Board
Dame Alison was appointed to the
Board as a Non-executive Director in
September 2004 and became Chairman
in November 2008.
Age: 62
Career
Dame Alison worked in investment
banking and corporate finance for 20 years
before pursuing a portfolio career. During
her banking career, she became the first
female director of J. Henry Schroder Wagg
& Co. Dame Alison was also a Senior
Partner at Phoenix Securities and a
Managing Director at Donaldson,
Lufkin & Jenrette. She has served as a
non-executive director of Friends
Provident plc, Gallaher Group plc, Glas
Cymru Cyfyngedig (Welsh Water),
Barclays plc and Man Group plc.
Dame Alison is currently chairman of
the UK private equity firm Livingbridge
(formerly known as ISIS Equity Partners), a
non-executive director of Zurich Insurance
Group Limited and Paccar Inc (a Fortune
500 company), and a senior advisor to
Evercore Partners. She is also a supervisory
board member and the audit committee
chair of the Frankfurt listed chemicals
company, BASF SE.
Dame Alison is a trustee of The British
Library Trust and undertakes a variety of
mentoring activities in the UK and
overseas. She was appointed a Dame in
2014 for her services to business.
Skills, competencies and experience
Dame Alison has very significant board
level experience gained across a range of
industries and countries. This enables her
to create the optimal Board environment
and get the best out of Board members
both during and outside meetings.
She has expertise in alternative asset
management, banking and global
manufacturing.
Committees
Chairman of the Nominations Committee
and a member of the Remuneration
Committee.
Land Securities Annual Report 2015 Non-executive Directors
Governance
Land Securities Annual Report 2015
041
041
served as Managing Director of Haslemere
NV, Chairman of Jones Lang Wooton Fund
Management, President of the British
Property Federation and Chairman
of the Bank of England Property Forum.
Chris is currently a Board Counsellor of
The Crown Estate (having previously
been a board member), a Wilkins Fellow
of Downing College, University of
Cambridge, and an advisory board
member to certain overseas entities within
the Brack Capital Real Estate Group.
Skills, competencies and experience
Chris is a scion of the property industry,
with decades of property investment,
fund management and capital allocation
experience gained across a range of
businesses and disciplines within the
real estate sector. He has significant
experience of general management as a
former Chief Executive and Chairman of
significant businesses.
Committees
A member of the Nominations and
Remuneration Committees.
Stacey Rauch
Non-executive Director*
Stacey joined the Board as a
Non-executive Director in January 2012.
Age: 57
Career
Stacey is a Director Emeritus of McKinsey
& Company where she served clients in the
US and internationally for 24 years. Whilst
there, she co-founded the New Jersey office
and was the first woman to be appointed as
an industry practice leader. She was a leader
in the firm’s Retail and Consumer Goods
Practices, served as the head of the North
American Retail and Apparel Practice
and acted as the Global Retail Practice
Convener. She retired from McKinsey &
Company in September 2010 and has
since then pursued a portfolio career.
Stacey is currently a non-executive
director of ANN Inc, (a NYSE listed
women’s speciality apparel retailer), the
Fiesta Restaurant Group Inc, (a NASDAQ
listed company) and CEB (a NYSE listed
member-based advisory company).
Skills, competencies and experience
Stacey brings deep analytical thought to
the Board, with considerable expertise of
retail trends and insights gained at a leading
international management consultancy.
She has significant board level experience
gained through non-executive positions
held in retail and other industries.
Committees
A member of the Audit Committee.
Simon Palley
Non-executive Director*
Simon was appointed to the Board as a
Non-executive Director in August 2010.
Age: 57
Career
A senior figure within the private equity
industry, Simon has had a successful and
broad ranging career in investment
banking, consulting and private equity.
He started his career at Chase Manhattan
before moving to Bain & Company. He left
there in 1988 to join Bankers Trust as a
Vice President and moved to BC Partners,
a private equity firm, in 1990 where he
worked for 17 years, rising to the position
of Managing Partner. Simon then became
Chairman of the private equity firm
Centerbridge Partners Europe, a post he
held until 2013, and is now a Senior Adviser
to TowerBrook Capital Partners and an
adviser to the private equity arm of GIC.
He is an MBA graduate of The Wharton
School, Pennsylvania.
Simon is a Trustee of the University of
Pennsylvania and The Tate Foundation.
Skills, competencies and experience
Simon has a deep understanding of
portfolio management, financial metrics
and the impact of interest rates on the
capital markets. He has expertise in
private equity and capital markets and
considerable experience managing highly
talented professionals.
Committees
Chairman of the Remuneration
Committee and a member of the
Nominations Committee.
Cressida Hogg CBE
Non-executive Director*
Cressida joined the Board as a
Non-executive Director in January 2014.
Age: 45
Career
Cressida spent almost 20 years with
3i Group plc having joined them in 1995
from JP Morgan. She co-founded 3i’s
infrastructure business in 2005, becoming
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Managing Partner in 2009, and led the
team which acted as Investment Adviser
to 3i Infrastructure plc, a FTSE 250
investment company. She advised on all of
3i Infrastructure’s transactions since its
flotation in 2007. Cressida was previously
a member of the advisory board for
Infrastructure UK, the HM Treasury unit
that works on the UK’s long-term
infrastructure priorities. She is currently
Managing Director, Head of Infrastructure,
of the Canada Pension Plan Investment
Board and a non-executive director of
Anglian Water Group Limited.
Cressida received a CBE in 2014 for
services to infrastructure investment
and policy.
Skills, competencies and experience
Cressida has a deep understanding of
large, long-term infrastructure projects
and businesses. She has considerable
experience of investment returns, general
management and leadership.
Committees
A member of the Audit Committee.
Edward Bonham Carter
Non-executive Director*
Edward joined the Board as a Non-
executive Director in January 2014.
Age: 54
Career
Edward started his career at Schroders
in 1982 as an investment analyst before
moving to Electra Investment Trust in
1986 where he was a fund manager.
He joined Jupiter in 1994 as a UK fund
manager and held the position of Chief
Investment Officer from 1999 to 2010.
Edward led the company through a
management buy-out from its previous
owners, Commerzbank, in 2007, and
oversaw the firm’s listing on the London
Stock Exchange in 2010. He was appointed
Group Chief Executive of Jupiter Fund
Management plc in June 2007 and became
its Vice Chairman in March 2014.
Skills, competencies and experience
Edward has significant experience of
general management as a former CEO of
a private equity backed and a large listed
company. Having been a fund manager
for many years, he also has a deep
understanding of stock markets and
investor expectations.
Committees
A member of the Remuneration
Committee.
* Independent (as per the UK Corporate Governance Code).
Kevin O’Byrne
Senior Independent Director*
Kevin was appointed to the Board as a
Non-executive Director in April 2008
and was appointed Senior Independent
Director in April 2012.
Age: 50
Career
Kevin is a chartered accountant who trained
with Arthur Andersen. He has held several
senior finance positions and was Group
Finance Director of Kingfisher plc from
2008 until 2012 when he was appointed
CEO of its B&Q and Koçtaş businesses in
China, Turkey, Germany and the UK, until
he left that business in May 2015. His
previous roles include Group Finance
Director of Dixons Retail plc and European
Finance Director of The Quaker Oats
Company.
Skills, competencies and experience
Kevin has extensive understanding of retail
trends, operations and insights gained
during a number of senior financial and
general management positions at large
listed retailers. He is a long-standing
Non-executive Director and Chairman of
the Audit Committee who is able to use
this experience gained across a property
cycle to bring additional challenge
to management.
Committees
Chairman of the Audit Committee and a
member of the Nominations Committee.
Chris Bartram
Non-executive Director*
Chris was appointed to the Board as a
Non-executive Director in August 2009.
Age: 66
Career
Chris is a chartered surveyor and was until
recently Chairman and Partner of Orchard
Street Investment Management LLP, a
leading commercial property investment
manager focused on the UK market.
He stepped down from those positions
on 31 March 2015 though he continues as
an adviser to that firm. He has previously
GovernanceLand Securities Annual Report 2015
042
042
Land Securities Annual Report 2015
EXECUTIVE
COMMITTEE
Colette O’Shea
Managing Director,
London Portfolio
Colette joined Land Securities
in 2003 and was Head of
Development, London Portfolio,
before being appointed its
Managing Director in April 2014.
Age: 47
Career
Colette has over 20 years’
property experience in London,
operating in investment, asset
management and development.
Prior to joining Land Securities,
she was Head of Estates at the
Mercers’ Company where she led
the property team whilst also
gaining extensive retail and
residential experience.
Responsibilities
In her current role, Colette has
responsibility for Land Securities’
£7.8bn London Portfolio
comprising some nine million sq ft
of London offices, leisure, retail
and residential property both in
development and asset
management. She is leading the
London business through a major
development programme in the
City and West End, including
the delivery of buildings such
as 20 Fenchurch Street and the
transformation of Victoria.
Colette is President of the
British Council for Offices and
a non-executive director of
Genesis Housing Association.
Committees
A member of the Group’s
Executive, Asset and Liability
and Investment Committees.
Chairman of the London
Executive Committee.
Scott Parsons
Managing Director,
Retail Portfolio
Scott re-joined Land Securities in
2010 and was Head of Property,
London Portfolio, before being
appointed as Managing Director,
Retail Portfolio, in April 2014.
Age: 45
Career
Scott’s career to date includes
three years as Managing Partner
of Brookfield Asset Management,
where he led their European
business, more than 10 years at
GE Capital Real Estate, latterly as
Head of Business Development,
and three years as Business
Development Director at Land
Securities in his first position with
the Company.
Responsibilities
In his current role, Scott has
responsibility for Land Securities’
£6.3bn Retail Portfolio of
shopping centres, retail parks and
leisure properties throughout the
UK comprising some 20 million
sq ft of accommodation.
Previously, as Head of Property
for Land Securities’ London
Portfolio, he led the investment,
asset and property management
teams for the Group’s office and
retail space in central London.
Scott is a Strategic Board
member of the New West End
Company and was previously
Vice President of the City
Property Association.
Committees
A member of the Group’s
Executive, Asset and Liability
and Investment Committees.
Chairman of the Retail Executive
Committee.
Diana Breeze
Group Human Resources
Director
Diana joined Land Securities in
June 2013 as Group Human
Resources Director.
Age: 47
Career
Diana has over 20 years’ HR
and organisational consulting
experience, and she has
previously held a number of
senior HR roles at J Sainsbury plc,
where she led many people-
focused change initiatives. Prior
to that, she was a senior manager
in the Human Capital practice
of Accenture.
Responsibilities
In her current role, Diana has
end-to-end responsibility for the
articulation and delivery of a
clear people strategy for Land
Securities, including talent,
reward, organisational design and
engagement. Since joining the
Company, Diana has led the
redesign of the Land Securities
organisation at both Group and
business unit level, and has
implemented a number of key
HR initiatives, most notably in
the areas of leadership
development and reward.
Diana is a member of the
International Advisory Board for
Executive Education at the Saïd
Business School, University of
Oxford.
Committees
A member of the Group’s
Executive and Sustainability
Committees. Attends
Investment Committee meetings
and both the Remuneration and
Nominations Committee
meetings at the invitation of the
Committee Chairmen.
Miles Webber
Director of Corporate
Affairs and Sustainability
Miles joined Land Securities on
6 May 2015.
Age: 46
Career
Miles was, until recently, Head
of External Affairs, UK & Ireland,
for General Electric, having
previously held other senior
external affairs and relations
positions with them since he
joined in 2005. Prior to that,
he spent six years with Merrill
Lynch, his first two years as
Vice President, Corporate
Communications, followed by
four years as Director of Public
Affairs, EMEA.
Responsibilities
Miles’ broad responsibilities
cover sustainability, public
relations (both financial and
business-to-business), internal
communications, public affairs,
investor relations and corporate
marketing (including brand and
reputational management).
He is a Board Director of the
Foreign Policy Centre and the
Westminster Forum.
Committees
A member of the Group’s
Executive and Sustainability
Committees. Attends
Investment Committee
meetings.
Robert Noel
Chief Executive
Robert was appointed to the
Board in January 2010 as
Managing Director, London
Portfolio, and became Chief
Executive in April 2012.
His full biography appears on
page 40.
Martin Greenslade
Chief Financial Officer
Martin joined the Board as Chief
Financial Officer in September
2005.
His full biography appears on
page 40.
The Executive Committee also
comprises the Group General
Counsel and Company Secretary.
This combined role is currently
vacant with a new appointee set
to take up the position in
September 2015.
Land Securities Annual Report 2015
Governance
LEADERSHIP
The role of the Board and its Committees
Board
Responsible for the long-term success of the Group. It sets
strategy and oversees its implementation, ensuring only
acceptable risks are taken. It provides leadership and
direction and is also responsible for corporate governance
and the overall financial performance of the Group.
More details on pages 44 and 45.
Board Committees
043
Chart 16
Audit Committee
Reviews and is responsible for
oversight of the Group’s financial
and reporting processes, the
integrity of the financial statements,
the external and internal audit
processes, and the systems of internal
control and risk management.
More details on pages 49–53.
Remuneration Committee
Reviews and recommends to the
Board the executive remuneration
policy and determines the
remuneration packages of the
Executive Directors and other
members of the Executive
Committee.
More details on pages 58–78.
Nominations Committee
Reviews and recommends to the
Board the structure, size and
composition of the Board and its
Committees. It also has oversight
responsibility for succession
planning of the Board and senior
management.
More details on pages 46–48.
Chief Executive
Responsible for implementation of the
Board’s strategy, day-to-day management
of the business and all matters which have
not been reserved to the Board or delegated
to its Committees.
More details below.
Executive Committee
An advisory Committee that operates under the direction
and authority of the Chief Executive. It comprises senior
management from across the business (see page 42).
It assists the Chief Executive, and the Chief Financial Officer,
in implementing strategy and policies and managing the
operational and financial performance of the Group. It also
addresses other key business and corporate related matters,
including succession planning and organisational
development.
Management Committees
Asset and Liability Committee
Responsible for considering the
impact of proposed sales,
purchases, developments and
debt funding arrangements on
the Group’s balance sheet and
internal control metrics over the
short and medium-term. It also
considers the likely impact of
macro- economic developments
on the business.
Investment Committee
Responsible for considering and
approving significant investment
transactions, including the
acquisition, disposal and
development of assets with a
value of between £20m and
£150m, and other transactions
not in the ordinary course of
business. It is also responsible for
implementing the annual funding
strategy approved by the Board.
London and Retail Executive
Committees
Responsible for the financial,
operational and governance
performance of their respective
business portfolio. They also
approve transactions up to a
value of £10m.
Sustainability Committee
Responsible for developing and
implementing the Group’s
sustainability strategy, linked to
and integrated with the Group’s
overall corporate strategy. In
doing so, it also considers
environmental, social, economic
and energy issues affecting the
business.
Health and Safety Committee
Responsible for overseeing the
Group’s health and safety
operations, performance against
targets and progress towards
goals.
Matters reserved to the Board and delegated authorities
To retain control of key decisions, the Board has identified
certain ‘reserved matters’ that only it can approve, with
other matters, responsibilities and authorities delegated
to its Committees and certain Management Committees,
as above. The schedule of matters reserved to the Board
and the terms of reference for each of its Committees
can be found on the Company’s website at
www.landsecurities.com. Any matters outside of
these fall within the Chief Executive’s responsibility and
authority. Accordingly, he chairs each of the Management
Committees and reports on their activities through his (and
the Chief Financial Officer’s) monthly report to the Board.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 044
Board composition and roles
The Board comprises the Chairman, two Executive Directors and six independent Non-executive Directors. Their key responsibilities are as set out in the table below:
Board composition and roles
Chairman
Dame Alison Carnwath
Responsible for leading and managing the Board, its effectiveness, and governance. Ensuring Board
members are aware of and understand the views and objectives of major shareholders and other key
stakeholders. Helps set the tone from the top in terms of the purpose, goal, vision and values for the
whole organisation.
Table 17
Chief Executive
Robert Noel
Responsible for the day-to-day management of the business, developing the Group’s strategic direction
for consideration and approval by the Board and implementing the agreed strategy.
Chief Financial Officer
Martin Greenslade
Supports the Chief Executive in developing and implementing strategy, and in relation to the financial
and operational performance of the Group.
Independent
Non-executive Directors
Kevin O’Byrne, Chris Bartram, Simon
Palley, Stacey Rauch, Cressida Hogg,
Edward Bonham Carter
Responsible for bringing sound judgement and objectivity to the Board’s deliberations and decision-
making process. Constructively challenges and supports the Executive Directors. Monitors the delivery
of the agreed strategy within the risk and control framework set by the Board.
Senior Independent
Director
Kevin O’Byrne
Acts as a sounding board for the Chairman and a trusted intermediary for other Directors. Available to
discuss any concerns with shareholders that cannot be resolved through the normal channels of
communication with the Chairman or the Executive Directors.
Board and Committee meetings/attendance during the year
Table 18
Director
Dame Alison Carnwath
Robert Noel
Martin Greenslade
David Rough*
Kevin O’Byrne
Chris Bartram
Simon Palley
Stacey Rauch
Cressida Hogg CBE
Edward Bonham Carter
Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
8/8
8/8
8/8
3/3
8/8
8/8
8/8
8/8
8/8
8/8
2/2
4/4
2/2
6/6
6/6
6/6
2/2
2/2
2/2
4/4
4/4
4/4
* David Rough stepped down from the Board on 18 July 2014. His attendance related to the period from 1 April 2014 to that date.
Gender diversity
Board
33%
Chart 19
Executive Committee
Chart 20
Men
Women
6
3
29%
Men
Women
5
2
67%
71%
Senior Leaders*
Chart 21
All Employees
Chart 22
28%
Men
Women
26
10
51%
Men
Women
286
298
72%
49%
* includes subsidiary directors.
We are making progress in
terms of gender diversity with
the percentage of women
increasing across the Group
from 49% to 51%. However,
we have more to do in
improving other aspects
of our diversity.”
Dame Alison Carnwath, Chairman
More information on diversity can be found in the
‘Our people strategy’ section on page 19 and in the
‘Effectiveness’ section on pages 47 and 48.
Land Securities Annual Report 2015 Governance
Board meetings and activity during the year
Board meetings
AGM
045
Chart 23
1 Apr 14
May 14
Jun 14
Jul 14
Aug 14
Sept 14
Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
31 Mar 15
Board activity
The diagram below shows the key areas of Board activity during the year.
Property, strategy and funding
— Reviewed strategy and business development
as part of a two-day off-site meeting
— Debated the property cycle and retail outlook
— Reviewed the Group’s performance against
its competitors
— Considered portfolio liquidity analysis and
development exposure
— Approved acquisitions and disposals of
properties with a value in excess of £150m,
including the acquisition of the remaining
50% interest we did not already own in
Buchanan Galleries, Glasgow, the disposal of
Princesshay, Exeter, and the acquisition of a
30% interest in Bluewater, Kent
— Reviewed and approved the redevelopment of
Westgate, Oxford, and the conditions around
the redevelopment of Buchanan Galleries,
Glasgow
— Considered and approved the Group’s debt
funding arrangements and a new revolving
credit facility.
Governance, stakeholders and
shareholders
— Discussed the outcome of the Board
evaluation and effectiveness review,
and agreed improvement opportunities
— Considered sustainability, including the
Group’s impact on the community and
the environment
— Reviewed regular health and safety
updates
— Reviewed developments in corporate
governance and received key legal and
regulatory updates
— Regularly reviewed feedback from
institutional shareholders
— Reviewed the Group’s purpose, goal,
vision and values.
Financial performance
— Considered the financial
performance of the business
and approved the budget, key
performance targets and
five-year plan
— Reviewed the half-year and annual
results and presentations to
analysts and approved the Annual
Report
— Considered the half-yearly
valuation of the Group’s portfolio
by external valuers.
Property,
strategy and
funding
Financial
performance
THE BOARD
Governance,
stakeholders and
shareholders
Leadership and
people
Internal control
and risk
management
Leadership and people
— Discussed the composition of the
Board and its Committees,
including succession planning
— Reviewed the development of
people and talent in the Group,
including succession planning for
senior roles
— Discussed the results of the
employee engagement survey and
the actions arising from it.
Internal control and risk
management
— Reviewed the Group’s risk register and
the effectiveness of the systems of
internal control and risk management
— Debated significant and emerging risks,
including the loss of key people and
political uncertainty arising from the
Scottish referendum and the UK
General Election.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 046046
Land Securities Annual Report 2015
LETTER FROM THE
CHAIRMAN OF THE
NOMINATIONS
COMMITTEE
Like all Boards, there are additional specialist
skills that we wish we had from time to time.
However, it is simply not possible to cover every
base. We fill the gaps by inviting external specialists
to address the Board at strategy days and by
maintaining a list of skills and qualities we will require
of future appointees. We continue to monitor
suitable candidates.
Whilst much of the Committee’s work in the year
centred around succession planning, time was also
devoted to a number of other topics. These included
the consideration of potential conflicts of interest
amongst Directors, updating our standard Letters of
Appointment for Non-executive Directors and the
individual evaluation of Directors and their
independence. The Committee has also assumed
responsibility for monitoring trends in governance
and making recommendations to the Board.
You will find more information on these
particular topics and on the other work of the
Committee, including our progress on Board
effectiveness, on the following pages.
Dame Alison Carnwath
Chairman, Nominations Committee
Dear Shareholder
With last year having seen a number of changes at
both Board and senior management level, succession
planning has been a key area of discussion at both
the Nominations Committee and the full Board.
A Board dinner was devoted to the topic. We
discussed the business’ plans for restocking the
talent pipeline for the future. Much of the existing
pipeline had been depleted by a large number of
promotions last year.
Property is a long-term business with many years
passing between some decisions and their ultimate
fruition. I look for and welcome the commitment of
Non-executives to stay on our Board for extended
periods of time. This could mean that some stay
beyond the nine-year period when the UK Corporate
Governance Code, and some investors, may begin to
question their independence.
This year, we considered the likely pattern of
Board vacancies in the future. I made my
expectations clear in terms of the amount of notice I
would like a departing Director to give so that a
thorough process to find a successor can be
conducted in a timely manner.
We looked, in detail, at the skills that each
Director brings to the Board and those that would be
required from new joiners. We discussed who would
be responsible for the appointments of Executives,
Non-executives and the Chairman. We also
considered our ability to cope with unexpected
departures at senior management level, with a
strategy agreed to speed replacement.
Committee members
– Dame Alison Carnwath (Chairman)
– Kevin O’Byrne
– Chris Bartram
– Simon Palley
Details of member appointments and biographies,
and full attendance at Committee meetings held
during the year, appear on pages 40, 41 and 44,
respectively.
The Committee’s terms of reference are available on
the Company’s website at www.landsecurities.com
Land Securities Annual Report 2015 EFFECTIVENESS
Nominations Committee activity
The key areas of Committee activity during the
year included:
• completion of inductions for two newly
appointed Non-executives
• the leadership needs and succession planning
of the Group, including identifying and
developing talent
• the Board’s structure, size, composition, skills
and diversity
• the composition of Board Committees
• potential conflicts of interest amongst
Directors
• new Letters of Appointment for the Chairman
and Non-executives
• investor sentiment on notice periods.
Board evaluation
This year was the third in the Group’s three-year
performance evaluation cycle. The overall aim was
to assess current performance, progress made and
opportunities for improvement based on a survey
comprising a number of open questions on the
workings and effectiveness of the Board and its
Committees. The responses were discussed at a
series of individual interviews with Directors,
conducted by the Chairman.
The outcome of the evaluation was fed back
to the Board at its meeting in March 2015 and a
series of action items agreed. A summary of these
appears below.
The Chairman also met with each Director
individually to provide feedback on their performance
and suggestions for improvement. She also discussed
her expectations of the Board as a whole and the
contribution expected of each Director.
Kevin O’Byrne, the Senior Independent Director,
led the evaluation of the Chairman with the
other Non-executives. He gave feedback to the
Chairman on the outcome.
Review of the Board and Committee workings
The review explored three key aspects:
• The flow of information to the Board and the ability
of Non-executives to independently interpret and
use it to challenge management’s conclusions
• The vision for the business and the corporate
culture
• Succession planning at Board and senior
management level.
Conclusions from this year’s review
The Board concluded that the workings of the Board
and its Committees remained effective and they
continued to operate to a high level, with good
progress made against the areas for improvement
identified in the previous evaluation. No serious
issues were raised.
The Board particularly welcomed the
improvements to Board papers, which it felt were of
a very high standard. Many Directors welcomed the
047
Board, Committees and Directors’ performance evaluation cycle
Chart 24
Year 1 – external
Evaluation by independent
consultants
Year 2 – internal
Evaluation focused on
Year 1 issues raised and
any specific new issues
arising
Year 3 – internal
Progress review generally
and interviews with the
Chairman
Performance evaluation 2014/15 – Year 3 of cycle
Chart 25
Review of the Board
and Committee
workings
Conclusions from
the year’s review
Progress
against targets
set for 2014/15
Areas of focus
in 2015/16
additional time spent discussing the property cycle,
its timing and the likely impacts on the Group.
Directors also considered the extent to which there
may be ‘group-think’ and whether they felt
unsighted on any key aspect of the business.
The discussions and conclusions on succession
planning are summarised in the Chairman’s letter.
Progress against targets set for 2014/15
Good progress had been made against the Board
evaluation targets set last year:
• Directors were pleased with the additional efforts
of management to ensure the Board continued to
receive operational insights during the year, which
was the first when the Managing Directors of the
London and Retail portfolios did not sit on the
Board. Those Managing Directors were invited to
attend a number of Board events, including the
strategy away day in February, and provided
business unit reports that were circulated with
Board papers. Directors also spent more time
meeting managers from those businesses both at
and outside Board meetings, including attending
dinners at which the Executive Directors were
not present
• Key Board papers are now written on a ‘forward-
looking’ basis whereby they focus on decisions
likely to be made in the medium term, issues
facing the business and the execution of strategy.
This change was made in order to increase the
scope for Non-executive Directors to participate
in discussions and influence decision-making on
key issues at an early stage. The change has been
a success, with meetings seeing a richer discussion
and Non-executive Directors sharing more
insights and providing more challenge at meetings.
The Board felt that it made good use of the
additional 45 minutes added to meetings
• The Chief Executive gave a presentation on
competitor activity and strategy at the Board’s
away day, which was well received by Directors.
Regular updates will continue to be provided.
Areas of focus in 2015/16
• Directors would like to hear more contrary views
on key macro-economic forecasts, such as the
property cycle, and to receive raw data on some
topics without a recommendation or analysis
from the Executives so that they may more
readily form their own views
• The Board would like more focus at meetings on
the properties within the Retail Portfolio and on
the shape of that portfolio as a whole
• Directors were also keen to ensure that the Board
did not lose sight of other geo-political issues that
might disrupt the business in the short-term.
Board environment and access to appropriate
information
This topic is explored at every Board evaluation and
has resulted in a number of improvements in recent
years. These are set out in more detail below.
• A positive, transparent culture exists on the Board
with each member contributing and valuing the
contributions of others. The environment
encourages Directors to raise challenging questions,
debate issues freely and respond to one another
• Attendance at meetings of senior managers
below Board level is encouraged. In addition we
held two Non-executive Director sessions
without the Executive Directors present and
Board dinners with a variety of attendees,
including senior managers. Support and advice
was provided by the Group Company Secretary
and members of his team.
Professional development, support and
training for Directors
The Board has two specific knowledge
development sessions planned in each year and
Directors also attend other key business events.
This year the Board received a presentation on
occupier needs in buildings of the future.
Board knowledge of the Group’s property
portfolio was enhanced through site visits by
Directors to a number of properties and
Financial statementsGovernanceAdditional informationStrategic reportGovernanceLand Securities Annual Report 2015 048
048
Land Securities Annual Report 2015
developments. This year, all Directors attended
property tours conducted by the Group’s health and
safety teams, who took them through our safety
procedures in an operational environment.
To enrich the experience and development of
Executive Directors and senior managers, the Group
supports the holding of non-executive directorship
positions at other listed companies and charities.
Induction
Following appointment in 2014, Cressida Hogg and
Edward Bonham Carter completed their tailored
induction programmes during the year arranged
by the Chairman and Group Company Secretary.
This included visits to various properties and
development sites across the London and Retail
portfolios, and meetings with a number of senior
managers in the organisation including Portfolio
Directors, Centre Managers and senior managers
from the Group’s finance, company secretarial, risk
management and internal audit, information
systems and treasury functions.
Board strategy review
The Board’s away day to discuss strategy was this
year held over two days in London and included:
• detailed consideration of the London and Retail
property cycles, their likely timing and impacts
on the Group, its assets, funding and budget
• the potential for investing in new sectors of the
UK real estate market
• a presentation and discussion on retailer
requirements in the future
• presentations from external experts on the
macro-economic environment and property
market outlook.
Diversity policy
The Board works hard to ensure that it is able to
recruit directors from different backgrounds, with
diverse experience, perspectives, personalities,
skills and knowledge. Diversity amongst directors
contributes towards a high performing, effective
Board. We are pleased to report progress against
the Board’s 2013 diversity policy and the fact that
we have met the target for 25% of the Board to
comprise women a year ahead of target.
In support of our policy, we will only engage
executive search firms who have signed up to the
voluntary Code of Conduct on gender diversity and
best practice. Search firms also need to demonstrate
their independence from the Company and people
instructing them.
We have also made good progress in terms of
gender diversity generally, with more women now
filling senior management positions across the
business. You will see in ‘Our people strategy’ section
of this report that each of the Group’s Executive
Committees already have a number of women
amongst their membership. We continue to focus on
this important area. The diversity charts on page 44
provide further useful information.
Conflicts of interest
The Board operates a policy to identify and, where
appropriate, manage potential conflicts of interest
affecting Directors. The Nominations Committee
monitors the situation and has acted to address
potential conflicts as detailed in the table below.
Independence and re-election to the Board
The independence, effectiveness and commitment
of each of the Non-executive Directors has been
reviewed and discussed with them privately by
the Chairman. The results were shared with the
Nominations Committee which satisfied itself on
the contributions and time commitment of all the
Non-executives during the year. A specific review
was conducted by the Committee in relation to Kevin
O’Byrne as he has been in office for more than six
years. The Committee was confident Mr O’Byrne
and each of the Non-executives remain independent
and will be in a position to discharge their duties in
the coming year. All the Directors will stand for
re-election at the Annual General Meeting with the
support of the Board.
Potential conflicts of interest
Director
Potential conflict situation
Dame Alison
Carnwath
A non-executive director of Zurich
Insurance Company Limited with
whom the Group places certain of
its insurance policies and pension
investments.
Chris Bartram
Chairman and Partner of Orchard
Street Investment Management
(OSIM) and a Board Counsellor
(previously a Board member) of
The Crown Estate, both of which
are, in some areas of operation,
competitors of the Group.
The Crown Estate is also the Group’s
joint venture partner at a major
development.
Kevin O’Byrne
Executive Director of Kingfisher plc,
a large customer of the Group.
Cressida Hogg CBE
Managing Director, Head of
Infrastructure, of the Canada Pension
Plan Investment Board (CPPIB) which
is the Group’s joint venture partner at
a major development.
Edward Bonham
Carter
Vice Chairman of Jupiter Fund
Management plc, a fund manager
which evaluates investments that
may or may not include those of
the Group.
Table 26
Nominations Committee decision and mitigating
actions taken
Since the Group’s insurance programme and
policy matters are handled by the Executive
Directors outside of the Board (and in
consultation with its own independent
insurance brokers), the Committee
concluded that in practice conflicts of
interest involving Alison Carnwath and
Zurich Insurance were unlikely to occur.
Chris Bartram did not take part during
the year in discussions on, or see relevant
information on, potential acquisitions and
development of property where there was
a realistic prospect of OSIM or The Crown
Estate also being involved.
The Committee does not see any ongoing
potential conflict situations arising since
Chris Bartram stepped down from his
Chairman and Partner positions with
OSIM on 31 March 2015 even though he
is retained by that firm in an advisory
capacity. The existing controls in respect
of his appointment at The Crown Estate
will continue.
Since operational matters, such as retail
leasing, are unlikely to be considered at
Board level, the Committee concluded that
in practice conflicts of interest involving
Kevin O’Byrne and his employer were
unlikely to occur.
Kevin O’Byrne resigned his position at
Kingfisher plc effective 15 May 2015. The
controls in place to mitigate this potential
conflict were withdrawn from that date.
In her role, Cressida Hogg will not have
any involvement with the development
in question as a different business unit
within CPPIB manages it. As an additional
precaution, the Group will not share any
sensitive information on that development
with her and she has agreed not to
participate in any Board discussion that
relates to it.
Edward Bonham Carter’s position is such
that he is unlikely to be involved in the
selection of particular investments and has
agreed not to participate in any investment
decisions which may involve the Group’s
securities.
Land Securities Annual Report 2015
Governance
Land Securities Annual Report 2015
049
049
LETTER FROM THE
CHAIRMAN OF THE
AUDIT COMMITTEE
Dear Shareholder
During the year, the Audit Committee has continued
to play a key oversight role for the Board. Its principal
activities have focused on maintaining the quality
of our financial reporting, considering significant
accounting judgements made by management and
the work of the external valuers. It has also focused
on ensuring the independence and effectiveness of
the internal and external audit processes and driving
improvements in the Group’s internal control and
risk management systems. In addition, the
Committee has considered a number of new
challenges, opportunities and risks arising from both
within and outside the business.
Acquisitions and disposals
During the year, the Group made a number of
acquisitions and disposals, most notably the
acquisition of a 30% interest in the Bluewater
shopping centre in June 2014. In relation to these,
the Committee considered:
• at what point each transaction should be
recognised
• the recognition of an intangible asset and the
impairment of goodwill in connection with
Bluewater
• the impact of third-party co-investment rights in
respect of one particular transaction
• the Bluewater integration programme and its
subsequent implementation.
Committee members
– Kevin O’Byrne (Chairman and
Senior Independent Director)
– Stacey Rauch
– Cressida Hogg CBE
Changing risk landscape
The changing business environment has caused us
to closely monitor the impact on our risk landscape.
Macro-economic risks, such as the maturing
property cycle and structural changes in the retail
market, were considered by the Board as part of
its annual review of significant Group risks. More
specific and emerging risks were considered by the
Committee, including:
• key people – where we are exposed to a very
buoyant and competitive London employment
market
• political and public affairs – both in respect of the
Scottish referendum and the UK General Election
• terrorism – where we undertook simulated incident
response exercises at some of our shopping centres
• cyber security – in relation to data security, data
protection, safeguarding business continuity,
incident response and critical building
management infrastructure.
Through the Group risk register we reviewed
management’s plans and mitigation actions to ensure
all key risks were appropriately prioritised and resourced.
Committee members used their experience gained in
other businesses to challenge and advise management.
We continue to monitor these key risks and agreed
mitigating actions with the assistance of the Group’s
risk management and internal audit function.
External valuations and valuers
A significant focus of the Committee’s work relates
to the half year and full year valuation of the Group’s
property portfolio as the output and movements
represent a key contribution in determining the
Group’s results and certain executive remuneration.
The portfolio valuations are now carried out by three
external valuers, namely, Knight Frank (our principal
valuer), Jones Lang LaSalle (in relation to X-Leisure)
and CBRE (in relation to Bluewater). Property
valuations are inherently subjective as they
include the making of significant judgements and
assumptions by the valuers (and management),
some of which are derived from similar recent
market transactions. Based on the degree of
oversight and challenge applied to the valuation
process, as explained on page 51, the Committee
was confident that the valuations had been
conducted appropriately, independently and in
accordance with the valuers’ professional standards.
Each of the external valuers provides a high quality
service and contribution, and indeed Knight Frank have
done so for many years. However, in line with good
governance and best practice, we have decided to
put the Group’s portfolio valuation requirements out
to competitive tender. This process, which includes
Knight Frank, is already underway. I will Chair the
selection panel and the successful firm(s) will be
expected to undertake the September 2015 valuation.
External auditor
Following their appointment in 2013, Ernst & Young
LLP (EY) successfully completed their first audit
last year. Our internal review of their performance
confirmed they delivered a high quality audit and are
performing well in their new role. The objective of
this year’s audit plan was to build on EY’s increased
familiarity with the business and ensure it remained
focused and challenging.
Fair, balanced and understandable
The Committee again made use of an additional
meeting and the due diligence framework introduced
last year in assessing and then recommending to the
Board that, taken as a whole, the Company’s 2015
Annual Report is fair, balanced and understandable.
UK Corporate Governance Code
The Committee’s terms of reference have recently
been updated to reflect relevant changes introduced
to the UK Corporate Governance Code in 2014 and
which apply to the Group for the first time in respect
of the 2015/16 financial year. These relate to the
more forward-looking nature of the going concern
statement, a more rigorous and regular review of risk
management and the introduction of a longer-term
viability statement. We are preparing for these in
consultation with management and the external
auditor. I am confident we will be in a position to
confirm our compliance with the new requirements
at the end of next year. We also continue to monitor
progress of the growing pipeline of new and potential
regulations and governance initiatives emanating
from both the UK and EU.
Committee effectiveness
The regular challenge and engagement with
management, the external auditor and valuers
and the risk management and internal audit team,
together with the timely receipt of high standard
reports and information from them, has enabled
the Committee to discharge its duties and
responsibilities effectively. On behalf of the
Committee, I thank them for their contributions.
I hope you find my review and the report that
follows helpful in understanding the work of the
Committee during the year.
Kevin O’Byrne
Chairman, Audit Committee
Details of member appointments and biographies,
and full attendance at Committee meetings held
during the year, appear on pages 40, 41 and 44,
respectively.
The Committee’s terms of reference are available on
the Company’s website at www.landsecurities.com
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Land Securities Annual Report 2015
050
ACCOUNTABILITY
Structure and operations
The Committee’s structure and operations, including
its delegated responsibilities and authority, are
governed by terms of reference that are annually
reviewed and approved by the Board.
To maintain effective communication between all
relevant parties, and in support of its activities, the
Chairman, Chief Executive, Chief Financial Officer,
Director of Risk Management and Internal Audit,
representatives of the external auditor, Ernst &
Young LLP (EY), and other members of the senior
finance team regularly attend Committee meetings.
All other Non-executive Directors are invited to
attend meetings when the external valuers make
property valuation presentations. The Committee as
a whole has regular private sessions with the internal
and external audit teams. In addition, the Committee
Chairman has individual and informal sessions with
them, and the valuers, to ensure open lines of
communication exist in case they wish to raise any
concerns outside of formal Committee meetings.
Whilst the Committee members between them
have a wide range of business and financial
experience adequate enough to discharge their
duties, Kevin O’Byrne is the member determined by
the Board as having recent and relevant financial
experience for the purposes of satisfying the UK
Corporate Governance Code (Code).
The Committee works to a structured
programme of activities to coincide with key events
around the Company’s financial calendar. Following
each meeting, the Committee Chairman reports on
the main discussion points and findings to the Board.
External auditor
EY, as the external auditor, is engaged to express an
opinion on the Company’s and the Group’s financial
statements. Their audit includes a review and test of
the systems of internal control and data contained in
the financial statements to the extent necessary to
express an audit opinion on them.
Effectiveness of the external audit process
Following the issue of the Company’s Annual
Report, the Director of Risk Management and
Internal Audit conducts a specific performance
evaluation review of the external audit process,
including its effectiveness, and the objectivity
and independence of the external auditor. This is
conducted against the structured guidelines of the
ICAEW and in consultation with the Executives and
senior finance team. The Committee reviews the
results. The Committee Chairman and the Chief
Financial Officer also each meet privately with the
audit engagement partner.
EY successfully completed their inaugural audit
for the 2013/14 financial year. The conclusions from
our evaluation confirmed that they had settled
in well to their new role and were delivering to
a high audit service standard. Areas identified for
development were shared with EY to form part
of their future audit plans and service delivery.
Audit Committee activity
The key areas of Committee activity during the
year included the planning, monitoring, reviewing
and approving of the following:
Financial reporting
• the quality and appropriateness of the half
year and annual financial statements
• the information, underlying assumptions and
stress test analysis presented in support of the
going concern statement
• the consistency and appropriateness of the
financial control environment
• the dividend policy and the payment of
dividends, with due regard to the Company’s
REIT status
• the degree to which the Annual Report is fair,
balanced and understandable.
External audit
• the scope of the external audit plan
• the independence and objectivity of EY
• the level of fees paid to EY for non-audit
services
• EY’s reappointment to office as external
auditor.
Risk management and internal control
• the scope of the internal control and risk
management programme
• the results of internal audit reviews and the
progress made against agreed management
actions
• quarterly reports on investigated internal
control issues significant to the Group
• quarterly reports on the Group’s risk register,
including significant and emerging risks
• compliance by management concerning the
operation of the business for which they are
responsible
• the adequacy and effectiveness of the
Group’s internal control and risk
management systems.
Internal audit
• the scope of the internal audit plan
• the independence, appropriateness and
effectiveness of internal audit.
External property valuation
• the quality and appropriateness of the half
year and full year external valuation of the
Group’s property portfolio
• the independence and effectiveness of the
external valuers.
Other
• the Committee’s terms of reference and its
performance effectiveness
• compliance with the Code and the Group’s
regulatory and legislative environment.
• the Financial Reporting Council (FRC)’s May 2014
Audit Quality Inspection Report in respect of EY
and the firm’s internal quality control systems
• the mitigation actions taken by the Company in
seeking to safeguard EY’s independent status,
including the operation of policies designed
to regulate the amount of non-audit services
provided by EY and the employment of former
EY employees
• the tenure of the audit engagement partner
(not being greater than five years)
• the internal performance evaluation of EY referred
to above.
Taking the above review into account, the
Committee concluded that EY remained objective
and independent in their role as external auditor.
Audit plan
In respect of the audit for the financial year under
review, EY presented their audit plan (prepared in
consultation with management and the Director
of Risk Management and Internal Audit) to the
Committee. The objective was to build on EY’s
increased familiarity with the business and make sure
it was appropriate for the Group’s structure. It was
agreed that the audit plan would again be risk and
materiality focused, challenge based and designed
to provide valuable insights beyond the audit. The
Committee Chairman was kept informed regarding
the negotiation of the audit fee to ensure an
appropriate balance existed between the scope
of work and the cost of assurance.
Objectivity and independence
The Committee is responsible for monitoring and
reviewing the objectivity and independence of
the external auditor. In undertaking its annual
assessment, the Committee has reviewed:
• the confirmation from EY that they maintain
appropriate internal safeguards in line with
applicable professional standards
Land Securities Annual Report 2015 Governance
051
Audit tendering
EY were first appointed to the office of auditor,
following a competitive tender process, in respect of
the 2013/14 financial year. Under current regulations,
the Company will be required to retender the audit
again no later than in respect of the 2023/24
financial year. However, the Committee proposes
to review the situation when the current audit
engagement partner is next due to rotate which is in
respect of the 2018/19 financial year. There are no
contractual restrictions in relation to the Company’s
choice of external auditor.
A resolution to reappoint EY to office for a further
year will be proposed at this year’s Annual General
Meeting.
Non-audit services
To help safeguard EY’s objectivity and independence,
the Company operates a non-audit services policy
which sets out the circumstances and financial limits
within which they may be permitted to provide certain
non-audit services (such as tax and other services).
The Committee monitors compliance with the policy
and no changes have been made to it during the year.
The existing threshold level of £25,000 for each
permitted non-audit service engagement with EY,
above which the prior approval of the Committee
Chairman is required before work commences,
remained unchanged during the year. The
Committee also believes this level remains
appropriate going forward.
Details of the audit fees charged during the year
by EY (£0.7m) and non-audit fees (£0.1m), can be
found in note 7 to the financial statements.
External property valuations
The valuation of the Group’s property portfolio,
including properties within the development
programme, is now undertaken by three external
valuers. These are Knight Frank (as the principal
valuer), Jones Lang LaSalle (in relation to X-Leisure)
and, for the first time this year, CBRE (in relation to
Bluewater). The valuation helps to determine a
significant part of the Group’s net asset value,
reported performance and the remuneration of the
Executives and senior management. That is why
the scrutiny of each valuation and the valuers’
independence, objectivity and effectiveness,
represents such an important part of the
Committee’s remit.
Valuations for the full and half year were reviewed
and challenged by both management and the
Committee, with other Non-executive Directors
in attendance at the final presentations. The
Committee Chairman also met separately with
the valuers.
The external valuers also met separately with
the external auditor and exchanged information
independently of management. EY have experienced
chartered surveyors on their team who consider the
valuers’ qualifications and assess and challenge the
valuation approach, assumptions and judgements
made. Their audit procedures are targeted at
addressing the risk in respect of the valuations and
the potential for any undue management influence
in arriving at them. This year, 30 properties from
across the portfolio were chosen for particular
attention by EY’s valuation experts on the basis of
their value, type and geography. The external auditor
performed site visits for a sample of assets including
those under development and completed analytical
and substantive reviews over the input data for
the valuations, comparing this to market data.
The Committee reviewed their findings.
An internal evaluation of Knight Frank, who
have been the Company’s principal external valuer
for many years, was conducted during the year.
It confirmed that they continued to provide an
independent and high quality valuation service.
Areas identified for improvement were shared with
Knight Frank and an action plan implemented.
A fixed-fee arrangement is in place for the
valuation of the Group’s properties and given the
importance of the work undertaken by the external
valuers, we have disclosed the fees paid to them
in note 8 to the financial statements. The total
valuation fees paid by the Company to the external
valuers during the year represented less than 5% of
each respective firms’ total fee income for the year.
Significant financial judgements and issues
The Committee identified the following three issues
as significant, namely the valuation of the Group’s
property portfolio, revenue recognition and
accounting for property acquisitions and disposals.
Further details are provided in table 27 on page 53.
These issues were considered to be significant taking
into account the level of materiality and the degree
of judgement exercised by management and the
external valuers. The Committee discussed these
issues with them, as well as the external auditor. In
addition, the Committee considered and took action
in respect of other key items, including the going
concern basis on which the financial statements are
prepared, maintenance of the Group’s REIT status,
adoption of IFRS 10 ‘Consolidated Financial
Statements’ and IFRS 11 ‘Joint Arrangements’,
and other specific areas of individual property
and audit focus.
The Committee was satisfied that all issues
had been fully and adequately addressed, that the
judgements made were reasonable and appropriate
and had been reviewed and debated with the
external auditor who concurred with the judgement
of management.
Risk management and internal control
The Board is responsible for determining both the
nature and extent of the Group’s risk management
framework and the risk appetite that is acceptable
in seeking to achieve its business objectives. This is
subject to regular Board review together with the
effectiveness of the internal control and risk
management systems. The Committee’s role is to
assist the Board in overseeing the adequacy and
effectiveness of these systems, and the activities
and effectiveness of internal audit.
Primary responsibility for operation of the internal
control and risk management systems, which extend
to include financial, operational and compliance
controls, has been delegated to management. These
systems have been designed to manage, rather than
eliminate, the risk of failure to achieve the Group’s
business objectives and can provide only reasonable,
not absolute, assurance against material
misstatement or loss.
The risk management framework and ongoing
processes to help identify, evaluate and manage
the principal risks faced by the Group, which is
embedded within our everyday business activities
and culture, is described on pages 34 to 36. This
process is regularly reviewed by the Board, with the
next one due in June this year, and accords with
the FRC’s internal control guidance for directors.
Internal controls
The key elements of the Group’s internal control
system can be summarised as follows:
• an established organisation structure with clear
lines of responsibility, approval levels and delegated
authorities
• a management and committee structure which
facilitates regular performance review and
decision-making
• a comprehensive strategic review and annual
planning process
• a robust budgeting, forecasting and financial
reporting process. This includes regular progress,
actions and performance updates versus targets
and key performance indicators to the London
Executive Committee, the Retail Executive
Committee, the Executive Committee and the
Board
• a rigorous preparation process for the consolidated
financial results involving a number of review
stages
• various policies, procedures and guidelines
underpinning the development, asset
management, financing and main operations of
the business, together with professional services
support including legal, human resources,
information services, tax, company secretarial
and health and safety
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 052
• a compliance certification process from
management conducted bi-annually regarding
business activities generally
• a disciplined post acquisition review and integration
programme to ensure the Group’s governance,
procedures, standards and control environment
are rolled out effectively and timely
• a constantly updated property information
management system spanning the Group’s entire
portfolio.
Risk management and internal audit
The Group has a risk management and internal audit
function which reports to the Committee and works
under the day-to-day supervision of the Director
of Risk Management and Internal Audit. A Risk
Management and Internal Audit Charter governs
its remit. The Committee, in consultation with
management, agrees the annual plan of activity
aligned to the needs of the business. Both parts of
the function work closely together to ensure that the
outputs of one inform the future activities of the other.
The Committee receives and discusses on a
quarterly basis:
• the Group’s risk register, including significant and
emerging risks, and how exposures have changed
during the period; and
• summary reports and progress against agreed
actions from internal audit on their review of the
effectiveness of various elements of the internal
control system maintained by the Group.
The Committee regularly reviews the effectiveness
of the risk management and internal audit function
to ensure it remains sufficiently independent to carry
out its role effectively.
Effectiveness
Assisted by the Committee, the Board has reviewed
the effectiveness of the Group’s systems of internal
control and risk management in place throughout
the year and up to the date of this report. This took
into account the valuable assurance work undertaken
by the risk management and internal audit function
and the relevant process, controls and testing work
undertaken by the external auditor as part of their
interim review and full year audit. No weaknesses
or control failures significant to the Group were
identified. Where areas for improvement were
identified, new procedures have been introduced
to strengthen the controls and will themselves be
subject to regular review as part of the ongoing
assurance process.
Fair, balanced and understandable
The Committee again applied this year the due
diligence review procedure it established last year.
This included an additional Committee meeting
ahead of the formal year end review. Accordingly,
taking into account the preparation process, the
information provided by management and the
opinions of the Executives and the external auditor,
the Committee was able to confirm and recommend
to the Board that the 2015 Annual Report, taken
as a whole, is fair, balanced and understandable and
provides the necessary information for shareholders
to assess the Company’s performance, business
model and strategy.
Whistleblowing policy
The Committee reviews the Group’s arrangements,
incorporated within a specific policy, which allow
employees to report concerns in confidence, and
anonymously if preferred, about suspected
impropriety or wrongdoing. These include an
independent third-party reporting facility
comprising a telephone hotline and a recently
introduced online process. The Company runs
an awareness campaign every year and the
arrangements are also brought to the attention
of new employees. Any matters reported are
investigated by the Group Company Secretary
and escalated to the Committee, as appropriate.
During the year there were no whistleblowing
incidents reported.
Bribery and corruption policy
The Board has a zero tolerance policy for bribery and
corruption of any sort. The Company, in operating
the policy, gives regular training to staff on the
procedures, highlighting areas of vulnerability.
New employees are required to complete an online
training module when they join. Our principal
suppliers are required to have similar policies and
practices in place within their own businesses.
Committee effectiveness
Feedback from the annual performance evaluation
of the Board and its Committees, which was
conducted internally this year, as described earlier
in this report on page 47, confirmed that the Audit
Committee continued to be effective in fulfilling
its duties.
Land Securities Annual Report 2015 Governance
053
Significant issues considered
How addressed by the Committee
Table 27
The Group uses three external valuers, Knight Frank, Jones Lang
LaSalle and CBRE. Each are leading firms in the UK property market.
The Audit Committee adopts a formal approach by which the
valuation process, methodology, assumptions and outcomes are
reviewed and robustly challenged. This includes separate review and
scrutiny by management, the Committee Chairman and the
Committee itself. It also includes the external auditor who is
assisted by its own specialist team of chartered surveyors who are
familiar with the valuation approach and UK property market. The
external auditor met with the valuers separately from management
and their remit extends to investigating and confirming that no
undue influence has been exerted by management in relation to the
external valuers arriving at their valuations.
Each of the valuers submit their valuation reports to the Committee
as part of the half year and full year results process. Knight Frank,
as the principal valuer of the Group’s property portfolio, were asked
to attend and present to the Board their valuation reports and
highlight any significant judgements made or disagreements
between themselves and management. There were none.
The valuers proposed significant increases in the values of our
properties and developments during the year, which were discussed
by the Committee in detail and accepted.
Based on the degree of oversight and challenge applied to the
valuation process, the Committee concluded that the valuations
had each been conducted appropriately, independently and in
accordance with the valuers’ professional standards.
The Committee and the external auditor considered a specific
paper from management setting out the main areas of judgement
exercised in arriving at the accounting treatment applied for all
matters related to revenue recognition, including timing and
treatment of rents, incentives, surrender premia and other property
related revenue.
The auditor reviewed and tested individual transactions on a sample
basis to ensure there was a contractual relationship and consistency
of accounting treatment between last year and this year.
In its assessment, the Committee, in consultation with the auditor,
considered all relevant facts, challenged the recoverability of
incentives, the options that management had in terms of
accounting treatment and the appropriateness of the judgements
made by management. These matters had themselves been the
subject of prior discussion between the auditor and management.
Both the Committee and the auditor concurred with the
judgements made by management and were satisfied that the
revenue reported for the year had been appropriately recognised.
The Committee, in conjunction with the external auditor, reviewed
and challenged management’s individual papers on accounting
proposals and key judgements for all major complex property
acquisitions and disposals. These included Bluewater, Kent,
21 Moorfields, EC2, Times Square, EC4 and land at Harrow and
Ebbsfleet.
Following a review of the accounting treatment for a number of
key transactions, the Committee satisfied itself that the approach
adopted by management was appropriate in each case and in
accordance with IFRS as adopted by the European Union.
Valuation of the Group’s property
portfolio
The valuation of the Group’s property
portfolio (including properties within the
development programme and held in
joint ventures) is a major determinant of
the Group’s performance and drives
much of the variable remuneration for
the Executives. Although the portfolio
valuation is conducted externally by
independent valuers, the nature of the
valuation estimates is inherently
subjective and requires the making of
significant judgements and assumptions
by management and the valuers.
Significant assumptions and judgements
made by the valuers in determining
valuations may include the appropriate
yield (based on recent market evidence),
changes to market rents (ERVs), what will
occur at the end of each lease, the level of
non-recoverable costs and alternative
uses. Development valuations also
include assumptions around costs to
complete the development, the level of
letting at completion, incentives, lease
terms and the length of time space
remains void.
Revenue recognition
Certain transactions require
management to make judgements as to
whether and to what extent they should
be recognised as revenue in the year.
Revenue recognition is significant to the
Group as there is a risk of overstatement
or deferral of revenue (and revenue
profit) to assist in meeting current or
future market expectations and
management performance incentive
targets.
Accounting for property acquisitions
and disposals
During the year, the Group made several
property acquisitions and disposals,
including interests in joint arrangements.
Some of these transactions were large
and complex and required management
to apply estimates and make judgements
in determining whether a transaction
represented an acquisition or a business
combination, or when a transaction
should be recognised, and the
appropriate accounting treatment.
The accounting treatment is significant
to the Group as there is a risk that an
inappropriate approach may lead to the
misstatement of the financial position or
results of the Group.
Further details on critical accounting judgements and key estimations of uncertainty can be found in note 2 to the
financial statements on page 92.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015 054
GOVERNANCE
IN ACTION
At Land Securities, we have in
place a strong and effective
governance framework which
is an essential contributor to
our sustained improvement in
business performance. Here
you will find examples of our
governance in action.
Stacey Rauch and Scott Parsons visiting 32-50 Strand, London WC2.
NON-EXECUTIVE DIRECTORS
A conventional view of non-executive directors is that they govern from afar.
However, the Non-executives in Land Securities are playing an increasingly
active role, both engaging with the underlying business and working to
support and challenge management. Stacey Rauch – who joined the Board
in January 2012 – exemplifies today’s active non-executive director.
Stacey brings 24 years of retail sector experience from
the global management consulting firm McKinsey &
Company to Land Securities. She is applying that
experience to the Group’s challenges and opportunities,
particularly how we anticipate and respond to rapid
change in the retail market. That includes providing
insight on what global trends – such as online and
omni-channel retailing, the heightened importance
of value, and the growth of the food and leisure offer
in malls – mean for retailers and their space.
Stacey’s insights are not restricted to the
boardroom. She shares her perspectives with
management and helps them identify and connect
with new customers. Scott Parsons, Managing
Director of the Retail Portfolio, recently visited a
number of innovative retailers in New York with
Stacey. “Landlords are having to be much more active
and creative in response to retailers’ changing needs,”
he says. “Along with her connections, Stacey’s
knowledge and experience are so valuable because
she can look from the customers’ perspective.”
Prepared for transformation
During her time at Land Securities, management has
carried out a swift and far-reaching reshaping of the
Retail Portfolio. “The real estate industry can be slow
to change,” she says, “but our portfolio has been
dramatically transformed, and very much in direct
response to the major trends. We talk about
dominance, experience and convenience and all
of these themes are critical for our malls.”
Identifying trends is one thing, responding is
another. Stacey believes the way the Board and
management have prepared for change has been
vital. “Management and Non-executives immersed
themselves in what was happening in retail and the
implications. Management set the pace of change
and the market provided the opportunities. The
Board was then well equipped to respond to
opportunities when they appeared.”
The value of different perspectives
Her years with McKinsey and non-executive
directorships at three US companies give Stacey a
clear view on Board effectiveness. Diversity of
experiences and points of view are key, she believes.
“The range of skills on the Land Securities Board
creates very interesting dialogue and that’s reflected
in the decisions we make. This is a Board that thinks
hard about what is in the best interests of shareholders
and works with management to see that through.”
Stacey attends all of Land Securities Board
meetings and sits on the Audit Committee, which
she values because “it exposes you to many different
aspects of the business.” She also goes out and
about to see the business at work. “I’ve been to our
major shopping centres in Leeds, Glasgow, Oxford,
Portsmouth and Kent. I’ve seen retail warehouses
and leisure parks and our major London office
developments. Visits enable me to see the assets for
myself and engage fully with management. Other
Non-executives do the same and management are
very receptive.”
A recent example is her visit to the shopping
centre at Westgate in Oxford, a few months before
the Board was due to consider whether or not to
proceed with its redevelopment. Development
Director Bert Martin reports that: “It was a very
interactive session, which was unexpected but
incredibly valuable. She looked hard at areas such as
tenant mix and the catchment; whether we truly
understood the needs of the customers and the
community; and whether the scheme would provide
a compelling reason for people to come back time
and time again. Those conversations made us think
even harder and helped shape our Board paper
requesting approval to proceed with the project.”
Stacey especially values the culture of debate
and challenge within the business. “People in
Land Securities think deeply about things,” she says.
“They also want to win.”
We talk about dominance,
experience and convenience,
and all of these themes are
critical for our malls.”
Stacey Rauch, Non-executive Director
You can read more about our Non-executive
Directors on pages 40 and 41.
Land Securities Annual Report 2015 055
Chris Bartram and Simon Palley visiting Nova, Victoria, SW1.
HEALTH AND SAFETY
Our health and safety agenda is set
from the top down and embedded in
everything we do from the bottom
up. To ensure the two ends meet, a
rigorous governance framework is
in place. The Executive and Non-
executive Directors are regular visitors
to our properties to make sure we
‘walk the talk’ from the boardroom
to our operations.
As with everything we do at Land Securities, we aim to
be a leader in our industry on health and safety. This
starts with both inspiring and requiring our employees
to set the highest standards. But we also work with our
supply chain partners to ensure those standards are
met wherever we operate, from our construction sites
to the offices and shopping centres we own and
manage. We help share best practice across the
wider property and construction industry too.
Destination Zero
Our approach to safety starts from one central
belief: accidents are avoidable and individual care,
accountability and empowerment are key to keeping
yourself and your colleagues safe. This is why we have
embarked on a journey to ‘Destination Zero’ – a
programme launched last year with the objective of
eliminating all accidents, injuries and work-related ill
health at our operations. This is part of our public
commitment to maintain an exceptional standard of
both health and safety in all the working environments
we manage and control.
Within the business, we clearly communicate our
health and safety commitment and we provide
comprehensive training to all employees. A new
Group key performance indicator – introduced this
year – now requires us to publicly report on our
health and safety training actions.
We also want people outside Land Securities to
be aware of the high standards we set and expect,
and we want to help them – particularly our supply
chain partners – to join us on the journey to
Destination Zero. One example is that we now
require every principal contractor to sign up to our
Health and Safety Pledge, which sets out the high
standards we require. We have also set up
continuous improvement groups. These bring
together our key supply chain partners to discuss
critical issues, share their knowledge and establish
common standards. Attendance is mandatory for
contractors. This year, we assembled a team of
For us, good health and safety
starts with good governance. In
turn that should inspire a culture
of respect, awareness and
continuous improvement –
not just inside the Company
but outside with our many
partners too.”
Clive Johnson, Group Head of Health and Safety
property development insurers and principal
contractors to set and share new best practice
standards for fire prevention during construction.
So for us, good governance on health and safety
starts inside Land Securities, but we also believe we
have a responsibility to extend our expectations and
standards to those who work for and with us. In
sharing the knowledge we develop with our partners
along the road to Destination Zero, we aim to help
the entire industry raise standards, prevent accidents
and reduce occupational ill health.
A rigorous governance framework supports
our health and safety agenda
• A network of officers and committees leading
through to the Group Health and Safety
Committee chaired by the Chief Executive
• A dedicated team of professionals led by the
Group Head of Health and Safety (who reports
to the Chief Executive)
• An annual cycle of focused audits and
inspections undertaken by team members,
external specialists and insurer representatives
• Regular upward reporting to the London and
Retail Executive Committees, the Executive
Committee and bi-annually to the Board
• An established policy with clear, relevant and
mandatory operating procedures and
processes based on our ISO 18001
accreditation
• Mandatory training for new and existing
employees.
You can read more about health and safety in our
Sustainability reporting on pages 144 –147.
Financial statementsGovernanceAdditional informationStrategic reportGovernanceLand Securities Annual Report 2015 056
Bluewater shopping centre.
BLUEWATER
ACQUISITION
Bluewater, Kent, is one of the UK’s
leading retail and leisure destinations.
It is home to over 330 retailers, cafes,
bars and restaurants, many of which
are international brands. It attracts
some 27 million visitors a year and
its catchment is one of the most
affluent in the country.
Why did you buy into the Bluewater
shopping centre?
We have been transforming our Retail Portfolio,
focusing it on assets that are dominant in their area,
offering great experience and convenience for
shoppers. With Bluewater, we had a rare opportunity
to acquire a stake in one of the UK’s most successful
dominant shopping centres – one of the ten largest
centres in Europe, in fact. To support the acquisition
and continue our transformation we also sold a
number of retail assets less well matched to our
strategy and aspirations.
Exactly what did you acquire?
We acquired a 30% direct holding in Bluewater, Kent
in June 2014 for £657 million. The centre is now
co-owned with a number of other investors. We also
acquired the full asset management rights for the
centre and 110 acres of surrounding land for £40 million.
How were governance matters approached?
Project Team
The project team included experts from around the
business, including members of the Retail and
London portfolios. They were supported by internal
experts from across our professional support
functions, namely, tax, insurance, treasury, company
secretarial, finance, internal audit, building surveying,
HR, information systems and legal. We also sought
specialist advice from external advisers and worked
closely with them. We held weekly project team
meetings in an open forum that ensured all team
members remained up-to-date. Everyone within
the team was encouraged to discuss and challenge
the acquisition strategy openly and constructively.
Next step actions were defined clearly at every
meeting and followed up at the next one.
The volume of data to be analysed was
particularly challenging, but one which the team
met head on. Our external advisers provided
valuable advice and guidance; helped us analyse
data, cash flows and competition; and reviewed a
very significant number of legal contracts and leases.
Retail Executive Committee
The project team produced a number of detailed
papers for our Retail Executive Committee. The
Committee considered the opportunity, analysing
exactly how the asset would fit and be integrated
within the portfolio, together with the expected
returns and risks. Committee members provided
challenge and guidance to the project team who also
met with members and our Chief Executive outside
of formal meetings to keep them updated on
progress and to gain advice and direction.
Investment Committee
The Committee considered the proposal in the
context of the Group’s strategy, alternative
opportunities and the likely impact on cash flows
and earnings. They also looked at the ownership
structure, due diligence and financial returns.
Board
The Chief Executive raised the item as a discussion
point at various Board meetings before presenting
a formal request for approval to proceed. This gave
the Board the opportunity to raise questions well in
advance of making a final decision. Board discussion
revolved around whether the acquisition made
strategic sense, the competitive environment,
investor views, pricing, financing and the impact on
the Group as a whole. Once the acquisition had been
approved by the Board, the Chief Executive kept
Directors informed of transaction progress.
Market announcement
On contract signing, an announcement was released
to the London Stock Exchange and the Executive
Directors answered questions from shareholders.
Audit Committee
Successful integration of a new asset – particularly
such a large and complex one – is clearly vital and
can be challenging. The Audit Committee played an
oversight role in reviewing the appropriate accounting
treatment and the integration programme to ensure
that Bluewater was absorbed into the Group’s Retail
operations and internal controls and risk
management programme. Our Head of Information
Systems coordinated the integration programme
with the Retail Executive Committee taking
responsibility for day-to-day operational and financial
integration, reporting into the Audit Committee.
A key part of our successful
acquisition of Bluewater was
the application of a robust
governance approach at each
stage of the transaction.”
Scott Parsons, Managing Director, Retail Portfolio
You can read more about the Bluewater acquisition
on page 28
Project Team
Day-to-day running of
the project.
Retail Executive
Committee
Reviewed the financial,
operational and strategic
implications.
Investment
Committee
Assessed the impact on
the Group’s strategy and
maintained oversight of
the transaction.
Board
Considered the Committees’
recommendations in the
context of the Group’s strategy
and alternative investment
opportunities. Approved the
terms of the acquisition
within certain parameters.
Audit
Committee
Assumed oversight
responsibility for reviewing
the accounting treatment
and the integration
programme.
Land Securities Annual Report 2015 057
RELATIONS WITH
SHAREHOLDERS
Approach to Investor Relations
The Board is committed to maintaining an open
dialogue with shareholders and recognises the
importance of that relationship in the governance
process. The Chairman, supported by the Executive
Directors, has overall responsibility for ensuring
effective communication with shareholders.
The Company has a comprehensive investor
relations programme which aims to help existing
and potential investors understand the Group.
The programme is designed for institutional
investors, private shareholders and debt investors.
Shareholder feedback is provided to the Board to
ensure that they understand the objectives and
views of major investors. During the year, the
programme of investor events included:
Institutional shareholders’ programme
Meetings with principal shareholders
• Meetings with the Executive and the Chairman
were offered throughout the year
• The Chairman maintained contact with principal
shareholders and kept the Board informed of their
views. An investor tour was undertaken in June and
July 2014 which enabled the Chairman to meet
investors in the UK and the Netherlands. Investors
found the meetings valuable and we will continue
to hold these biennially
• Our investor relations programme covered Europe,
North America and the Far East
• As well as Non-executive Directors, the Senior
Independent Director was available to meet with
shareholders
• Institutional shareholders were invited to attend
the Company’s full year and half year results
presentations.
Investor conference
• The investor conference is held annually and focuses
on the Retail and London portfolios in alternate years.
This year, the conference was held in London and
focused on the London Portfolio with a short Retail
Portfolio overview. Senior management from
the London Portfolio presented updates on all
aspects of its business and progress on the London
developments. This was followed by a tour of 20
Fenchurch Street, EC3 and our major assets in
Victoria. The conference also provided an
opportunity for attendees to meet the
management teams in the business
• The presentations and an audio recording of the
conference were made available on our corporate
website to enable those investors who could not
attend to access the information provided.
Investor tours and presentations
• In addition to our annual investor conference, we
hosted various presentations and tours of some
of our major assets in the Retail and London
portfolios. These tours were conducted at
Bluewater, Kent, key properties in Victoria, SW1,
Thomas More Square, E1 and certain London City
assets, including 20 Fenchurch Street, EC3, New
Street Square, EC4 and One New Change, EC2
• We conducted 11 sales team meetings during the
Debt investors programme
Credit side institutional investors and analysts
• Meetings were held with our treasury team after
year providing Executive Directors with the
opportunity to present our strategy and
performance directly to the sales teams of the
major investment banks.
Industry conferences
• Industry conferences provide Executive Directors
with a chance to meet a large number of investors
on a formal and informal basis. Conferences
attended this year included the UBS Global
Property, JP Morgan and Bank of America Merrill
Lynch conferences in London, Citi CEO conference
in Florida, Merrill Lynch conference in New York,
and the Kempen conferences in Amsterdam and
New York.
Other initiatives
• The Chairman and Chief Executive held a dinner for
the senior heads of equities from UK institutions.
Private shareholders’ programme
Private shareholders are encouraged to give feedback
to and communicate with the Directors through the
Group Company Secretary. During the year they
were also able to meet Directors at the United
Kingdom Shareholders’ Association meeting, held
annually at our head office, and at the Annual
General Meeting.
the half year and full year results.
Banks
• Regular dialogue was maintained with our key
relationship Banks and Trustee, including at least
bi-annual meetings with our treasury team and
in-house dinners with the Executive and Non-
executive Directors
• Our treasury team also actively engaged with
potential lenders.
Credit rating agencies
• During the year, updates and meetings were held
by our treasury team and senior management with
Standard & Poor’s, Fitch ratings and Moody’s
• Further information on our debt investors can
be found at www.landsecurities.com/investors/
debt-investors.
Annual General Meeting (AGM)
The 2014 AGM provided all shareholders with an
opportunity to question the Board and the Chairmen
of the Board Committees on matters put to the
meeting, including the Annual Report. Shareholders
who attended the AGM were given a presentation by
the Chief Executive on the activities and performance
of the Group over the preceding year. The results of
voting at general meetings are published on the
Company’s website, www.landsecurities.com/
investors/shareholder-investor-information/
AGM-Annual-General-Meeting.
Independent feedback on investor relations
The Board receives feedback on investor relations from an independent adviser on a biennial basis. Last year,
Makinson Cowell undertook a comprehensive investor relations audit on investor perceptions of the Company,
its management, strategy, governance and the investor relations programme. This year, their recommendations
continued to be implemented with the following progress being made:
Investor Relations
Action
Progress made
Table 28
Communicating the long-term vision for
the Retail business to investors
The long-term vision has been communicated throughout the year
and the transformation of our Retail Portfolio is being well received.
Improving the visibility of new members
of the Executive Committee to investors
Scott Parsons and Colette O’Shea met with investors at investor
roadshows, conferences and meetings throughout the year.
Providing more guidance on the Group’s
longer-term strategy and plans post the
current phase of development
The London cycle and development opportunities beyond the
existing cycle were discussed throughout the year including at the
investor conference in September 2014.
Maintaining the Chairman’s high standing
with investors through periodic engagement
The Chairman maintained contact with principal shareholders and
undertook an investor tour in June and July 2014.
The investor relations department received feedback from analysts and investors during the year through
the Group’s corporate advisers. The department was recognised for its performance and service by winning
a number of prestigious awards, including three Thomson Reuters Extel 2014 awards. The Group Company
Secretary also received feedback on governance matters directly from investors and shareholder bodies.
The information was shared with the Board to help members develop their understanding of shareholders’
needs and expectations.
Other disclosures
Other disclosures required by paragraph 7.2.6 of the Disclosure and Transparency Rules and the Companies
Act 2006 are set out in the Report of the Directors on pages 79 and 80.
The Governance report was approved by the Board on 18 May 2015.
By Order of the Board
Michael Arnaouti
Group Company Secretary
Financial statementsGovernanceAdditional informationStrategic reportGovernanceLand Securities Annual Report 2015
058
Land Securities Annual Report 2015
DIRECTORS’
REMUNERATION
REPORT –
CHAIRMAN OF THE
REMUNERATION
COMMITTEE’S
ANNUAL STATEMENT
Committee members
– Simon Palley (Chairman and
Independent Non-executive
Director)
– Dame Alison Carnwath
– Chris Bartram
– Edward Bonham Carter
Dear Shareholder
I am pleased to introduce the Directors’
Remuneration Report for 2014/15.
In my statement last year, I signalled that some
adjustments may be necessary to our current
remuneration arrangements in 2015 as they
approached their third anniversary. Accordingly,
during the year, the Committee has undertaken an
extensive review of the current arrangements to
ensure that they are fully fit for purpose. Following
careful consideration and recent consultation with
key investors and institutional bodies, some revisions
to our remuneration arrangements are being
proposed. These are reflected in a new Remuneration
Policy and Long-Term Incentive Plan to be put before
shareholders at the Annual General Meeting on
23 July 2015. If approved, they will come into effect
from that date. Details of our proposals are set out
below and in the Remuneration Policy Report on
pages 61 and 67. I believe that we have both
presented our proposals fairly and listened carefully
to the views of shareholders during this process.
Summary of our proposals
In April 2012, in light of the reshaping of the Board’s
responsibilities, we took the opportunity to create a
consistent remuneration structure for the Executive
Directors, reducing the quantum of variable pay,
increasing the weighted length of the vesting period
and introducing malus provisions into our annual and
long-term incentive arrangements for the first time.
Since then, the expectations of institutional investors
have developed and best practice has moved on.
We have taken the opportunity to review our
arrangements, in consultation with the Committee’s
independent advisers, New Bridge Street. Our
overarching objective has been to better align
remuneration with our strategy, recent investor
guidelines, and the long-term success of the
Company. We have also sought to maintain target
total remuneration that is around the median
amongst our listed peer group and other listed
companies of comparable size. The key proposed
changes are as follows:
• Simplification of the long-term incentive
arrangements through the cessation of awards
under the Matching Share Plan (MSP) and
compensating increases in share awards under a
single new Long-Term Incentive Plan (LTIP)
• Certain adjustments to the Total Property Return
and Total Shareholder Return performance criteria
and targets, to make them a fairer and more robust
reflection of relative performance
• The introduction of an additional two year holding
period for shares vesting under the LTIP
• An increase in the share ownership guideline levels
for the Executive Directors
• Strengthening of the contractual recovery and
withholding (malus and clawback) provisions in
relation to awards made under the annual bonus
plan and LTIP
• A reduction in the annual on-target bonus level and
the introduction of more stretching targets
• An increase in the annual base pay of the Chief
Executive after three years’ successful performance
in the role.
For ease of reference, we have set out in detail the
proposals we shared with investors in a table
following this Annual Statement. The proposals are
reflected in the Remuneration Policy Report section,
and the specific annual bonus and LTIP targets are
also set out in section 2.4 of the Annual Report on
Remuneration (‘Performance targets for the
coming year’).
Consultation process
The consultation process involved contact by letter,
telephone and face-to-face meetings with more
than 20 of our major shareholders, representing
over 50% of the register, as well as the key advisory
organisations. Importantly, as well as describing
the proposals in detail, we were clear about
the alternatives considered and rejected by the
Committee, and transparent on the estimated
impact of the proposals on the total target
remuneration of the Chief Executive and Chief
Financial Officer. This is approximately 6% and
2% respectively, excluding an inflationary pay
increase which we also confirmed would apply
to both.
The discussions were constructive, and whilst
some investors raised queries with certain aspects of
the proposals (for example, seeking assurance that
the new LTIP performance targets will be sufficiently
stretching), the clarity with which the proposals were
presented was welcomed, and investors generally
understood why they were felt to be necessary.
The increased shareholding guidelines, additional
holding period and the introduction of clawback,
in particular, received strong support. As a result of
concerns expressed by some investors, we made a
key revision to our proposal on the proportion of the
LTIP award vesting for in-line performance, which we
have reduced from our original proposal of 25% of
the total award to 20%.
The conclusion of the consultation process was
that all of the shareholders who responded indicated
their intention to support the proposals at this year’s
AGM. I hope that all shareholders will feel able to
support the proposals, on the basis that they are
sufficiently well explained, and help to achieve the
objectives outlined above.
Performance over the year
Whilst the Committee has been engaged on the
revisions to our remuneration framework, the teams
within the business have been actively focused on
meeting the continued demand for space in the right
locations across the Group’s portfolio. The Board is
confident that we are making the right decisions to
deliver superior returns to shareholders through the
property cycle.
Details of member appointments and biographies,
and full attendance at Committee meetings held
during the year, appear on pages 40, 41 and 44,
respectively.
The Committee’s terms of reference are available on
the Company’s website at www.landsecurities.com
Governance
Land Securities Annual Report 2015
059
In aggregate, therefore, the 2012 awards will vest at
84.7% of the maximum. This compares to a 62.5%
vesting last year in respect of the 2011 LTIP awards.
Focus during the year
As described above, the main focus of the
Committee’s work over the year has been on the
management of the proposed changes to the
executive remuneration structure, and the
consultation process with shareholders. In reaching
agreement on what should be presented to
shareholders, active discussion took place at every
stage, including over a number of alternatives
considered and discarded.
The Committee has also overseen the work
conducted by the executive team to review the
annual bonus arrangements for the Group as a
whole, although this work does not directly impact
the bonus structure for Executive Directors. The
members of the Committee were very keen to
ensure that these new arrangements would drive
the right behaviours and activities from employees
at all levels in the organisation and, in particular,
would align the interests of the senior management
below the Board with those of shareholders.
As part of its executive remuneration review,
the Committee also focused on the external
benchmarking of base pay for the two Executive
Directors, and for other key members of the
Executive Committee. It examined carefully the data
provided from external sources before concluding
that a 4% increase was justified for Robert Noel, over
and above a standard inflationary pay increase for
this year of 2%. This review was planned and
committed to at the time of his appointment in 2012
and took into account the performance of the Group
versus its peers and his total pay relative to other
chief executives in the sector. An inflationary
increase of 2% has been awarded to Martin
Greenslade.
Looking forward
I am confident that the changes we have proposed,
as reflected in the new Remuneration Policy, will
ensure that the leaders of Land Securities remain
focused on delivering superior returns for
shareholders. Whilst they continue to be stretching,
the revisions to the performance criteria and targets
should also provide a better reflection of relative
performance. Actions such as the introduction of the
post-vesting holding period, the increase in the
shareholding guidelines and the tightening of the
malus and clawback provisions, will all contribute
to a longer-term focus from the team on behalf of
shareholders. This will be critical in the context of the
cyclical and changing nature of our core markets.
Simon Palley
Chairman, Remuneration Committee
Annual bonus
With specific focus on the year under review, our
teams have produced an outstanding performance
against the annual bonus plan measures which can
be summarised as follows:
• our measure of Total Property Return versus the
market (using the IPD Quarterly Index weighted to
the sectors in which the Group is invested) has
been a tough challenge, due to the continued
outstanding performance of small central London
lot sizes which make up the majority of the London
Offices part of the index. This puts into perspective
that our Total Property Return of 23.3% (adjusted
for trading properties and the capital and income
extracted from Queen Anne’s Gate, SW1, through
a bond issue in 2009), representing a 3.1%
outperformance against the index, is an excellent
achievement;
• revenue profit has remained robust, up 3.0% on
last year at £329.1m against a backdrop of the
disposal of some weaker higher yielding assets,
combined with the income from the development
programme not yet coming into full effect. The
team has remained focused on development
lettings, keeping control of voids, and disciplined
management of both recoverable and non-
recoverable costs; and
• the team has also delivered an impressive
performance against the key business targets
agreed at the beginning of the year, including
record levels of office development lettings in
London and strong progress in pre-letting our
proposed shopping centres in Oxford and Glasgow.
We only fell short on one planning milestone in
the year. It was also very pleasing to see the
achievement of the target of securing employment
for 125 young people through our Community
Employment Programmes.
This all-round excellent performance has created
bonus outturns which are higher than last year.
Long-Term Incentive Plan (LTIP)
Turning to the LTIP and the share awards granted in
2012 that vest in July this year, we have performed
very well against the two relative measures, each of
which makes up a maximum of 50% of the total
award. As I said last year, relative measures mean
that even in a year when profits are high, the rewards
from the LTIP may be low if our competitors have
performed more strongly. Equally, in very tough
market conditions, the rewards could be higher
when outperformance has been significant, even if
absolute returns are lower. In relation to the 2012
LTIP awards:
• against a very tough IPD benchmark, as described
above, we outperformed the Total Property
Return over the three year performance period to
31 March 2015 by 1.0% per annum, and therefore
this portion of the award will vest in full (50% of
the total); and
• in relation to Total Shareholder Return, our
performance has also been strong over the same
three year period with 2.3% per annum
outperformance versus the comparator group.
This means that 69.4% of this portion of the award
will vest (34.7% of the total).
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Summary of main changes proposed to the current executive remuneration structure
(Unaudited) Table 29
Current position
Proposed change
Rationale for change
• Simplification of the long-term incentives into one plan, the LTIP. Some
shareholders had previously objected to the MSP on the basis that it
added too much complexity
• The MSP is being retained for Senior Management to encourage them
to increase their shareholdings in the Company and to act as a retention
tool.
Matching Share Plan (MSP)
• Executives receive an annual award of Land
• Executives will no longer participate in the MSP but will
instead, on a compensatory basis, receive an increased award
under the new LTIP.
Securities shares equal to 150% of base salary
(subject to the maximum investment being
made), with the same performance measures
and weightings as the LTIP.
Long-Term Incentive Plan (LTIP)
• Executives receive an annual award of
Land Securities shares equal to 150% of
base salary.
• Annual awards will increase from a maximum of 150% to 300%
• Increase reflects the loss of MSP awards in the future
of base salary
• An additional holding period of two years (which also applies
• The additional holding period is in line with the best practice
post-employment) will be introduced following the expiry of the
three-year performance vesting period.
expectations of investors and encourages a long-term focus by the
Executives.
• 50% of the total award is tested against relative
Total Shareholder Return (TSR) and 50% against
Total Property Return (TPR) performance.
• No change.
• TSR – the proportion of the award vesting for
• Reduce to 20%
in-line performance is set at 30%
• The relative outperformance target for
• Reduce to 3% per annum.
maximum vesting is currently 4% per annum.
• TPR – the proportion of the award vesting for
• Reduce to 20%
in-line performance is set at 25%
• The benchmark is currently weighted to the
largest sectors within the Company’s portfolio
• Widening the benchmark to include all March-valued properties,
increasing the total benchmark value from £70bn to £145bn,
thereby including a much broader range of commercial property
• 1% per annum outperformance over the
• No change.
three- year performance period for maximum
vesting.
• TSR and TPR are the performance metrics most closely aligned to the
interests of shareholders
• Other measures, such as relative net asset value performance, were
considered but discarded as they were not sufficiently robust to give a
true reflection of relative performance.
• The reduction in the proportion of the award vesting for in-line
performance will incentivise a focus on outperformance
• The Group has delivered very strong TSR performance in the past three
years and this has not been properly reflected in the LTIP vesting outturns
• A target of 3% outperformance per annum is broadly consistent with an
upper quartile performance over the last ten years.
• The reduction in the proportion of the award vesting for in-line
performance will incentivise a focus on outperformance
• The broader index is much larger and includes properties owned by
more comparable organisations
• As it is not sector weighted, the new benchmark measures the decisions
taken by management to invest (or not) in all sub-sectors of commercial
property
• The target of 1% outperformance per annum is broadly consistent with
upper quartile fund performance versus the IPD benchmark.
Annual bonus
• Maximum bonus opportunity of 150% of base
salary, with a target expected value of 90% of
base salary (i.e. 60% of maximum)
• Company performance measure versus IPD
benchmark
• Reduce the target expected value to 75% of salary (i.e. 50% of
maximum) and require the achievement of more stretching
targets to achieve the same outturns, in particular for revenue
profit
• The benchmark for this element of the bonus will change to
match the one proposed for the LTIP (as above), including a
payment for in-line performance
• The reduction in the target bonus level will help to ensure that
payments are commensurate with performance
• Alignment of the measure of TPR with the LTIP aids simplicity
• The TPR measure is still considered very challenging and therefore it is
appropriate to award a small proportion for matching the benchmark,
thereby ensuring that it retains focus by management and employees.
• Deferred element.
• No change.
Shareholding requirements and clawback
• Current shareholding requirements (to be
achieved normally within five years of
appointment):
• Chief Executive – 200% of base salary
• Chief Financial Officer – 150% of base salary
• Increase to 250% of base salary
• Increase to 200% of base salary
• Existing malus provisions permit recovery from
unvested awards.
• Extending recovery provisions for monies paid under the annual
bonus plan and awards vested under the LTIP in the event of
material misstatement, fraud or gross misconduct. These
provisions will remain active for two years post payment
or vesting.
• The increases and extensions are in line with current investor sentiment
and encourages closer alignment between the interests of the
Executives and shareholders
• As part of the shareholder consultation process we agreed to review the
shareholding guidelines again at the same time as the Remuneration
Policy is next reviewed, likely to be in 2018.
Chief Executive’s base salary
• Set at 95% of median on appointment in 2012.
Since then, increases have been at the annual
rate of pay increase for employees generally.
• Increase base salary by 4% (plus an inflationary increase of 2%)
• The change recognises the increase in the Chief Executive’s
with effect from 1 June 2015.
responsibilities (the number of Executive Directors has reduced from
four to two), and success in the role since appointment
• The increase also reflects a competitive positioning versus a market
benchmarking exercise undertaken.
Land Securities Annual Report 2015
3. Considerations when determining the
remuneration policy
The Committee’s primary objective when setting the
remuneration policy is to provide competitive pay
arrangements which promote the long-term success
of the Company. To achieve this, the Committee
takes account of the responsibilities, experience,
performance and contribution of the individual, as
well as levels of remuneration for individuals in
comparable roles elsewhere. The Committee also
takes into account the views expressed by
shareholders and institutional investors’ best
practice expectations, and monitors developments
in remuneration trends. The Policy places significant
emphasis on the need to achieve stretching and
rigorously applied performance targets, with a
significant proportion of remuneration weighted
towards performance-linked variable pay.
The Company does not formally consult with
employees on executive remuneration. However,
when setting the remuneration policy for Executive
Directors, the Committee takes into account the
overall approach to pay and employment conditions
elsewhere in the Group. Salary increases for the
Executive Directors will not typically exceed
(in percentage of salary terms) those of the
wider workforce.
061
4. Consideration of shareholder views
The Committee’s objective is to maintain strong
relationships with shareholders and shareholder
bodies and to encourage them to share their
thoughts with us. The Committee values investors’
views in the process of formulating remuneration
policy decisions and has consulted extensively with
major shareholders in setting the Policy. The
Committee will continue to spend time each year
considering feedback received at the AGM and
throughout the year as part of the ongoing review
of policy. We are very grateful for the time and
assistance shareholders give us.
As described in the Remuneration Committee
Chairman’s Annual Statement, the Committee
undertook a comprehensive review of the current
executive remuneration policy during the year, to
ensure it remains appropriate and fit for purpose
in light of both the Company’s strategy and
developments in best practice expectations of
investors. In doing so, it has engaged with
shareholders holding more than 50% of the
Company’s shares, as well as the leading shareholder
advisory organisations. The key changes to the
Policy resulting from the review are as follows:
• simplification of the long-term incentive
arrangements with the discontinuation of the
Matching Share Plan (MSP)
• the maximum award limit under the new
Long-Term Incentive Plan (LTIP) will be 300% of
salary (the same as the normal combined award
under the previous LTIP and MSP)
• some adjustments have been made to the
performance targets and criteria within the LTIP
• introduction of a two-year holding period for
shares post vesting under the new LTIP
• strengthening of the recovery and withholding
provisions in the annual bonus plan and LTIP
• a reduction in the target value of the annual bonus
plan to 50% of maximum (from 60%)
• an increase of 50% of salary to the share ownership
guideline levels for Executive Directors.
DIRECTORS’
REMUNERATION
POLICY REPORT
Introduction to the Policy Report
1.
This part of the Directors’ Remuneration Report sets
out the remuneration policy for the Company and
has been prepared in accordance with The Large and
Medium-sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013. The
Policy has been developed taking into account the
principles of the UK Corporate Governance Code
(Code) and the views of our major shareholders.
The Policy Report will be put to a binding shareholder
vote at the Annual General Meeting (AGM) on
23 July 2015 and the new Policy will take formal
effect from the date of approval (replacing the
previous policy approved by shareholders at the 2014
AGM). It is intended that the Policy will be in force for
a period of three years from the date of approval.
2. The role of the Remuneration Committee
in setting policy
The Committee is responsible for:
• engaging with shareholders with regard to
remuneration and ensuring that their views are
taken into account when setting policy
• determining the overall strategy for the
remuneration of Executive Directors and Senior
Management
• ensuring the policy is aligned with, and promotes
the delivery of the Company’s strategy
• ensuring the outturn of performance metrics
reflects the performance of the business
• determining the individual remuneration packages
for Executive Directors and Executive Committee
members
• overseeing any significant changes to employee
remuneration across the Group
• approving the design of performance-related
incentive plans
• overseeing the operation of all incentive plans and
awards and determining whether performance
criteria have been met in confirming vesting or
maturity.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
062
5. Remuneration policy
5.1 Summary of the individual elements of the remuneration package offered to Executive Directors
Remuneration policy
(Unaudited) Table 30
Purpose and link to strategy
Operation
Opportunity
Discretion
Base salary
• To aid the
recruitment, retention
and motivation of
high performing
Executives
• To reflect the value
of their experience,
skills, knowledge
and importance to
the business.
• Reviewed annually, with effect from 1 June, and reflects:
– Increases throughout the rest of the business
– Market benchmarking exercise undertaken periodically to
ensure salaries are set at around the median of the market
competitive level for people in comparable roles with similar
levels of experience, performance and contribution
– Changes in the scope of a Director’s role may also require a
further adjustment to salary.
Benefits
• To provide protection
• Directors receive a combination of:
and market
competitive benefits
to aid recruitment and
retention of high
performing Executives.
– Car allowance
– Private medical insurance
– Life assurance
– Ill health income protection
– Holiday and sick pay
– Professional advice in connection with their directorship
– Travel, subsistence and accommodation as necessary
– Occasional gifts, for example appropriate long service or
leaving gifts.
• For 2015/16, the annual base salaries of
the Executive Directors are £753,596
(Chief Executive), and £490, 549 (Chief
Financial Officer), representing a 6% and
2% increase respectively
• The maximum annual salary increase will
not normally exceed the average increase
across the rest of the workforce (2015/16
3%). Higher increases will be exceptional,
and made in specific circumstances,
including:
– Increase in responsibilities or scope of
the role
– To apply salary progression for a newly
appointed Director
– Where the Director’s salary has fallen
below the market positioning.
• The value of benefits may vary from year
to year depending on the cost to the
Company.
• The Committee has the
discretion to determine
the precise amount of
base salary within the
Policy, including
approving the salary for
a newly-appointed
Director. It will also
determine whether
there are specific
reasons to award salary
increases greater than
those for the wider
workforce.
• The Policy will always
apply as stated, unless
there are specific
individual
circumstances why
it should not.
Pension
• To help recruit and
• Participation into a defined contribution pension scheme or
• Directors receive a pension contribution
• The Policy will apply
cash equivalent.
or cash allowance of 25% of salary.
as stated.
retain high performing
Executives
• To reward continued
contribution to the
business by enabling
Executive Directors
to build retirement
benefits.
Land Securities Annual Report 2015
Remuneration policy continued
Purpose and link to strategy
Operation
Opportunity
Discretion
063
(Unaudited) Table 30
Annual bonus
• To incentivise the delivery of
stretching, near-term business
targets and personal
performance objectives
• All measures and targets are reviewed and set by the
Board at the beginning of the year and payments are
determined by the Committee after the year end, based
on performance against the targets set
• To reward near-term
outperformance relative to
industry benchmarks
• Specific measures and targets,
for example successful
planning applications and
asset management initiatives,
will provide future
opportunity for the business
and will increase the value of
our properties in the short
term
• Other KPIs, such as
development lettings targets,
are likely to have a significant
impact on capital growth
and long-term revenue profit
performance
• The ability to recognise
performance through variable
remuneration enables the
Group to control its cost base
flexibly and react to events
and market circumstances
• Deferral of a portion of annual
bonuses into shares
encourages a longer-term
focus aligned to shareholders’
interests and discourages
excessive risk-taking.
• Specific measures and targets will be set each year, but
will always include a measure of Total Property Return
versus that of the market
• Other measures and targets will reflect the most critical
business performance indicators for the year ahead, and
will be both specific and measurable. Revenue Profit
performance will always feature as a key measure
• The achievement of on-target performance should result
in a payment of 50% of the maximum opportunity
(i.e. 75% of salary)
• A small proportion (no more than 20% of base salary) of a
Director’s bonus is based on the Committee’s assessment
of the achievement of pre-set personal performance
objectives
• The structure of the plan incentivises outperformance by
ensuring that the threshold targets are stretching
• Bonuses up to 50% of salary are paid in cash
• Any amounts in excess of 50% of salary are deferred into
shares for one year
• Any amounts in excess of 100% of salary are deferred into
shares for two years
• Deferred shares are potentially forfeitable if the Executive
leaves prior to the share release date
• Bonus payments are not pensionable
• Withholding and recovery provisions (malus and
clawback) apply where any overpayment was made as
a result of a material misstatement of the Company’s
results or a performance condition, or where there has
been fraud or gross misconduct, whether or not this
caused the overpayment.
Long-Term Incentive Plan (LTIP)
• Incentivises value creation
• The Committee may make an annual award of shares
over the long term in excess of
that created by general
market increases
• Rewards execution of our
strategy and the long-term
outperformance of our
competitors
• Aligns the long-term interests
of Directors and shareholders
• Promotes retention.
under the LTIP
• Vesting is determined on the basis of the Group’s
achievements against stretching performance targets
over a fixed three year period and continued employment.
There is no re-testing
• The Committee reviews the measures, their relative
weightings and targets prior to each award
• The measures selected are relative and directly aligned to
the interests of shareholders. 50% of an award is weighted
to a measure of Total Property Return versus the industry
benchmark over a three year period and 50% to Total
Shareholder Return versus our listed comparator group
over a three year period
• For each measure, no awards vest for performance below
that of the benchmark. Only a proportion (20%) will vest
for matching the performance of the benchmark and
significant outperformance is required for the maximum
award to vest
• Awards will be satisfied by either newly issued shares or
shares purchased in the market and any use of newly
issued shares will be subject to the dilution limits
contained in the plan rules or approved by shareholders
• Executive Directors are required to hold vested shares for
a further two years (including post employment)
following the three year vesting period expiry
• Withholding and recovery provisions (malus and
clawback) apply where any overpayment was made as
a result of a material misstatement of the Company’s
results or a performance condition or where there has
been fraud or gross misconduct, whether or not this
caused the overpayment.
• Minimum bonus
payable is 0% of
salary
• Maximum bonus
potential is 150%
of salary.
• Normal and current
award policy limit is
300% of salary.
• The Committee has the discretion to set
targets and measures each year
• The outturns for the Group element of the
bonus plan are calculated formulaically and
therefore the Committee has no discretion
to adjust these, unless it feels it is necessary
to adjust them down
• The Committee does have the discretion to
award appropriate bonus payments under
the individual element (maximum 20% of
base salary) to reflect the performance and
contribution of an individual Director
• Within the Policy, the Committee will retain
flexibility including:
– When to make awards and payments
– How to determine the size of an award,
a payment, or when and how much of
an award should be payable
– Who receives an award or payment
– Whether a departing Director should
receive a bonus and whether and what
proportion of awards should be paid at the
time of leaving or at a subsequent date
– Whether a departing Director should be
treated as a ‘good leaver’ in respect of
deferred bonus shares
– How to deal with a change of control or
any other corporate event which may
require adjustments to awards
– To determine that no bonus, or a reduced
bonus, is payable where the performance
of the business has been poor,
notwithstanding the achievement of
objectives.
• The outturns of the LTIP are calculated
formulaically and therefore the Committee
has no discretion to adjust these, unless it
determines they should be adjusted down.
• Within the Policy, the Committee will retain
flexibility including:
– When to make awards and payments
– How to determine the size of an award,
a payment, or when and how much of an
award should vest
– Who receives an award or payment
– Whether a departing Director is treated
as a ‘good leaver’ for the purposes of the
LTIP and whether and what proportion of
awards vest at the time of leaving or at a
subsequent vesting date
– How to deal with a change of control or
any other corporate event which may
require adjustments to awards.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
064
Remuneration policy continued
(Unaudited) Table 30
Purpose and link to strategy
Operation
Opportunity
Discretion
Savings Related Share Option Scheme (SAYE Scheme)
• To encourage all employees to
make a long-term investment
in the Company’s shares,
through a savings-related
arrangement.
• All employees, including Executive Directors, are entitled
• The maximum
to participate in the SAYE Scheme operated by the
Company in line with UK HMRC guidelines currently
prevailing.
participation levels
may vary in line
with HMRC limits.
For 2015/16,
participants may
save up to £500 per
month for either
three and/or five
years, using their
accumulated
savings at the end
of the period to
purchase shares at
a 20% discount to
the market price at
the date of grant.
Share ownership guidelines
• To provide close alignment
between the longer-term
interests of Directors and
shareholders in terms of the
Company’s growth and
performance.
• Executive Directors are expected to build up and
maintain shareholdings in the Company with a value
set at a percentage of base salary:
– Chief Executive – 250% of salary
– Other Executive Directors – 200% of salary
These levels are normally required to be achieved within
five years of appointment in order to qualify for future
long-term incentive awards. Deferred or unvested share
awards not subject to performance conditions may count
towards the ownership levels on a net-of-tax basis.
• The Policy will apply as stated
• Within the Policy, the Committee will retain
the flexibility to determine whether a
departing Director should be treated as
a ‘good leaver’.
• In exceptional circumstances, the
Committee may extend the period by which
share ownership levels are required to be
achieved by up to two years.
5.2 Previous arrangements
For the avoidance of doubt, in approving this Policy
Report, authority is sought by the Company to
honour any outstanding commitments (subject to
existing terms, conditions and plan rules as applicable)
entered into with current or former Directors that
have been disclosed to shareholders in previous
remuneration reports. Details of any payments to
former Directors will be set out in the Annual Report
on Remuneration for the year in which they arise.
5.3 Discretion
The Committee will operate within the Policy at
all times. It will also operate the various plans and
schemes according to their respective rules and
consistent with normal market practice and the
Listing Rules (as applicable). Within the Policy, the
Committee will retain the discretion to look at
performance ‘in the round’, including withholding, or
deferring payments in certain circumstances where
the outcomes for Directors are clearly misaligned
with the outcomes for shareholders. Any specific
circumstances which necessitate the
use of discretion will always be explained clearly
in the following Annual Report on Remuneration.
(Please see the previous table for more detail on
the discretion allowed for each element of the
reward package.)
Land Securities Annual Report 2015
6. Fixed and variable pay reward scenarios
6.1 Total opportunity at maximum and target levels
Our aim is to ensure that superior rewards are only paid for exceptional performance, with a substantial proportion of Executive Directors’ remuneration payable
in the form of performance-related pay. The charts that follow illustrate the remuneration opportunity provided to each Executive Director at different levels of
performance for the coming year.
065
Robert Noel
Chief Executive
Chart 31
Martin Greenslade
Chief Financial Officer
Chart 32
£4,356,000
£2,660,000
£5,000,000
£4,500,000
£4,000,000
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
£963,000
£5,000,000
£4,500,000
£4,000,000
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
£2,843,000
£1,738,000
£633,000
Fixed pay
On target
Maximum
Fixed pay
On target
Maximum
Fixed pay Annual bonus Long-term incentives
Fixed pay Annual bonus Long-term incentives
Fixed pay 22%; Annual bonus 26%; and Long-term incentives 52%
(percentages are of the maximum).
Maximum value does not include share price movement between
grant and vesting of long-term incentives.
Fixed pay 22%; Annual bonus 26%; and Long-term incentives 52%
(percentages are of the maximum).
Maximum value does not include share price movement between
grant and vesting of long-term incentives.
In developing the above scenarios, the following assumptions have been made:
Fixed and variable pay assumptions
(Unaudited) Table 33
Fixed pay
• Consists of the latest base salary, benefits and pension allowances
• Pension allowance calculated at 25% of new base salary.
Robert Noel, Chief Executive
Martin Greenslade, Chief Financial Officer
On-target award
Based on what a Director would receive if performance was in line with expectations:
• Annual bonus pays out at 50% of the maximum
• LTIP vests at 50% of the total award.
Maximum award
• Annual bonus pays out in full
• LTIP vests in full.
Base
(£000)
Benefits
(£000)
Pension
(£000)
754
491
20
19
189
123
Outturn
Total fixed
(£000)
963
633
6.2 Payment schedule
The following table illustrates in which financial years the various payments in the above charts are actually made/released to Executive Directors. The table assumes
that the annual bonus payment is equivalent to at least 100% of salary.
Payment schedule
Financial year
• Element of
remuneration received.
Base year
• Base salary
• Benefits
• Pension.
Base year +1
Base year +2
Base year +3
Base year +5
(Unaudited) Table 34
• The annual bonus
• The first deferred
targets are measured
and the first portion of
the annual bonus (up
to 50% of salary) is
paid in cash. The
remainder is paid in
shares and deferred.
portion of the annual
bonus (between 50%
and 100% of salary) is
released as shares.
• The final portion of the
annual bonus (awards
in excess of 100% of
salary) is released as
shares
• LTIP share awards vest
but remain subject
to a two year holding
period.
• Holding period on LTIP
shares ends.
Annual bonus (cash and deferred shares) and vested and unvested LTIP shares are subject to withholding and
recovery provisions.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance 7.4 Chairman and Non-executive Director
Letters of Appointment
The Chairman and the Non-executive Directors do
not have Service Agreements with the Company.
Each of them has a Letter of Appointment which
sets out the terms of their appointment. The
appointment of a Chairman or Non-executive
Director can be terminated, by either party, upon
three months’ prior written notice. The dates of the
current Letters of Appointment of the Non-executive
Directors are shown in the Annual Report on
Remuneration and the Letters are available for
inspection at the Company’s registered office.
On appointment, the fee arrangements for
Non-executive Directors would be set in accordance
with the approved remuneration policy in force at
that time.
066
7. Directors’ Service Agreements and Letters
of Appointment
7.1 Service Agreements – Executive Directors
The Executive Directors have Service Agreements
with the Company which normally continue until
the Director’s agreed retirement date or such other
date as the parties agree. In line with Group policy,
the Executive Directors’ employment can be
terminated by either party on giving 12 months’
prior written notice.
The Company allows Executive Directors to
hold external non-executive directorships subject
to the approval of the Board, and to retain fees from
these roles.
7.2 Termination provisions – Executive Directors
An Executive Director’s Service Agreement may be
terminated without notice and without further
payment or compensation, except for sums earned
up to the date of termination, on the occurrence
of certain events such as gross misconduct. The
circumstances of the termination (taking into
account the individual’s performance) and an
individual’s opportunity to mitigate losses are taken
into account by the Committee when determining
amounts payable on termination, including pay in
lieu of notice. The Group’s normal approach is to
stop or reduce compensatory payments to former
Executive Directors when they receive remuneration
from other employment during the compensation
period. The Company does not make any
arrangements that guarantee pensions with limited
or no abatement on severance or early retirement.
There are no special provisions for Executive
Directors with regard to compensation in the event
of loss of office.
Any share-based entitlements granted under the
Company’s share plans will be determined on the
basis of the relevant plan rules. The default position is
that any outstanding unvested awards automatically
lapse on cessation of employment. However,
under the rules of the LTIP, in certain prescribed
circumstances such as redundancy, disability,
retirement, or other circumstances at the discretion
of the Committee (taking into account the
individual’s performance and the reasons for their
departure), ‘good leaver’ status can be applied. For
example, if an Executive’s role has effectively been
made redundant, and there are no significant
performance issues, the Committee is likely to look
favourably on the granting of some ‘good leaver’
provisions. However, if an Executive has resigned for
a similar role in a competitor organisation, then such
provisions are extremely unlikely to apply. Where
‘good leaver’ provisions in respect of share awards
are deemed to be appropriate, a participant’s awards
should vest on a time pro-rata basis subject to the
satisfaction of the relevant performance criteria with
the balance of the awards lapsing. The Committee
retains discretion to decide not to pro-rate if it is
inappropriate to do so in particular circumstances.
For the avoidance of doubt, if the termination of
employment is not for one of the specified reasons,
and the Committee does not exercise its discretion
to allow an award to vest, all outstanding awards
lapse.
7.3 Policy on the remuneration of newly
appointed Executive Directors
The remuneration package for a new externally-
appointed Executive Director would be set in
accordance with the terms of the Company’s
approved remuneration policy in force at the time
of appointment. The Policy, as described above, on
base salary will apply, but the Committee has the
flexibility to set the salary of a new hire at a discount
to the market level initially, with a series of planned
increases (subject to performance in the role)
implemented over the following few years to bring
the salary to the desired positioning. Only in very
exceptional circumstances will the salary of a newly
appointed Director exceed the market median
benchmark for the role.
The annual bonus would operate in accordance
with the terms of the approved policy, albeit with the
opportunity pro-rated for the period of employment
in the first year. Depending on the timing and
responsibilities of the appointment, it may be
necessary to set different performance measures
and targets initially. The LTIP would also operate in
accordance with the Policy. The maximum level of
variable pay that may be offered to a new Executive
Director is thus at an aggregate maximum of 450%
of salary. This limit does not include the value of
any buy-out arrangements deemed appropriate
(see below).
In addition to the elements of the remuneration
package covered by the Policy, the Committee
may ‘buy-out’ certain existing remuneration of an
incoming Executive Director through the offer of
either additional cash and/or share-based elements
(on a one-time basis or ongoing) when it considers
these to be in the best interests of the Company.
Any such payments would be based solely on
remuneration lost when leaving the former employer
and would take into account the existing delivery
mechanism (i.e. cash, shares, options), time horizons
and performance conditions.
In the case of an internal appointment, any
variable pay element awarded in respect of the
prior role would be satisfied according to its terms,
adjusted as relevant to take into account the
appointment. In addition, any other ongoing
remuneration obligations existing prior to
appointment would continue, provided that they
are put to shareholders for approval at the earliest
opportunity.
For external and internal appointments, the
Committee may agree that the Company will meet
certain relocation expenses, on a one-time basis, as
appropriate. Where a Director is recruited from
overseas, flexibility is retained to provide benefits
that take account of market practice in their country
of residence. The Company may offer a cash amount
on recruitment, payment of which may be staggered
over a period of up to two years, to reflect the value
of benefits a new recruit may have received from a
former employer.
Shareholders will be informed of the
remuneration package and all additional payments
to newly appointed Directors at the time of their
appointment.
Land Securities Annual Report 2015 8. Non-executive Director remuneration policy
Non-executive Director remuneration policy
Purpose and link to strategy
Operation
Base fee
067
Opportunity
(Unaudited) Table 35
• To aid the recruitment, retention
• The Chairman is paid a single fee for all Board duties and the
• The current fees for Non-executive Directors are shown in
and motivation of high performing
Non-executive Directors
other Non-executive Directors receive a basic Board fee, with
supplementary fees payable for additional responsibilities
• To reflect the time commitment
given by Non-executive Directors
to the business.
• Reviewed (but not necessarily changed) annually by the Board,
having regard to independent advice and published surveys
• The Chairman’s fee is also reviewed by the Board rather than the
Remuneration Committee.
the Annual Report on Remuneration
• Non-executive Director fees are typically reviewed annually
but increased every two to three years
• Any increases reflect relevant benchmark data for
Non-executive Directors in companies of a similar size and
complexity, and the time commitment required.
Additional fees
• To reflect the additional time
commitment required from
Non-executive Directors in chairing
various Board Committees or
becoming the Board’s Senior
Independent Director.
Other incentives and benefits
• Reviewed (but not necessarily changed) annually by the Board,
having regard to independent advice and published surveys.
• The opportunity depends on which, if any, additional roles
are assumed by an individual Director over the course of
their tenure
• Any increases reflect relevant benchmark data for
Non-executive Directors in companies of a similar size
and complexity, and the time commitment required.
• Non-executive Directors do not receive any other incentives
or benefits beyond the fees noted above. Expenses in relation
to Company business will be reimbursed
• If deemed necessary, and in the performance of their duties,
Non-executive Directors may take independent professional
advice at the Company’s expense.
n/a
Share ownership guidelines
• To provide close alignment between
• The current share ownership guidelines require Non-executive
the longer-term interests of
Directors and shareholders in terms
of the Company’s growth and
performance.
Directors to own shares in the Company with a value of 100% of
annual fees within three years of appointment.
9. Group-wide remuneration
9.1 Base pay
The average base salary increase awarded across
the workforce provides a key reference point when
determining levels of increase for the Executive
Directors. In setting the pay budget for the wider
workforce, the Committee reviews data on pay
settlements within the UK economy, the rate of
inflation and pay rates for equivalent roles in similar
companies. Executive Directors generally receive an
increase equivalent to the average, unless there has
been a change in scope or responsibilities, significant
development of an individual into the role, or there is
a specific market reason for a different level of award.
9.3 Other employees
Other employees are also entitled to participate in
the Company’s annual bonus plan, and are also
eligible to be considered for an award from a
discretionary bonus pool of £1.0m, with awards
typically made to no more than 10% of the Group’s
employees. The awards are usually not more than
30% of base salary and are made on the basis of an
exceptional single achievement or outstanding
all-round performance.
In addition, all employees are entitled to receive
private health insurance, life assurance, and a travel
season ticket loan. They can also participate in the
Company’s Savings Related Share Option Scheme,
under which invitations are normally made annually.
An Executive Share Option Plan is open to those
management staff not eligible to participate in
the LTIP.
9.2 Senior management
In addition to the Executive Directors, there are
five members of the Executive Committee (who
report into the Chief Executive), namely the two
Managing Directors for London and Retail, the Group
Human Resources Director, the Group General
Counsel and Company Secretary, and the newly
appointed Director of Corporate Affairs and
Sustainability. There is also a group of 15 managers at
the level below the Executive Committee considered
to be part of ‘senior management’. None of these
managers receive a salary or total remuneration
package which is higher than those paid to the
Executive Directors. The structure of their
remuneration packages, including LTIPs and annual
bonuses, is broadly consistent with that of Executive
Directors, albeit at a lower quantum. However, we
have also chosen to retain a matching share
arrangement for this group, in the interests of
encouraging share ownership and as a retention tool.
Senior management below the Board may be given
the opportunity to purchase shares up to a certain
value (normally 12.5% to 37.5% of gross base salary),
and these will then be matched by the Company on
a 2:1 basis. Matching awards are subject to the same
performance conditions as exist under the LTIP.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
1. Dates of appointment for Directors
Name
Executive Directors
Robert Noel
Martin Greenslade
Non-executive Directors1
Dame Alison Carnwath
David Rough (stepped down on 18 July 2014)
Kevin O’Byrne
Chris Bartram
Simon Palley
Stacey Rauch
Edward Bonham Carter
Cressida Hogg
(Unaudited) Table 36
Date of appointment
Date of current contract
1 January 2010
23 January 2012
1 September 2005
9 May 2013
1 September 2004
2 April 2002
1 April 2008
1 August 2009
1 August 2010
1 January 2012
1 January 2014
1 January 2014
13 May 2015
29 April 2004
13 May 2015
13 May 2015
13 May 2015
13 May 2015
13 May 2015
13 May 2015
1. Letters of Appointment for the Non-executive Directors have recently been amended in line with the UK Corporate Governance Code and
best practice, including the extension of notice periods to three months from either party.
068
DIRECTORS’
REMUNERATION
REPORT – ANNUAL
REPORT ON
REMUNERATION
The Annual Report on Remuneration
describes how we intend to apply the
proposed new policy for the financial year
ahead (from 1 April 2015 to 31 March 2016)
and how the current policy has been applied
for the financial year ended 31 March 2015,
including all payments made or accruing to
Directors in connection with the year.
During the course of the year, the Committee was
engaged with a number of key matters, including:
• shaping the revisions to the Remuneration Policy
described in the previous section, and sharing these
with investors and the key advisory bodies
• overseeing revisions to the annual bonus
arrangements for the Group as a whole, which are
now more aligned with the arrangements for
Executive Directors
• determining salary increases for Executive
Directors and Executive Committee members,
together with overall levels of salary increases
across the Group
• setting and subsequently reviewing the outcomes
for business unit and personal targets under the
annual bonus plan for Executive Directors and
Executive Committee members
• reviewing the outcomes for achievement against
the performance conditions of the Long-Term
Incentive Plan (LTIP) and Matching Share Plan
(MSP)
• determining proposed share incentive awards
to Executive Directors, Executive Committee
members and senior leaders
• determining Directors’ compliance with the
Company’s share ownership guidelines.
Land Securities Annual Report 2015 069
2. The application of policy for the year ahead
This section sets out how we intend to apply our Remuneration Policy over the course of the financial year commencing 1 April 2015.
2.1 Directors’ salaries
On his appointment in March 2012, Robert Noel was informed that his salary would be reviewed after two to three years in post depending on satisfactory
performance. At that time, his salary was set at around 95% of the median benchmark considered for similar sized real estate and utility companies and at around
80% of the median benchmark considered for similar sized pan-sector (FTSE 100) companies. The Committee therefore determined that it was appropriate to
undertake a peer group benchmarking exercise this year for both Executive Directors. The benchmarking analysis was conducted in consultation with the Committee’s
independent remuneration advisers, New Bridge Street, and the following key points were noted by the Committee:
• total remuneration was assessed on the basis of on-target pay rather than on the basis of actual amounts of pay awarded in the year, given the volatility of outturns
• total remuneration was defined as base salary, value of pension and benefits, on-target bonus and theoretical ‘expected value’ of long-term incentives
• data was examined for two peer groups using information sourced from publicly available data: a ‘Sector Group’ comprising all FTSE 350 real estate companies
(excluding estate agencies) and a ‘FTSE General Group’ comprising companies of a comparable market capitalisation to Land Securities
• the Chief Executive was benchmarked against the higher paid of the Chief Executive and (full-time) Executive Chairman and the Chief Financial Officer was
benchmarked against other Chief Financial Officers.
In reviewing the Chief Executive’s salary, and in addition to the benchmarking data, the Committee took into account Robert Noel’s success in post, and the increase
in his executive responsibility arising from a reduction in the number of Executive Directors from four, immediately prior to his appointment in 2012, to two in 2014.
It therefore proposed an increase of 4% to his base salary, in addition to a standard inflationary award of 2%. This increase is consistent with the Committee’s overall
aim of setting salaries at or below the median benchmarks for listed real estate and similarly sized utility companies, as well as companies of a comparable size drawn
from across all sectors more generally.
After reviewing the data for the Chief Financial Officer, the Committee concluded that no additional increase was necessary for Martin Greenslade and that he
should receive an inflationary uplift of 2% to his base salary.
The salary increases shown below will take effect from 1 June 2015:
Executive Directors
Name
Robert Noel
Martin Greenslade
(Unaudited) Table 37
Current
(£000)
711
481
From
1 June 2015
(£000)
754
491
% increase
6.0
2.0
Average %
increase over
five years
(including
2015/16)
3.61
3.1
1. Robert Noel’s average increase over three years, to reflect his tenure as CEO.
Non-executive Directors
Following a review of fees for Non-executive Directors undertaken in September 2013, the Board again decided not to increase these fees over the course of the year.
They remain as shown in the table below, and we believe them to be both competitive and reflective of the time commitment given.
Non-executive Directors
NED fees (annual)
Chairman
Base fee
Audit Committee Chairman
Remuneration Committee Chairman
Senior Independent Director
(Unaudited) Table 38
As at
31 March 2015
(£000)
350.0
67.5
17.5
12.5
10.0
2.2 Pensions and benefits
Pensions and benefits arrangements will continue to operate as per the Policy outlined in the previous section. No significant changes are anticipated to the monetary
value of these benefits, apart from those that are linked to base salary levels, for example, pension allowances.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance 070
2.3 Variable pay
As described in the Policy Report, the maximum outturn on variable pay will remain at 450% of base salary, comprising 150% for annual bonus and 300% for awards
under the single LTIP. Awards will no longer be made to Executive Directors under the MSP.
As part of these proposed changes, we have also made some adjustments to the performance criteria and targets within both the annual bonus plan and LTIP,
described in detail in table 39. In the case of the LTIP, the changes are designed to be a fair and transparent reflection of the Group’s relative performance, and to align
individual rewards with performance and returns to shareholders, relative to our peers. The new criteria and targets will apply to awards made under the new LTIP
from 2015 onwards. A full description of the terms of the new LTIP is contained in the Notice of AGM as required by the UKLA when a share plan is put to shareholders
for their approval. If approved, the new LTIP will be operated in accordance with the Policy as set out in the previous section. The rules have been simplified from those
approved in 2005 by shareholders but are otherwise broadly similar in the way they operate. For all awards made under the LTIP and MSP prior to 2015, the existing
policy and plan rules will apply.
In the case of the annual bonus, we have aligned the measure of Total Property Return with the LTIP and reset the revenue profit target, five years after the
baseline was set in 2010. We have not included some of the specific business plan targets for this year’s annual bonus plan as they are commercially sensitive, but we
have laid out clearly the performance measures we will use. This is a longer list than in previous years, reflecting the Committee’s wish to take a more ‘in the round’
view of performance, and also reflecting the bonus arrangements for the Group as a whole, where our objective is to have a clear line of sight between the
achievement of performance targets at a Group level and individual outturns.
Details of the specific business plan targets for 2015/16 will be disclosed in next year’s report when we explain the outturn of this year’s annual bonus.
2.4 Performance targets for the coming year
Performance targets for the coming year
(Unaudited) Table 39
Metric
Link to strategy and value for shareholders
Performance measure
Target
Long-Term Incentive Plan
• Total Shareholder
Return (50.0% of
overall award).
• Rewards our outperformance of the returns
generated by our listed company peers
• Encourages efficient use of capital through good
sector allocation and appropriate gearing
• Based on a market capitalisation of £9.9bn, 3% per
annum outperformance over three years would
generate approximately £917m of value for
shareholders over and above that which would have
been received had we performed in line with our
comparator group of property companies within
the FTSE 350 Real Estate Index.
Measured over a period of three financial years:
• The Group’s Total Shareholder Return (TSR)
relative to an index (weighted by market
capitalisation) based on a comparator group
comprising all of the property companies within
the FTSE 350 Real Estate Index (except Land
Securities)
• 10% of the overall award vests for matching the
index, and 50% of the overall award for
outperforming it by 3% per annum. Vesting is on
a straight-line basis between the two.
Outperformance of the
index by 3% or more per
annum for maximum
vesting.
• Ungeared Total
Property Return
(50.0% of overall
award).
• Rewards sustained outperformance by our portfolio
compared with the industry’s commercial property
benchmark
• Incentivises increasing capital values and rental
income
• Capital value growth is reflected in an increased net
asset value, which is the measure with the strongest
correlation to share price
• On the basis of a portfolio with a value of £14.0bn,
1% per annum outperformance over three years
generates approximately £424m of value beyond
that which would have been received had the
portfolio performed in line with the benchmark.
Outperformance of the
benchmark by 1% or more
per annum for maximum
vesting.
Measured over a period of three financial years:
• The Group’s ungeared Total Property Return
(TPR) relative to the IPD benchmark comprising
all March-valued properties. Total benchmark
value c.£145bn
• 10% of the overall award vests for matching the
benchmark and 50% of the overall award vesting
where we outperform the benchmark by 1% per
annum. Vesting is on a straight-line basis
between the two.
• Rewards annual outperformance by our portfolio
• The Group’s ungeared Total Property Return
(TPR) relative to an IPD benchmark comprising
all March-valued properties. Total benchmark
value c.£145bn
• 6% of the overall award for matching the
benchmark, and 26% of the overall award for
outperforming the benchmark by 2%. Payment
is on a straight-line basis between the two.
Outperformance of the
benchmark by 2% for
the year.
Annual bonus
• Ungeared Total
Property Return
(26.0% of award, or
39.0% of salary).
• Absolute growth in
revenue profit (26.0%
of award, or 39.0% of
salary).
compared with the industry’s commercial property
benchmark
• Incentivises increasing capital values and rental
income
• Capital value growth is reflected in an increased net
asset value, which is the measure with the strongest
correlation to share price
• On the basis of a portfolio with a value of £14.0bn,
2% outperformance would generate approximately
£280m of return over and above the returns of
commercial property within our sectors.
• Encourages above inflation growth in income profits,
year-on-year, on the basis of a new three year plan
set in 2015
• Adjustment for significant net investment/
disinvestment gives a like-for-like view of
performance
• Encourages sustainable dividend growth and cover
over the medium-term.
• Once the Group has met a threshold level on
revenue profit, a portion (5%) of the excess is
contributed to the bonus pool for the Group. This
will be capped at 26% of the overall award. An
adjustment (+/-3%) is made for net investment/
disinvestment activity above £500m.
Will be confirmed in 2016
Report.
Land Securities Annual Report 2015
071
Performance targets for the coming year continued
(Unaudited) Table 39
Metric
Link to strategy and value for shareholders
Performance measure
Target
Annual bonus – specific business targets
• Development lettings
• A key driver of income and revenue profit in the
(15.8% of award, or 24.0%
of salary).
future
• Proves the value of the development and drives
capital growth.
• Specific threshold and stretch targets have
been set for both the London and Retail
business units.
Will be confirmed in 2016
Report.
• London Residential Sales
(1.8% of award, or 2.6%
of salary).
• Key disposals according
to plan (3.5% of award,
or 5.3% of salary).
• Reflects the important contribution of our
• Specific targets have been set for individual
residential pipeline in London.
assets in London.
Will be confirmed in 2016
Report.
• Ensures that assets likely to underperform are sold,
before they impact the returns to shareholders.
• Specific assets in both London and Retail
have been earmarked for sale over the
course of the year.
Will be confirmed in 2016
Report.
• Project Milestones,
Planning (3.5% of award,
or 5.3% of salary).
• Ensures that momentum is maintained behind the
delivery of key projects critical to the delivery of
shareholder value.
• Specific planning targets have been set for
individual assets in both London and Retail.
Will be confirmed in 2016
Report.
• Project Milestones,
Development (3.5% of
award, or 5.3% of salary).
• Ensures that momentum is maintained behind the
delivery of key projects critical to the delivery of
shareholder value.
• Achievement of milestones to specified
budgets and timescales, applied to specific
projects across London and Retail.
Will be confirmed in 2016
Report.
• Management of the
• Building further flexibility into the secured lending
• A specific target has been set around the
Group’s secured lending
pool (1.8% of award, or
2.6% of salary).
pool.
concentration of assets within the secured
lending pool.
Will be confirmed in 2016
Report.
• Further development of the
culture of Land Securities
with a focus on diversity
(1.8% of award, or 2.6%
of salary).
• Completion of mandatory
Health and Safety training
(1.8% of award, or 2.6%
of salary).
• Community Employment
Programmes (1.8% of
award, or 2.6% of salary).
• Demonstrates the commitment to a more diverse
and customer-focused culture as a key driver of
business performance.
• Specific targets have been set around the
embedding of the purpose, goal, vision and
values. Progress to be demonstrated against
diversity metrics.
Improvement in specific
engagement survey scores,
improvement in certain
diversity metrics.
• Demonstrates a clear commitment to Health and
Safety practices as a key measure of high quality
delivery at all levels and in all areas.
• A specific target has been set around
mandatory Health and Safety training for all
employees within six months of joining.
100% of mandatory
training completed within
six months of joining.
• A key way in which Land Securities can deliver on
its commitment to the communities in which it
operates, and create a sustainable future by building
a skilled workforce.
• A target has been set around securing
permanent employment for an increased
number of candidates via our Community
Employment Programmes.
170 candidates into
permanent employment,
either inside the Group or
with our partners.
• Individual targets for
Executive Directors
(13.0% of award, or
20.0% of salary).
• Ensures that each Director focuses on his individual
contribution in the broadest sense, aligned with,
but not limited to, specific business targets
• Encourages a focus on personal development.
• A mix of short-term and long-term
individual goals set at the beginning
of the year.
Will be confirmed in 2016
Report.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
072
2.5 Savings Related Share Option Scheme
We will again this year be providing all employees, including Executive Directors, with the opportunity to participate in the Company’s Savings Related Share Option
Scheme. This allows them to make fixed monthly savings for a period of either three and/or five years, at the end of which they can use their accumulated savings to
purchase Land Securities shares at a discount of 20% to the market price at the date of grant. In line with government regulations, the monthly contribution amount
was increased last year from £250 to £500 for invitations made after 6 April 2014.
2.6 Directors’ interests (Audited)
Details of the Directors’ interests, including those of their immediate families and connected persons, in the issued share capital of the Company at the beginning and
end of the year are set out in the table below. It also shows the value of each Director’s interest compared to the value required to be held under the Company’s share
ownership guidelines.
Directors’ shares
Name
Robert Noel2
Martin Greenslade3
Dame Alison Carnwath4,5
Kevin O'Byrne4
Chris Bartram4
Simon Palley4
Stacey Rauch4
Edward Bonham Carter4
Cressida Hogg4
Salary
(£)
Required
holding value
(£)
710,940
1,777,500
480,930
350,000
95,000
67,500
80,000
67,500
67,500
67,500
962,000
350,000
95,000
67,500
80,000
67,500
67,500
67,500
Holding
(ordinary
shares)
1 April
2014
163, 011
302,151
141,193
11,516
11,478
17,061
8,000
–
–
Holding
(ordinary
shares)
31 March
2015
223,167
358,228
143,890
11,552
11,478
17,061
8,000
10,000
10,000
(Audited) Table 40
Net deferred
bonus shares
(after income
tax and NI)
Value of
holding1
(£)
38,046 3,273,000
26,556 4,821,346
1,802,942
144,747
143,819
213,774
100,240
125,300
125,300
1. Using the closing share price of £12.53 on 31 March 2015, the actual value of holding plus value of net deferred bonus shares.
2. Requirement for the Chief Executive to own shares with a value of 2.5 x base salary within five years of appointment.
3. Requirement for other Executive Directors to own shares with a value of 2.0 x base salary within five years of appointment.
4. Requirement for Non-executive Directors to own shares equal to 1.0 x the annual fee within three years of appointment.
5. Between 31 March and 18 May 2015, the date on which this report has been signed, there have been no changes in the Directors’ interests except in relation to Dame Alison Carnwath. Her interests increased to
144,585 ordinary shares through the acquisition of an additional 695 shares on 10 April 2015 under the Company’s Dividend Reinvestment Plan.
2.7 Outstanding share awards held by Directors (Audited)
The table below shows the share awards made to Executive Directors which have not yet vested. It also shows those awards under both the LTIP and MSP that vested
during the year.
Outstanding LTIP and MSP share awards and those which vested during the year
(Audited) Table 41
Cycle ending
Award date
Market price at
award date (p)
Shares awarded
Shares vested
Market price at
date of vesting (p)
Vesting date
Robert Noel
LTIP shares
MSP shares
Martin Greenslade
LTIP shares
MSP shares
2014
2015
2016
2017
2014
2015
2016
2017
2014
2015
2016
2017
2014
2015
2016
2017
29/06/2011
27/07/2012
08/07/2013
01/07/2014
29/07/2011
27/07/2012
08/07/2013
01/07/2014
29/06/2011
27/07/2012
08/07/2013
01/07/2014
29/06/2011
27/07/2012
08/07/2013
01/07/2014
827.5
777
921
1,039
861
781
921
1,039
827.5
777
921
1,039
861
781
921
1,039
49,305
131,274
112,964
102,638
50,218
130,600
112,964
102,638
51,359
88,803
76,416
69,431
51,580
88,348
76,416
69,431
30,816
1,037
29/06/2014
27/07/2015
08/07/2016
01/07/2017
31,386
1,050
29/07/2014
27/07/2015
08/07/2016
01/07/2017
32,099
1,037
29/06/2014
27/07/2015
08/07/2016
01/07/2017
32,238
1,050
29/07/2014
27/07/2015
08/07/2016
01/07/2017
Land Securities Annual Report 2015
073
2.7 Outstanding share awards held by Directors (Audited) continued
Martin Greenslade’s options over shares as set out below relate to the Savings Related Share Option Scheme. They are not subject to performance conditions as the
scheme is available to all employees and HMRC rules do not permit performance conditions for this type of scheme. The options were not exercised during the year to
31 March 2015, and therefore no gains are shown.
Savings Related Share Option Scheme
Number of
options at
1 April 2014
Exercise price
per share (p)
Number of
options
granted in year
to 31 March
2015
Exercise price
per share (p)
Number
exercised
Market price
at exercise
Martin Greenslade
1,559
577
1,060
848.5
–
–
–
–
(Audited) Table 42
Number of
options at
31 March
2015
1,559
1,060
2,619
Exercisable
dates
08/2015-
02/2016
08/2017-
02/2018
3. Remuneration outcomes for Directors during the year
In this section, we explain the pay outcomes for Directors in relation to the financial year ending on 31 March 2015. Tables 43 and 44 show the payments we expect to
make and then tables 45 and 46 give more detail on how we have measured the performance outcomes with respect to the annual bonus and LTIP in the context of
value created for shareholders.
3.1 Directors’ emoluments (Audited)
The basis of disclosure in the table below is on an ‘accruals’ basis. This means that the annual bonus column includes the amount that will be paid in June 2015 in
connection with performance achieved in the financial year ending 31 March 2015. The values shown for Long-Term Incentive Plan awards in 2014/15 are calculated
using the average share price for the quarter ended 31 March 2015. The actual price is not known at the time of writing as the awards do not formally vest until
June and July 2015.
Single total figure of remuneration for each Director (£000)
(Audited) Table 43
Basic salary
and fees1
Benefits2
Pension allowance3
Annual bonus
paid in cash
Annual bonus
deferred into shares
Total emoluments
Long-term
incentives vested4
Total
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
Executive Directors
Robert Noel
Martin Greenslade
711
481
694
469
20
19
22
20
178
120
173
117
355
241
347
235
653
441
389
258
1,917
1,625
2,768
649
4,685
2,274
1,302
1,099
1,873
671
3,175
1,770
1. Basic salary is stated as per annum figure. Actual salaries in the year were £708,050 (Robert Noel), £478,975 (Martin Greenslade).
2. Benefits consist of the provision of a company car or car allowance, private medical insurance and life assurance premiums.
3. The pension allowance shown is a cash allowance of 25% of base salary.
4. The long-term incentives for 2014/15 have been calculated using a share price of £12.48 (which is the three-month average to 31 March 2015). The long-term incentives vesting in 2013/14 were estimated in last year’s report and
so have been adjusted to reflect the actual share price on the date of vesting. The impact of the adjustment was £2,000 for both Robert Noel and Martin Greenslade.
Single total figure of remuneration for each Director (£000) continued
(Audited) Table 44
Basic salary
and fees1
Benefits
Pension allowance
Annual bonus
paid in cash
Annual bonus
deferred into shares
Total emoluments
Long-term
incentives vested
Total
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
Non-executives
Directors
Dame Alison Carnwath
David Rough5
Kevin O’Byrne
Chris Bartram
Simon Palley
Stacey Rauch
Edward Bonham Carter
Cressida Hogg
350
23
95
68
80
68
68
68
325
64
91
64
76
64
17
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
350
23
95
68
80
68
68
68
325
64
91
64
76
64
17
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
350
23
95
68
80
68
68
68
325
64
91
64
76
64
17
17
5. David Rough stepped down from the Board in July 2014.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
074
3.2 Annual bonus outturn
In the year under review, each Executive Director has had the potential to receive an annual bonus of up to 150% of his base salary. Of this, 130% was dependent on
meeting Group targets and 20% dependent on meeting personal targets. All targets were set at the beginning of the year. The following table illustrates the Group
targets and the respective outcomes.
Annual bonus outturn
Target
Ungeared Total Property Return.
Share in long-term real growth in Group revenue profit.
% of
base salary
(maximum)
39.0
c.39.0
(Unaudited) Table 45
% of
base salary
awarded
39.0
39.0
Assessment
• The adjusted Land Securities Total Property Return1 for the year (23.3%)
exceeded that of the IPD benchmark by 3.1%.
• Revenue profit for the year (£329.1m) significantly exceeded the base level
of £258.9m (last year’s threshold of £251.3m increased by 3% inflation).
After certain adjustments, 5% of the resulting excess profit of £70.2m
(£3.51m) has been contributed to the bonus pool. Under the terms of the
current plan, there is no upper cap on the outperformance, and the outturn
exceeds the maximum shown. However, this year, in the context of a strong
all-round performance, the Committee determined that a cap should be
placed on this element of the plan, and therefore it paid out at the
maximum level of 39.0% of base salary.
Key business targets
Development, refurbishment and conditional lettings.
31.2
• The outturn is calculated on the basis of a threshold target of £28.6m.
31.2
Planning milestones were set for five specific London and
Retail assets.
10.4
Achievement is calculated on a straight-line basis from threshold to the
maximum target (£43.5m of development lettings)
• The Group secured relevant lettings for the year of £47.6m.
• The outturn is calculated on the basis of a threshold target of three out of
five milestones achieved, with the maximum at five out of five. The
milestones were achieved for four out of five of the assets specified, and
therefore 50% of the award is payable.
Community Employment Programmes – a target was set to secure
permanent employment for 125 candidates on the London training
programme, and expand the programme to suitable developments
in Retail.
Management of the secured lending pool – the target was to
improve the geographical concentration limits within our secured
lending pool for London assets to at least 80%.
5.2
• Employment was secured for 157 candidates on the London programme
and the programme was expanded to the Retail development at Westgate,
Oxford. Nine positions were also secured as a result of the partnership with
Mencap.
5.2
• The London geographical concentration was increased to 100% of the
secured lending pool, building in more flexibility for the future.
Total Group Elements
Executive Director individual targets
Each Director received a number of individual targets, which
included:
• The articulation of a new vision and purpose for the Group
• The embedding of the new Executive Committee as a high
performing team
• Putting in place a new revolving credit facility.
TOTAL
20.0
Each Executive Director was scored by the Remuneration Committee on
the basis of objectively measurable targets set at the beginning of the year.
The outturn was as follows:
• Robert Noel
• Martin Greenslade
150.0
Robert Noel
Martin Greenslade
1. The outturn is adjusted to take account of the performance of trading properties and the capital and income extracted from Queen Anne’s Gate, SW1, through a bond issue in 2009.
5.2
5.2
5.2
124.8
17.0
17.0
141.8
141.8
Land Securities Annual Report 2015
075
3.3 Long-Term Incentive Plan and Matching Share Plan outturns
The table below summarises how we have assessed our LTIP performance over the three year financial period 1 April 2012 to 31 March 2015. Awards under the LTIP for
this period are subject to performance conditions that measure and compare the Group’s relative performance against its peers in terms of Total Property Return (TPR)
and Total Shareholder Return (TSR), with each measure representing 50% of the total award. Please see table 30 for more detail on how vesting levels are determined.
The performance calculation for awards granted in 2012 and vesting in 2015 are illustrated below:
Long-Term Incentive Plan and Matching Share Plan outturns
(Unaudited) Table 46
Target
% of base salary (maximum)
Ungeared Total Property Return
75 + 75 (maximum shares pledged).
Total Shareholder Return
75 + 75 (maximum shares pledged).
Assessment
• The Land Securities Total Property Return1 outperformed that of the
sector weighted IPD Quarterly Universe by 1.0% per annum over the
three year period. Therefore, the maximum 50% of the total award vests.
• The Land Securities Total Shareholder Return over the three year period
was 93.5%, outperforming that of the comparator group (see below),
which was 86.6%. On a per annum basis, this equates to 2.3% and
therefore 34.7% (maximum 50%) of the total award vests.
Outturn
% of maximum
50
34.7
1. The outturn is adjusted to take account of the performance of trading properties and the capital and income extracted from Queen Anne’s Gate, SW1, through a bond issue in 2009.
In total, therefore, awards made in 2012, and measured over the three year period to 31 March 2015, will vest in July 2015 at 84.7% of the maximum.
For awards granted in 2013, the Group’s performance over the two years to 31 March 2015 would, if sustained over the three year period to 31 March 2016, result in
62.3% of the LTIP (and MSP) share awards vesting. For awards granted in 2014, performance over the one year period to 31 March 2015 would, if sustained over the
second and third years of the period to 31 March 2017, result in 50% of the LTIP (and MSP) share awards vesting.
Total Shareholder Return – comparator groups
(Unaudited) Table 47
Name
Big Yellow Group PLC
Capital & Counties Properties PLC
Daejan Holdings PLC
Derwent London PLC
F&C Commercial Property Trust Limited
Grainger PLC
Great Portland Estates PLC
Hammerson PLC
Hansteen Holdings PLC
Intu Properties plc (formerly Capital Shopping Centres Group plc)
Londonmetric Property Plc (which includes London and Stamford Group PLC before its merger)
Segro PLC
Shaftesbury PLC
St Modwen Properties PLC
The British Land Company PLC
UK Commercial Property Trust Limited
UNITE Group PLC
Workspace Group PLC
CLS Holdings
Kennedy Wilson Europe PLC
Redefine International REIT PLC
1. As proposed to apply for awards made under the new LTIP (subject to shareholders’ approval).
2012
2013
2014
Year of grant
20151
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
076
3. Remuneration outcomes for Directors during the year continued
3.4 Individual outcomes by Director
Robert Noel
Chief Executive
Chart 48
£5,243,000
£4,685,000
£3,148,000
£6,000,000
£5,000,000
£4,000,000
£3,000,000
£2,000,000
£1,000,000
£909,000
£0
Fixed pay
On-target
Maximum
Actual1
Element of pay
Base salary
Pension
Benefits
Annual bonus1
– Group element
– Individual element
Long-term incentives2
Basic salary (15.2%)
Pension (3.8%)
Benefits (0.4%)
1. Percentages are of the actual.
Annual bonus (21.5%)
Long-term incentives (59.1%)
Total
Martin Greenslade
Chief Financial Officer
Chart 50
£4,000,000
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
£3,552,000
£3,175,000
Element of pay
£2,158,000
£620,000
Fixed pay
On-target
Maximum
Actual1
Base salary
Pension
Benefits
Annual bonus1
– Group element
– Individual element
Long-term incentives2
Annual bonus (21.5%)
Long-term incentives (59.0%)
Total
Basic salary (15.1%)
Pension (3.8%)
Benefits (0.6%)
1. Percentages are of the actual.
1. £355,470 of the annual bonus will be deferred into shares for one year and £297,060 for two years.
2. Value calculated on basis of average share price for the three months to 31 March 2015 - £12.48.
1. £240,465 of the annual bonus will be deferred into shares for one year and £201,029 for two years.
2. Value calculated on basis of average share price for the three months to 31 March 2015 - £12.48.
(Unaudited) Table 49
Maximum
potential
(£000)
Percentage
of maximum
achieved
(%)
711
178
20
924
142
3,268
5,243
n/a
n/a
n/a
96.0
85.0
84.7
Outturn
(£000)
711
178
20
887
121
2,768
4,685
(Unaudited) Table 51
Outturn
Maximum
potential
(£000)
Percentage
of maximum
achieved
(%)
481
120
19
625
96
2,211
3,552
n/a
n/a
n/a
96.0
85.0
84.7
(£000)
481
120
19
600
82
1,873
3,175
Land Securities Annual Report 2015
4. Comparison of CEO pay to Total Shareholder Return
The following graph 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 six years. As the Company is a constituent of the FTSE 350 Real Estate Index, this is considered to be the most appropriate
benchmark for the purposes of the graph. An additional line to illustrate the Company’s performance compared with the FTSE 100 Index over the previous six years
is also included.
Below this chart is a table showing how the single number of remuneration for the Chief Executive has moved over the same period. It should be noted that Robert
077
Noel became Chief Executive in March 2012.
Total Shareholder Return
(£)
350
300
250
200
150
100
50
0
162.5
156.7
150.4
183.6
176.4
161.6
188.2
170.3
163.6
(Unaudited) Chart 52
359.9
324.7
214.2
285.0
264.4
201.5
224.1
207.5
188.9
31 Mar 09
31 Mar 10
31 Mar 11
31 Mar 12
31 Mar 13
31 Mar 14
31 Mar 15
Land Securities
FTSE 350 Real Estate Index
FTSE 100 Index
This graph shows the value, by 31 March 2015, of £100 invested in Land Securities Group PLC on 31 March 2009 compared with the value of £100 invested in the FTSE 350 Real Estate Index or the FTSE 100 Index over the same period.
The other points plotted are the values at intervening financial year-ends.
Source: Thomson Reuters
Chief Executive’s remuneration over six years
Year
2015
2014
2013
2012
2011
2010
Chief Executive Officer
Robert Noel
Robert Noel
Robert Noel
Francis Salway
Francis Salway
Francis Salway
Single figure
of total
remuneration
(£000)
4,685
2,274
2,678
2,769
1,798
1,694
(Unaudited) Table 53
Annual bonus
award against
maximum
opportunity1
(%)
Long-term
incentive vesting
against amount
awarded
(%)
94.5
71.0
86.0
24.0
39.0
34.0
84.7
62.5
76.1
85.9
27.5
50.0
1. Under the policy covering the years 2010-2012 shown in the table, bonus arrangements for Executive Directors comprised three elements: an annual bonus with a maximum potential of 100% of basic salary, a discretionary
bonus with a maximum potential of 50% of basic salary and an additional bonus with a maximum potential of 200% of salary. The first two elements were subject to an overall aggregate cap of 130% of basic salary, with the
overall amount of the three elements capped at 300% of basic salary.
2012: 73.4% of the maximum opportunity was awarded under the annual bonus with no awards made under the discretionary bonus or additional bonus.
2011: 94.5% of the maximum opportunity was awarded under the annual bonus, discretionary bonus of 60% of the maximum opportunity with no awards made under the additional bonus.
2010: 77% of the maximum opportunity was awarded under the annual bonus, discretionary bonus of 50% of the maximum opportunity with no awards made under the additional bonus.
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance
078
5. The context of pay in Land Securities
5.1 Pay across the Group
a. Senior management
During the year under review, bonuses (including discretionary bonuses) for our 20 most senior employees ranged from 40% to 166% of salary (2014: 43% to 102%).
The average bonus was 93% of salary (2014: 71%). The LTIP awards made to senior management vested on the same basis as the awards made to Executive Directors.
b. All other employees
The average pay increase for all employees, including the Executive Directors, was 3.0%. Including salary adjustments and promotions for employees below the Board,
this rose to 3.5%. The ratio of the salary of the Chief Executive to the average salary across the Group (excluding Directors) was 12:1 (£710,940:£59,670).
Pay across the Group
% Change
Chief Executive
Average employee
Salary
(%)
6
3
Benefits
(%)
No change
No change
(Unaudited) Table 54
Bonus
(%)
37
23
5.2 The relative importance of spend on pay
The chart below shows the total spend on pay for all Land Securities employees when compared with our returns to shareholders in the form of dividends:
Metric
Spend on pay1
Dividend2
1. Including base salaries for all employees, bonus and share awards at face value.
2. See notes to the financial statements.
March 2015
(£m)
58.1
247.0
March 2014
(£m)
55.1
236.5
(Unaudited) Table 55
Change
(%)
5.5
4.4
6. Dilution
Awards granted under the Company’s long-term incentive arrangements, which cover those made under the LTIP, MSP, Deferred Bonus Plan and the Executive Share
Option Plan are satisfied through the funding of an Employee Benefit Trust (administered by an external trustee) which acquires existing Land Securities shares in the
market. The Employee Benefit Trust held 1,012,983 shares at 31 March 2015.
The exercise of share options under the Savings Related Share Option Scheme, which is open to all employees who have completed more than one month’s service
with the Group, is satisfied by the allotment of newly issued shares. At 31 March 2015, the total number of shares which could be allotted under this scheme was
441,560 shares, which represent significantly less than 1% of the issued share capital of the Company.
7. Remuneration Committee meetings
The Committee met four times over the course of the year, and all of the members attended all meetings. Simon Palley chaired the Committee, and the other
members during the year were Dame Alison Carnwath, Chris Bartram and Edward Bonham Carter. The Committee meetings were also attended by the Group
Chief Executive, the Group Human Resources Director, and the Group Company Secretary who acted as the Committee’s Secretary.
Over the course of the year, the Committee received advice on remuneration and ancillary legal matters from New Bridge Street, a trading name of AON plc. It has
also made use of various published surveys to help determine appropriate remuneration levels and relied on information and advice provided by the Group Company
Secretary and the Group Human Resources Director. New Bridge Street has voluntarily signed up to the Remuneration Consultants Group Code of Conduct. The
Committee is satisfied that the advice it receives is independent and objective. Aside from some support in benchmarking roles below the Board for pay review
purposes, New Bridge Street has no other connection with the Group. For the financial year under review, New Bridge Street received fees of £129,000 in connection
with its work for the Committee. The Committee also received legal advice from Freshfields Bruckhaus Deringer in relation to various share plan matters and they
received fees of £36,000 for their services during the year.
8. Results of the vote on the Directors’ Remuneration Report at the Land Securities AGM for 2014
The votes cast on the resolutions seeking approval for the Directors’ Remuneration Report at our 2014 AGM were as follows:
Resolution
To approve the Policy Report forming the first part of the Directors’
Remuneration Report for the year ended 31 March 2014
To approve the Annual Report on Remuneration forming the second and final
part of the Directors’ Remuneration Report for the year ended 31 March 2014
1. A vote withheld is not a vote at law.
The Remuneration Report was approved by the Board of Directors on 18 May 2015.
Simon Palley
Chairman, Remuneration Committee
% of votes
For
99.05
99.67
% of votes
Against
Number of votes
Withheld1
0.95
0.33
955,981
959,720
Land Securities Annual Report 2015
REPORT OF THE
DIRECTORS
The Directors present their report together with the
audited accounts for the year ended 31 March 2015.
As permitted by legislation, some of the matters
normally included in this report have instead been
included in the Strategic Report on pages 6 to 36
as the Board considers them to be of strategic
importance. Specifically, these relate to the
Company’s business model and strategy, future
business developments and risk management.
The Governance report on pages 37 to 78 is
incorporated in this report by reference.
Company status
Land Securities Group PLC is a public limited liability
company. It holds a premium listing on the London
Stock Exchange main market for listed securities
(LON:LAND) and is a constituent member of the
FTSE 100 Index. The Company is a Real Estate
Investment Trust (REIT). It is expected that the
Company, which has no branches, will continue to
operate as the holding company of the Group.
Board membership
The membership of the current Board and
biographical details of the Directors are given on
pages 40 and 41. David Rough stepped down from
the Board on 18 July 2014.
The Service Agreements of the Executive Directors
and the Letters of Appointment of the Non-executive
Directors are available for inspection at the Company’s
registered office. Brief details are also included in the
Directors’ Remuneration Report on pages 58 to 78.
Appointment and removal of Directors
The appointment and replacement of Directors
is governed by the Company’s Articles of Association
(Articles), the UK Corporate Governance Code (Code),
the Companies Act 2006 (Act) and related legislation.
The Board may appoint a Director either to fill a casual
vacancy or as an addition to the Board so long as the
total number of Directors does not exceed the limit
prescribed in the Articles. An appointed Director must
retire and seek election to office at the next AGM of
the Company. In addition to any power of removal
conferred by the Act, the Company may by ordinary
resolution remove any Director before the expiry of his
period of office and may, subject to the Articles, by
ordinary resolution appoint another person who is
willing to act as a Director in his place. In line with the
Code’s recommendations and the Board’s policy, all
Directors are required to stand for re-election at
each AGM.
Directors’ powers
The Board manages the business of the Company
under the powers set out in the Articles. These powers
include the Directors’ ability to issue or buy back
shares. Shareholders’ authority to empower the
Directors to make market purchases of up to 10%
of its own ordinary shares is sought at the AGM each
year. The Articles can only be amended, or new
Articles adopted, by a resolution passed by
shareholders in general meeting by at least three-
quarters of the votes cast.
Directors’ interests
Details of Directors’ interests in the ordinary shares
of the Company, including those that derive from
their employment, are set out in the Directors’
Remuneration Report on pages 58 to 78.
Save as disclosed in the Directors’ Remuneration
Report, none of the Directors, nor any person connected
with them, has any interest in the share or loan capital
of the Company or any of its subsidiaries. At no time
during the year ended 31 March 2015 did any Director
hold a material interest, directly or indirectly, in any
contract of significance with the Company or any
subsidiary undertaking other than the Executive
Directors in relation to their Service Agreements.
Directors’ indemnities and insurance
The Company has agreed to indemnify each Director
against any liability incurred in relation to acts or
omissions arising in the ordinary course of their duties.
The indemnity applies only to the extent permitted by
law. A copy of the deed of indemnity is available for
inspection at the Company’s registered office and will
be available at the 2015 AGM. The Company has in
place appropriate Directors & Officers Liability
insurance cover in respect of potential legal action
against its Directors.
Share capital
The Company has a single class of share capital which
is divided into ordinary shares of nominal value 10
pence each, all ranking pari passu. No other securities
have been issued by the Company. At 31 March 2015,
there were 801,032,763 ordinary shares in issue and
fully paid. Further details relating to share capital,
including movements during the year, are set out in
note 36 to the financial statements.
At the Company’s Annual General Meeting (AGM)
held on 18 July 2014, shareholders authorised the
Company to make market purchases of ordinary
shares representing up to 10% of its issued share
capital at that time and to allot shares within certain
limits approved by shareholders. These authorities
will expire at the 2015 AGM (see below) and a renewal
will be sought.
The Company did not purchase any of its ordinary
shares during the year and hence the number of
ordinary shares held in treasury at 31 March 2015
remained unchanged at 10,495,131.
The Company’s offshore discretionary Employee
Benefit Trust (EBT) is used to purchase Land Securities
shares in the market on behalf of the Company for
the benefit of employees, including for satisfying
outstanding awards made under its employee share
plans. The EBT has waived its entitlement to receive all
dividends paid by the Company on shares held in the
EBT. As at 31 March 2015, there were 1,012,983 shares
held in the EBT with 1,069,330 shares having been
released from it during the year to satisfy vested
awards under the Company’s employee share plans.
Further details regarding the EBT, and of shares issued
pursuant to the Company’s various employee share
plans during the year, are set out in note 36 to the
financial statements.
079
Substantial shareholders
As at 12 May 2015, the Company had been notified
under the Disclosure and Transparency Rules (DTR 5)
of the following holdings of voting rights in its issued
shared capital:
Shareholders holding 3% or
more of the Company’s issued
share capital
Shareholder name
BlackRock, Inc.
Norges Bank
Number of
ordinary shares
72,444,546
46,089,481
APG Asset Management
N.V.
27,224,112
Table 56
% of total
voting rights
attaching to
issued share
capital
9.2
5.8
3.4
* Total voting rights attaching to the issued share capital of the Company
comprised 790,544,038 ordinary shares.
The above shareholder levels are unchanged from
31 March 2015.
Voting rights and restrictions on transfer
of shares
All of the issued and outstanding ordinary shares of
the Company have equal voting rights, with one vote
per share. There are no special control rights attaching
to them save that the control rights of ordinary shares
held in the EBT can be directed by the Company to
satisfy the vesting of outstanding awards under its
various employee share plans. In relation to the EBT
and any unallocated Company shares held in it, the
power to vote or not vote is at the absolute discretion
of the trustee. The Company is not aware of any
agreements or control rights between existing
shareholders that may result in restrictions on the
transfer of securities or on voting rights.
The rights, including full details relating to voting
of shareholders and any restrictions on transfer
relating to the Company’s ordinary shares, are set out
in the Articles and in the explanatory notes that
accompany the Notice of the 2015 AGM. These
documents are available on the Company’s website
at www.landsecurities.com.
Change of control
There are a number of agreements that take effect,
alter or terminate upon a change of control of the
Company following a takeover bid. None of these are
considered significant. The Company’s share plans
contain provisions that take effect in such an event but
do not entitle participants to a greater interest in the
shares of the Company than created by the initial grant
or award under the relevant plan. There are no
agreements between the Company and its Directors
or employees providing for compensation for loss of
office or employment that occurs specifically because
of a takeover bid.
Going concern
The Directors confirm they have a reasonable
expectation that the Company has adequate resources
to continue in operational existence for the foreseeable
future. This confirmation is made after having reviewed
assumptions about future trading performance,
valuation projections, capital expenditure, asset sales
and debt requirements contained within the Group’s
current five-year plan. The Directors also considered
Financial statementsGovernanceAdditional informationStrategic reportLand Securities Annual Report 2015Governance You will find more on our carbon reporting, and on
our corporate responsibility activity generally, in our
2015 Sustainability Report which can be found at
www.landsecurities.com/sustainability.
Additional disclosures
Additional information that is relevant to this report,
and which is incorporated by reference into this report,
including information required in accordance with the
UK Companies Act 2006 and Listing Rule 9.8.4R, can
be located as follows:
Table 59
Credit, market and liquidity risks
pages 10–11
Employee involvement and engagement
pages 19–21
Capitalised interest
Financial instruments
Related party transactions
page 106
page 120
page 132
Auditors and disclosure of information to
the auditor
So far as the Directors are aware, there is no relevant
audit information that has not been brought to the
attention of the Company’s auditor. Each Director
has taken all reasonable steps to make himself or
herself aware of any relevant audit information and
to establish that such information was provided to
the auditor.
A resolution to confirm the reappointment
of Ernst & Young LLP as auditor of the Company will
be proposed at the 2015 AGM. The confirmation
has been recommended to the Board by its Audit
Committee and Ernst & Young LLP have indicated
their willingness to remain in office.
2015 Annual General Meeting
This year’s AGM will be held at 11.00am on Thursday,
23 July 2015 at the QEII Centre, Broad Sanctuary,
Westminster, London SW1P 3EE. A separate circular,
comprising a letter from the Chairman, Notice of
Meeting and explanatory notes in respect of the
resolutions proposed, accompanies this Annual Report.
The Report of the Directors was approved by the
Board on 18 May 2015.
By Order of the Board
Michael Arnaouti
Group Company Secretary
Land Securities Group PLC
Company No. 4369054
080
potential risks and uncertainties, in the business,
credit, market and liquidity risk, including the
availability and repayment profile of bank facilities,
as well as forecast covenant compliance. Based on
the above, together with available market information
and the Directors’ knowledge and experience of the
Group’s property portfolio and markets, the Directors
continue to adopt the going concern basis in preparing
the accounts for the year ended 31 March 2015.
Equal opportunities
Land Securities is an equal opportunities employer
and our range of employment policies and guidelines
reflects legal and employment requirements in the UK
and safeguards the interests of employees, potential
employees and other workers. We do not condone
unfair treatment of any kind and offer equal
opportunities in all aspects of employment and
advancement regardless of race, nationality, gender,
age, marital status, sexual orientation, disability,
religious or political beliefs.
The Company recognises that it has clear obligations
towards all its employees and the community at large
to ensure that people with disabilities are afforded
equal opportunities to enter employment and progress.
The Company has therefore established procedures
designed to provide fair consideration and selection
of disabled applicants and to satisfy their training and
career development needs. If an employee becomes
disabled, wherever possible Land Securities takes steps
to accommodate the disability by making adjustments
to their existing employment, or by redeployment and
providing appropriate retraining to enable continued
employment with the Group.
Information regarding the Company’s
safeguarding of human rights forms part of the
‘Our people strategy’ section on page 19.
Greenhouse gas emissions
Reporting framework
Disclosures concerning greenhouse gas emissions
(GHG) became mandatory under the Act last year.
As well as fulfilling its mandatory carbon reporting
requirements, the Company is committed to EPRA
Best Practice Recommendations for Sustainability
reporting, and also to making further disclosures as
recommended by DEFRA Environmental Reporting
Guidance 2013 and the Greenhouse Gas Protocol.
The date we report relates to all our properties over
which we have management control.
A detailed description of our methodology can be
found at www.landsecurities.com/sustainability.
Absolute performance
In order to satisfy the mandatory carbon reporting
requirements, we report our absolute Scope 1* and
2* emissions and their intensity based on floor area.
We also voluntarily report the Scope 3* emissions
that are material to our business and can be reliably
measured, for example, where we supply the energy
to customers’ demises.
As illustrated in chart 57, total Scope 1 and 2 tCO2e
emissions have risen by 17% since last year, which is
primarily due to changes to the conversion factors
issued by DEFRA** for use in our 2014/15 financial
year, as well as an increase in the size of our portfolio.
However, the increased floor area has offset the
increase in emissions to give a 3% reduction in Scope 1
and 2 emissions intensity.
Scope 3 emissions have increased marginally, up 1%.
This increase, which is mainly related to the carbon
associated with demised customer energy within our
assets, is due to the change in conversion factors
caused by a more carbon intensive UK fuel mix.
For a detailed breakdown of absolute emissions
across the portfolio and conversion factors used see
www.landsecurities.com/sustainability.
While we are obliged to report on absolute
emissions by scope, as above, we believe our
performance is best understood by monitoring the
performance of our like-for-like portfolio against
EPRA performance indicators, which are tailored for
relevance to our industry on page 147. We achieved
our 2020 target at the end of last year and have
therefore rebased our new 2020 targets from a 2014
starting point.
Scope 1 and 2 mandatory reporting
Table 57
Emissions
Scope 1 tCO2e
Scope 2 tCO2e
Intensity
Scope 1 and 2 tCO2e/m2
kgCO2e/m2
2014***
2015
13,047
53,355
66,402
13,926
64,095
78,020
0.026
26.25
0.026
25.53
Scope 3 voluntary reporting
Emissions
Scope 3 tCO2e
Intensity
64,954
65,602
Scope 3 tCO2e/m2
0.026
0.021
* Scope definitions:
Scope 1: Covers direct GHG emissions from controlled operations such as
combustion in owned boilers.
Scope 2: Covers indirect GHG emissions from the use of purchased electricity,
heat or steam.
Scope 3: Covers other indirect emissions, such as business travel, waste
management and water.
** When calculated using DEFRA 2013–14 conversion factors, our Scope 1 and 2
tCO2e emissions have increased by 6% whilst the emissions intensity has
decreased by 13%. Scope 3 tCO2e emissions have decreased by 8%.
*** 2014 figures have been restated where material changes were identified.
Scope 1, 2 and 3 emissions and
intensity across the absolute
portfolio in 2014 and 2015
Chart 58
e
2
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80
70
60
50
40
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0.026
0.025
0.024
0.023
0.022
0.021
0.020
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O
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t
2014
2015
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Scope 1 and 2 intensity
Scope 3 intensity
Land Securities Annual Report 2015
FINANCIAL
STATEMENTS
INCOME STATEMENT
Earnings per share, Group revenue, costs
and other important financial information.
For more information go to:
page 86
BALANCE SHEETS
The Group’s balance sheets at
31 March 2015.
For more information go to:
page 87
NOTES
Accounting policies, segmental information
and other helpful guidance.
For more information go to:
pages 91–136
Land Securities Annual Report 2015
081
Financial statements
Our primary financial statements
and supporting notes.
082 Statement of Directors’
Responsibilities
083 Independent Auditor’s Report
086 Income statement
086 Statement of comprehensive
income
087 Balance sheets
088 Statement of changes in equity
090 Statement of cash flows
091
Notes to the financial
statements
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Financial statementsGovernanceAdditional informationStrategic report
082
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Statement of Directors’ Responsibilities was
approved by the Board of Directors on 18 May 2015
and signed on its behalf by:
Michael Arnaouti
Group Company Secretary
The Directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under
that law the Directors have prepared the Group and
parent company financial statements in accordance
with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Directors
must not approve the financial statements unless
they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company
and of the profit and loss of the Group and the
Company for that period.
In preparing these financial statements the
Directors are required to:
• select suitable accounting policies in accordance
with IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’ and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
• state that the Group and Company has complied
with IFRSs as adopted by the European Union,
subject to any material departures disclosed and
explained in the financial statements;
• provide additional disclosures when compliance
with the specific requirements of IFRSs is
insufficient to enable users to understand the
impact of particular transactions, other events and
conditions on the Group’s and Company’s financial
position and performance;
• prepare the Group’s and Company’s financial
statements on a going concern basis, unless it is
inappropriate to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and Company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the Group and the Company,
and to enable them to ensure that the Annual Report
complies with the Companies Act 2006 and, as
regards the Group financial statements, Article 4
of the IAS regulation. They are also responsible
for safeguarding the assets of the Group and the
Company and hence for taking reasonable steps
for the prevention and detection of fraud and
other irregularities.
Directors’ responsibility statement under the
Disclosure and Transparency Rules
Each of the Directors, whose names and functions
are listed below, confirm that:
• to the best of their knowledge, the Group financial
statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a
true and fair view of the assets, liabilities, financial
position and profit of the Group; and
• to the best of their knowledge, the Company
financial statements, prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position,
performance and cash flows of the Company; and
• to the best of their knowledge, the Strategic Report
contained in the Annual Report includes a fair
review of the development and performance of the
business and the position of the Group and the
Company together with a description of the
principal risks and uncertainties faced by the Group
and Company.
Directors’ statement under the UK Corporate
Governance Code
Each of the Directors confirm that:
• to the best of their knowledge, the Annual Report
taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the Group’s
and Company’s performance, business model and
strategy.
A copy of the financial statements of the Group is
placed on the Company’s website. The Directors are
responsible for the maintenance and integrity of
statutory and audited information on the Company’s
website at www.landsecurities.com. Information
published on the internet is accessible in many
countries with different legal requirements.
Legislation in the United Kingdom governing the
preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
The Directors of Land Securities Group PLC as at
the date of this Annual Report are as set out below:
Dame Alison Carnwath, Chairman*
Robert Noel, Chief Executive
Martin Greenslade, Chief Financial Officer
Kevin O’Byrne, Senior Independent Director*
Chris Bartram*
Simon Palley*
Stacey Rauch*
Edward Bonham Carter*
Cressida Hogg CBE*
*Non-executive Directors
Land Securities Annual Report 2015 083
INDEPENDENT AUDITOR’S REPORT
to the members of Land Securities Group PLC
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair
view of the state of the Group’s and of the parent
company’s affairs as at 31 March 2015 and of
the Group’s profit for the year then ended;
• the Group financial statements have been properly
prepared in accordance with IFRS as adopted by
the European Union;
• the parent company financial statements have
been properly prepared in accordance with IFRS as
adopted by the European Union and as applied in
accordance with the provisions of the Companies
Act 2006; and
• the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
What we have audited
We have audited the financial statements of Land
Securities Group PLC for the year ended 31 March
2015 which comprise the Group Income Statement,
the Group Statement of Comprehensive Income, the
Group and Company Balance Sheets, the Group and
Company Statements of Cash Flow, the Group and
Company Statements of Changes in Equity and
the related notes 1 to 43. The financial reporting
framework that has been applied in their preparation
is applicable law and International Financial
Reporting Standards (IFRS) as adopted by the
European Union and, as regards the parent company
financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
This report is made solely to the Company’s
members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the
Company’s members those matters we are required
to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone
other than the Company and the Company’s
members as a body, for our audit work, for this
report, or for the opinions we have formed.
made by the directors; and the overall presentation
of the financial statements. In addition, we read all
the financial and non-financial information in the
Annual Report to identify material inconsistencies
with the audited financial statements and to identify
any information that is apparently materially
incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of
performing the audit. If we become aware of any
apparent material misstatements or inconsistencies
we consider the implications for our report.
Respective responsibilities of directors
and auditor
As explained more fully in the Directors’
Responsibilities Statement set out on page 82, the
directors are responsible for the preparation of the
financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements
in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the
amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the
financial statements are free from material
misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the
parent company’s circumstances and have been
consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates
Our assessment of risk of material
misstatement and response to that risk
The table below shows the risks we identified that
have had the greatest effect on the overall audit
strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team,
together with our audit response to the risk.
This year we have included accounting for complex
acquisitions and disposals and consideration of
transaction arrangements as a risk of material
misstatement given that a number of such
transactions have taken place in the financial year.
Last year we included the risk of management
override of internal controls as a risk of material
misstatement; this year we have excluded this
separate risk given that, in our view, the risk of
management override relates specifically to the risks
of material misstatement in relation to the valuation
of the investment property portfolio and revenue
recognition as set out in the table below.
Our assessment of risk of material misstatement and response to that risk
Table 60
Risk
How the scope of our audit addressed the risk
The valuation of the investment property
portfolio (as described on page 53 of the Report
of the Audit Committee and note 15 of the
financial statements).
The valuation of investment property (including
properties within the development programme
and investment properties held in joint ventures)
requires significant judgement and estimates by
management and the external valuers. Any input
inaccuracies or unreasonable bases used in these
judgements (such as in respect of estimated
rental value and yield profile applied) could result
in a material misstatement of the income
statement and balance sheet.
There is also a risk that management may
influence the significant judgements and
estimates in respect of property valuations in
order to achieve property valuation and other
performance targets to meet market
expectations or bonus targets.
Our audit procedures around the valuation of investment property included:
We evaluated the Group’s controls over data used in the valuation of the investment property portfolio and management’s
review of the valuations.
We performed testing over source documentation provided by the Group to the external valuers. This included agreeing a
sample of this documentation back to underlying lease data and vouching costs incurred to date data provided in respect of
development properties as well as assessing the costs to complete information.
We included Chartered Surveyors on our audit team who reviewed and challenged the valuations for a sample of properties.
Together we met with the external valuers to assess and challenge the valuation approach and assumptions (such as in respect
of estimated rental value, yield profile and other assumptions that impact the value such as development costs to complete)
and we considered the external valuers’ qualifications.
We assessed management’s review of investment valuations and we attended meetings between management and the
external valuers to assess for evidence of management influence and we obtained a confirmation from the external valuers
that they had not been subject to influence from management.
In order to assess for evidence of management influence, in conjunction with our Chartered Surveyors, we performed a
comparison of the assumptions (such as in respect of estimated rental value and yields), used by the external valuers to our
knowledge of the property market and other external data.
We performed site visits accompanied by our Chartered Surveyors for a sample of properties (focusing primarily on development
properties) which enabled us to assess the stage of completion of, and gain specific insights into, these developments.
We met with project managers for major properties under development and assessed project costs, progress of development
and leasing status and verified the forecast costs to complete included in the valuations as well as identified contingencies,
exposures and remaining risks. We corroborated the information provided by the project managers through valuation review,
site visits and cost analysis.
We conducted detailed analytical procedures by reference to external market data to evaluate the appropriateness of the
valuations adopted by the Group and investigated further the valuations of those properties which were not in line with
our expectations.
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015 084
INDEPENDENT AUDITOR’S REPORT
to the members of Land Securities Group PLC continued
Our assessment of risk of material misstatement and response to that risk
continued
Table 60
Risk
How the scope of our audit addressed the risk
Revenue recognition, including the timing of
revenue recognition, the treatment of rents
incentives and other property related revenue
(as described on page 53 of the Report of the
Audit Committee and note 5 of the financial
statements).
Market expectations and revenue profit based
targets may place pressure on management to
distort revenue recognition. This may result in
overstatement or deferral of revenues to assist
in meeting current or future targets or
expectations.
Accounting for complex acquisitions and
disposals and consideration of transaction
arrangements (as described on page 53 of the
Report of the Audit Committee and notes 41
and 42 of the financial statements).
The Group made a number of significant
acquisitions and disposals during the year. The
contractual arrangements for such transactions
can be complex and require management to
apply judgement in determining whether a
transaction represents an acquisition of an
asset or a business combination.
There is a risk that the estimates and judgements
made in the recognition of an acquisition as a
business combination may be inappropriate and
the valuation of the assets and liabilities acquired
may be misstated.
Furthermore, there is a risk that property
disposals may be recognised before the
significant risks and returns of ownership have
been transferred to the buyer.
Our audit procedures around revenue recognition included:
We carried out testing relating to controls over revenue recognition, the treatment of rents and other property related income
to assess the controls to prevent and detect fraud and errors in revenue recognition. This included testing the controls
governing approvals and changes to lease terms and the upload of this information to the Group’s property information
management system. We also performed controls testing on the billings process.
Detailed analytical procedures were performed in connection with revenue (including rents, incentives and other property
related revenue) to assess whether revenue had been recognised in the appropriate accounting period.
We performed detailed testing for a sample of revenue transactions by agreeing them back to lease agreements. This included
focusing upon incentives included within lease agreements and we critically assessed whether the appropriate accounting
treatment had been followed.
We agreed a sample of lease agreements to the spreadsheets used to calculate straight-lining of revenue in accordance with
SIC 15 Operating Lease - Incentives and corroborated the arithmetical accuracy of these spreadsheets and the resulting
amounts in revenue for straight-lining of incentives.
We challenged the assessment of recoverability of the tenant lease incentive receivable balance by evaluating the financial
viability of the major tenants with related lease incentive debtors.
We assessed whether the revenue recognition policies adopted complied with IFRSs as adopted by the European Union.
We performed audit procedures specifically designed to address the risk of management override of controls including journal
entry testing, which included particular focus on journal entries which impact revenue, and applying particular professional
scepticism to revenue transactions.
Our audit procedures around accounting for acquisitions and disposals and consideration of transaction arrangements
included:
We obtained and reviewed the sale and purchase agreements entered into for the property transactions which took place in
the year.
We assessed the judgements applied in determining whether acquisitions in the year represented an acquisition of an asset or
a business combination. This involved assessing whether or not the entities and the assets acquired constitute the carrying on
of a business, i.e. whether there are inputs and processes applied to those inputs that have the ability to create outputs.
Where transactions met the definition of a business combination we audited the Group’s assessment of the assets and
liabilities acquired and the allocation of the purchase consideration to these and the resultant goodwill or gain on bargain
purchase recognised.
We obtained and reviewed the due diligence report prepared for the Bluewater transaction which was the most significant
transaction in the year.
As the Bluewater transaction involved the Group acquiring the management contract for the shopping centre, we involved
internal valuations experts to help us audit the valuation of the asset management contract for Bluewater which included
challenging the assumptions used by management in the valuation.
Where the Group had recognised a disposal in the year we assessed whether the significant risks and rewards of ownership had
been transferred to the buyer as at the date upon which the sale was recognised.
We assessed the accounting for the transactions to verify that they were accounted for and, where appropriate, disclosed in
the financial statements in accordance with IFRSs as adopted by the European Union.
Our application of materiality
We apply the concept of materiality both in
planning and performing our audit, and in evaluating
the effect of misstatements on our audit and on
the financial statements. For the purposes of
determining whether the financial statements are
free from material misstatement we define
materiality as the magnitude of misstatement
that makes it probable that the economic decisions
of a reasonably knowledgeable person, relying
on the financial statements, would be changed
or influenced. We also determine a level of
performance materiality which we use to determine
the extent of testing needed to reduce to an
appropriately low level the probability that
the aggregate of uncorrected and undetected
misstatements exceeds materiality for the
financial statements as a whole.
The table below sets out the materiality,
performance materiality and threshold for
reporting audit differences applied on our audit.
Application of materiality
Basis
Overall
0.5% of carrying value of investment properties, < 1% of equity
Account balances not related to investment
properties (either wholly owned or held within
joint ventures)
Profit before tax, excluding the impact of the net surplus on revaluation
of investment properties either wholly owned or held within joint
ventures (Adjusted PBT)
Table 61
Materiality
Performance
materiality
Audit differences
£61.0m
(2014: £50.0m)
£46.0m
(2014: £25.0m)
£3.0m
(2014: £2.5m)
£19.0m
(2014: £18.0m)
£14.0m
(2014: £9.0m)
£0.9m
(2014: £0.9m)
Land Securities Annual Report 2015 085
In particular, we are required to consider whether
we have identified any inconsistencies between our
knowledge acquired during the audit and the directors’
statement that they consider the Annual Report is
fair, balanced and understandable and whether the
Annual Report appropriately discloses those matters
that we communicated to the Audit Committee
which we consider should have been disclosed.
Under the Companies Act 2006 we are required to
report to you if, in our opinion:
• adequate accounting records have not been kept
by the parent company, or returns adequate for
our audit have not been received from branches
not visited by us; or
• the parent company financial statements and the
part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’ remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 82,
in relation to going concern; and
• the part of the Corporate Governance Statement
relating to the Company’s compliance with the ten
provisions of the UK Corporate Governance Code
specified for our review.
Eamonn McGrath (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
18 May 2015
We agreed with the Audit Committee that we
would report to the Committee all audit differences
in excess of £3.0 million, as well as audit differences
in excess of £0.9 million that relate to our specific
testing of the other account balances not related to
investment properties. We also agreed to report
differences below those thresholds that, in our view,
warranted reporting on qualitative grounds.
An overview of the scope of our audit
The Group solely operates in the United Kingdom
and operates through two segments, London and
Retail, both of which were subject to the same audit
scope. Therefore, the whole Group was subject to a
full audit.
The Group audit team performed all the work
necessary to issue the Group and parent company
audit opinion, including undertaking all of the audit
work on the risks of material misstatement
identified above.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report
to be audited has been properly prepared in
accordance with the Companies Act 2006; and
• the information given in the Strategic Report and
the Directors’ Report for the financial year for
which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the
following:
Under the ISAs (UK and Ireland), we are required to
report to you if, in our opinion, information in the
annual report is:
• materially inconsistent with the information in the
audited financial statements; or
• apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Group acquired in the course of performing our
audit; or
• is otherwise misleading.
When establishing our overall audit strategy,
we determined a magnitude of uncorrected
misstatements that we judged would be material for
the financial statements as a whole. We determined
that the carrying value of investment property
would be the most appropriate basis for determining
overall materiality given that the Group’s investment
property balance accounts for around 82% of the
Group’s total assets and the fact that key users of the
Group’s financial statements are primarily focused
on the valuation of the investment property
portfolio. This provided a basis for determining the
nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of
material misstatement and determining the nature,
timing and extent of further audit procedures.
On the basis of our risk assessments, together
with our assessment of the Group’s overall control
environment, our judgement is that overall
performance materiality (i.e. our tolerance for
misstatement in an individual account or balance)
for the Group should be 75% (2014: 50%) of
materiality. Our objective in adopting this approach
is to confirm that total detected and undetected
audit differences do not exceed our materiality for
the financial statements as a whole. The increase in
overall performance materiality compared to 2014
is due to our expectation, based on our prior year
experience, that it is unlikely misstatements will
exceed 25% of planning materiality, and due to
the fact that as the prior year audit was our initial
audit we had to set performance materiality at
50% of materiality.
We have determined that for other account
balances not related to investment properties
(either wholly owned or held within joint ventures)
a misstatement of less than materiality for the
financial statements as a whole could influence the
economic decisions of users. We have determined
that materiality for these areas should be based
upon profit before tax, excluding the impact of the
net surplus on revaluation of investment properties
either wholly owned or held within joint ventures
(‘Adjusted PBT’). We set performance materiality
for these balances at 75% (2014: 50%) of this lower
level of materiality. The increase in performance
materiality for these balances compared to 2014 is
due to our expectation, based on our prior year
experience, that it is unlikely misstatements will
exceed 25% of this lower level of materiality for
these balances, and due to the fact that as last year
was our initial audit we had to set performance
materiality at 50% of materiality.
Notes:
1. The maintenance and integrity of the Land Securities Group PLC web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015 086
INCOME STATEMENT
for the year ended 31 March 2015
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2015
Land Securities Annual Report 2015 NotesYear ended 31 March 2015£mYear ended 31 March 2014£mProfit for the financial year attributable to owners of the parent2,416.81,116.6 Items that may be subsequently reclassified to the income statement:Share of joint ventures’ fair value movements on interest-rate swaps treated as cash flow hedges16(1.7)3.5Items that will not be subsequently reclassified to the income statement:Re-measurement gain/(losses) on defined benefit pension scheme343.7(7.8)Deferred tax on re-measurement gain on defined benefit pension scheme(1.5)–Other comprehensive income for the financial year attributable to owners of the parent0.5(4.3)Total comprehensive income for the financial year attributable to owners of the parent2,417.31,112.3Year ended 31 March 2015Year ended 31 March 2014NotesRevenue profit£m Capital and other items£mTotal£mRevenue profit£mCapital and other items£mTotal£mRevenue 5711.259.2770.4693.423.1716.5Costs6(258.7)(47.9)(306.6)(240.5)(12.8)(253.3)452.511.3463.8452.910.3463.2Profit on disposal of investment properties4–107.1107.1–15.615.6Profit on disposal of investments in joint ventures4–3.33.3–2.52.5Net surplus on revaluation of investment properties15–1,770.61,770.6–606.6606.6Release of impairment of trading properties17–1.91.9–5.35.3Operating profit452.51,894.22,346.7452.9640.31,093.2Share of post-tax profit from joint ventures1632.0293.8325.834.7160.8195.5Interest income929.4–29.425.212.537.7Interest expense9(184.8)(64.6)(249.4)(193.2)(23.7)(216.9)Revaluation of redemption liabilities33–(8.5)(8.5)–(5.6)(5.6)Net gain on business combination41–2.22.2–5.05.0Impairment of goodwill41–(29.7)(29.7)–––Profit before tax329.12,087.42,416.5319.6789.31,108.9Taxation13–0.30.3–7.77.7Profit for the financial year attributable to owners of the parent329.12,087.72,416.8319.6797.01,116.6Earnings per share attributable to owners of the parent (pence):Basic earnings per share11306.1142.3Diluted earnings per share11304.7141.8 BALANCE SHEETS
at 31 March 2015
087
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015GroupCompanyNotes2015£m2014£m2015£m2014£mNon-current assetsInvestment properties1512,158.09,847.7––Intangible assets4134.7–––Other property, plant and equipment209.67.3––Net investment in finance leases19185.1186.9––Loan investment 3149.550.0––Investments in joint ventures161,433.51,443.3––Investments in subsidiary undertakings32––6,192.26,186.2Other investments12.8–––Trade and other receivables2854.034.3––Derivative financial instruments25–5.3––Pension surplus347.02.3––Total non-current assets13,944.211,577.16,192.26,186.2Current assetsTrading properties and long-term development contracts17222.3192.9––Trade and other receivables28402.7366.314.814.2Monies held in restricted accounts and deposits2310.414.5––Cash and cash equivalents2414.320.90.10.1Total current assets649.7594.614.914.3Non-current assets held for sale42283.4–––Total assets14,877.312,171.76,207.16,200.5Current liabilitiesBorrowings 22(190.7)(513.2)––Trade and other payables29(367.3)(319.5)(1,108.2)(823.7)Provisions30(2.6)(3.6)––Derivative financial instruments25(3.8)(5.5)––Current tax liabilities(3.7)(2.9)––Total current liabilities(568.1)(844.7)(1,108.2)(823.7)Non-current liabilitiesBorrowings 22(3,593.0)(2,849.0)––Trade and other payables29(29.6)(23.6)––Derivative financial instruments25(37.7)(3.5)––Redemption liabilities33(35.3)(32.6)––Deferred tax13(7.3)–––Total non-current liabilities(3,702.9)(2,908.7)––Total liabilities(4,271.0)(3,753.4)(1,108.2)(823.7)10,606.35,098.9Net assets8,418.35,376.8EquityCapital and reserves attributable to the owners of the parentOrdinary shares3680.179.980.179.9Share premium789.4788.3789.4788.3Capital redemption reserve30.530.530.530.5Merger reserve––373.6373.6Share-based payments8.76.38.76.3Retained earnings9,708.77,522.53,816.64,098.2Own shares37(11.1)(9.2)––Total equity10,606.38,418.35,098.95,376.8The financial statements on pages 86 to 136 were approved by the Board of Directors on 18 May 2015 and were signed on its behalf by:R M Noel M F GreensladeDirectors 088
STATEMENT OF CHANGES IN EQUITY
Land Securities Annual Report 2015Attributable to owners of the parentGroupOrdinary shares£mShare premium£m Capital redemption reserve£mShare-based payments£mRetained earnings£m Own shares£mTotal equity£mAt 1 April 201379.2787.630.56.86,590.3(7.7)7,486.7Total comprehensive income for the year ended 31 March 2014––––1,112.3–1,112.3Transactions with owners:Exercise of options–1.4––––1.4Dividends to owners of the parent0.7(0.7)––(175.4)–(175.4)Fair value of share-based payments–––5.5––5.5Release on exercise of share options–––(6.0)6.0––Settlement and transfer of shares to employees on exercise of share options, net of proceeds––––(10.3)14.84.5Acquisition of own shares and treasury shares––––(0.4)(16.3)(16.7)Total transactions with owners of the parent0.70.7–(0.5)(180.1)(1.5)(180.7)At 31 March 201479.9788.330.56.37,522.5(9.2)8,418.3Total comprehensive income for the year ended 31 March 2015––––2,417.3–2,417.3Transactions with owners:Exercise of options–1.3––––1.3Dividends to owners of the parent0.2(0.2)––(229.8)–(229.8)Fair value of share-based payments –––6.0––6.0Release on exercise of share options–––(3.6)3.6––Settlement and transfer of shares to employees on exercise of share options, net of proceeds––––(4.7)9.95.2Acquisition of own shares– –––(0.2)(11.8)(12.0)Total transactions with owners of the parent0.21.1–2.4(231.1)(1.9)(229.3)At 31 March 201580.1789.430.58.79,708.7(11.1)10,606.3 STATEMENT OF CHANGES IN EQUITY
089
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015CompanyOrdinary shares £mShare premium £mCapital redemption reserve£mMerger reserve £mShare-based payments£m Retained earnings £mTotal equity £mAt 1 April 201379.2787.630.5373.66.84,315.65,593.3Loss for the year ended 31 March 2014–––––(47.7)(47.7)Exercise of options–1.4––––1.4Dividends paid to owners of the parent0.7(0.7)–––(175.4)(175.4)Fair value of share-based payments ––––5.5–5.5Release on exercise of share options––––(6.0)6.0–Purchase of treasury shares–––––(0.3)(0.3)At 31 March 201479.9788.330.5373.66.34,098.25,376.8Loss for the year ended 31 March 2015–––––(55.4)(55.4)Exercise of options–1.3––––1.3Dividends paid to owners of the parent0.2(0.2)–––(229.8)(229.8)Fair value of share-based payments––––6.0–6.0Release on exercise of share options––––(3.6)3.6–At 31 March 201580.1789.430.5373.68.73,816.65,098.9 090
STATEMENT OF CASH FLOWS
for the year ended 31 March 2015
Land Securities Annual Report 2015GroupCompanyNotes2015£m2014£m2015£m2014£mCash flows from operating activitiesNet cash generated from operations14447.5430.6––Interest received8.19.1––Interest paid(198.3)(251.4)––Employer contributions to defined benefit pension scheme(1.9)(4.8)––Capital expenditure on trading properties(50.7)(32.7)––Disposal of trading properties28.821.7––Corporation tax paid–(13.9)––Net cash inflow from operating activities233.5158.6––Cash flows from investing activitiesInvestment property development expenditure(196.2)(86.6)––Acquisition of investment properties and other investments(105.7)(3.7)––Acquisitions treated as business combinations (net of cash acquired)(699.3)–––Other investment property related expenditure(74.1)(135.5)––Disposal of investment properties466.7679.1––Expenditure on non-property related non-current assets(4.4)(1.6)––Disposal of joint ventures275.2142.8––Cash contributed to joint ventures16(16.7)(4.7)––Loan advances to joint ventures 16(153.9)(117.1)––Loan repayments by joint ventures 1637.010.9––Distributions from joint ventures1659.727.4––Net cash (outflow)/inflow from investing activities(411.7)511.0––Cash flows from financing activitiesCash received on issue of shares arising from exercise of share options6.56.0––Purchase of own shares and treasury shares(12.0)(16.0)––Increase in investment in subsidiary undertaking (X-Leisure)–(119.7)––Proceeds from new loans (net of finance fees)22419.9496.9––Repayment of loans22(13.6)(911.3)––Recapitalisation of non-wholly owned subsidiary33–15.0––Decrease in monies held in restricted accounts and deposits234.116.4––Decrease in finance leases payable(1.4)(0.1)––Dividends paid to owners of the parent12(229.4)(175.6)––Distributions paid by non-wholly owned subsidiaries33(2.5)(2.0)––Net cash inflow/(outflow) from financing activities171.6(690.4)––Decrease in cash and cash equivalents for the year(6.6)(20.8)––Cash and cash equivalents at the beginning of the year20.941.70.10.1Cash and cash equivalents at the end of the year2414.320.90.10.1The Company cash flow statement excludes transactions, including the payment of dividends, which are settled on the Company’s behalf by other Group undertakings. NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015
091
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015Section 1 – GeneralThis section contains a description of the Group’s significant accounting policies that relate to the financial statements as a whole. A description of accounting policies specific to individual areas (e.g. investment properties) is included within the relevant note to the financial statements.This section also includes a summary of new European Union (EU) endorsed accounting standards, amendments and interpretations that have not yet been adopted, and their expected impact on the reported results of the Group.1. Basis of preparation and consolidationBasis of preparationThese financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs. The financial statements have been prepared in pounds sterling (rounded to the nearest hundred thousand), which is the presentation currency of the Group (Land Securities Group PLC and all of its subsidiary undertakings), and under the historical cost convention as modified by the revaluation of investment property, available-for-sale investments, derivative financial instruments and pension assets.The preparation of financial statements in conformity with generally accepted accounting practice (GAAP) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial 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.Land Securities Group PLC has not presented its own statement of comprehensive income (and separate income statement), as permitted by Section 408 of Companies Act 2006. The loss for the year of the Company, dealt with in its financial statements, was £55.4m (2014: a loss of £47.7m). 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 profit. The capital redemption reserve represents the nominal value of cancelled shares.Basis of consolidationThe consolidated financial statements for the year ended 31 March 2015 incorporate the financial 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 where an entity is exposed to variable returns and has the ability to affect those returns through its power over the investee.The results of subsidiaries and joint ventures acquired or disposed of during the year are included from the effective date of acquisition or to the effective date of disposal. Accounting practices of subsidiaries and joint ventures which differ from Group accounting policies are adjusted on consolidation.Business combinations are accounted for under the acquisition method. Any excess of the purchase price of business combinations over the fair value of the assets, liabilities and contingent liabilities acquired and resulting deferred tax thereon is recognised as goodwill. Any discount received is credited to the income statement in the year of acquisition as a ‘gain on business combination’. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date and any gains or losses arising from such re-measurement are recognised in the income statement.Joint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement. Interests in joint arrangements are accounted for as either a joint venture or a joint operation as permitted by IFRS 11 ‘Joint Arrangements’. A joint arrangement is accounted for as a joint venture when the Group, along with the other parties that have joint control of the arrangement, have rights to the net assets of the arrangement. Joint ventures are equity accounted in accordance with IAS 28 (revised). The equity method requires the Group’s share of the joint venture’s post-tax profit or loss for the year to be presented separately in the income statement and the Group’s share of the joint venture’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 deficit and any distributions are included in the consolidated income statement for the year.A joint arrangement is accounted for as a joint operation when the Group, along with the parties that have joint control of the arrangement, have rights to the assets and obligations for the liabilities relating to the arrangement. Joint operations are accounted for by including the Group’s share of the assets, liabilities, income and expenses on a line-by-line basis.Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in the joint venture concerned. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment. 092
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 20152. Critical accounting judgements and key estimations of uncertaintyThe preparation of financial statements in conformity with IFRSs requires management to exercise its judgement in the process of applying the Group‘s accounting policies. Critical accounting judgements are disclosed in the relevant note to the financial statements. The areas where the Group considers the judgements to be most significant involve assumptions or estimates in respect of future events, where actual results may differ from these estimates. These areas are as follows:• Compliance with the Real Estate Investment Trust (REIT) taxation regime (note 13) • Investment property valuation (note 15)• Accounting for property acquisitions and disposals (note 15)• Trading property valuation (note 17)3. Amendments to IFRS standards The following accounting standards or interpretations were effective for the financial year beginning 1 April 2014 and have been applied in preparing these financial statements to the extent they are relevant to the preparation of financial information:• IFRS 10 ‘Consolidated Financial Statements’• IFRS 11 ‘Joint Arrangements’• IFRS 12 ‘Disclosure of Interests in Other Entities’• IAS 27 (revised) ‘Separate Financial Statements’• IAS 28 (revised) ‘Investments in Associates and Joint Ventures’• IAS 32 (amendment) ‘Financial instruments: Presentation’ – Offsetting financial assets and financial liabilities• IAS 36 (amendment) ‘Impairment of Assets’ – Recoverable amount disclosures for non-financial assets• IAS 39 (amendment) ‘Financial Instruments: Recognition and Measurement’ – Novation of derivatives and continuation of hedge accounting• IFRIC 21 ‘Levies’IFRS 10 outlines the requirements for the preparation of consolidated financial statements, requiring an entity to consolidate the results of all investees it is considered to control. Control exists where an entity is exposed to variable returns and has the ability to affect those returns through its power over the investee. IFRS 11 replaced IAS 31 ‘Interests in Joint Ventures’ and SIC 13 ‘Jointly Controlled Entities – Non-monetary Contributions by Venturers’. IFRS 11 defines two types of joint arrangement (joint operations and joint ventures) and specifies the accounting for each arrangement. Joint operations must be accounted for by including the operator’s share of the assets, liabilities, income and expenses on a line-by-line basis. Joint ventures are equity accounted in accordance with IAS 28 (revised). The option previously available under IAS 31 to account for jointly controlled entities using proportionate consolidation is no longer available. The adoption of IFRS 10 and IFRS 11 has not resulted in any changes to the Group’s financial position or performance. IFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. As a result of the adoption of IFRS 12 the Group has amended some of its disclosure in respect of joint arrangements. None of the other standards above have impacted the Group’s reporting.The following accounting standards and interpretations which are relevant to the Group have been issued, but are not yet effective:Issued and endorsed for use in the EU, but not yet effective:• IAS 19 ‘Defined benefit plans: employees contributions – amendments to IAS 19’Issued, not yet effective and not yet endorsed for use in the EU:• IFRS 9 ‘Financial Instruments’• IFRS 11 ‘Accounting for acquisitions of interests in joint operations – amendments to IFRS 11’• IFRS 15 ‘Revenue from Contracts with Customers’• IAS 1 ‘Disclosure initiative – amendments to IAS 1’These standards and interpretations have not been early adopted by the Group. The Group is in the process of assessing the impact of these new standards and interpretations on its financial reporting. 093
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015Section 2 – PerformanceThis section focuses on the performance of the Group for the year, including segmental information, earnings per share and net assets per share, together with further details on specific components of the income statement and dividends paid.The Group income statement is presented in a columnar format, split into those items that relate to revenue profit and capital and other items. The total column represents the Group’s results presented in accordance with IFRSs; the other columns provide additional information. This is intended to reflect the way in which the Group’s senior management review the results of the business and to aid reconciliation to the segmental reporting. A number of the financial measures used internally by the Group to measure performance include the results of partly-owned subsidiaries and joint ventures on a proportionate basis. Measures that are described as being on a proportionate basis include the Group’s share of joint ventures on a line-by-line basis and are adjusted to exclude the non-owned elements of our subsidiaries. This is in contrast to the Group’s statutory financial statements, where the Group applies equity accounting to its interest in joint ventures, presenting its interest as one line on the income statement and balance sheet, and consolidating all subsidiaries at 100% with any non-owned element being adjusted as a non-controlling interest or redemption liability as appropriate. Measures described as being prepared on a proportionate basis are non-GAAP measures and therefore not presented in accordance with IFRSs.Revenue profit is the Group’s measure of underlying pre-tax profit, which is used by senior management to assess the Group’s income performance. It excludes all items of a capital nature, such as valuation movements and profits and losses on the disposal of investment properties, as well as one-off items. A full definition of revenue profit is given in the glossary. The components of revenue profit are presented on a proportionate basis in note 4. Revenue profit is a non-GAAP measure.4. Segmental informationThe Group’s operations are organised into two operating segments, being the Retail Portfolio and the London Portfolio. The London Portfolio includes all our London offices and central London shops and the Retail Portfolio includes all our shopping centres and shops (excluding central London shops), hotels and leisure assets and retail warehouse properties. All of the Group’s operations are in the UK.Management has determined the Group’s operating segments based on the information reviewed by senior management to make strategic decisions. During the year, the chief operating decision maker was the Executive Committee (ExecCom), which comprised the Executive Directors, the managing directors of the Retail and London portfolios, the Group General Counsel and Company Secretary, and the Group HR Director. The information presented to ExecCom includes reports from all functions of the business as well as strategy, financial planning, succession planning, organisational development and Group-wide policies. The Group’s primary measure of underlying profit before tax is revenue profit. However, segment profit is the lowest level to which the profit arising from the ongoing operations of the Group is analysed between the two segments. The Group manages its financing structure, with the exception of joint ventures, on a pooled basis and, as such, debt facilities and interest charges (other than those relating to joint ventures) are not specific to a particular segment. Unallocated income and expenses (Group services) are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual segments.The Group’s financial performance is not impacted by seasonal fluctuations. 094
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 20154. Segmental information continuedYear ended 31 March 2015Retail PortfolioLondon PortfolioTotalRevenue profitGroup£mJoint ventures£mTotal£mGroup £mJoint ventures£mTotal£mGroup1£mJoint ventures£mTotal£mRental income327.849.1376.9244.921.5266.4572.770.6643.3Finance lease interest 1.40.11.58.9–8.910.30.110.4Gross rental income (before rents payable)329.249.2378.4253.821.5275.3583.070.7653.7Rents payable2(9.1)(1.6)(10.7)(2.2)–(2.2)(11.3)(1.6)(12.9)Gross rental income (after rents payable)320.147.6367.7251.621.5273.1571.769.1640.8Service charge income49.67.156.740.12.642.789.79.799.4Service charge expense(51.6)(7.9)(59.5)(39.0)(3.1)(42.1)(90.6)(11.0)(101.6)Net service charge (expense)/income(2.0)(0.8)(2.8)1.1(0.5)0.6(0.9)(1.3)(2.2)Other property related income18.51.119.615.90.716.634.41.836.2Direct property expenditure(37.4)(7.5)(44.9)(27.3)(3.1)(30.4)(64.7)(10.6)(75.3)Net rental income299.240.4339.6241.318.6259.9540.559.0599.5Indirect property expenditure(27.6)(1.8)(29.4)(19.9)(0.9)(20.8)(47.5)(2.7)(50.2)Depreciation(0.3)–(0.3)(0.8)–(0.8)(1.1)–(1.1)Segment profit before interest271.338.6309.9220.617.7238.3491.956.3548.2Joint venture net interest expense–(6.8)(6.8)–(17.5)(17.5)–(24.3)(24.3)Segment profit271.331.8303.1220.60.2220.8491.932.0523.9Group services – other income4.1–4.1 – expense(43.5)–(43.5)Interest income29.4–29.4Interest expense(184.8)–(184.8)Revenue profit297.132.0329.11. Group income figures shown in this column are included in note 5 and agree to the revenue figure included in the revenue profit column in the income statement. 2. Included within rents payable is finance lease interest payable of £1.2m and £0.4m for the Retail and London portfolios, respectively.TotalReconciliation of revenue profit to profit before taxGroup £mJoint ventures£mTotal£mRevenue profit297.132.0329.1Capital and other itemsImpairment of long-term development contracts(11.3)–(11.3)Profit on disposal of trading properties29.81.731.5Profit on disposal of investment properties107.125.6132.7Profit on disposal of investments in joint ventures3.3–3.3Net surplus on revaluation of investment properties1,767.8269.12,036.9Release of impairment/(impairment) of trading properties31.9(0.3)1.6Fair value movement on interest-rate swaps(34.0)(0.8)(34.8)Fair value movement on foreign exchange swaps(5.1)–(5.1)Foreign exchange movement on borrowings4.9–4.9Fair value movement on long-term liabilities(4.4)–(4.4)Amortisation of bond exchange de-recognition adjustment(21.5)–(21.5)Impairment of unamortised finance costs(4.5)(1.6)(6.1)Revaluation of redemption liabilities(8.5)–(8.5)Net gain on business combination2.2–2.2Business combination costs(8.8)–(8.8)Impairment of goodwill(29.7)–(29.7)Amortisation of intangible asset(1.1)–(1.1)Adjustment for non-wholly owned subsidiaries45.50.15.6Profit before tax2,090.7325.82,416.53. The net release of impairment of trading properties of £1.6m relates entirely to the London Portfolio with no trading property impairment recognised in the Retail Portfolio.4. All items in the segment note are presented on a proportionate basis (see note 1). This adjustment represents the non-owned element of the Group’s subsidiaries which is excluded from the numbers presented in the tables above. Included within the £5.6m adjustment above is revenue of £3.7m, net surplus on revaluation of investment properties of £2.8m, joint venture profits in non-wholly owned subsidiaries of £0.1m, less costs of £1.0m. 095
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 20154. Segmental information continuedYear ended 31 March 2014Retail PortfolioLondon PortfolioTotalRevenue profitGroup1£mJoint ventures£mTotal£mGroup1 £mJoint ventures£mTotal£mGroup2 £mJoint ventures£mTotal£mRental income311.965.6377.5247.39.3256.6559.274.9634.1Finance lease interest 1.80.22.08.9–8.910.70.210.9Gross rental income (before rents payable)313.765.8379.5256.29.3265.5569.975.1645.0Rents payable3(9.2)(1.9)(11.1)(2.5)–(2.5)(11.7)(1.9)(13.6)Gross rental income (after rents payable)304.563.9368.4253.79.3263.0558.273.2631.4Service charge income46.19.355.438.40.338.784.59.694.1Service charge expense(48.2)(10.6)(58.8)(38.4)(0.3)(38.7)(86.6)(10.9)(97.5)Net service charge expense(2.1)(1.3)(3.4)–––(2.1)(1.3)(3.4)Other property related income15.61.016.619.80.420.235.41.436.8Direct property expenditure(35.5)(9.6)(45.1)(22.3)(3.4)(25.7)(57.8)(13.0)(70.8)Net rental income282.554.0336.5251.26.3257.5533.760.3594.0Indirect property expenditure(25.5)(2.3)(27.8)(17.7)(0.6)(18.3)(43.2)(2.9)(46.1)Depreciation(0.2)–(0.2)(0.9)–(0.9)(1.1)–(1.1)Segment profit before interest256.851.7308.5232.65.7238.3489.457.4546.8Joint venture net interest expense–(14.0)(14.0)–(8.7)(8.7)–(22.7)(22.7)Segment profit256.837.7294.5232.6(3.0)229.6489.434.7524.1Group services – other income3.6–3.6– expense(40.1)–(40.1)Interest income25.2–25.2Interest expense (193.2)–(193.2)Revenue profit284.934.7319.61. The split of net rental income between the London Portfolio and the Retail Portfolio has been restated by £1.3m since the prior year to reflect the impact of properties transferred from the London Portfolio to the Retail Portfolio during the current year.2. Group income figures shown in this column are included in note 5 and agree to the revenue figure included in the revenue profit column in the income statement. 3. Included within rents payable is finance lease interest payable of £2.0m and £0.4m for the Retail and London portfolios, respectively.TotalReconciliation of revenue profit to profit before taxGroup £mJoint ventures£mTotal£mRevenue profit284.934.7319.6Capital and other itemsProfit on long-term development contracts–1.01.0Profit on disposal of trading properties1.90.52.4Profit on disposal of investment properties15.60.416.0Profit on disposal of investments in joint ventures2.5–2.5Net surplus on revaluation of investment properties608.5155.3763.8Release of impairment/(impairment) of trading properties45.3(0.3)5.0Fair value movement on interest-rate swaps10.44.815.2Amortisation of bond exchange de-recognition adjustment(19.6)–(19.6)Revaluation of redemption liabilities(5.6)–(5.6)Net gain on business combination5.0–5.0Joint venture net liabilities adjustment–(0.3)(0.3)Share of joint venture tax–(1.1)(1.1)Adjustment for non-wholly owned subsidiaries54.50.55.0Profit before tax913.4195.51,108.94. Of the net release of impairment of trading properties of £5.0m, an impairment of £0.4m relates to the Retail Portfolio, and a reversal of impairment of £5.4m relates to the London Portfolio.5. All items in the segment note are presented on a proportionate basis (see note 1). This adjustment represents the non-owned element of the Group’s subsidiaries which is excluded from the numbers presented in the tables above. Included within the £5.0m adjustment above is revenue of £11.9m, joint venture profits in non-wholly owned subsidiaries of £0.5m, less a net deficit on revaluation of investment properties of £1.9m, net interest expense of £2.0m and costs of £3.5m. 096
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 20155. Revenue RevenueThe Group recognises revenue on an accruals basis, when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Group. Revenue comprises rental income, service charge income and other recoveries, proceeds from the sale of trading properties, finance lease interest and income arising on long-term development contracts. Rental income includes the income from managed operations such as car parks, food courts, serviced offices and flats. Service charge income includes income in relation to service charges together with any chargeable management fees.Rental income, including fixed rental uplifts, 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 being offered to occupiers to enter into a lease, such as an initial rent-free period or a cash contribution to fit-out or similar costs, are an integral part of the net consideration for the use of the property and are therefore recognised on the same straight-line basis. Service charge income is recorded as income in the periods in which it is earned.When property is let under a finance 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 finance income as appropriate. Finance income is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining net investment in the finance lease. Contingent rents, being lease payments that are not fixed at the inception of a lease, for example turnover rents, are recorded as income in the periods in which they are earned.Proceeds received on the sale of trading properties are recognised within Revenue when the significant risks and rewards of ownership have been transferred to the buyer. This generally occurs on unconditional exchange or on completion, particularly if this is expected to occur significantly after exchange or the Group has significant outstanding obligations between exchange and completion.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 profit attributable to work completed is recognised once the outcome of the contract can be estimated reliably.All revenue is classified within the ‘Revenue profit’ column of the income statement, with the exception of proceeds on the sale of trading properties and income arising on long-term development contracts, which are presented in the ‘Capital and other items’ column. Also included in the ‘Capital and other items’ column is the non-owned element of the Group’s subsidiaries which is excluded from revenue profit.Group20152014 Revenue profit£mCapital and other items£mTotal£mRevenue profit£mCapital and other items£mTotal£mRental income (excluding adjustment for lease incentives)557.92.9560.8526.19.5535.6Adjustment for lease incentives14.80.114.933.10.733.8Rental income572.73.0575.7559.210.2569.4Service charge income89.70.790.484.52.186.6Other property related income34.4–34.435.4(0.6)34.8Trading property sales proceeds–55.555.5–11.211.2Finance lease interest10.3–10.310.70.210.9Other income4.1–4.13.6–3.6711.259.2770.4693.423.1716.5 097
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 20156. CostsCostsProperty and contract expenditure is expensed as incurred with the exception of expenditure on long-term development contracts (see note 5).Rental payments made under an operating lease in which the Group is a lessee are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are an integral part of the net consideration for the use of the property and are also recognised on a straight-line basis.Minimum lease payments payable on finance leases, and operating leases accounted for as finance leases under IAS 40, are apportioned between finance 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 (defined in note 5) are charged as an expense in the periods in which they are incurred.All costs are classified within the ‘Revenue profit’ column of the income statement, with the exception of the cost of sale of trading properties, costs arising on long-term development contracts, amortisation of intangible assets and business combination costs which are presented in the ‘Capital and other items’ column. Also included in the ‘Capital and other items’ column is the non-owned element of the Group’s subsidiaries which is excluded from revenue profit.Impairment The carrying amounts of the Group’s non-financial assets, other than investment properties, 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 flows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific 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.Group20152014 Revenue profit£mCapital and other items£mTotal£mRevenue profit£mCapital and other items£mTotal£mRents payable11.3–11.311.70.111.8Service charge expense190.60.691.286.62.489.0Direct property expenditure164.70.465.157.80.858.6Indirect property expenditure192.1–92.184.40.284.6Impairment of long-term development contracts–11.311.3–––Trading property disposals–25.725.7–9.39.3Amortisation of intangible asset–1.11.1–––Business combination costs–8.88.8–––258.747.9306.6240.512.8253.31. The table above includes Group employee costs for the year of £67.4m (2014: £63.8m), which has been split into £7.2m (2014: £7.4m) within service charge expense, £0.4m (2014: £0.2m) within direct property expenditure and £59.8m (2014: £56.2m) within indirect property expenditure.2015£m2014£mEmployee costs Salaries and wages52.149.6Employer payroll taxes7.37.1Other pension costs (note 34)3.33.2Share-based payments (note 35)6.05.568.765.4The total employee costs above of £68.7m (2014: £65.4m) includes the Group’s share of joint venture employee costs of £1.3m (2014: £1.6m).2015Number2014NumberThe average monthly number of employees during the year was:Indirect property or contract and administration460444Direct property or contract services: Full-time153156 Part-time1214625614 098
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 20156. Costs continuedThe increase in the average number of employees for the year ended 31 March 2015 reflects the acquisition of Bluewater in June 2014 and the transfer of staff in September 2014.With the exception of the Executive Directors, the Group General Counsel and Company Secretary and two employees of the Defined Benefit Pension Scheme who are employed by Land Securities Group PLC, all employees are employed by subsidiaries of the Group.During the year, no Executive Directors had retirement benefits accruing under either the defined contribution pension scheme or the defined benefit scheme (2014: none). Information on Directors’ emoluments, share options and interests in the Company’s shares is given in the Directors’ Remuneration Report on pages 61 to 78.Details of the employee costs associated with the Group’s key management personnel are included in note 39.7. Auditor remunerationGroup2015£m2014£mServices provided by the Group’s auditorAudit fees:Parent company and consolidated financial statements0.30.3Audit of subsidiary undertakings0.30.3Audit of joint ventures0.10.10.70.7Non-audit fees:Audit related assurance services0.10.10.80.8It is the Group’s policy to employ the Group’s auditor 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. If fees are expected to be greater than £25,000 they are pre-approved by the Audit Committee.Ernst & Young LLP were employed by the Group to audit X-Leisure Unit Trust (X-Leisure), replacing KPMG LLP. The fees of £0.1m (2014: £0.1m) have been included in the Audit of subsidiary undertakings total above.8. External valuers’ remunerationGroup2015£m2014£mServices provided by the Group’s external valuersValuation fees:Year end and half-year valuations 0.80.9Security Group valuation–0.10.81.0Other consultancy and agency services5.13.55.94.5The fee payable to Knight Frank LLP (Knight Frank), for the year end and half-year valuation is a fixed fee that is adjusted on an annual basis for acquisitions and disposals of investment properties in the reporting period to which the fee relates. Knight Frank also received fees for their duties performed for some of our joint venture arrangements, of which our proportionate share was £0.4m (2014: £0.3m). Jones Lang LaSalle Limited (JLL) was employed to perform the valuation of investment properties held by X-Leisure and CBRE Group Inc. (CBRE) was employed to perform the valuation of Bluewater. The fees of Knight Frank, JLL and CBRE have been included in the table above. Knight Frank, JLL and CBRE undertake some other consultancy and agency work on behalf of the Group.Knight Frank, JLL and CBRE have confirmed to us that the total fees paid by the Group represented less than 5% of their total revenues in each year. 099
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 20159. Net interest expense Group2015£m2014£mInterest expenseBond and debenture debt(169.8)(174.6)Bank borrowings(29.4)(30.0)Amortisation of bond exchange de-recognition(21.5)(19.6)Fair value movement on interest-rate swaps(34.0)–Fair value movement on foreign exchange swaps(5.1)–Foreign exchange movement on borrowings4.9–Fair value movement on long-term liabilities(4.4)–Impairment of unamortised finance costs(4.5)–Other interest payable(0.6)(1.0)(264.4)(225.2)Interest capitalised in relation to properties under development15.08.3Total interest expense(249.4)(216.9)Interest incomeShort-term deposits0.10.1Interest received on loan investments2.32.3Other interest receivable0.61.4Interest receivable from joint ventures26.221.0Net pension interest0.20.4Fair value movement on interest-rate swaps–12.5Total interest income29.437.7Net interest expense(220.0)(179.2)Included within rents payable (note 4) is finance lease interest payable of £1.6m (2014: £2.4m). The following table reconciles interest expense and interest income per the Group income statement to interest expense and interest income included within revenue profit (note 4):Group2015£m2014£mTotal interest expense(249.4)(216.9)Amortisation of bond exchange de-recognition adjustment21.519.6Fair value movement on interest-rate swaps34.0–Fair value movement on foreign exchange swaps5.1–Foreign exchange movement on borrowings(4.9)–Fair value movement on long-term liabilities4.4–Impairment of unamortised finance costs4.5–Adjustment for non-wholly owned subsidiaries1–4.1Group interest expense included in revenue profit(184.8)(193.2)Joint venture net interest expense included in revenue profit(24.3)(22.7)Interest expense included in revenue profit(209.1)(215.9)Total interest income29.437.7Fair value movement on interest-rate swaps–(10.4)Adjustment for non-wholly owned subsidiaries1–(2.1)Interest income included in revenue profit29.425.21. This represents the non-owned element of the Group’s subsidiaries which is excluded from revenue profit. 100
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201510. Net assets per shareGroup2015£m2014£mNet assets attributable to the owners of the parent10,606.38,418.3Fair value of interest-rate swaps – Group37.73.7– Joint ventures2.1(0.1)Deferred tax liability5.8–Goodwill on deferred tax liability(5.8)–EPRA adjusted net assets10,646.18,421.9Reverse bond exchange de-recognition adjustment(391.7)(413.2)Adjusted net assets attributable to the owners of the parent10,254.48,008.7Reinstate bond exchange de-recognition adjustment391.7413.2Fair value of interest-rate swaps – Group(37.7)(3.7)– Joint ventures(2.1)0.1Deferred tax liability(5.8)–Excess of fair value of debt over book value (note 22)(1,161.3)(889.1)EPRA triple net assets9,439.27,529.22015million2014millionNumber of ordinary shares in issue801.0799.2Number of treasury shares(10.5)(10.5)Number of own shares(1.0)(1.1)Number of ordinary shares – basic net assets per share789.5787.6Dilutive effect of share options3.73.0Number of ordinary shares – diluted net assets per share793.2790.62015pence2014penceNet assets per share1,3431,069Diluted net assets per share1,3371,065Adjusted net assets per share1,2991,017Adjusted diluted net assets per share1,2931,013EPRA measure – adjusted diluted net assets per share1,3421,065– diluted triple net assets per share1,190952Adjusted net assets per share excludes fair value adjustments on financial instruments used for hedging purposes and the bond exchange de-recognition adjustment as management consider this better represents the expected future cash flows 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 the owners of the parent is more indicative of underlying performance. 101
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201511. Earnings per shareEarnings per share (EPS) is the amount of post-tax profit attributable to each share.The Group has also chosen to disclose adjusted earnings per share in order to provide an indication of the Group’s underlying business performance. Adjusted earnings per share exclude items of a capital nature and one-off items. We believe our measure of adjusted diluted earnings per share is more appropriate than the EPRA measure in the context of our business.Group2015 £m2014 £mProfit for the year attributable to the owners of the parent2,416.81,116.6Net surplus on revaluation of investment properties(2,036.9)(763.8)Profit on disposal of investment properties(132.7)(16.0)Profit on disposal of investments in joint ventures(3.3)(2.5)Release/(impairment) of trading properties(1.6)(5.0)Profit on disposal of trading properties(31.5)(2.4)Fair value movement on interest-rate swaps34.8(15.2)Fair value movement on foreign exchange swaps5.1–Foreign exchange movement on borrowings(4.9)–Fair value movement on long-term liabilities4.4–Revaluation of redemption liabilities8.55.6Business combination costs8.8–Net gain on business combination(2.2)(5.0)Impairment of goodwill29.7–Amortisation of intangible asset1.1–Impairment of unamortised finance costs6.1–Group taxation(0.3)(7.7)Share of joint venture tax–0.6Joint venture net liabilities adjustment1–0.3Adjustment for non-wholly owned subsidiaries2(5.6)(5.0)EPRA adjusted earnings attributable to the owners of the parent296.3300.5Eliminate:Impairment/(profit) on long-term development contracts311.3(1.0)Amortisation of bond exchange de-recognition21.519.6Adjusted earnings attributable to the owners of the parent329.1319.11. Joint ventures with net liabilities are carried at zero value in the balance sheet where there is no commitment to fund the deficit.2. This adjustment represents the non-owned element of the Group’s subsidiaries which is excluded from adjusted earnings.3. The impairment/(profit) on long-term development contracts has been removed from our adjusted earnings due to the long-term, capital nature of these programmes.2015million2014millionWeighted average number of ordinary shares 800.9796.2Weighted average number of treasury shares(10.5)(10.5)Weighted average number of own shares(0.8)(1.1)Weighted average number of ordinary shares – basic earnings per share789.6784.6Dilutive effect of share options 3.52.9Weighted average number of ordinary shares – diluted earnings per share793.1787.52015pence2014penceBasic earnings per share306.1142.3Diluted earnings per share304.7141.8Adjusted earnings per share41.740.7Adjusted diluted earnings per share41.540.5EPRA adjusted earnings per share37.538.3EPRA adjusted diluted earnings per share37.438.2 102
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201512. Dividends Accounting policyInterim dividend distributions to shareholders are recognised in the financial statements when paid. Final dividend distributions are recognised as a liability in the period in which they are approved by shareholders.Group and CompanyPayment datePID1 per share (p)Non-PID1 per share (p)Total per share (p)2015 £m2014 £mFor the year ended 31 March 2013:Third interim17 April 20137.4–7.457.8Final19 July 20137.6–7.659.4For the year ended 31 March 2014:First interim11 October 20137.6–7.659.6Second interim9 January 20147.6–7.659.7Third interim11 April 20147.6–7.659.8Final22 July 20147.9–7.962.4For the year ended 31 March 2015:First interim10 October 20147.9–7.962.4Second interim8 January 20156.01.97.962.4Gross dividend247.0236.5Dividends settled in shares(17.2)(61.1)Dividends in statement of changes in equity229.8175.4Timing difference relating to payment of withholding tax(0.4)0.2Dividends in the statement of cash flows229.4175.61. The PID/non-PID split relates to cash dividends. All scrip dividends have been non-PID.A third quarterly interim dividend of 7.9p per ordinary share, or £62.4m in total (2014: 7.6p or £59.8m in total), was paid on 10 April 2015 as a Property Income Distribution (PID). The Board has recommended a final quarterly dividend for the year ended 31 March 2015 of 8.15p per ordinary share (2014: 7.9p) to be paid as a PID. This final dividend will result in a further estimated distribution of £64.4m (2014: £62.4m). Subject to shareholders’ approval at the Annual General Meeting, the final dividend will be paid on 24 July 2015 to shareholders registered at the close of business on 19 June 2015. The total dividend paid and recommended in respect of the year ended 31 March 2015 is 31.85p (2014: 30.7p). The Company operated a scrip dividend scheme during part of the year and the scrip dividend amount of £17.2m (2014: £61.1m) comprised a wholly non-PID distribution. A dividend reinvestment plan (DRIP) was introduced in place of the scrip dividend scheme and was operated for the first time in respect of last year’s final dividend paid on 22 July 2014. 103
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201513. Income taxAccounting policyIncome tax on the profit 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 financial reporting purposes and the amounts used for taxation purposes. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the asset is realised or the liability is settled.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 profit and (ii) relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future.Critical accounting judgements and key estimations of uncertainty (compliance with Real Estate Investment Trust (REIT) taxation regime)On 1 January 2007 the Group converted to a group REIT. As a result, the Group no longer pays UK corporation tax on its profits and gains from qualifying rental business in the UK provided it meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal. 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 profits must arise from the tax exempt business; and• at least 90% of the notional taxable profit 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.Group2015£m2014£mCurrent taxIncome tax charge for the year–(0.9)Adjustment in respect of prior years0.18.6Total current income tax credit in the income statement0.17.7Deferred taxDeferred tax movement on intangible asset0.2–Total deferred tax credit in the income statement0.2–Total income tax credit in the income statement0.37.7The tax for the year is lower than the standard rate of corporation tax in the UK of 21% (2014: 23%). The differences are explained below:2015£m2014£mProfit before tax2,416.51,108.9Profit before tax multiplied by the rate of corporation tax in the UK of 21% (2014: 23%)(507.5)(255.0)Exempt property rental profits and revaluations in the year510.4248.12.9(6.9)Effects of:Interest rate fair value movements and other temporary differences(7.8)2.1Adjustment in respect of prior years0.18.6Non-allowable expenses and non-taxable items1.31.3Utilisation of brought forward losses3.81.9Joint venture tax adjustment–0.7Total income tax credit in the income statement (as above)0.37.7The Group has unrecognised unutilised revenue tax losses carried forward as at 31 March 2015 of approximately £43.0m (2014: £52.0m).During the year the Group released provisions of £0.1m (2014: £8.6m) to the income statement on the settlement of historical issues.The total deferred tax balance of £7.3m at 31 March 2015 (2014: £nil) comprises deferred tax arising on business combinations (note 41) and deferred tax arising on the Defined Benefit Pension Scheme surplus. 104
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201514. Net cash generated from operationsGroupCompanyReconciliation of operating profit to net cash generated from operations:2015 £m2014 £m2015 £m2014 £mOperating profit2,346.71,093.222.022.0Adjustments for:Depreciation2.12.7––Amortisation of intangible asset1.1–––Impairment of long-term development contracts11.3–––Profit on disposal of trading properties(29.8)(1.9)––Profit on disposal of investment properties(107.1)(15.6)––Profit on disposal of investments in joint ventures(3.3)(2.5)––Net surplus on revaluation of investment properties(1,770.6)(606.6)––Release of impairment of trading properties(1.9)(5.3)––Share-based payment charge6.05.5––Defined Benefit Pension Scheme charge1.11.0––455.6470.522.022.0Changes in working capital:Increase in long-term development contracts(0.6)(1.3)––Increase/(decrease) in receivables5.6(52.9)––(Decrease)/increase in payables and provisions(13.1)14.3(22.0)(22.0)Net cash generated from operations447.5430.6–– 105
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015Section 3 – PropertiesThis section focuses on the property assets which form the core of the Group’s business. It includes details of investment properties, investments in joint ventures and trading properties.The Group’s property portfolio is a combination of wholly owned investment and trading properties, and investment and trading properties held through joint ventures. Investment properties are carried at fair value and trading properties are carried at the lower of cost and net realisable value. Both of these values are determined by the Group’s external valuers.The Group’s wholly owned properties are presented as either ‘Investment properties’ or ‘Trading properties’ in the Group balance sheet. The Group applies equity accounting to its investments in joint ventures, which requires the Group’s share of properties held by joint ventures to be presented within ‘Investments in joint ventures’. The combined value of the Group’s total investment property portfolio (including the Group’s share of investment properties held through joint ventures) is shown as a reconciliation in note 15.15. Investment propertiesAccounting policyInvestment properties are those properties, either owned by the Group or where the Group is a lessee under a finance 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 definition of an investment property is met. In such cases, the operating leases concerned are accounted for as if they were finance 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 independent valuers at each reporting date. Properties are treated as acquired at the point when the Group assumes the significant risks and returns of ownership and as disposed when these are transferred to the buyer. This generally occurs on unconditional exchange or on completion, particularly if this is expected to occur significantly after exchange or the Group has significant outstanding obligations between exchange and completion. 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 surplus or deficit. The profit on disposal is determined as the difference between the sales proceeds and the carrying amount of the asset at the commencement of the accounting period plus capital expenditure in the period. When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property continues to be held as an investment property. 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.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 specific developments. Where borrowings are associated with specific 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 finance costs is suspended if there are prolonged periods when development activity is interrupted. Interest is also capitalised on the purchase cost of land or property acquired specifically for redevelopment in the short term but only where activities necessary to prepare the asset for redevelopment are in progress.Critical accounting judgements and key estimations of uncertainty (investment property valuation)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 flow in the property market.The investment property valuation contains a number of assumptions upon which Knight Frank, JLL and CBRE have based their valuation of the Group’s properties as at 31 March 2015. The assumptions on which the property valuation reports have been based include, but are not limited to, matters such as the tenure and tenancy details for the properties, ground conditions at the properties, the structural condition of the properties, prevailing market yields and comparable market transactions. These assumptions are market standard and accord with the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards 2012. However, if any assumptions made by the property valuer prove to be inaccurate, 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 financial position.In assessing the recognition of a property acquisition or disposal, judgement is required on whether the Group holds the risks and reward of ownership and the point at which this is obtained or relinquished. Consideration is given to the terms of the acquisition/disposal contracts and any conditions that must be satisfied before the contract is fulfilled and, in the case of an acquisition, whether the transaction represents an asset acquisition or business combination. 106
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201515. Investment properties continuedGroup2015£m2014£mNet book value at the beginning of the year9,847.79,651.9Acquisitions108.91.6Acquired in business combination (note 41)910.8–Capital expenditure: Like-for-like portfolio72.5120.0Development portfolio203.7102.0Capitalised interest11.45.5Disposals(470.6)(637.3)Net movement in finance leases(13.6)3.2Transfer to trading properties–(5.8)Transfer to non-current assets held for sale (note 42)(283.4)–Valuation surplus1,770.6606.6Net book value at the end of the year12,158.09,847.7The market value of the Group’s investment properties, as determined by the Group’s external valuers, differs from the net book value presented in the balance sheet due to the Group presenting lease incentives, tenant finance leases and head leases separately. The following table reconciles the net book value of the investment properties to the market value. As at 31 March 2015As at 31 March 2014Group (excl. joint ventures)£mJoint ventures1 £mAdjustment for proportionate share2£mCombined Portfolio£mGroup (excl. joint ventures)£mJoint ventures1£mAdjustment for proportionate share2£mCombined Portfolio£mNet book value12,158.01,403.0(31.8)13,529.29,847.71,571.4(28.7)11,390.4Plus: tenant lease incentives251.026.5(0.2)277.3251.927.9(0.2)279.6Less: head leases capitalised (16.5)–0.2(16.3)(30.1)(3.0)0.2(32.9)Plus: properties treated as finance leases242.4–(1.2)241.2219.34.1(1.1)222.3Market value12,634.91,429.5(33.0)14,031.410,288.81,600.4(29.8)11,859.41. Refer to note 16 for a breakdown of this amount by entity.2. This represents the interest in X-Leisure which we do not own, but is consolidated in the Group numbers.The net book value of leasehold properties where head leases have been capitalised is £911.8m (2014: £925.1m).Investment properties include capitalised interest of £198.2m (2014: £214.3m). The average rate of interest capitalisation for the year is 5.0% (2014: 5.0%). The historical cost of investment properties is £7,185.4m (2014: £6,579.6m). Valuation processThe fair value of investment properties at 31 March 2015 was determined by the Group’s external valuers: Knight Frank, CBRE and JLL. The valuations are in accordance with RICS standards and were arrived at by reference to market evidence of transactions for similar properties. The valuations performed by the independent valuers are reviewed internally by senior management and relevant people within the London and Retail business units. This includes discussions of the assumptions used by the external valuers, as well as a review of the resulting valuations. Discussions of the valuation process and results are held between senior management, the Audit Committee and the external valuers on a half-yearly basis.The valuers’ opinion of fair value was primarily derived using comparable recent market transactions on arm’s length terms and using appropriate valuation techniques. The fair value of investment properties is determined using the income capitalisation approach. Under this approach, forecast net cash flows, based upon market derived estimated present rental values (market rent), together with estimated costs, are discounted at market derived capitalisation rates to produce the valuers’ opinion of fair value. The average discount rate which, if applied to all cash flows would produce the fair value, is described as the equivalent yield. Prior to their completion, properties in the development programme are valued using a residual valuation method. Under this methodology, the valuer assesses the completed development value using income and yield assumptions. Deductions are then made for estimated costs to complete, including finance and developer’s profit, to arrive at the valuation.The Group considers all of its investment properties to fall within ‘Level 3’, as defined by IFRS 13 and as explained in note 27(iii). Accordingly, there has been no transfer of properties within the fair value hierarchy in the financial year. Costs include future estimated costs associated with refurbishment or development (excluding finance costs), together with an estimate of cash incentives to be paid to tenants. 107
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201515. Investment properties continuedThe table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2015:31 March 2015Estimated rental value£ per sq ftEquivalent yield%Costs£ per sq ftMarket value£mLowAverageHighLowAverageHighLowAverageHighRetail PortfolioShopping centres and shops3,029.6934574.24.77.6–411Retail warehouses and food stores1,199.11120295.05.57.6–332Leisure and hotels1,442.3513573.95.99.4–119Other122.8n/an/an/an/an/an/an/an/an/aTotal Retail Portfolio (excluding developments)5,693.8522573.95.29.4–332London PortfolioWest End2,052.41653643.74.55.5–1776City770.64151564.24.45.0–217Mid-town1,101.43249594.24.35.3–1383Inner London483.32731414.85.56.1–3873Total London offices4,407.71647643.74.56.1–1883Central London shops1,119.812571293.04.65.8–12Other170.1n/an/an/an/an/an/an/an/an/aTotal London Portfolio (excluding developments)5,597.612481293.04.56.1–1683Developments: income capitalisation method376.54969704.54.54.8333Developments: residual method967.02849754.14.45.057180427Development programme1,343.52852754.14.45.03148427Market value at 31 March 2015 – Group12,634.91. The ‘Other’ category contains a range of low value properties of a diverse nature. As a result it is not meaningful to present assumptions used in valuing these properties.The sensitivities illustrate the impact of changes in key unobservable inputs (in isolation) on the fair value of the Group’s properties:31 March 2015SensitivitiesImpact on valuations of 5% change in estimated rental valueImpact on valuations of 25 bps change in equivalent yieldImpact on valuations of 5% change in costsMarket value£mIncrease£mDecrease£mDecrease£mIncrease£mDecrease£mIncrease£mTotal Retail Portfolio (excluding developments)5,693.8243.8(221.0)274.2(248.3)n/an/aTotal London Portfolio (excluding developments)5,597.6244.4(225.6)343.6(307.8)n/an/aDevelopments: income capitalisation method376.517.9(15.2)24.6(22.0)n/an/aDevelopments: residual method967.036.2(34.9)97.0(87.1)21.6(22.4)Market value at 31 March 2015 – Group12,634.9 108
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201515. Investment properties continuedThe table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2014:31 March 2014Estimated rental value£ per sq ftEquivalent yield%Costs£ per sq ftMarket value£mLowAverageHighLowAverageHighLowAverageHighRetail PortfolioShopping centres and shops2,184.21129504.55.88.8–312Retail warehouses and food stores1,125.01220305.15.87.5–526Leisure and hotels1,229.7513255.26.69.7–117Other128.7n/an/an/an/an/an/an/an/an/aTotal Retail Portfolio (excluding developments)4,567.6520504.56.09.7–326London PortfolioWest End1,539.61446604.55.05.4–18City932.33644544.75.05.8–715Mid-town941.73247564.74.95.6–1392Inner London316.22227355.05.96.5–2466Total London offices3,729.81443604.55.06.5–992Central London shops905.11247934.35.07.0–––Other188.2n/an/an/an/an/an/an/an/an/aTotal London Portfolio (excluding developments)4,723.11243934.35.07.0–892Developments: income capitalisation method584.36165675.05.05.0–24Developments: residual method413.82155695.15.35.588328466Development programme998.12158695.05.15.5–226466Market value at 31 March 2014 – Group10,288.81. The ‘Other’ category contains a range of low value properties of a diverse nature. As a result it is not meaningful to present assumptions used in valuing these properties.The sensitivities illustrate the impact of changes in key unobservable inputs (in isolation) on the fair value of the Group’s properties:31 March 2014SensitivitiesImpact on valuations of 5% change in estimated rental valueImpact on valuations of 25 bps change in equivalent yieldImpact on valuations of 5% change in costsMarket value£mIncrease£mDecrease£mDecrease£mIncrease£mDecrease£mIncrease£mTotal Retail Portfolio (excluding developments)4,567.6184.0(163.9)185.8(175.2)n/an/aTotal London Portfolio (excluding developments)4,723.1182.4(166.4)246.8(222.8)n/an/aDevelopments: income capitalisation method584.326.3(25.8)32.5(29.4)n/an/aDevelopments: residual method413.824.2(24.2)35.2(32.0)16.3(16.3)Market value at 31 March 2014 – Group10,288.8 109
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201516. Joint arrangementsAccounting policyJoint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement. Interests in joint arrangements are accounted for as either a joint venture or a joint operation as permitted by IFRS 11 ‘Joint Arrangements’. The accounting treatment for our joint arrangements requires an assessment to determine whether the Group has joint control over the arrangement and to consider whether the Group has an interest in the net assets or a direct interest in the assets and liabilities of the arrangement.A joint arrangement is accounted for as a joint venture when the Group, along with the other parties that have joint control of the arrangement, have rights to the net assets of the arrangement. In the Group’s statutory financial statements, interests in joint ventures are accounted for using the equity method of accounting. The equity method requires the Group’s share of the joint venture’s post-tax profit or loss for the period to be presented separately in the income statement and the Group’s share of the joint venture’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 deficit and any distributions are included in the consolidated income statement for the year. A joint arrangement is accounted for as a joint operation when the Group, along with the parties that have joint control of the arrangement, have rights to the assets and obligations for the liabilities relating to the arrangement. The Group’s share of jointly controlled assets, related liabilities, income and expenses are combined with the equivalent items in the financial statements on a line-by-line basis. All information presented in respect of joint arrangements is consistent with the Group’s reporting date.The Group’s joint arrangements are described below:Joint venturesPercentage owned and voting rightsBusiness segment Year end date1 Joint venture partnersHeld at 31 March 201520 Fenchurch Street Limited Partnership50.0%London Portfolio31 MarchCanary Wharf Group plcNova, Victoria250.0%London Portfolio31 MarchCanada Pension Plan Investment BoardMetro Shopping Fund Limited Partnership50.0%Retail Portfolio31 MarchDelancey Real Estate Partners LimitedSt. David’s Limited Partnership50.0%Retail Portfolio31 DecemberIntu Properties plcWestgate Oxford Alliance Limited Partnership50.0%Retail Portfolio31 MarchThe Crown Estate CommissionersThe Oriana Limited Partnership50.0%London Portfolio31 MarchFrogmore Real Estate Partners Limited PartnershipHarvest3,450.0%Retail Portfolio31 MarchJ Sainsbury plcThe Ebbsfleet Limited Partnership450.0%London Portfolio31 MarchLafarge Cement UK PLCMillshaw Property Co. Limited450.0%Retail Portfolio31 MarchEvans Property Group LimitedCountryside Land Securities (Springhead) Limited450.0%London Portfolio30 SeptemberCountryside Properties PLCWest India Quay Unit Trust4,550.0%Retail Portfolio31 DecemberSchroder Exempt Property Unit TrustJoint operationsOwnership interest Business segment Joint operation partnersBluewater, Kent30.0%Retail PortfolioM&G Real Estate and GICLend Lease Retail PartnershipHermes and Aberdeen Asset ManagementDisposed of or transferred to investments in subsidiaries in the year ended 31 March 2015Ownership interest Business segment Buchanan Partnership650.0%Retail PortfolioThe Henderson UK Shopping Centre FundPrincesshay, Exeter650.0%Retail PortfolioThe Crown Estate CommissionersBristol Alliance Limited Partnership750.0%Retail PortfolioHammerson plcThe Martineau Galleries Limited Partnership433.3%Retail PortfolioHammerson plcPearl Group LimitedThomas More Square, E1850.0%London PortfolioThe Cadillac Fairview Corporation LimitedDisposed of in the year ended 31 March 2014Ownership interest Business segment The Scottish Retail Property Limited Partnership450.0%Retail PortfolioThe British Land Company PLCHungate (York) Regeneration Limited433.3%Retail PortfolioCrosby Lend Lease PLCEvans Property Group LimitedThe Empress State Limited Partnership450.0%London PortfolioCapital & Counties Properties PLC1. The year end date shown is the accounting reference date of the joint venture. In all cases the Group’s accounting is performed using financial information for the Group’s own reporting period and reporting date.2. Nova, Victoria includes the Victoria Circle Limited Partnership and Nova Residential Limited Partnership.3. Harvest includes The Harvest Limited Partnership and Harvest Two Limited Partnership. The Harvest Partnership disposed of its interests in Salisbury and Hull.4. Included within ‘Other’ in subsequent tables.5. West India Quay Unit Trust is held in the X-Leisure Unit Trust (X-Leisure) in which the Group holds a 95% share.6. On 31 October 2014, the Group simultaneously disposed of its interest in Princesshay, Exeter and acquired the remaining 50% interest in the Buchanan Partnership. See note 41.7. On 30 October 2014, the Group disposed of its interest in the Bristol Alliance Limited Partnership.8. On 19 November 2014, the Group acquired the remaining 50% interest in Thomas More Square, E1, from the Ontario Teachers’ Pension Plan. 110
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201516. Joint arrangements continuedAll of the Group’s joint arrangements have their principal place of business in the United Kingdom. All of the Group’s joint arrangements own and operate investment property with the exception of The Ebbsfleet Limited Partnership and Countryside Land Securities (Springhead) Limited, which hold development land as trading properties. The 20 Fenchurch Street Limited Partnership, Nova, Victoria and The Oriana Limited Partnership are also engaged in the development of investment properties, with the latter two also developing trading properties. The activities of all the Group’s joint arrangements are therefore strategically important to the business activities of the Group.All joint ventures are registered in England and Wales with the exception of the Metro Shopping Fund Limited Partnership and West India Quay Unit Trust which are registered in Jersey. Year ended 31 March 2015Joint ventures Income statement20 Fenchurch Street Limited Partnership100%£mNova, Victoria100%£mMetro Shopping Fund Limited Partnership100%£mBuchanan Partnership3100%£mSt. David’s Limited Partnership100%£mWestgate Oxford Alliance Partnership100%£mBristol AllianceLimited Partnership4100%£mThe Oriana Limited Partnership100%£mIndividually material JVs at LS’s share50%£mOtherLS share£mTotalLS share£mRevenue137.40.217.411.642.84.225.012.475.58.884.3Gross rental income (after rents payable)31.0–14.010.433.63.221.212.062.76.469.1Net rental income/(expense)28.8(2.8)13.08.227.62.817.611.653.45.659.0Segment profit/(loss) before interest27.8(3.2)12.28.226.62.217.011.251.05.356.3Net interest (expense)/income(27.8)(0.4)(6.2)(4.2)(3.6)0.2–(7.2)(24.6)0.3(24.3)Revenue profit –(3.6)6.04.023.02.417.04.026.45.632.0Capital and other items(Loss)/Profit on disposal of trading properties––––(0.2)–––(0.1)1.81.7Profit on disposal of investment properties–––––0.2–42.421.34.325.6Impairment of trading properties–––––––––(0.3)(0.3)Net surplus on revaluation of investment properties187.080.061.8–118.421.8–63.2266.13.0269.1Fair value movement on interest-rate swaps––––0.6––(2.2)(0.8)–(0.8)Impairment of unamortised finance costs–––––––(3.3)(1.6)–(1.6)Adjustment for non-wholly owned subsidiary2–––––––––0.10.1Profit before tax187.076.467.84.0141.824.417.0104.1311.314.5325.8Income tax–––––––––––Post-tax profit187.076.467.84.0141.824.417.0104.1311.314.5325.8Other comprehensive income––(3.4)–––––(1.7)–(1.7)Total comprehensive income187.076.464.44.0141.824.417.0104.1309.614.5324.150.0%50.0%50.0%50.0%50.0%50.0%50.0%50.0%Land Securities’ share of total comprehensive income93.538.232.22.070.912.28.552.1309.614.5324.11. Revenue includes gross rental income (before rents payable), service charge income, other property related income, trading properties disposal proceeds and income from long-term development contracts.2. The adjustment represents the non-owned element of a Group subsidiary’s investment in a joint venture which is excluded from revenue profit and the ‘Net surplus/(deficit) on revaluation of investment properties’ shown in this note.3. On 31 October 2014, the Group acquired the remaining 50% interest in Buchanan Galleries, Glasgow from its joint venture partner, therefore the table above only represents the comprehensive income earned in the year up to this date.4. On 30 October 2014, the Group disposed of its interest in the Bristol Alliance Limited Partnership, therefore the table above only represents the comprehensive income earned in the year up to this date. 111
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201516. Joint arrangements continuedYear ended 31 March 2014Joint ventures Income statement20 Fenchurch Street Limited Partnership100%£mNova, Victoria100%£mMetro Shopping Fund Limited Partnership100%£mBuchanan Partnership100%£mSt. David’s Limited Partnership100%£mWestgate Oxford Alliance Partnership100%£mBristol AllianceLimited Partnership100%£mThe Oriana Limited Partnership100%£mIndividually material JVs at LS’s share50%£mOtherLS share£mTotalLS share£mRevenue11.4–17.420.644.64.442.013.471.924.996.8Gross rental income (after rents payable)1.0(0.2)14.418.033.43.635.412.859.214.073.2Net rental income/(expense)(3.8)(1.2)12.815.627.22.830.212.448.012.360.3Segment profit/(loss) before interest(4.2)(1.4)12.215.426.02.429.611.845.911.557.4Net interest expense(8.8)(0.6)(6.6)(8.4)(8.8)––(7.4)(20.3)(2.4)(22.7)Revenue profit (13.0)(2.0)5.67.017.22.429.64.425.69.134.7 Capital and other items Profit on long-term development contracts–––––––––1.01.0Profit on disposal of trading properties––––1.0–––0.5–0.5Profit on disposal of investment properties–––––––––0.40.4Impairment of trading properties––––(0.6)–––(0.3)–(0.3)Net surplus/(deficit) on revaluation of investment properties201.430.216.4(6.4)17.6(6.8)(5.4)65.4156.2(0.9)155.3Fair value movement on interest-rate swaps––––3.6––3.03.31.54.8Adjustment for non-wholly owned subsidiary2–––––––––0.50.5Profit before tax188.428.222.00.638.8(4.4)24.272.8185.311.6196.9Income tax––(1.0)–(0.4)–––(0.7)(0.4)(1.1)188.428.221.00.638.4(4.4)24.272.8184.611.2195.8Net liabilities adjustment3–––––––––(0.3)(0.3)Post-tax profit188.428.221.00.638.4(4.4)24.272.8184.610.9195.5Other comprehensive income––6.0–––––3.00.53.5Total comprehensive income188.428.227.00.638.4(4.4)24.272.8187.611.4199.050.0%50.0%50.0%50.0%50.0%50.0%50.0%50.0% Land Securities’ share of total comprehensive income94.214.113.50.319.2(2.2)12.136.4187.611.4199.01. Revenue includes gross rental income (before rents payable), service charge income, other property related income, trading properties disposal proceeds and income from long-term development contracts.2. The adjustment represents the non-owned element of a Group subsidiary’s investment in a joint venture which is excluded from revenue profit and the ‘Net surplus/(deficit) on revaluation of investment properties’ shown in this note.3. Joint ventures with net liabilities are carried at zero value in the balance sheet where there is no commitment to fund the deficit. Where this is the case distributions are included in the consolidated income statement for the year. 112
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201516. Joint arrangements continued Joint ventures20 Fenchurch Street Limited Partnership100%£mNova, Victoria100%£mMetro Shopping Fund Limited Partnership100%£mBuchanan Partnership2100%£mSt. David’s Limited Partnership100%£mWestgate Oxford Alliance Partnership100%£mBristol AllianceLimited Partnership3100%£mThe Oriana Limited Partnership100%£mIndividually material JVs at LS’s share50%£mOtherLS share£mTotalLS share£mBalance sheet at 31 March 2015Investment properties1916.4453.2308.6–641.6100.0–242.41,331.171.91,403.0Non-current assets916.4453.2308.6–641.6100.0–242.41,331.171.91,403.0 Cash and cash equivalents6.64.010.2–6.28.6–62.248.99.358.2Other current assets35.0184.86.0–23.21.0–28.2139.132.5171.6Current assets41.6188.816.2–29.49.6–90.4188.041.8229.8Total assets958.0642.0324.8–671.0109.6–332.81,519.1113.71,632.8Trade and other payables and provisions(66.0)(97.0)(5.9)–(13.2)(2.6)–(41.4)(113.0)(4.8)(117.8)Current liabilities(66.0)(97.0)(5.9)–(13.2)(2.6)–(41.4)(113.0)(4.8)(117.8)Trade and other payables and provisions–––––––––––Non-current financial liabilities––(147.0)–––––(73.5)(8.0)(81.5)Non-current liabilities––(147.0)–––––(73.5)(8.0)(81.5)Total liabilities(66.0)(97.0)(152.9)–(13.2)(2.6)–(41.4)(186.5)(12.8)(199.3)Net assets892.0545.0171.9–657.8107.0–291.41,332.6100.91,433.5 Market value of investment properties1948.2453.2310.6–660.0100.0–242.61,357.372.21,429.5Net (debt)/cash6.64.0(136.8)–6.28.6–62.2(24.6)1.3(23.3)Balance sheet at 31 March 2014Investment properties1686.8265.2235.4268.0523.260.0509.2392.01,469.9101.51,571.4Non-current assets686.8265.2235.4268.0523.260.0509.2392.01,469.9101.51,571.4Cash and cash equivalents3.813.28.41.212.22.04.812.829.27.436.6Other current assets1.0131.64.85.227.00.634.216.0110.243.0153.2Current assets4.8144.813.26.439.22.639.028.8139.450.4189.8Total assets691.6410.0248.6274.4562.462.6548.2420.81,609.3151.91,761.2Trade and other payables and provisions(30.8)(34.6)(6.4)(4.2)(14.2)(1.2)(13.6)(17.0)(61.0)(4.6)(65.6)Current liabilities(30.8)(34.6)(6.4)(4.2)(14.2)(1.2)(13.6)(17.0)(61.0)(4.6)(65.6)Trade and other payables and provisions–(12.8)––––––(6.4)(1.1)(7.5)Non-current financial liabilities––(142.8)–(157.6)–(5.2)(166.8)(236.2)(8.6)(244.8)Non-current liabilities–(12.8)(142.8)–(157.6)–(5.2)(166.8)(242.6)(9.7)(252.3)Total liabilities(30.8)(47.4)(149.2)(4.2)(171.8)(1.2)(18.8)(183.8)(303.6)(14.3)(317.9)Net assets660.8362.699.4270.2390.661.4529.4237.01,305.7137.61,443.3Market value of investment properties1687.6265.2237.2270.0544.460.0534.6398.01,498.5101.91,600.4Net (debt)/cash3.813.2(134.4)1.2(145.2)6.2(0.2)(153.8)(204.6)(3.6)(208.2)1. The difference between the book value and the market value is the amount included in ‘Other current assets’ in respect of lease incentives, head leases capitalised and properties treated as finance leases.2. On 31 October 2014, the Group acquired the remaining 50% interest in Buchanan Galleries, Glasgow from its joint venture partner and now recognises it as a subsidiary undertaking.3. On 30 October 2014, the Group disposed of its interest in the Bristol Alliance Limited Partnership. 113
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201516. Joint arrangements continuedJoint ventures Net investment20 Fenchurch Street Limited Partnership50%£mNova, Victoria50%£mMetro Shopping Fund Limited Partnership50%£mBuchanan Partnership50%£mSt. David’s Limited Partnership50%£mWestgate Oxford Alliance Partnership50%£mBristol AllianceLimited Partnership50%£mThe Oriana Limited Partnership50%£mIndividually material JVs at LS’s share50%£mOtherLS share£mTotalLS share£mAt 1 April 2013175.6126.537.0138.2186.129.8268.782.11,044.0257.01,301.0Total comprehensive income94.214.113.50.319.2(2.2)12.136.4187.611.4199.0Cash contributed–––1.3–3.3––4.60.14.7Property and other contributions0.1–––––––0.1–0.1Distributions––(0.8)(4.7)–(0.2)(16.1)–(21.8)(5.6)(27.4)Loan advances60.540.7––––––101.215.9117.1Loan repayments––––(10.0)–––(10.0)(0.9)(10.9)Disposal of investment–––––––––(140.3)(140.3)At 31 March 2014330.4181.349.7135.1195.330.7264.7118.51,305.7137.61,443.3Total comprehensive income93.538.232.22.070.912.18.752.2309.814.3324.1Cash contributed––4.91.1–10.7––16.7–16.7Property and other contributions0.1–––––––0.10.10.2Distributions––(0.9)(1.9)––(8.6)(15.3)(26.7)(33.0)(59.7)Loan advances22.053.1––78.3–––153.40.5153.9Loan repayments––––(15.6)––(9.7)(25.3)(11.7)(37.0)Disposal of investment–––(136.3)––(264.8)–(401.1)(6.9)(408.0)At 31 March 2015446.0272.685.9–328.953.5–145.71,332.6100.91,433.5 114
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201517. Trading properties and long-term development contractsAccounting policyTrading properties are those properties held for sale, or those being developed with a view to sell, and are shown at the lower of cost and net realisable value. Proceeds received on the sale of trading properties are recognised within Revenue.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 profit 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 profits less the sum of recognised losses and progress billings. Where the sum of recognised losses and progress billings exceeds costs incurred plus recognised profits, the amount is shown as a liability.Critical accounting judgements and key estimations of uncertainty (trading property valuation)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.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 significant 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 determined 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 inaccurate, this may have an impact on the net realisable value of the Group’s trading properties, which would in turn have an effect on the Group’s financial position.GroupDevelopment land and infrastructure£mResidential£mTotal trading properties £mLong-term development contracts£mTotal£mAt 1 April 201386.257.2143.49.4152.8Capital expenditure3.730.534.2–34.2Capitalised interest0.91.92.8–2.8Disposals–(9.3)(9.3)–(9.3)Transfer from investment properties–5.85.8–5.8Impairment release5.3–5.3–5.3Contract costs deferred–––1.31.3At 31 March 201496.186.1182.210.7192.9Capital expenditure6.548.254.70.655.3Capitalised interest0.53.13.6–3.6Disposals(20.1)–(20.1)–(20.1)Impairment release1.9–1.9–1.9Impairment of long-term development contracts–––(11.3)(11.3)At 31 March 201584.9137.4222.3–222.3The cumulative impairment provision at 31 March 2015 in respect of Development land and infrastructure was £91.3m (31 March 2014: £98.1m); and in respect of Residential was £nil (31 March 2014: £0.3m).18. Capital commitmentsGroup2015£m2014£mContracted capital commitments at the end of the year in respect of:Investment properties163.7307.5Trading properties11.050.4174.7357.9Joint ventures (our share)112.8220.7Total capital commitments 287.5578.6 115
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201519. Net investment in finance leasesAccounting policyWhere the Group’s leases transfer the significant risks and rewards of owning the asset to the tenant, the lease is accounted for as a finance lease. At the outset of the lease the fair value of the asset is de-recognised from investment property and recognised as a finance lease receivable. Lease income is recognised over the period of the lease, reflecting a constant rate of return. The difference between the gross receivable and the present value of the receivable is recognised as finance income within Revenue over the lease term. Group2015£m2014£mNon-currentFinance leases – gross receivables345.6357.6Unearned finance income(194.1)(204.3)Unguaranteed residual value33.633.6185.1186.9CurrentFinance leases – gross receivables12.012.0Unearned finance income(10.2)(10.4)1.81.6Net investment in finance leases186.9188.5Gross receivables from finance leases due:Not later than one year12.012.0Later than one year but not more than five years51.250.3More than five years294.4307.3357.6369.6Unearned future finance income(204.3)(214.7)Unguaranteed residual value33.633.6Net investment in finance leases186.9188.5The Group has leased out a number of investment properties under finance leases, which range from 25 to 100 years in duration from the inception of the lease. The fair value of the Group’s finance lease receivables, using a discount rate of 4.5% (2014: 5.0%), is £192.8m (2014: £190.9m).20. Other property, plant and equipmentAccounting policyOther property, plant and equipment comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Group offices. 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 five years.Group2015£m2014£mNet book value at the beginning of the year7.38.3Capital expenditure 4.41.7Depreciation(2.1)(2.7)Net book value at 31 March9.67.3 116
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 2015Section 4 – Capital structure and financingThis section focuses on the Group’s financing structure, including borrowings and financial risk management.The total capital of the Group consists of shareholders’ equity and net debt. The Group’s strategy is to maintain an appropriate net debt to total equity ratio (gearing) and loan-to-value ratio (LTV) to ensure that asset level performance is translated into enhanced returns for shareholders whilst maintaining an appropriate risk reward balance to accommodate changing financial and operating market cycles. As the Group came out of the last property downturn, its objective was to see rising asset values reduce gearing and LTV ratios. The table in note 21 details a number of the Group’s key metrics in relation to managing its capital structure.A key element of the Group’s capital structure is that the majority of our borrowings are secured against a large pool of our assets (the Security Group). This enables us to raise long-term debt in the bond market, as well as shorter-term flexible bank facilities, both at competitive rates. In general, we follow a secured debt strategy as we believe this gives the Group better access to borrowings at a lower cost. In addition, the Group holds a number of assets outside the Security Group structure (in the Non-Restricted Group). These assets include a number of joint venture interests, our interests in X-Leisure, and other properties where we have asset specific finance. By having both the Security Group and the Non-Restricted Group, and considerable flexibility to move assets between the two, we are able to raise the most appropriate finance for each specific asset or joint venture.IFRS requires the Group to state a large part of its net debt at below its nominal value. However, we view our capital structure on a basis which adjusts for this (see note 22 for an explanation of the bond exchange de-recognition adjustment).21. Capital structure20152014GroupGroup£mJoint ventures£mAdjustment for non-wholly owned subsidiaries1£mCombined£mGroup£mJoint ventures£mAdjustment for non-wholly owned subsidiaries1£mCombined£mProperty portfolioMarket value of investment properties12,634.91,429.5(33.0)14,031.410,288.81,600.4(29.8)11,859.4Trading properties and long-term contracts222.3115.1–337.4192.991.7–284.6Non-current assets held for sale283.4––283.4––––Total property portfolio (a)13,140.61,544.6(33.0)14,652.210,481.71,692.1(29.8)12,144.0Net debtBorrowings 3,783.779.4(0.2)3,862.93,362.2244.9(0.1)3,607.0Monies held in restricted accounts and deposits(10.4)––(10.4)(14.5)––(14.5)Cash and cash equivalents(14.3)(58.2)–(72.5)(20.9)(36.6)0.1(57.4)Fair value of interest-rate swaps37.72.1–39.8––––Fair value of foreign exchange swaps 3.8––3.83.7(0.1)–3.6Net debt (b)3,800.523.3(0.2)3,823.63,330.5208.2–3,538.7Less: Fair value of interest-rate swaps(37.7)(2.1)–(39.8)(3.7)0.1–(3.6)Less: Fair value of foreign exchange swaps(3.8)––(3.8)––––Reverse bond exchange de-recognition (note 22)391.7––391.7413.2––413.2Adjusted net debt (c)4,150.721.2(0.2)4,171.73,740.0208.3–3,948.3Adjusted total equityTotal equity (d)10,606.3––10,606.38,418.3––8,418.3Fair value of interest-rate swaps37.72.1–39.83.7(0.1)–3.6Fair value of foreign exchange swaps 3.8––3.8––––Reverse bond exchange de-recognition (note 14)(391.7)––(391.7)(413.2)––(413.2)Adjusted total equity (e)10,256.12.1–10,258.28,008.8(0.1)–8,008.7Gearing (b/d)35.8% 36.1%39.6%42.0%Adjusted gearing (c/e)40.5% 40.7%46.7%49.3%Group LTV (c/a)31.6%28.5%35.7%32.5%Security Group LTV31.5%35.5%Weighted average cost of debt 4.5%4.5%5.0%5.0%1. This represents the 5.0% (2014: 5.0%) interest in X-Leisure which we do not own, but is consolidated in the Group numbers. 117
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201522. BorrowingsAccounting policyBorrowings, 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 defined by IAS 39), the new borrowings are recognised initially at the carrying amount of the existing borrowings. The difference between the amount initially recognised and the redemption value of the new borrowings is recognised in the income statement over the period of the new borrowings, using the effective interest method (bond exchange de-recognition adjustment).20152014GroupSecured/ unsecuredFixed/ floatingEffective interest rate%Nominal/notional value £mFair value£mBook value£mNominal/notional value £mFair value£mBook value£mCurrent borrowingsSterling5.253% QAG BondSecuredFixed5.314.617.514.613.215.013.2Bilateral facilitiesSecuredFloatingLIBOR + margin–––500.0500.0500.0Commercial paperUnsecuredFloatingLIBOR + margin30.130.130.1–––EuroCommercial paperUnsecuredFloatingEURIBOR + margin146.0146.0146.0–––Total current borrowings190.7193.6190.7513.2515.0513.2Non-current borrowingsSterling4.875% MTN due 2019SecuredFixed5.0400.0436.0398.7400.0441.1398.25.425% MTN due 2022SecuredFixed5.5255.3298.3254.9255.3290.8254.84.875% MTN due 2025SecuredFixed4.9300.0357.2298.0300.0332.6297.95.391% MTN due 2026SecuredFixed5.4210.7260.1210.1210.7242.9210.05.391% MTN due 2027SecuredFixed5.4608.3767.1606.2608.6703.3606.45.376% MTN due 2029SecuredFixed5.4317.6410.1316.2317.5366.3316.15.396% MTN due 2032SecuredFixed5.4322.6426.5321.0322.7375.1321.05.125% MTN due 2036SecuredFixed5.1500.0653.5498.7500.0570.2498.7Bond exchange de-recognition adjustment(391.7)(413.2)2,914.53,608.82,512.12,914.83,322.32,489.95.253% QAG BondSecuredFixed5.3289.4347.0289.4304.0346.0304.0Syndicated bank debtSecuredFloatingLIBOR + margin180.0180.0180.015.015.015.0Bilateral facilitiesSecuredFloatingLIBOR + margin595.0595.0595.010.010.010.0Amounts payable under finance leasesUnsecuredFixed7.216.520.716.530.143.030.1Total non-current borrowings3,995.44,751.53,593.03,273.93,736.32,849.0 Total borrowings4,186.14,945.13,783.73,787.14,251.33,362.2Reconciliation of the movement in borrowingsGroup2015£m2014£mAt the beginning of the year3,362.23,751.4Repayment of loans(13.6)(911.3)Proceeds from new loans431.0500.0Foreign exchange on commercial paper(4.9)–Amortisation of finance fees1.11.1Amortisation of bond exchange de-recognition adjustment21.519.6Net movement in finance lease obligations(13.6)1.4At 31 March3,783.73,362.2 118
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201522. Borrowings continuedMedium term notes (MTNs)The MTNs are secured on the fixed and floating pool of assets of the Security Group. Debt investors benefit from security over a pool of investment properties, development properties and the Group’s investment in the Westgate Oxford Alliance Limited Partnership, Nova, Victoria and the St. David’s Limited Partnership, valued at £12.3bn at 31 March 2015 (2014: £9.7bn). The secured debt structure has a tiered operating covenant regime which gives the Group substantial flexibility 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 27). The interest rate is fixed 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 MTNs are listed on the Irish Stock Exchange and their fair values are based on their respective market prices. Syndicated and bilateral bank debtMaturity as at 31 March 2015AuthorisedDrawnUndrawnGroup2015£m2014£m2015£m2014£m2015£m2014£mSyndicated debt20201,255.01,085.0180.015.01,075.01,070.0Bilateral debt2016 -18985.0985.0595.0510.0390.0475.02,240.02,070.0775.0525.01,465.01,545.0The terms of the Security Group funding arrangements require undrawn facilities to be reserved where syndicated and bilateral facilities mature within one year, or where commercial paper has been issued. Accordingly, the Group’s available undrawn facilities at 31 March 2015 were £1,288.9m (2014: £1,045.0m), compared with undrawn facilities of £1,465.0m (2014: £1,545.0m).All syndicated and bilateral facilities are committed and secured on the assets of the Security Group. In the year ended 31 March 2015, the amounts drawn under the Group’s bilateral facilities and syndicated bank debt increased by £250.0m, primarily to fund the acquisition of Bluewater, Kent. To increase our financial headroom following the acquisition, the £500.0m short-term bank facility in place at 31 March 2014 was cancelled and replaced with a facility for the same amount expiring in September 2016. At 31 March 2014 the Group had a £1.085bn authorised credit facility with a maturity of December 2016, which was £15.0m drawn. In March 2015, the borrowings under this facility were repaid and the facility was cancelled in full. At the same time a new £1.255bn facility was entered into, which matures in March 2020. The new facility was £180.0m drawn at 31 March 2015.This facility is committed and is secured on the assets of the Security Group.Queen Anne’s Gate BondOn 29 July 2009, the Group issued a £360.3m bond secured on the rental cash flows from the commercial lease with the UK Government over Queen Anne’s Gate (QAG). The QAG Bond is a fully amortising bond with a final maturity in February 2027 and a fixed interest rate of 5.253% per annum. At 31 March 2015 the bond had an amortised book value of £304.0m (2014: £317.2m).Fair valuesThe fair values of any floating rate financial liabilities are assumed to be equal to their nominal value, but adjusted for the effect of exit fees payable on redemption. The fair values of the MTNs and the QAG Bond fall within Level 1, the syndicated and bilateral facilities fall within Level 2, and the amounts payable under finance leases fall within Level 3, as defined by IFRS 13 and explained in note 27(iii).Bond exchange de-recognitionOn 3 November 2004, a debt refinancing was completed, resulting in the Group exchanging all of its outstanding bond and debenture debt for new MTNs with higher nominal values. The new MTNs did not meet the IAS 39 requirement to be substantially different from the debt that they 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 MTNs. The amortisation is included in interest expense in the income statement. 119
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201523. Monies held in restricted accounts and depositsAccounting policyMonies held in restricted accounts and deposits represent cash held by the Group in accounts with conditions that restrict the use of these monies by the Group and, as such, does not meet the definition of cash and cash equivalents as defined in IAS 7 ‘Statement of Cash Flows’. Holding cash in restricted accounts does not prevent the Group from optimising returns by putting these monies on short-term deposit.Group2015£m2014£mCash at bank and in hand8.27.6Short-term deposits2.26.910.414.5The credit quality of monies held in restricted accounts and deposits can be assessed by reference to external credit ratings of the counterparty where the account or deposit is placed.Group2015£m2014£mCounterparties with external credit ratingsA10.414.510.414.524. Cash and cash equivalentsAccounting policyCash 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 fewer. 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 flows.GroupCompany2015 £m2014£m2015£m2014£mCash at bank and in hand6.618.20.10.1Short-term deposits7.72.7––14.320.90.10.1Short-term depositsThe effective interest rate on short-term deposits was 0.3% at 31 March 2015 (2014: 0.3%) and had an average maturity of 1.5 days (2014: 2.0 days). The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings of the counterparty where the account or deposit is placed.Group2015 £m2014£mCounterparties with external credit ratings A12.820.3A-1.50.614.320.9 120
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201525. Derivative financial instrumentsAccounting policyThe Group uses interest-rate and foreign exchange swaps to manage its market risk. In accordance with its treasury policy, the Group does not hold or issue derivatives for trading purposes.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 and foreign exchange swaps is based on counterparty or market quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market 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 flow 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 other comprehensive income. The associated gains or losses that were recognised in the statement of other comprehensive income are reclassified into the income statement on termination or expiry of the hedge.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 immediately in the income statement.The fair values of the financial instruments have been determined by reference to relevant market prices, where available. The fair values of the Group’s outstanding interest-rate swaps have been estimated by calculating the present value of future cash flows, using appropriate market discount rates. These valuation techniques fall within Level 2, as defined by IFRS 13. Fair value of derivative financial instrumentsGroup2015£m2014£mNon-current assets–5.3Current liabilities(3.8)(5.5)Non-current liabilities(37.7)(3.5)Total(41.5)(3.7)Notional amount2015£m2014£mInterest-rate swaps900.01,120.0Foreign exchange swaps146.0–1,046.01,120.026. Obligations under finance leasesAccounting policyWhere the Group is a lessee and enters into a lease that transfers substantially all the risks and rewards of ownership of the asset to the Group, the lease is accounted for as a finance lease. Finance leases are capitalised within investment properties at the commencement of the lease 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 finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in current and non-current borrowings. The finance 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 finance leases are subsequently carried at their fair value.Group2015 £m2014£mThe minimum lease payments under finance leases fall due as follows:Not later than one year1.02.2Later than one year but not more than five years4.28.6More than five years97.0239.1102.2249.9Future finance charges on finance leases(85.7)(219.8)Present value of finance lease liabilities 16.530.1The present value of finance lease liabilities fall due as follows:Not later than one year––Later than one year but not more than five years0.1–More than five years16.430.116.530.1The fair value of the Group’s lease obligations, using a discount rate of 4.5% (2014: 5.0%), is £22.8m (2014: £43.0m). 121
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201527. Financial risk managementIntroductionA review of the Group’s objectives, policies and processes for managing and monitoring risk is set out in the ‘Financial review’ (pages 26 to 29) and ‘Our principal risks’ (pages 34 to 36). This note provides further detail on financial risk management and includes quantitative information on specific financial risks.The Group is exposed to a variety of financial 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 of these on the Group’s financial performance and includes the use of derivative financial instruments to hedge certain risk exposures.Financial risk management is carried out by the Group’s treasury function under policies approved by the Board of Directors.The following table summarises the Group’s financial assets and liabilities into the categories required by IFRS 7 ‘Financial Instruments: Disclosures’:Group2015£m2014£mLoans and receivables (excluding tax asset)503.1447.3Financial liabilities at amortised cost(4,178.4)(3,705.3)Net financial liabilities at fair value through profit and loss(41.5)(3.7)Other(35.3)(32.6)(3,752.1)(3,294.3)Financial risk factors(i) Credit riskThe Group’s principal financial assets are cash and cash equivalents, trade and other receivables, finance lease receivables, amounts due from joint ventures, loans to third parties and commercial property backed loan notes. Further details concerning the credit risk of counterparties is provided in the note that specifically relates to each type of asset.Bank and financial institutionsOne of the principal credit risks of the Group arises from financial derivative instruments and deposits with banks and financial institutions. In line with the policy approved by the Board of Directors, where the Group manages the deposit only independently rated banks and financial institutions with a minimum rating of A- are accepted. The Group’s treasury function currently performs a weekly review of the credit ratings of all its financial institution counterparties. Furthermore, the treasury function ensures that funds deposited with a single financial institution remain within the Group’s policy limits. Trade receivablesTrade 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 the Group’s tenancy arrangements, 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.Finance lease receivables This balance relates to amounts receivable from tenants in respect of tenant finance leases. This is not considered a significant credit risk as the tenants are generally of good financial standing.Loans to third partiesA loan maturing in 2035 was made to Semperian PPP (formerly Trillium Investment Partners LP) in 2009 as part of the disposal of the Trillium business. This loan is not considered a significant credit risk as it is repayable from dividends from investments in government infrastructure projects (see note 31). After the balance sheet date, Semperian PPP completed a partial refinancing which saw £44.1m of the Group’s loan investment repaid on 5 May 2015.(ii) Liquidity riskThe Group actively maintains a mixture of notes with final maturities between 2019 and 2036, commercial paper and medium-term committed bank facilities that are designed to ensure that the Group has sufficient available funds for its operations and its committed capital expenditure programme. Management monitors the Group’s available funds as follows:Group2015£m2014 £mCash and cash equivalents14.320.9Available facilities 1,288.91,045.0Cash and available undrawn facilities1,303.21,065.9As a proportion of drawn debt31.3%28.4%The Group’s core financing structure is in the Security Group, although the Non-Restricted Group may also secure independent funding. 122
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201527. Financial risk management continuedSecurity GroupThe Group’s principal financing 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 LTV and interest cover ratio (ICR). This structure is most flexible 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 financial covenant default is triggered until the applicable LTV exceeds 100% or the ICR is less than 1.0x.As at 31 March 2015, the reported LTV for the Security Group was 31.5% (2014: 35.5%), meaning that the Group was operating in Tier 1 and benefited from maximum operational flexibility.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 GroupThe Non-Restricted Group obtains funding when required from a combination of inter-company loans from the Security Group, equity 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 table below analyses the Group’s financial 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 flows.2015GroupLess than 1 year£mBetween 1 and 2 years£mBetween 2 and 5 years£mOver 5 years£mTotal £mBorrowings (excluding finance lease liabilities) 369.1690.01,267.03,621.65,947.7Finance lease liabilities 1.01.03.297.0102.2Derivative financial instruments5.70.518.019.643.8Trade payables15.2–––15.2Capital accruals60.5–––60.5Redemption liabilities–––35.335.3451.5691.51,288.23,773.56,204.72014GroupLess than 1 year£mBetween 1 and 2 years£mBetween 2 and 5 years£mOver 5 years£mTotal £mBorrowings (excluding finance lease liabilities) 683.1183.0950.73,863.65,680.4Finance lease liabilities 2.22.26.5239.1250.0Derivative financial instruments5.5––3.59.0Trade payables12.9–––12.9Capital accruals48.5–––48.5Redemption liabilities2.6––30.032.6754.8185.2957.24,136.26,033.4(iii) Market riskThe Group is exposed to market risk through interest rates, availability of credit and foreign exchange movements.Interest ratesThe Group uses derivative products to manage its interest rate exposure, and has a hedging policy that generally requires at least 80% of its existing debt plus increases in debt associated with net committed capital expenditure to be at fixed interest rates for the coming five years. 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. Specific interest-rate hedges are also used within our joint ventures to fix the interest rate exposure on limited-recourse debt. Where specific hedges are used in geared joint ventures to fix the interest exposure on limited-recourse debt, these may qualify for hedge accounting.At 31 March 2015, the Group (including joint ventures) had pay-fixed interest-rate swaps in place with a nominal value of £1.0bn (2014: £1.4bn), and its net debt was 90.9% fixed (2014: 94.5%). Based on the Group’s debt balances at 31 March 2015, a 1% increase in interest rates would increase the annual net interest payable in the income statement and reduce equity by £4.3m (2014: £2.8m). 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 exchangeForeign 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 frequently enter into any foreign currency transactions as it is UK based other than in connection with its financing activities. Where significant committed expenditure in foreign currencies is identified, it is the Group’s policy to hedge 100% of that exposure by entering into forward purchases of foreign currency to fix the sterling value. At 31 March 2015, the Group had issued €202.0m (2014: €nil) of commercial paper, fully hedged through foreign exchange swaps. A 10% weakening or strengthening of sterling would therefore have £nil (2014: £nil) impact in the income statement and equity. Therefore the Group’s foreign exchange risk is low. 123
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201527. Financial risk management continuedFinancial maturity analysisThe interest rate profile of the Group’s undiscounted borrowings, after taking into account the effect of the interest-rate swaps, is set out below:20152014GroupFixed rate£mFloating rate£mTotal£mFixed rate£mFloating rate£mTotal£mSterling3,735.0305.14,040.13,262.1525.03,787.1Euro–146.0146.0–––3,735.0451.14,186.13,262.1525.03,787.1The expected maturity profiles of the Group’s borrowings are as follows:20152014GroupFixed rate£mFloating rate£mTotal£mFixed rate£mFloating rate£mTotal£mOne year or less, or on demand84.6106.1190.713.2500.0513.2More than one year but not more than two years446.270.0516.214.6–14.6More than two years but not more than five years714.395.0809.3453.725.0478.7More than five years2,489.9180.02,669.92,780.6–2,780.63,735.0451.14,186.13,262.1525.03,787.1The expected maturity profiles of the Group’s derivative instruments are as follows (based on notional values):Group20152014Foreign exchange swaps£mInterest-rate swaps£mForeign exchange swaps£mInterest-rate swaps£mOne year or less, or on demand146.070.0–220.0More than one year but not more than two years–430.0–70.0More than two years but not more than five years–––430.0More than five years–400.0–400.0146.0900.0–1,120.0Valuation hierarchyInterest-rate swaps, foreign exchange swaps and redemption liabilities are the only financial instruments which are carried at fair value. For financial instruments other than borrowings disclosed in note 22, the carrying value in the balance sheet approximates their fair values. The table below shows the aggregate assets and liabilities carried at fair value by valuation method:20152014GroupLevel 1£mLevel 2£mLevel 3£mTotal£mLevel 1£mLevel 2£mLevel 3£mTotal£mAssets–––––5.3–5.3Liabilities–(41.5)(35.3)(76.8)– (9.0)(32.6)(41.6)Note:Level 1: valued using unadjusted quoted prices in active markets for identical financial instruments.Level 2: valued using techniques based on information that can be obtained from observable market data.Level 3: valued using techniques incorporating information other than observable market data. 124
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 2015Section 5 – Working capitalThis section focuses on our working capital balances, including trade and other receivables, trade and other payables and provisions.28. Trade and other receivablesAccounting policyTrade and other receivables are recognised initially at fair value, subsequently at amortised cost and, where relevant, adjusted for the time value of money. 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. If collection is expected in more than one year, they are classified as non-current assets.GroupCompany2015£m2014£m2015£m2014£mTrade receivables76.675.0––Less: allowance for doubtful accounts(15.1)(14.0)––Net trade receivables 61.561.0––Property sales receivables46.96.7––Other receivables7.27.0––Tenant lease incentives (note 15)251.0251.9––Prepayments and accrued income24.928.3––Current tax assets3.13.314.814.2Net investment in finance leases due within one year (note 19)1.81.6––Amounts due from joint ventures6.36.5––Total current trade and other receivables402.7366.314.814.2Non-current trade and other receivables54.034.3––Total trade and other receivables456.7400.614.814.2The accounting for lease incentives is set out in note 5. The value of the tenant lease incentive, included in current trade and other receivables, is spread over the non-cancellable life of the lease.Ageing of trade receivablesGroupNot past due£m1–30 days past due£mUp to 6 months past due£mUp to 12 months past due£mMore than 12 months past due£mTotal£mAs at 31 March 2015Not impaired–52.95.52.01.161.5Impaired–0.22.04.08.915.1–53.17.56.010.076.6As at 31 March 2014Not impaired9.044.46.11.5–61.0Impaired–0.23.91.68.314.09.044.610.03.18.375.0 125
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201528. Trade and other receivables continuedIn accordance with IFRS 7, the amounts shown as past due represent the total credit exposure, not the amount actually past due. The majority of the Group’s trade receivables are considered past due as they relate to rents receivable from tenants which are payable in advance.Movement in allowance for doubtful accountsGroup2015£m2014£mAt the beginning of the year14.012.3Net charge to the income statement4.83.8Acquired in business combination1.4–Utilised in the year(5.1)(2.1)At 31 March15.114.0Movement in tenant lease incentivesGroup2015£m2014£mAt the beginning of the year 251.9238.0Revenue recognised 15.433.8Capital incentives received or granted(0.5)7.3Provision for doubtful receivables(1.3)(0.6)Disposal of properties(14.5)(26.6)At 31 March 251.0251.929. Trade and other payablesGroupCompany2015£m2014£m2015£m2014£mTrade payables15.212.9––Capital accruals60.548.5––Other payables44.946.06.66.2Accruals78.374.65.55.5Deferred income132.7134.5––Amounts owed to joint ventures7.53.0––Trading property deposits28.2–––Loans from Group undertakings––1,096.1812.0Total current trade and other payables367.3319.51,108.2823.7Non-current trade and other payables29.623.6––Total trade and other payables396.9343.11,108.2823.7Capital accruals 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 year end. Deferred income principally relates to rents received in advance.30. ProvisionsAccounting policyA 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 outflow of economic benefits will be required to settle the obligation. Where relevant, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.Group2015£m2014£mAt the beginning of the year3.67.0Charged to income statement for the year4.60.4Utilised in the year(3.8)(1.7)Released to the income statement in the year(1.8)(2.1)At 31 March2.63.6Included in the balance above, the following amounts are anticipated to be utilised within one year:2.63.6Provisions represent amounts in respect of dilapidations and other property related obligations. 126
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 2015Section 6 – Other required disclosuresThis section gives further disclosure in respect of other areas of the financial statements, together with mandatory disclosures required in accordance with IFRS.31. Loan investmentsAccounting policyLoan investments are non-derivative financial assets which are initially recognised at fair value plus acquisition costs. They are subsequently carried at amortised cost using the effective interest method.20152014GroupReal estate secured loan notes£mLoans to third parties£mTotal£mReal estate secured loan notes£mLoans to third parties£mTotal£mAt the beginning of the year–50.050.0–50.050.0Transfer to current trade and other receivables–(0.5)(0.5)–––At 31 March–49.549.5–50.050.0An external credit rating is not available for the counterparty to the loan investments, therefore the credit quality is assessed by reference to historical information about counterparty default rates. The relationship with the counterparty has been in place for more than six months, and there is no history of defaults. The loan investment is not past due and is therefore not impaired.32. Investments in subsidiary undertakingsAccounting policyInvestments in subsidiary undertakings are stated at cost in the Company’s balance sheet, less any provision for impairment in value.In accordance with ‘IFRS 2 – Share Based Payments’ the equity settled share-based payment charge for the employees of the Company’s subsidiaries is treated as an increase in the cost of investment in the subsidiaries, with a corresponding increase in the Company’s equity.Company2015£m2014£mAt the beginning of the year6,186.26,180.7Capital contributions relating to share-based payments (note 35)6.05.5At 31 March6,192.26,186.2The Directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The principal Group undertakings which are consolidated are listed below:2015Holding2014HoldingGroup operationsLand Securities Properties Limited100%100%Investment property businessLand Securities Intermediate Limited100%100%Land Securities Property Holdings Limited100%100%Ravenseft Properties Limited100%100%LS Cardinal Limited100%100%The City of London Real Property Company Limited100%100%Ravenside Investments Limited100%100%LS Victoria Properties Limited100%100%LS London Holdings One Limited100%100%All principal subsidiary undertakings operate in Great Britain and are registered in England and Wales. A full list of subsidiary undertakings at 31 March 2015 will be appended to the Company’s next annual return. 127
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201533. Redemption liabilitiesAccounting policyWhere instruments held in a subsidiary by third parties are redeemable at the option of the holder, these interests are classified as a financial liability. The liability is carried at fair value; the value is reassessed at the balance sheet date and movements are recognised in the income statement.Group2015£m2014£mAt the beginning of the year 32.6118.1Acquisition of additional interest–(104.1)Recapitalisation of non-wholly owned subsidiary–15.0Distributions paid by non-wholly owned subsidiary(2.5)(2.0)Revaluation of redemption liabilities8.55.6Transfer to current liabilities(3.3)–At 31 March 35.332.6The redemption liabilities are carried at fair value. The fair value of each component of the redemption liability is determined as the present value of the amount the Group would be required to pay to settle the liabilities (an exit price). The terms of each arrangement are different, but generally the fair value is calculated by reference to a metric within the underlying subsidiary’s financial statements, typically net assets or investment property valuation. These inputs are not based on observable market data and therefore the redemption liabilities are considered to fall within Level 3 of the fair value hierarchy, as determined by IFRS 13, ‘Fair Value Measurement’.In September 2013 the Group acquired an additional 35.6% holding in the X-Leisure Unit Trust (X-Leisure) for £104.1m, increasing the Group’s holding from 59.4% to 95.0%. This resulted in a partial utilisation of the redemption liability. The remaining redemption liability in respect of X-Leisure reflects the put option that remains in connection with the 5.0% of units in X-Leisure not held by the Group.34. Net pension surplusAccounting policyContributions to defined contribution schemes are charged to the income statement as incurred.In respect of defined benefit pension schemes, pension obligations are measured at discounted present value, while pension scheme assets are measured at their fair value, except annuities, which are valued to match the liability or benefit value. The operating and financing costs of such schemes are recognised separately in the income statement. Service costs are spread using the projected unit credit method. Net financing costs are recognised in the periods in which they arise, calculated with reference to the discount rate, and are included in interest income or expense on a net basis. Re-measurement gains and losses arising from either experience differing from previous actuarial assumptions, or changes to those assumptions, are recognised immediately in other comprehensive income.Defined contribution schemesPension costs for defined contribution schemes are as follows:Group2015£m2014£mCharge to operating profit2.22.2Defined benefit schemeThe Pension & Assurance Scheme of the Land Securities Group of Companies (the Scheme) is a registered defined benefit final salary scheme subject to the UK regulatory framework for pensions, including the Scheme Specific Funding requirements. The Scheme is operated under trust and, as such, the trustees of the Scheme are responsible for operating the Scheme and they have a statutory responsibility to act in accordance with the Scheme’s Trust Deed and Rules, in the best interest of the beneficiaries of the Scheme, and UK legislation (including trust law). The Trustees and the Group have the joint power to set the contributions that are paid to the Scheme.In setting contributions to the Scheme, the Trustees and the Group are guided by the advice of a qualified independent actuary on the basis of triennial valuations using the projected unit credit method. As the Scheme is closed to new members, the current service cost is expected to increase as a percentage of salary of the Scheme members, under the projected unit credit method, as members approach retirement. A full actuarial valuation of the Land Securities Scheme was undertaken on 30 June 2012 by the independent actuaries, Hymans Robertson LLP. This valuation was updated to 31 March 2015 using, where required, assumptions prescribed by IAS 19, ‘Employee Benefits’. The next full actuarial valuation will be performed as at 30 June 2015. 128
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201534. Net pension surplus continuedAs a result of the 30 June 2012 valuation, the Trustees and the Group agreed that, in order to address the deficit at that time, a combined employee and employer contribution rate of 44% of pensionable salary would be paid, together with additional employer contributions of £4.0m per annum, for a period of six years commencing on 1 July 2013.In the current year, the Group and the Trustees have agreed a new schedule of contributions with the effect that employer deficit reduction contributions ceased from June 2014. In addition, the Group has decreased the monthly contributory salary payments to 36.3% of pensionable salary since 30 September 2014.Since December 2013, employee contributions have been paid by salary sacrifice, and therefore now appear as Group contributions. In the year ended 31 March 2015 employee contributions were 8.0% (2014: 6.5%) of monthly pensionable salary. The Group expects to make employer contributions of around £1.0m (2014: £1.9m) to the Scheme in the year to 31 March 2016.All death-in-service and incapacity benefits arising during employment are wholly insured. No post-retirement benefits other than pensions are made available to employees of the Group.Analysis of the amounts charged to the income statementGroup2015£m2014£mAnalysis of the amount charged to operating profitCurrent service cost0.90.8Scheme administrative costs0.20.2Charge to operating profit1.11.0Analysis of amount credited to interest expenseInterest income on plan assets(8.3)(8.3)Interest on defined benefit scheme liabilities8.17.9Net credit to interest expense(0.2)(0.4)Analysis of the amounts recognised in other comprehensive incomeGroup2015£m2014£mAnalysis of gains and lossesNet re-measurement gains/(losses) on scheme assets26.7(4.6)Net re-measurement losses on scheme liabilities(23.0)(3.2)Re-measurement gains/(losses)3.7(7.8)Cumulative re-measurement losses recognised in other comprehensive income(44.7)(48.4)The net surplus recognised in respect of the defined benefit scheme can be analysed as follows:Group2015%2015£m2014 %2014£mEquities1739.83671.3Bonds – Government47106.92752.4Bonds – Corporate2658.12548.8Insurance contracts818.91122.5Cash and cash equivalents23.611.0Fair value of scheme assets100227.3100196.0Fair value of scheme liabilities(220.3)(193.7)Net pension surplus7.02.3Insurance contracts are annuities which are unquoted assets. All other scheme assets have quoted prices in active markets. The scheme assets do not include any directly owned financial instruments issued by the Group. Indirectly owned financial instruments had a fair value of £0.1m (2014: £0.1m).The defined benefit scheme liabilities are split 14% (2014: 13%) in respect of active scheme participants, 33% (2014: 31%) in respect of deferred scheme participants, and 53% (2014: 56%) in respect of retirees. The weighted average duration of the defined benefit scheme liabilities at 31 March 2015 is 17.8 years (2014: 16.9 years). 129
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201534. Net pension surplus continuedThe assumptions agreed with the Trustees of the Scheme for the triennial valuation at 30 June 2012 have been restated to the assumptions described by IAS 19 ‘Employee Benefits’. The major assumptions used in the valuation were (in nominal terms):Group2015%2014%Rate of increase in pensionable salaries3.203.60Rate of increase in pensions with no cap3.203.60Rate of increase in pensions with 5% cap3.103.45Discount rate3.104.25Inflation – Retail Price Index3.203.60– Consumer Price Index2.402.80The mortality assumptions used in this valuation were:Group2015Years2014YearsLife expectancy at age 60 for current pensioners – Men31.331.1– Women32.432.3Life expectancy at age 60 for future pensioners (current age 40) – Men34.133.9– Women34.334.2The sensitivities regarding the principal assumptions used to measure the Scheme liabilities are set out below. These were calculated using approximate methods taking into account the duration of the Scheme’s liabilities.AssumptionChange in assumptionImpact on scheme liabilitiesDiscount rateIncrease/decrease by 0.1%Decrease/increase by 1.9% or £4.1mRate of mortalityIncrease by 1 yearIncrease by 2.7% or £5.9mRate of inflationIncrease/decrease by 0.5%Increase/decrease by 1.7% or £3.8mIn order to reduce risk within the Scheme, 8% (2014: 10%) of the Scheme’s assets are invested in annuities that match the liabilities of some pensioners. The bonds that the Scheme holds are designed to match a significant proportion of the Scheme’s liabilities and the Scheme has hedged over 70% of the inflation and interest rate risks (when measured on a gilts flat discount rate) that it is exposed to.The Company did not operate any defined contribution schemes or defined benefit schemes during the financial year ended 31 March 2015 or in the previous financial year. 130
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201535. Share-based paymentsAccounting policyThe 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. Where the share awards have non-market related performance criteria, the Group has used the Black-Scholes option valuation model to establish the relevant fair values. Where the share awards have a Total Shareholder Return (TSR) market related performance criteria, the Group has used the Monte Carlo simulation 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. For awards with non-market related criteria, the charge is reversed if it appears probable that the performance or service criteria will not be met.The total cost recognised in the income statement was £6.0m in the year ended 31 March 2015 (2014: £5.5m). The following table analyses the total cost among each of the relevant schemes, together with the number of options outstanding.Outstanding at 31 March2015 Charge£m2015 Number (millions)2014 Charge£m2014 Number (millions)Long-term incentive plan3.22.53.32.1Deferred bonus share scheme0.90.11.40.2Conditional shares1.30.30.1–Executive share option schemes0.42.10.52.7Savings related share option schemes0.20.40.20.46.05.45.55.4A summary of the main features of each type of scheme is given below. The schemes have been split into two categories: Executive schemes and other schemes. For further details on Executive schemes, see the Directors’ Remuneration Report on pages 58 to 78.Executive schemes:Long-Term Incentive Plan (LTIP)The LTIP is open to Executive Directors and senior management, and awards are made at the discretion of the Remuneration Committee. In addition, an award of Matching Shares can be made where the individual acquires Land Securities Group PLC shares and pledges to hold them for a period of three years. Awards of LTIP Performance Shares and Matching Shares are subject to the same performance criteria and vest over three years. Awards may be satisfied by the issue of new shares, the transfer of treasury shares or the transfer of shares other than treasury shares. The shares will be issued at nil consideration, subject to vesting conditions being met. The weighted average share price at the date of vesting during the year was 1,044p (2014: 938p). The estimated fair value of awards granted during the year under the scheme was £3.5m (2014: £4.1m).Deferred bonus shares schemeThe Executive Directors’ annual bonus is structured in two distinct parts made up of an initial payment and deferred shares. The shares are deferred for one to three years and are not subject to additional performance criteria. Awards made under the plan are satisfied by the transfer of existing shares held by the Employee Benefit Trust (EBT), which are issued at nil consideration. The weighted average share price at the date of vesting during the year was 1,019p (2014: 960p). The estimated fair value of awards granted during the year under the scheme was £0.7m (2014: £1.4m).Conditional sharesDiscretionary share awards were made under the Land Securities Share Award Plan 2014 on 1 July 2014. The awards were granted to certain employees over ordinary shares in the Company and were determined by reference to the average of the middle market quotation three days prior to the date of grant. The awards vest after two years and are subject to continued employment at the date of vesting and individual performance conditions to the date of vesting.Other schemes:Executive share option schemes (ESOS)The 2005 ESOS is open to managers not eligible to participate in the LTIP. Awards are discretionary and are granted in the ordinary shares of the Company at the middle market price on the three dealing days immediately preceding the date of grant. Options vest after three years and are not subject to performance conditions. Options are satisfied by the transfer of shares from the EBT. Options lapse ten years after the date of grant. The weighted average share price at the date of exercise for shares exercised during the year was 1,130p (2014: 960p). The estimated fair value of options granted during the year under the scheme was £0.5m (2014: £0.5m).Savings related share option schemesUnder the Savings related share option schemes, Executive Directors and eligible employees are invited to make regular monthly contributions into a Sharesave scheme operated by Equiniti. On completion of the three, five or seven year contract period, ordinary shares in the Company may be purchased at a price based upon the current market price at date of invitation less 20% discount. The weighted average share price at the date of exercise for shares exercised during the year was 1,067p (2014: 951p). The estimated fair value of options granted during the year under the scheme was £0.5m (2014: £0.1m). 131
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201535. Share-based payments continuedThe aggregate number of awards and options outstanding, and the weighted average exercise price of the options, are shown below:Executive schemes1Other schemesNumber of awardsNumber of optionsWeighted average exercise price2015Number (millions)2014Number (millions)2015Number(millions)2014Number (millions)2015Pence2014PenceAt the beginning of the year2.32.63.13.7834.0764.0Granted1.21.10.70.7710.0906.0Exercised(0.3)(0.9)(1.1)(1.0)746.0608.0Forfeited(0.2)(0.5)(0.3)(0.2)937.0877.0Lapsed–––(0.1)837.0863.0At 31 March3.02.32.43.1825.0834.0Exercisable at the end of the year–––1.0975.0943.0YearsYearsYearsYearsWeighted average remaining contractual life1.11.46.05.91. Executive schemes are granted at nil consideration.The number of share awards outstanding for the Group by range of exercise prices is shown below:Outstanding at 31 March 2015Outstanding at 31 March 2014Exercise price – rangePenceWeighted average exercise pricePenceNumber of awards Number (millions)Weighted average remaining contractual lifeYearsWeighted average exercise pricePenceNumber of awards Number (millions)Weighted average remaining contractual lifeYearsNil2–3.01.1–2.31.4200–399388––3880.10.9400–5995380.33.05300.64.6600–7997450.66.67400.77.2800–9998680.86.68741.18.31,000–1,1991,0670.67.81,0750.42.81,200–1,3991,280––1,2800.11.31,400–1,5651,5630.12.01,5630.13.02. Executive schemes are granted at nil consideration. Fair value inputs for awards with non-market performance conditionsFair values are calculated using the Black-Scholes option pricing model for awards with non-market performance conditions. Inputs into this model for each scheme are as follows:LTIPDeferred bonus sharesConditional shares2005 ESOSSavings Related Share Option SchemeShare price at grant date1,039p1,021p1,039p1,039p1,061pExercise pricen/an/an/an/a849pExpected volatility20%20%20%20%20%Expected life3 years1 to 2 years2 years3 years3 to 5 yearsRisk-free rate1.29%0.46% to 0.82%0.90%1.28%1.25% to 2.08%Expected dividend yield3.06%nil3.06%3.03%3.00%Expected volatility is determined by calculating the historic volatility of the Group’s share price over the previous ten years. The expected life used in the model has been determined based upon management’s best estimate for the effects of non-transferability, vesting/exercise restrictions and behavioural considerations. Risk-free rate is the yield at the date of the grant of an award on a gilt-edged stock with a redemption date equal to the anticipated vesting of that award.Fair value inputs for awards with market performance conditionsFair values are calculated using the Monte Carlo simulation option pricing model for awards with market performance conditions. Awards made under the 2005 LTIP which were granted after 31 March 2009 include a TSR condition, which is a market-based condition. The inputs into this model for the scheme are as follows:Share price at date of grantExercise priceExpected volatility – GroupExpected volatility – index of comparator companiesCorrelation – Group vs. index2005 LTIP 1,039pn/a20%20%85% 132
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201536. Ordinary share capital Accounting policyOrdinary shares are classified 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 by any Group entity to acquire the Company’s equity share capital, including any directly attributable incremental costs, is deducted from equity until the shares are cancelled, reissued or disposed. Where own shares are sold or reissued, the net consideration received is included in equity. Shares acquired by the Employee Benefit Trust (EBT) are presented on the Group balance sheet as ‘own shares’. Purchases of treasury shares are deducted from retained earnings.Allotted and fully paidGroup and Company2015£m2014£mOrdinary shares of 10p each80.179.9Number of shares20152014At the beginning of the year799,160,367792,070,935Issued on the exercise of options224,084199,556Issued in lieu of cash dividends1,648,3126,889,876At 31 March801,032,763799,160,367The number of options over ordinary shares that were outstanding at 31 March 2015 was 3,329,100 (2014: 3,114,814). If all the options were exercised at that date then 441,560 new ordinary shares (2014: 588,517 new ordinary shares) would be issued and 2,887,540 shares would be required to be transferred from the EBT (2014: 2,526,297).Shareholders at the Annual General Meeting have previously authorised the acquisition of shares by the Company representing up to 10% of its share capital, to be held as treasury shares. During the year ended 31 March 2015, no ordinary shares (2014: nil) were acquired to be held as treasury shares. At 31 March 2015 the Group held 10,495,131 ordinary shares (2014: 10,495,131) with a market value of £131.5m (2014: £108.5m) in treasury.37. Own sharesGroup2015£m2014£mAt the beginning of the year9.27.7Acquisition of ordinary shares11.816.3Transfer of shares to employees on exercise of share options(9.9)(14.8)At 31 March11.19.2Own shares consist of shares in Land Securities Group PLC held by the EBT in respect of the Group’s commitment to a number of its employee share option schemes (note 35). The number of shares held by the EBT at 31 March 2015 was 1,012,983 (2014: 1,031,952). The market value of these shares at 31 March 2015 was £12.7m (2014: £10.7m).38. ContingenciesThe Group has contingent liabilities in respect of legal claims, guarantees, and warranties arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. 39. Related party transactionsSubsidiariesDuring the year, the Company entered into transactions, in the normal course of business, with other related parties as follows:Company2015£m2014£mTransactions with subsidiary undertakings:Recharge of costs(235.7)(187.7)Interest paid(48.4)(39.9)At 31 March 2015, the Company had a net outstanding balance of £1,096.1m (2014: £812.0m) due to subsidiary undertakings. 133
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 201539. Related party transactions continuedJoint arrangementsAs disclosed in note 16, the Group has investments in a number of joint arrangements. Details of transactions and balances between the Group and its joint arrangements are disclosed as follows:Year ended and as at 31 March 2015Year ended and as at 31 March 2014GroupIncome/(expense)£mNet investments into joint ventures£mAmounts owed by joint ventures£mAmounts owed to joint ventures£mIncome/(expense)£mNet investments into joint ventures£mAmounts owed by joint ventures£mAmounts owed to joint ventures£m20 Fenchurch Street Limited Partnership15.422.129.8(3.0)10.560.515.7–Nova, Victoria112.653.124.7(2.0)10.240.715.6–Metro Shopping Fund Limited Partnership0.14.00.1–0.1(0.8)0.4–Buchanan Partnership22.6(0.8)––4.4(3.4)0.6–St. David’s Limited Partnership1.362.70.3(0.1)1.2(10.0)––Bristol Alliance Limited Partnership30.7(8.6)––1.1(16.1)0.4(0.1)Harvest41.5(42.3)1.1–1.813.31.6(0.4)The Oriana Limited Partnership–(25.0)0.1(0.1)0.2–0.1–The Scottish Retail Property Limited Partnership––––1.9(2.7)––Westgate Oxford Alliance Limited Partnership2.510.71.9–0.83.10.1–The Martineau Galleries Limited Partnership0.3(0.6)0.1–0.2(0.4)––The Ebbsfleet Limited Partnership–0.3––0.10.4––Millshaw Property Co. Limited(0.5)––(12.0)(0.4)––(11.5)Countryside Land Securities (Springhead) Limited–0.2–––0.6––West India Quay Unit Trust0.1––0.70.1(1.7)0.3(2.2)36.675.858.1(16.5)32.283.534.8(14.2)1. Nova, Victoria includes the Victoria Circle Limited Partnership and Nova Residential Limited Partnership.2. On 31 October 2014, the Group acquired the remaining 50% interest in Buchanan Galleries, Glasgow from its joint venture partner, therefore the table above only represents the related party transactions in the year up to this date.3. On 30 October 2014, the Group disposed of its interest in the Bristol Alliance Limited Partnership, therefore the table above only represents the related party transactions in the year up to this date.4. Harvest includes The Harvest Limited Partnership and Harvest Two Limited Partnership.Remuneration of key management personnelThe remuneration of the Directors and Managing Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the applicable categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration Report on pages 61 to 78.2015£m2014£mShort-term employee benefits4.85.0Share-based payments2.73.27.58.240. Operating lease arrangementsAccounting policyThe Group earns rental income by leasing its properties to tenants under non-cancellable operating leases. Leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified 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.At the balance sheet date, the Group had contracted with tenants to receive the following future minimum lease payments:2015£m2014£mNot later than one year500.6485.0Later than one year but not more than five years1,953.61,867.7More than five years3,900.13,261.56,354.35,614.2The total of contingent rents recognised as income during the year was £41.2m (2014: £38.9m). 134
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
Land Securities Annual Report 201541. Business combinationsThe Group has accounted for the following transactions in accordance with IFRS 3 ‘Business Combinations’ and therefore applied purchase accounting. Further details on each acquisition is below:Bluewater, KentOn 24 June 2014, the Group acquired 100% of the ordinary share capital of Greenhithe Holdings Limited (GHL) for a cash consideration of £694.3m from Lend Lease Bluewater Limited. The Group incurred £2.7m of business combination costs in connection with the transaction. GHL owned, through its subsidiary undertakings, a 30% interest in Bluewater, a shopping centre in Kent, full asset management rights for the centre and 110 acres of surrounding land.On acquisition, the Group recognised an intangible asset of £30.0m, representing the estimated fair value of the management rights for the centre, together with a corresponding deferred tax liability of £6.0m. The intangible asset is being amortised over a period of 20 years.Goodwill of £35.5m arose on the transaction, primarily representing the difference between the value of the investment property attributed by our external valuers, and the consideration paid. The difference is largely due to prospective purchasers’ costs, which are deducted by the external valuer in determining the investment property value, as well as a lower value being attributed to the 110 acres of surrounding land, where management felt it was appropriate to pay a premium for the land on the basis of its long-term potential and its adjacency to the Group’s land at Ebbsfleet. The Group has considered whether this element of the goodwill is recoverable, and has concluded that it is not. The purchasers’ costs could potentially be recovered if a future sale was structured through a corporate transaction, but the Group does not consider there to be sufficient certainty to deem this element of the goodwill to be recoverable. Similarly, the Group’s longer term plans for the outer land and the potential synergies with the Group’s existing holdings are at an early stage, making the recoverable amount uncertain at this time. £29.5m of goodwill has therefore been written off to the income statement in the year. The remaining goodwill of £6.0m represents goodwill arising on the deferred tax liability. The deferred tax liability will be released to the income statement as the intangible asset is amortised, and the corresponding element of the goodwill will be tested for impairment. At 31 March 2015, the carrying value of both the deferred tax liability and the goodwill was £5.8m.Buchanan Galleries, GlasgowOn 31 October 2014, the Group acquired the remaining 50% interest in Buchanan Galleries from its joint venture partner, The Henderson UK Shopping Centre Fund, for total consideration of £137.1m. The consideration consisted of a net cash consideration of £9.2m as well as the Group’s interests in certain investment properties within its Exeter joint operation, in particular Princesshay, together with associated working capital for a total acquisition date fair value of £127.9m.Buchanan Galleries currently totals 600,000 sq ft of prime retail space and the Group has planning consent for a leisure and retail extension which would extend the centre to 1.2m sq ft of retail, leisure and restaurant space.The fair value of the consideration paid was less than the value of the identifiable assets and, as a result, a gain of £2.2m has been recognised in the income statement on acquisition within net gain on business combinations. In addition, £6.1m of transaction related costs are included within costs. The gain on business combination of £2.2m reflects a £0.6m gain on bargain purchase and a £1.6m gain on revaluation of our existing interest at the date of acquisition. 41. Business combinations continued
The fair value of the assets and liabilities recognised at the date of acquisition is set out in the table below:
Group
Assets
Investment property
Intangible asset
Cash
Trade receivables (Note 1)
Other receivables
Total assets
Liabilities
Trade and other payables
Accruals and deferred income
Deferred tax
Total liabilities
Net assets
Fair value of consideration paid
Fair value of previously held interest
Goodwill/(gain on business combination) recognised
Goodwill impairment
Net gain on business combination
Business combination costs
Total loss on business combination recognised in the income statement
Note 1:
Gross contractual amount for trade receivables
Less amounts expected to be irrecoverable
Trade receivables
135
Total
£m
910.8
30.0
4.2
7.4
1.0
Bluewater
30%
£m
Buchanan
Galleries
100%
£m
635.8
30.0
2.8
6.7
1.0
275.0
–
1.4
0.7
–
676.3
277.1
953.4
(4.7)
(6.8)
(6.0)
(17.5)
(0.1)
(1.6)
–
(1.7)
(4.8)
(8.4)
(6.0)
(19.2)
658.8
275.4
934.2
694.3
–
694.3
35.5
29.5
–
2.7
32.2
7.0
(0.3)
6.7
137.1
136.1
273.2
831.4
136.1
967.5
(2.2)
33.3
–
(2.2)
6.1
3.9
0.7
–
0.7
29.5
(2.2)
8.8
36.1
7.7
(0.3)
7.4
Financial statementsGovernanceAdditional informationStrategic reportFinancial statements continuedLand Securities Annual Report 2015 136
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2015 continued
41. Business combinations continued
Pro forma information
Since the date of acquisition, the acquisitions have contributed the following to the revenue of the Group and the profit after tax for the year:
Revenue
Profit after tax
Bluewater
£m
27.2
12.8
Buchanan
Galleries
£m
9.3
1.9
Total
£m
36.5
14.7
If the acquisitions had been made on 1 April 2014, revenue and profit after tax would have been higher by £14.0m and £7.9m respectively.
In calculating the pro forma information, the results of the acquired entities for the period before acquisition have been adjusted to reflect Land Securities’
accounting policies and any fair value adjustments made on acquisition. The information is provided for illustrative purposes only and is not necessarily indicative of
the results of the combined Group that would have occurred had the purchases actually been made at the beginning of the financial year, or indicative of future results
of the combined Group.
Intangible asset and deferred tax liability
The following table shows the movement in intangible assets, together with the associated deferred tax liability:
At 1 April 2014
Arising on business combination – Bluewater
Impairment of goodwill arising on acquisition
Amortisation of intangible asset
Impairment of goodwill on unwind of deferred tax liability
Unwind of deferred tax liability
At 31 March 2015
1. This represents the deferred tax liability arising on business combinations only.
42. Non-current assets held for sale
Goodwill
£m
–
35.5
(29.5)
–
(0.2)
–
5.8
Other
intangible
asset
£m
Total
intangible
asset
£m
Deferred
tax liability1
£m
–
30.0
–
(1.1)
–
–
28.9
–
65.5
(29.5)
(1.1)
(0.2)
–
34.7
–
(6.0)
–
–
–
0.2
(5.8)
On 23 March 2015, the Group exchanged contracts for the sale of Times Square, EC4 for consideration of £284.6m. The risks and returns of ownership had not fully
transferred to the buyer as at 31 March 2015. As a result the property was classified as a Non-current asset held for sale with a carrying value of £283.4m.
43. Events after the reporting period
There are no reportable events after the reporting period.
Land Securities Annual Report 2015 ADDITIONAL
INFORMATION
BUSINESS ANALYSIS
A closer look at some of our key
performance indicators.
For more information go to:
pages 138–151
FIVE YEAR SUMMARY
The Group’s financial performance
since 2011.
For more information go to:
pages 152–153
INVESTOR INFORMATION
Useful dates and contact details
for shareholders.
For more information go to:
pages 154–155
Land Securities Annual Report 2015
137
Additional information
Further analysis of our business
and practical information for
shareholders.
138 Business analysis – Group
142 Business analysis – Retail
143 Business analysis – London
144 Sustainability and responsibility
146 Sustainability reporting
148 Combined Portfolio analysis
150 Lease lengths
150
152 Five year summary
154
156 Glossary
IBC Cautionary statement
Contact details
Development pipeline
Investor information
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Financial statementsGovernanceAdditional informationStrategic report
138
BUSINESS ANALYSIS –
GROUP
Performance relative to IPD
Total property returns – year to 31 March 2015
Retail – Shopping centres
– Retail warehouses
Central London shops
Central London offices
Total portfolio
1. IPD Quarterly Universe. 2. Including supermarkets. 3. Including leisure, hotel portfolio and other.
Combined Portfolio value by location at 31 March 2015
Central, inner and outer London
South East and East
Midlands
Wales and South West
North, North West, Yorkshire and Humberside
Scotland and Northern Ireland
Total
% figures calculated by reference to the Combined Portfolio value of £14.0bn.
Total shareholder returns1
Land Securities
FTSE 100
FTSE 350 Real Estate Index
1. Historical TSR performance for a hypothetical investment of £100.
Source: New Bridge Street
For more information about our Combined Portfolio
go to: pages 30–33
Land Securities
%
19.8
8.52
23.8
28.4
23.03
Table 62
IPD1
%
15.2
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28.9
22.6
17.1
Table 63
Total
%
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10.6
3.8
10.9
100.0
Table 64
Over one year to 31 March 2015
£
126.3
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%
13.5
9.2
–
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7.2
2.8
35.1
Retail
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%
0.2
4.3
0.9
0.5
2.1
0.8
8.8
Offices
%
45.1
–
–
–
0.1
–
45.2
Hotels,
leisure,
residential
and other
%
3.7
0.7
0.8
4.3
1.2
0.2
Voids and units in administration
Voids and units in administration
like-for-like portfolio (%)
like-for-like portfolio (%)
5.0
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4.5
4.5
4.5
4.5
4.0
4.0
3.5
3.5
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2.5
2.5
2.0
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1.5
1.5
1.0
1.0
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31 March 2015 (Total)
31 March 2015 (Total)
31 March 2014 (Total)
31 March 2014 (Total)
Properties held for development
Properties held for development
Properties held for development
Properties held for development
Chart 65
Chart 65
Analysis of performance relative to IPD (%)
Chart 66
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Source: IPD
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Land Securities Annual Report 2015
139
For more information go to:
pages 94–95
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015Reconciliation of segment reporting to statutory reporting Table 67The table below reconciles the Group’s income statement to the segment note (note 4). The Group’s income statement is prepared using the equity accounting method for joint ventures and includes 100% of the results of the Group’s non-wholly owned subsidiaries. The segment note is prepared on a proportionately consolidated basis and excludes the non-wholly owned share of the Group’s subsidiaries. This is consistent with the financial information reviewed by management.31 March 2015£mGroup income statementJoint ventures1Proportionate share of earnings2TotalRevenue profitCapital and other itemsRental income575.770.6(3.0)643.3643.3–Finance lease interest10.30.1–10.410.4–Gross rental income (before rents payable)586.070.7(3.0)653.7653.7–Rents payable(11.3)(1.6)–(12.9)(12.9)–Gross rental income (after rents payable)574.769.1(3.0)640.8640.8–Service charge income90.49.7(0.7)99.499.4–Service charge expense(91.2)(11.0)0.6(101.6)(101.6)–Net service charge (expense)/income(0.8)(1.3)(0.1)(2.2)(2.2)–Other property related income34.41.8–36.236.2–Direct property expenditure(65.1)(10.6)0.4(75.3)(75.3)–Net rental income543.259.0(2.7)599.5599.5–Indirect expenses(92.1)(2.7)–(94.8)(94.8)–Other income4.1––4.14.1–455.256.3(2.7)508.8508.8–Loss on disposal of trading properties(11.3)––(11.3)–(11.3)Profit on disposal of trading properties29.81.7–31.5–31.5Profit on disposal of investment properties107.125.6–132.7–132.7Profit on disposal of investments in joint ventures3.3––3.3–3.3Net surplus on revaluation of investment properties1,770.6269.2(2.9)2,036.9–2,036.9Impairment of trading properties1.9(0.3)–1.6–1.6Amortisation of intangible asset(1.1)––(1.1)–(1.1)Business combination costs(8.8)––(8.8)–(8.8)Operating profit2,346.7352.5(5.6)2,693.6508.82,184.8Interest expense(215.2)(25.9)–(241.1)(209.1)(32.0)Interest income29.4––29.429.4–Fair value movement on interest rate swaps(34.0)(0.8)–(34.8)–(34.8)Fair value movement on foreign exchange swaps(5.1)––(5.1)–(5.1)Foreign exchange movement on borrowings4.9––4.9–4.9Revaluation of redemption liabilities(8.5)–5.6(2.9)–(2.9)Net gain on business combinations2.2––2.2–2.2Impairment of goodwill(29.7)––(29.7)–(29.7)2,090.7325.8–2,416.5329.12,087.4Share of post-tax profit from joint ventures325.8(325.8)––––Profit before tax2,416.5––2,416.5329.12,087.4Income tax0.3––0.3–0.3Profit for the year2,416.8––2,416.8329.12,087.71. Re-allocation of the share of post-tax profit from joint ventures reported in the Group income statement to the individual line items reported in the segment note.2. Removal of the non-wholly owned share of results of the Group’s subsidiaries. The non-wholly owned subsidiaries are consolidated at 100% in the Group’s income statement, but only the Group’s share is included in revenue profit reported in the segment note. 140
BUSINESS ANALYSIS –
GROUP
To read our Financial Review go to:
pages 26–29
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 result of these tests for the Group for the financial
year, and at the balance sheet date, see table 68 below.
REIT balance of business
Profit before tax (£m)1
Balance of business – 75% profits test
Adjusted total assets (£m)1
Balance of business – 75% assets test
1. Calculated according to REIT rules.
Cost analysis
Gross rental income (after rents payable)
640.8
Net service charge expense
Direct property expenditure
Net rental income
Indirect costs
Segment profit before interest
Unallocated expenses (net)
Net interest – Group
Net interest – joint ventures
Revenue profit
(2.2)
(39.1)
599.5
(51.3)
548.2
(39.4)
(155.4)
(24.3)
329.1
Direct
property
costs
£41.3m
Indirect
expenses
£90.7m
1. All percentages represent costs divided by gross rental income including finance leases, before rents payable.
Total
£132.0m
Total cost ratio1
20.2%
Table 68
For the year ended 31 March 2015
For the year ended 31 March 2014
Tax-exempt
business
305.5
92.5%
14,081.2
93.6%
Residual
business
24.8
7.5%
960.6
6.4%
Adjusted
results
330.3
15,041.8
Tax-exempt
business
293.0
96.1%
11,622.1
93.3%
Residual
business
12.0
3.9%
838.4
6.7%
Adjusted
results
305.0
12,460.5
Managed operations
Tenant default
Void related costs
Other direct property costs
Year ended
31 March 2015
Cost
ratio %1
1.3
1.1
1.8
1.2
Total
£m
8.6
7.2
11.1
7.8
Total
£m
9.7
5.3
11.7
3.9
Development expenditure
30.9
4.7
25.9
Table 69
Year ended
31 March 2014
Cost
ratio %1
1.5
0.8
1.9
0.6
4.0
Asset management,
administration
and compliance
Total
66.4
132.0
10.1
20.2
64.6
121.1
10.0
18.8
EPRA performance measures
Adjusted earnings
Adjusted earnings per share
Adjusted diluted earnings per share
Adjusted net assets
Adjusted diluted net assets per share
Triple net assets
Diluted triple net assets per share
Net initial yield (NIY)
Topped-up NIY
Voids/vacancy rate
Cost ratio
Definition for EPRA measure
Recurring earnings from core operational activity1
Adjusted earnings per weighted number of ordinary shares1
Adjusted diluted earnings per weighted number of ordinary shares1
Net asset value adjusted to exclude fair value movements on interest-rate swaps2
Adjusted diluted net assets per share2
Adjusted net assets amended to include the fair value of financial instruments and debt
Diluted triple net assets per share
Annualised rental income less non-recoverable costs as a % of market value plus assumed
purchasers’ costs3
NIY adjusted for rent-free periods3
ERV of vacant space as a % of ERV of Combined Portfolio excluding the development programme4
Total costs as a percentage of gross rental income (including direct vacancy costs)5
Total costs as a percentage of gross rental income (excluding direct vacancy costs)5
Notes
Land Securities
measure
11
11
11
10
10
10
10
£329.1m
41.7p
41.5p
£10,254.4m
1,293p
£9,439.2m
1,190p
4.35%
4.63%
3.60%
20.2%
n/a
Table 70
31 March 2015
EPRA
measure
£296.3m
37.5p
37.4p
£10,646.1m
1,342p
£9,439.2m
1,190p
4.38%
4.63%
3.60%
20.6%
18.9%
Refer to notes 10, 11 and table 102 for further analysis.
1. EPRA adjusted earnings and EPRA adjusted earnings per share include the effect of bond exchange de-recognition charges of £21.5m.
2. EPRA adjusted net assets and adjusted diluted net assets per share include the bond exchange de-recognition adjustment of £391.7m.
3. Our NIY and Topped-up NIY relate to the Combined Portfolio, excluding properties in the development programme that have not yet reached practical completion, and are calculated by our external valuers.
EPRA NIY and EPRA Topped-up NIY calculations are consistent with ours, but exclude the full development programme.
4. Our measure reflects voids in our like-for-like portfolio only. The EPRA measure reflects voids in the Combined Portfolio excluding only the development programme.
5. The EPRA cost ratio is calculated based on gross rental income after rents payable, whereas our measure is based on gross rental income before rents payable. We do not calculate a cost ratio excluding direct
vacancy costs as we do not consider this to be helpful. For further information on our costs and costs ratio see table 69.
Land Securities Annual Report 2015 141
Top 12 occupiers at 31 March 2015
Accor
Central Government (including Queen Anne’s Gate, SW1)2
Deloitte
Primark
Boots
Bank of New York Mellon
Taylor Wessing
Next
Arcadia Group
Sainsbury’s
Cineworld
K & L Gates
1. On a proportionate basis.
2. Rent from Central Government excluding Queen Anne’s Gate, SW1, is 0.1%.
Calculation of required property
income distribution (PID)
Profit before tax per accounts
Adjustment to exclude
Net surplus on revaluation of investment properties
Profit on disposal of investment properties
Profit on disposal of trading properties
(Profit)/loss on long-term development contracts
Trading property impairment release
Interest income
Fair value movement on interest rate swaps and foreign
exchange movements
Net gain on business combination
Adjustment for proportionate share of results
Fair value movement on redemption liability
Profit on disposal of investments in joint ventures
Joint venture accounting adjustments
Fair value movement on long-term liabilities
Impairment of goodwill
Amortisation of intangible asset
Business combination costs
Tax adjustments
Capital allowances
Capitalised interest
Cumulative tax adjustments and removal of net residual
tax loss
Estimated tax exempt income for year
PID thereon (90%)
PID dividends paid in the year
Table 71
% of Group rent1
5.0
4.7
2.6
2.1
1.5
1.4
1.4
1.4
1.2
1.2
1.2
1.1
24.8
Table 72
Year ended
31 March 2015
£m
2,416.5
Year ended
31 March 2014
£m
1,108.9
(2,036.9)
(132.7)
(31.5)
11.3
(1.6)
(29.4)
35.0
(2.2)
(5.6)
8.5
(3.3)
–
4.4
29.7
1.1
8.8
272.1
(49.7)
(21.8)
24.2
224.8
202.3
214.8
(763.8)
(16.0)
(2.4)
(1.0)
(5.0)
(25.2)
(15.2)
(5.0)
(5.0)
5.6
–
0.3
–
–
–
–
276.2
(40.5)
(18.3)
2.9
220.3
198.3
175.4
Contracted rental income breakdown
by occupier business sector (%)
Chart 73
Financial services
Services
Retail trade
Public administration
Manufacturing
Transport comms
Wholesale trade
Other
12.0
27.2
38.8
6.4
2.6
1.6
1.8
9.6
Floor space
(million sq ft)
Chart 74
London Portfolio
Retail Portfolio
Total
6.93
19.59
26.52
Portfolio by value and number of
property holdings at 31 March 2015
£m
0–9.99
10–24.99
25–49.99
50–99.99
100–149.99
150–199.99
200+
Total
Table 75
Number of
properties
42
19
25
22
12
7
18
Value
%
1.2
2.3
6.9
11.0
10.3
8.6
59.7
100.0
145
Committed development – estimated future spend (£m)
Chart 76
400
350
300
250
200
150
100
50
0
349
151
60
2016
2017
2018
3
2019
The table provides a reconciliation of the Company’s profit before tax to its estimated tax exempt income,
90% of which the Company is required to distribute as a PID to comply with REIT regulations. The Company has
12 months after the year end to make the minimum distribution. Accordingly PID dividends paid in the year may
relate to the distribution requirements of previous periods.
Trading properties
Development programme
Estimated future spend includes the cost of residential space but excludes interest.
For more information about our dividend
go to: page 28
For more information about our development
pipeline go to: pages 14–15 and 150–151
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015 142
BUSINESS ANALYSIS –
RETAIL
To read our Retail Portfolio Review
go to: pages 30–31
Retail Portfolio valuation %
Chart 77
Retail Portfolio floor space (19.59m sq ft)
Chart 78
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
56.9
19.6
23.0
0.5
Shopping centres
Retail warehouses
Leisure and hotels
Other
8.52m sq ft
3.82m sq ft
6.66m sq ft
0.59m sq ft
£6.27bn
Shopping centres and shops
Comprises our portfolio of 13 shopping centres
in major retail locations across the UK including
Trinity Leeds, Gunwharf Quays, Portsmouth
and Buchanan Galleries in Glasgow.
Retail warehouses and food stores
Our 13 retail parks are typically located away
from town centres and offer a range of retail
and leisure with parking providing convenient
shopping. Assets include Westwood Cross,
Thanet and Team Valley Retail Park, Gateshead.
Leisure and hotels
We own seven stand-alone leisure assets and
a 95% share of the X-Leisure Fund which
comprises 16 schemes of prime leisure and
entertainment space.
We also own 29 Accor Group hotels in the UK.
They are leased back to Accor Group for 76
years, with 12-yearly break clauses. Rent is set
as a percentage of each hotel’s turnover.
Top 10 retail customers
Primark
Boots
Next
Arcadia Group
Sainsbury’s
Cineworld
Dixons Retail
M&S
H&M
Home Retail Group PLC
Retail other (excluding Accor)
Total
Voids and units in administration
Like-for-like Retail Portfolio %
Year ended 31 March 2015
Chart 80
Rental and capital value trends
Like-for-like Retail Portfolio %
Year ended 31 March 2015
Table 79
% of Group
rent
2.1
1.5
1.4
1.2
1.2
1.2
1.0
0.9
0.9
0.8
12.2
40.5
52.7
Chart 81
5
4
3
2
1
0
4.7
3.7
3.1
3.2
2.9
1.9
3.7
3.1
2.5
0.8
0.5
0.4
Mar
14
Sep
14
Mar
15
Shopping centres
and shops
Mar
14
Sep
14
Mar
15
Retail warehouses
and food stores
Mar
14
Sep
14
Mar
15
Mar
14
Sep
14
Mar
15
Leisure and
hotels
Retail
Portfolio
20.0
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0
-2.5
19.5
17.5
13.7
0.3
2.2
(0.9)
4.3
0.8
Shopping centres
and shops
Retail warehouses
and food stores
Leisure
and hotels
Total Retail
like-for-like Portfolio
In administration
Voids
Rental value change1
Valuation surplus
1. Rental value change excludes units materially altered during the year.
Land Securities Annual Report 2015
BUSINESS ANALYSIS –
LONDON
143
To read our London Portfolio Review
go to: pages 32–33
London Portfolio valuation %
Chart 82
London Portfolio floor space (6.93m sq ft)
Chart 83
West End
Mid-town
City
Inner London
Central London shops
Other
38
16
21
6
18
1
£7.76bn
West End offices
City offices
Mid-town offices
Inner London offices
Central London shops
Other
2.19m sq ft
1.75m sq ft
1.08m sq ft
1.03m sq ft
0.66m sq ft
0.22m sq ft
Top 10 office customers
Central Government (including Queen Anne’s Gate, SW1)
Deloitte
Bank of New York Mellon
Taylor Wessing
K&L Gates
EDF Energy
Redbus Interhouse
Microsoft
Bain & Co Inc
Lloyds Banking Group Plc
Office other
Total
Table 84
% of Group
rent
4.7
2.6
1.4
1.4
1.1
1.0
1.0
0.8
0.8
0.7
15.5
18.3
33.8
West End
Our £2.9bn West End office portfolio is
dominated by our Victoria assets which include
Queen Anne’s Gate, SW1, Cardinal Place, SW1
and developments including 62 Buckingham
Gate, SW1, The Zig Zag Building, SW1 and
Nova, Victoria, SW1.
Mid-town
Positioned between the City and West End, our
cluster of buildings at New Street Square, EC4,
represent our major assets in Mid-town.
City
Our £1.6bn City office portfolio includes assets
such as One New Change, EC4 and the
development programme schemes including
20 Fenchurch Street, EC3 and 1 & 2 New
Ludgate, EC4.
Inner London
Includes our assets at Thomas More Square, E1,
and Docklands, E14.
Central London shops
This segment comprises the retail space in our
London Portfolio assets. The largest elements
are the retail space at One New Change, EC4,
Cardinal Place, SW1, and Piccadilly Lights, W1.
Voids and units in administration
Like-for-like London Portfolio %
Year ended 31 March 2015
Chart 85
Rental and capital value trends
Like-for-like London Portfolio %
Year ended 31 March 2015
Chart 86
5
4
3
2
1
0
4.3
2.9
1.6
Mar
14
Mar
15
Sep
14
London
Portfolio
20
18
16
14
12
10
8
6
4
2
0
17.5
15.5
18.1
19.5
20.4
14.9
17.9
16.4
6.0
4.3
8.1
2.5
West End
City
Mid-town
Inner London
Central London
shops
Total London
like-for-like
Portfolio
Rental value change1 Valuation surplus
Voids
1. Rental value change excludes units materially altered during the year and Queen Anne’s Gate, SW1.
Administration
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015
144
SUSTAINABILITY AND RESPONSIBILITY:
PERFORMANCE AGAINST KEY TARGETS
In order to be a sustainable business we look beyond short-term financial goals
and recognise the need to balance the creation of shareholder value over time
with wider social and environmental objectives. Our aim is to be the leader
in the UK-listed real estate sector.
We have recently undertaken a comprehensive external review of our
approach which, coupled with the fact we have met a number of our
environmental targets ahead of time, has resulted in a series of nine
long-term commitments. We believe they are enduring and demanding;
they each involve stretching targets or clear objectives. Early progress against
these are outlined below; more can be learned from our Sustainability Report at
www.landsecurities.com/sustainability.
Development
Commitment: design all our new developments to meet or exceed best practice
guidelines for carbon emissions and the use of energy, water and materials.
Key measures
Performance highlights
Table 87
Outperform Part L of the Building
Regulations
BREEAM ‘Very Good’ for retail schemes
BREEAM ‘Excellent’ for office schemes
Embodied carbon performance
Performance against our own Ultra Low
Carbon standard
On-site developments are performing
well against previous Part L Building
Regulations 2010 target. Developments
in design are targeting performance
against their Part L Building Regulations
2013 target
On-site developments are meeting their
targeted rating (BREEAM ‘Very Good’ for
offices and retail). Developments in
design are making good progress towards
their targeted rating (BREEAM ‘Excellent’
for offices and ‘Very Good’ for retail)
In the first phases of assessing at
Westgate, Oxford. We have set a 15%
reduction target for new developments
Westgate, Oxford, and Zig Zag, SW1, are
on target to meet or exceed Ultra Low
Carbon design standard
Energy
Commitment: reduce the absolute energy consumption of our five largest
energy-consuming managed buildings by 15% by 2020 against a 2014 baseline.
Water
Commitment: reduce the water use of our five largest water-consuming
managed buildings by 15% by 2020 against a 2014 baseline.
Key measures: water reduction performance
of the following
Performance highlights
Table 89
Times Square, EC4
Cardinal Place, SW1
(80-100 Victoria Street)
The Galleria, Hatfield
Gunwharf Quays, Portsmouth
St David’s, Cardiff
13% reduction due to the installation of
more efficient bathroom fixtures
6% reduction due to changes in
occupation levels
No movement
We believe a 1% increase is due to
increased footfall
A 23% increase is currently under
investigation as there is no immediately
clear reason for the variance. We have
commissioned a water audit
Overall performance
1% reduction
Waste
Commitment: send zero waste to landfill with at least 70% recycled across all
our operational and construction activities by 2020*.
Key measures
London Portfolio:
diverted
recycled
Retail shopping centres:
diverted
recycled
Leisure sites:
diverted
recycled
Construction waste:
diverted
Performance highlights
Table 90
100%
50.6%
99.8%
71.1%
2015 is the first year we publicly
report figures
92.6%
57.1%
2015 is the first year we publicly
report figures
100%
Key measures: energy performance of the following
Performance highlights
Table 88
*This target details waste reduction performance across the portfolio. The chart
101 overleaf shows performance in our like-for-like portfolio only.
Times Square, EC4
Cardinal Place, SW1
(80-100 Victoria Street)
New Street Square, EC4
(buildings 4, 5 and 6)
One New Change, EC4
Thomas More Square, E1
8% reduction through move from electric
to gas heating and improved controls
4% reduction through improved cooling
controls and changes in occupation levels
2% reduction through upgraded lighting
and control sensors
6% increase due to an increase in
occupancy levels of the offices
21% reduction due largely to change in
occupier profile, including areas out of
operation during the refurbishment
Natural habitat
Commitment: maximise the biodiversity potential of all our development and
operational sites.
Key measures
Develop a strategic plan
Record zero environmental incidents
Table 91
Performance highlights
We are working on a plan to deliver this
across the portfolio of development and
operational sites
No reportable incidents have been
recorded this year
Overall performance
7% reduction
Land Securities Annual Report 2015
145
Additional performance highlights 2015
There are some additional disclosures we have not made within the body of this
report. These relate to our performance against industry benchmarks and indices.
We also disclose the amount of money raised for our charity partners, and the
value of investments made in community initiatives.
Table 96
Performance
2014: disclosure 96/score A-
2013: disclosure 88/score B
2012: disclosure 92/score B
2011: disclosure 60/score D
2014: score 78%
2013: score 67%
2012: score 68%
2014: score 70
2013: score 72
2012: score 70
We continue to retain our established
position in the FTSE4Good Index
Received a Gold Award at EPRA
Sustainability Awards 2014 for
sustainability reporting
£3m equivalent value of time, promotion
and cash investment
8,940 hours spent by employees
volunteering
£135,489 raised for partner Mencap in
the first year of our two-year partnership
Finalist: Freshfield Work Inclusion Award
(winner notified July 2015)
Diversity
Commitment: make measurable improvements to the profile – in terms of
gender, ethnicity and disability – of our employee mix. And lead our industry in
removing the employment barriers faced by these groups.
Table 92
Key measures (by 2020)
Performance highlights
Ethnicity: increased representation from
less than 5% in management roles and
above
Gender: increased representation of
women from 25-40% in leadership roles
Roll-out of ‘unconscious bias’ training to
all hiring managers
Introduced a new induction module on
inclusive culture
Commissioned benchmarking exercise
and standards review
Activity
Benchmarking
Carbon Disclosure Project (CDP)
Employment
Commitment: help 1,200 disadvantaged people to secure jobs by 2020.
Global Real Estate Sustainability
Benchmark (GRESB)
Table 93
Dow Jones Sustainability Index (DJSI)
FTSE4Good
EPRA
Community
Value of resources given
National charity partnership
Business in the community
Key measures
Performance highlights
Secure employment for 125 candidates
through our Community Employment
Programmes
157 candidates secured employment
Safety and health
Commitment: maintain an exceptional standard of both safety and health in all
the working environments we control.
Key measures (by 2020)
Performance highlights
Table 94
Safety: reportable H&S incidents
(RIDDORS)
Health: transferable occupational health
records required for workers on our
construction sites
Wellbeing: wellbeing policy obligation for
key supply chain partners
We report six RIDDORs this period. Our
accident frequency rate is 131 reportable
accidents per 100,000 workers, against
an industry average of 260
We have begun this process by
introducing occupational medical
surveillance on all developments lasting
longer than six weeks
Within our own business we have taken
the first steps in this area by issuing a
wellbeing survey to our employees. The
responses will play a significant part in
the design of our long-term health and
wellbeing strategy
Fairness
Commitment: make sure the working environments we control are fair.
Key measures (by 2020)
Performance highlights
Table 95
Payment of a Living Wage to those who
work on our behalf, in environments we
control
Employees: our own employees are paid
at least a Living Wage
Service partners: full-time London office
portfolio workers and shopping centre
teams in Lewisham and the O2 Centre are
paid at least a Living Wage. Other centres
have a programme of increases in place
Construction: work with main
contractors has begun to ensure a robust
process is in place for payment of Living
Wages before our 2020 target date
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015 146
SUSTAINABILITY REPORTING
Commercial property is responsible for approximately 18% of the UK’s current carbon
emissions. As a leader in this energy-intensive industry, we have a responsibility to reduce
its impact.
Having achieved our 2020 target by the end of last year, we have rebaselined using 2014 for our new 2020
targets. Against this revised baseline, there are reductions in both like-for-like energy and water consumption
across the portfolio, by 8% and 2% respectively. For energy, there has been a reduction in consumption of
10% in the Retail Portfolio and 8% in the London Portfolio. Water consumption has remained static in the
Retail Portfolio and decreased by 4% in the London Portfolio.
To convert our energy data to report greenhouse gas (GHG) emissions, we use the DEFRA recommended
carbon conversion factors. These have increased significantly in the current reporting year as a result of
changes in the UK fuel mix. Changes to these conversion factors are outside of our control and due to their
increase, as at 31 March 2015, we show a slight overall increase of 1% against our 2014 baseline (like-for-like) in
normalised equivalent CO2e emissions.
Conversion factors
Overall carbon factors*
Electricity
Natural gas
Table 97
2013/14
2014/15
Change
0.55991
0.61933
0.21214
0.20980
10.6%
-1.1%
* Combined conversion factors including well to tank and transmission and distribution factors.
New for this year we also report information on our
renewable energy installations and we have a total of
194 MWh generated electricity in our portfolio from
photovoltaic installations at Gunwharf Quays and
Europa House in Portsmouth and 62 Buckingham
Gate, SW1.
EPRA updated their guidelines in 2014 and
recommend for best practice that the floor area of
the total portfolio covered by sustainable certificates
is now reported, stating the level of certification
obtained. This is being collated and will be reported
next year.
Reporting framework
Disclosures concerning GHG emissions became
mandatory for Land Securities under the Companies
Act in the 2014 financial year. As well as fulfilling
these mandatory carbon reporting requirements,
Land Securities is committed to EPRA Best Practice
Recommendations for Sustainability reporting. We
believe that such reporting improves transparency
and performance. We also make further disclosures
as recommended by DEFRA Environmental
Reporting Guidance 2013 and the Greenhouse
Gas Protocol.
We report our data using an operational control
approach to define our organisational boundary.
A detailed description of our methodology can be
found at www.landsecurities.com/sustainability.
Construction waste and energy data from our
development sites is currently out of scope and is not
included within our overall figures. However, as part
of a best practice approach, this is recorded for our
development sites and the findings are detailed
in this section.
For headline absolute emissions see page 80.
For a detailed breakdown of absolute emissions
across the portfolio see www.landsecurities.com/
sustainability.
Like-for-like performance
We analyse and explain our like-for-like performance
across the portfolio against our selected performance
indicators: greenhouse gas intensity and building water
intensity. For a complete breakdown of our like-for-like
performance against our key EPRA performance
indicators see opposite.
Energy consumption and greenhouse gas
emissions (like-for-like)
London Offices
2015 vs. 2014
The overall GHG intensity of the London offices has
remained at 0.112 tCO2e/m2 in both the current
reporting year and the 2014 baseline.
This static performance can be attributed to a
number of factors, including energy efficiency
improvements, the increase in carbon conversion
factors and changes in portfolio composition which
overall have effectively cancelled each other out.
However, there has been a 7% energy reduction
within our London offices portfolio which can be
attributed to a broad range of initiatives including
plant optimisation. We have also been working
together with our customers to reduce their energy
demand, particularly outside core hours.
Retail shopping centres
2015 vs. 2014
The overall GHG intensity of our shopping centres has
remained at 0.050 tCO2e/m2 for 2015, the same level
as the 2014 baseline.
The like-for-like GHG emissions have reduced
marginally by 0.4% compared with the 2014 baseline.
However we have seen a 10% reduction in energy
consumption due to projects at several centres which
have focused on LED installations in both back of
house and main mall areas. Plant optimisation has also
contributed to improved energy use within the portfolio.
Leisure
The GHG intensity for the leisure portfolio was 0.12
tCO2e/m2, an increase of 2% on the 2014 baseline.
While there has been a 2% increase in GHG
emissions in the Leisure portfolio, there has been a 9%
reduction in energy consumption. We have optimised
plant run times where possible to ensure efficient
running during operational hours, resulting in
decreased consumption.
Water consumption (like-for-like)
London offices
2015 vs. 2014
London office water intensity has decreased by 5%
from 0.741 to 0.701m3/m2.
Automatic water meter readers have been installed
in the majority of our London office portfolio,
allowing for more effective monitoring of the water
consumption within the properties.
Retail shopping centres
2015 vs. 2014
Retail shopping centre water intensity has increased by
2% from 0.953 to 0.972m3/m2.
The increase is partly attributable to higher trading
levels and increased footfall across our retail centres.
Although our corporate water target relates to landlord
controlled water only, we will continue to engage with
our retailers on efficiency measures as we recognise
they account for a high proportion of the overall usage.
Leisure
2015 vs. 2014
Leisure water intensity has decreased by 4% from
1.777 to 1.703m3/m2. We are expecting an increase
in the number of sites included within the Leisure
like-for-like portfolio in the 2016 reporting year
which will bring further insight into water
consumption in this area.
Waste management (like-for-like)
London offices
We are showing an 18% reduction in the total waste
managed on site within the portfolio as some
customers are taking advantage of the value of
specific waste streams and are managing waste
internally to generate revenue. We have seen a 6%
decrease in recycling rates as this year we are no
longer including certain client waste in our figures.
Retail shopping centres
There has been a 6% increase in the total waste being
managed through our waste service partners on site
in the current reporting year. There has also been an
increase in the percentage of waste being recycled in
our shopping centre portfolio, with a 9% increase
when compared with the 2014 baseline. Improved
waste service partner processes are providing us with
more accurate data and are allowing us to engage with
customers through waste awareness campaigns.
Leisure
During 2015 there have been changes in the waste
management provider at several sites, which has
improved management information. Greater accuracy
in segregating waste streams and a clear focus on the
issues has led to a significant reduction in waste to
landfill in the leisure like-for-like portfolio. Next year,
the number of assets included in this portfolio is likely
to increase significantly.
Development, energy, water and waste
2015
While not included in our like-for-like portfolio,
we are recording energy, water and waste for our
development sites through our construction teams.
In 2015, the total energy consumption (electricity
and gas) was 27,842 MWh and we recorded 8,383m3
of water consumed on site. Next year we will be
validating the data received from our development
teams, increasing the scope of data collection and
including fuel oil used on our sites.
Waste streams are recorded on development
sites in the same way. In this reporting year, 230,749
tonnes of waste was recycled and 2,106 tonnes
were sent to landfill.
Land Securities Annual Report 2015 Direct and indirect GHG
emissions and total energy across
the like-for-like portfolio in
2014 and 2015
Chart 98
Water consumption across
the like-for-like portfolio
in 2014 and 2015
Chart 99
Tonnes of waste disposed
via different disposal
routes, across the like-for-like
portfolio in 2014 and 2015*
147
Chart 100
60
50
40
30
20
10
0
)
d
n
a
s
u
o
h
t
(
e
2
O
C
t
s
n
o
i
s
s
i
m
E
2014
2015
2014
2015
2014
2015
London offices
Retail shopping
centres
Leisure
Direct and indirect emissions
Total energy
160
140
120
100
80
60
40
20
0
)
h
W
M
(
y
g
r
e
n
E
l
a
t
o
T
400
300
200
100
0
3
m
d
n
a
s
u
o
h
T
2014
2015
2014
2015
2014
2015
London offices
Retail shopping
centres
Leisure
Consumption
12,000
10,000
s
e
n
n
o
T
8,000
6,000
4,000
2,000
0
29%
71%
38%
62%
45%
55%
51%
49%
33%
34%
33%
66%
34%
2014
2015
2014
2015
2014
2015
London offices
Retail shopping
centres
Leisure
Recycled
Energy from waste
Landfill
* This bar chart shows like-for-like portfolio performance.
Our waste reduction target applies across the whole portfolio.
Like-for-like portfolio – selected performance indicators in 2015 and 2014 baseline
Table 101
EPRA performance indicator
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.11
3.11
3.11
3.11
Total direct
greenhouse gas
(GHG)
emissions
(annual
metric tonnes
CO2e)
Total indirect
greenhouse gas
(GHG)
emissions
(annual
metric tonnes
CO2e)
Greenhouse
gas intensity
from building
energy
(tCO2e/m2/
year)
Total water
withdrawal
by source
(annual m3)
Building water
intensity
(m3/m2/year)
Total weight
of waste by
disposal route
(annual
metric tonnes
– recycled)
Total weight
of waste by
disposal route
(annual
metric tonnes
– EfW)
Total weight
of waste by
disposal route
(annual
metric tonnes
– landfill)
Proportion of
waste by
disposal route
(% of total
by weight –
recycled)
Proportion of
waste by
disposal route
(% of total
by weight
– EfW)
Proportion of
waste by
disposal route
(% of total
by weight
– landfill)
2015 Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Landlord own consumption
2015 London Portfolio
West End
City
Mid-town
Inner London
London offices
London shops
Other
Landlord own consumption
Total
2014 Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Landlord own consumption
2014 London Portfolio
West End
City
Mid-town
Inner London
London offices
London shops
Other
Landlord own consumption
Total
3,568
–
280
473
–
4,321
3,013
1,199
1,443
11
5,667
669
82
162
6,580
10,901
4,247
–
336
497
–
5,080
3,619
1,285
1,548
11
6,463
634
94
190
7,382
12,462
13,593
943
1,759
23
28
16,346
13,663
17,581
9,134
10,290
50,668
2,452
154
1,044
54,319
70,665
12,979
865
1,670
50
22
15,586
12,996
16,185
8,857
11,697
49,736
2,006
129
909
52,779
68,365
0.050
0.002
0.120
0.022
0.141
0.025
0.100
0.133
0.105
0.110
0.112
0.071
0.087
0.104
0.109
0.059
0.050
0.002
0.118
0.013
0.114
0.024
0.100
0.124
0.103
0.125
0.112
0.060
0.081
0.095
0.107
0.057
279,603
2,591
14,694
7,056
–
303,943
107,867
69,579
72,831
50,906
301,182
34,177
3,260
6,777
345,396
649,339
274,330
2,199
15,332
11,490
–
303,351
99,569
78,695
83,977
56,168
318,409
30,028
3,814
5,684
357,935
661,286
0.972
0.009
1.703
0.318
–
0.331
0.838
0.494
0.805
0.732
0.701
0.955
1.236
0.584
0.720
0.590
0.953
0.007
1.777
0.274
–
0.321
0.774
0.559
0.929
0.808
0.741
0.839
1.446
0.490
0.746
0.587
6,901
340
760
–
–
8,000
536
212
496
307
1,550
908
3
78
2,538
10,538
5,621
385
667
–
–
6,672
677
235
538
679
2,128
460
–
50
2,637
9,310
2,800
148
1,471
–
–
4,437
615
238
529
241
1,624
780
4
17
2,426
6,863
3,435
143
693
–
–
4,290
584
260
495
388
1,726
424
–
26
2,176
6,466
1
–
0
–
–
1
–
–
–
–
–
–
–
–
–
1
59
–
657
–
–
717
–
–
–
–
–
–
–
–
–
717
71%
70%
34%
–
0%
64%
47%
47%
48%
56%
49%
54%
38%
82%
51%
61%
62%
73%
33%
0%
0%
57%
54%
47%
52%
64%
55%
52%
0%
66%
55%
57%
29%
30%
66%
–
0%
36%
53%
53%
52%
44%
51%
46%
62%
18%
49%
39%
38%
27%
34%
0%
0%
37%
46%
53%
48%
36%
45%
48%
0%
34%
45%
39%
0%
0%
0%
–
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
33%
0%
0%
6%
0%
0%
0%
0%
0%
0%
0%
0%
0%
4%
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015
148
COMBINED PORTFOLIO ANALYSIS
Like-for-like segmental analysis
Market value1
Valuation movement2
Rental income3
31 March
2015
£m
31 March
2014
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
31 March
2015
£m
31 March
2014
£m
Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Total Retail
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other
Total London
Like-for-like portfolio10
Proposed developments3
Completed developments3
Acquisitions11
Sales and restructured interests12
Development programme13
Combined Portfolio
Non-current asset held for sale14
Properties treated as finance leases
2,025.7
1,130.8
797.2
32.3
3,986.0
1,826.3
735.3
1,101.4
388.6
4,051.6
1,094.7
70.4
5,216.7
9,202.7
290.0
962.1
1,425.1
–
2,151.5
14,031.4
n/a
1,687.6
1,087.7
677.5
26.0
3,478.8
1,550.6
633.4
941.7
316.2
3,441.9
935.2
58.3
4,435.4
7,914.2
135.0
835.2
586.1
887.3
1,249.1
11,606.9
252.5
327.6
24.1
118.1
5.8
475.6
262.7
107.0
158.5
44.6
572.8
153.2
11.5
737.5
1,213.1
2.9
114.5
81.2
–
594.4
2,006.1
30.8
19.5%
2.2%
17.5%
22.3%
13.7%
17.5%
18.1%
19.5%
20.4%
18.3%
16.4%
19.5%
17.9%
16.0%
1.0%
14.2%
6.2%
–
38.7%
17.4%
12.2%
Combined Portfolio
14,031.4
11,859.4
2,036.9
17.3%
116.1
66.7
46.8
2.1
231.7
82.3
26.7
41.6
19.4
170.0
44.1
2.1
216.2
447.9
13.7
42.3
69.2
39.7
28.1
640.9
12.8
(10.4)
643.3
112.3
68.2
45.8
2.5
228.8
80.9
26.5
42.4
20.2
170.0
38.8
1.5
210.3
439.1
9.0
35.6
34.9
105.7
7.8
632.1
12.9
(10.9)
634.1
Annualised
rental
income4
31 March
2015
£m
Annualised net rent5
Table 102
Net estimated
rental value6
31 March
2015
£m
31 March
2014
£m
31 March
2015
£m
31 March
2014
£m
109.8
67.7
47.2
2.0
226.7
82.3
27.5
41.8
18.8
170.4
43.4
0.7
214.5
441.2
16.7
42.3
82.8
–
31.4
614.4
104.2
66.7
46.9
1.6
219.4
81.5
30.9
43.9
18.3
174.6
42.4
0.7
217.7
437.1
16.7
41.8
79.5
–
8.8
583.9
106.4
64.0
45.2
2.2
217.8
76.3
29.5
41.9
20.3
168.0
40.3
0.6
208.9
426.7
8.6
28.1
43.4
68.2
1.8
576.8
109.4
66.9
46.2
3.1
225.6
85.5
34.8
51.8
23.9
196.0
52.7
0.7
249.4
475.0
17.2
48.2
84.6
–
128.0
753.0
109.6
67.5
44.3
2.9
224.3
74.6
33.0
49.7
20.8
178.1
51.3
0.8
230.2
454.5
8.6
48.5
41.8
60.1
122.7
736.2
31 March
2015
£m
31 March
2014
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
31 March
2015
£m
31 March
2014
£m
31 March
2015
£m
31 March
2015
£m
31 March
2014
£m
31 March
2015
£m
31 March
2014
£m
Total portfolio analysis
Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Total Retail
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other
Total London
Combined Portfolio
Non-current asset held for sale14
Properties treated as finance leases
3,564.8
1,230.8
1,440.3
32.3
6,268.2
2,922.3
1,649.3
1,276.6
483.3
6,331.5
1,361.3
70.4
7,763.2
14,031.4
n/a
3,020.4
1,210.4
1,261.9
36.8
5,529.5
2,312.8
1,171.9
989.6
316.2
4,790.5
1,220.1
66.8
6,077.4
11,606.9
252.5
411.6
26.9
173.7
5.8
618.0
470.0
379.9
257.9
50.4
1,158.2
218.5
11.4
1,388.1
2,006.1
30.8
13.3%
2.3%
14.0%
22.3%
11.1%
19.8%
31.3%
29.1%
16.5%
24.2%
19.2%
16.8%
23.2%
17.4%
12.2%
Combined Portfolio
14,031.4
11,859.4
2,036.9
17.3%
Represented by:
Investment portfolio
Share of joint ventures
Combined Portfolio
12,603.5
1,427.9
14,031.4
10,260.4
1,599.0
11,859.4
1,767.8
269.1
2,036.9
16.2%
23.6%
17.3%
212.6
72.2
91.3
2.3
378.4
101.8
43.4
41.6
21.2
208.0
52.4
2.1
262.5
640.9
12.8
(10.4)
643.3
572.7
70.6
643.3
222.9
71.6
80.8
4.2
379.5
94.0
29.2
42.4
33.5
199.1
52.0
1.5
252.6
632.1
12.9
(10.9)
634.1
559.2
74.9
634.1
183.6
72.5
94.2
2.0
352.3
102.0
46.1
41.8
24.4
214.3
47.0
0.8
262.1
614.4
177.7
70.8
92.4
1.6
342.5
96.6
30.9
43.7
23.5
194.7
45.8
0.9
241.4
583.9
193.6
68.3
88.8
2.6
353.3
80.5
31.8
41.9
20.3
174.5
48.4
0.6
223.5
576.8
188.6
72.2
91.1
3.1
355.0
152.2
78.3
68.4
32.3
331.2
65.9
0.9
398.0
753.0
198.8
75.1
86.2
3.5
363.6
140.8
76.0
65.6
20.8
303.2
68.4
1.0
372.6
736.2
567.1
47.3
614.4
552.3
31.6
583.9
508.0
68.8
576.8
672.2
80.8
753.0
627.1
109.1
736.2
Land Securities Annual Report 2015
Like-for-like segmental analysis continued
Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Total Retail Portfolio
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other
Total London Portfolio
Like-for-like portfolio10
Proposed developments3
Completed developments3
Acquisitions11
Sales and restructured interests12
Development programme13
Combined Portfolio14
Total portfolio analysis
Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Total Retail Portfolio
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other
Total London Portfolio
Combined Portfolio14
Represented by:
Investment portfolio
Share of joint ventures
Combined Portfolio14
149
Table 102
Gross
estimated
rental value7
Net initial yield8
Equivalent yield9
Voids (by ERV)3
31 March
2015
£m
31 March
2014
£m
31 March
2015
%
31 March
2014
%
31 March
2015
%
31 March
2014
%
31 March
2015
%
31 March
2014
%
118.1
67.6
46.2
3.1
235.0
85.5
35.6
53.0
23.9
198.0
53.1
0.7
251.8
486.8
17.2
48.2
84.7
–
128.1
765.0
117.8
68.2
44.3
2.9
233.2
74.5
33.6
50.8
20.8
179.7
51.8
0.8
232.3
465.5
8.6
48.5
41.8
62.8
122.8
750.0
4.6%
5.4%
5.4%
3.4%
5.0%
4.2%
3.9%
3.7%
4.0%
4.0%
3.6%
0.7%
3.9%
4.3%
4.7%
4.1%
4.7%
0.0%
0.2%
3.7%
5.3%
5.4%
6.2%
6.8%
5.5%
4.7%
4.4%
4.0%
5.6%
4.5%
3.9%
0.7%
4.4%
4.9%
5.4%
2.8%
6.3%
6.1%
0.1%
4.4%
4.8%
5.5%
5.5%
8.2%
5.2%
4.5%
4.4%
4.3%
5.3%
4.5%
4.4%
0.8%
4.4%
4.8%
n/a
4.7%
5.4%
n/a
4.4%
4.8%
5.6%
5.7%
6.3%
9.7%
5.8%
5.0%
4.8%
4.9%
5.9%
5.0%
5.0%
0.9%
4.9%
5.3%
n/a
5.3%
n/a
n/a
5.1%
n/a
3.2%
2.5%
0.6%
19.4%
2.7%
3.5%
–
7.2%
7.1%
4.3%
4.5%
–
4.3%
3.6%
n/a
n/a
n/a
n/a
n/a
n/a
2.7%
0.6%
0.5%
20.7%
1.9%
2.0%
–
3.3%
1.4%
1.9%
0.6%
–
1.6%
1.8%
n/a
n/a
n/a
n/a
n/a
n/a
31 March
2015
£m
31 March
2014
£m
31 March
2015
%
31 March
2014
%
197.2
72.9
91.2
3.1
364.4
152.3
79.2
69.7
32.3
333.5
66.2
0.9
400.6
765.0
683.2
81.8
765.0
209.5
75.8
86.3
3.5
375.1
140.9
76.6
66.7
20.8
305.0
68.9
1.0
374.9
750.0
638.9
111.1
750.0
4.4%
5.2%
5.6%
3.4%
4.8%
3.0%
1.8%
3.2%
3.9%
2.8%
3.1%
0.7%
2.8%
3.7%
3.9%
1.8%
3.7%
5.4%
5.1%
6.3%
5.0%
5.5%
3.2%
3.0%
3.8%
5.6%
3.4%
3.6%
0.6%
3.4%
4.4%
4.6%
3.3%
4.4%
Notes:
1. The market value figures are determined by the Group’s
external valuers.
2. The valuation movement is stated after adjusting for the effect
of SIC 15 under IFRS.
3. Refer to glossary for definition.
4. Annualised rental income is annual ‘rental income’ (as defined
in the glossary) at the balance sheet date, except that car park
and commercialisation income are included on a net basis
(after deduction for operational outgoings). Annualised rental
income includes temporary lettings.
5. Annualised net rent is annual cash rent, after the deduction of
ground rents, as at the balance sheet date. It is calculated with
the same methodology as annualised rental income but is
stated net of ground rent and before SIC 15 adjustments.
6. Net estimated rental value is gross estimated rental value, as
defined in the glossary, after deducting expected ground rents.
7. Gross estimated rental value (ERV) – refer to glossary for
definition. The figure for proposed developments relates to
the existing buildings and not the schemes proposed.
8. Net initial yield – refer to glossary for definition. This calculation
includes all properties including those sites with no income.
9. Equivalent yield – refer to glossary for definition. Proposed
developments are excluded from the calculation of equivalent
yield on the Combined Portfolio.
10. The like-for-like portfolio – refer to glossary for definition.
Capital expenditure on refurbishments, acquisitions of head
leases and similar capital expenditure has been allocated to the
like-for-like portfolio in preparing this table.
11. Includes all properties acquired since 1 April 2013.
12. Includes all properties sold since 1 April 2013.
13. The development programme – refer to glossary for definition.
Net initial yield figures are only calculated for properties in the
development programme that have reached practical
completion.
14. As at 31 March 2015, the non-current asset held for sale has
been excluded from the Combined Portfolio and shown
separately on the balance sheet as a ‘Non-current asset held
for sale’.
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015 150
LEASE LENGTHS
Lease lengths
Retail Portfolio
Shopping centres and shops
Retail warehouses and food stores
Leisure and hotels
Other
Total Retail Portfolio
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other
Total London Portfolio
Combined Portfolio
Table 103
Weighted average unexpired lease term at
31 March 2015
Like-for-like
portfolio
Mean1
years
Like-for-like
portfolio, completed
developments and
acquisitions
Mean1
years
7.4
8.3
7.8
3.5
7.7
8.4
7.1
10.6
13.2
9.2
6.3
8.7
8.6
8.2
7.9
9.1
9.4
3.5
8.6
8.3
7.1
10.6
11.1
9.0
6.1
8.7
8.4
8.5
Table 104
Valuation
surplus for
the year
ended
31 March
20153
£m
1. Mean is the rent-weighted average remaining term on leases subject to lease expiry/break clauses.
DEVELOPMENT PIPELINE
Development pipeline financial summary
Cumulative movements on the development programme to 31 March 2015
Total scheme details1
Market
value at
start of
scheme2
£m
Capital
expenditure
incurred
to date
£m
Capitalised
interest to
date
£m
Valuation
surplus to
date3
£m
Disposals,
SIC15 rent
and other
adjustments
£m
Market
value at
31 March
2015
£m
Estimated
total capital
expenditure4
£m
Estimated
total
capitalised
interest
£m
Estimated
total
development
cost5
£m
Net
Income/
ERV6
£m
Developments let and
transferred or sold
Shopping centres and shops
Retail warehouses and food stores
London Portfolio
Developments after practical
completion, approved or in
progress
Shopping centres and shops
Retail warehouses and food stores
London Portfolio
Proposed developments
Shopping centres and shops
Retail warehouses and food stores
London Portfolio
–
18.0
92.0
110.0
30.0
–
459.4
489.4
279.2
–
–
279.2
–
20.0
60.6
80.6
8.7
–
689.2
697.9
–
0.4
1.5
1.9
0.3
–
48.9
49.2
–
16.6
139.0
155.6
10.9
–
983.1
994.0
–
(3.0)
12.4
9.4
–
52.0
305.5
357.5
–
20.0
60.6
80.6
0.1
–
(79.1)
(79.0)
50.0
–
2,101.5
2,151.5
179.6
–
847.9
1,027.5
Movement on proposed developments for the year ended 31 March 2015
8.8
–
–
8.8
–
–
–
–
2.9
–
–
2.9
(0.9)
–
–
(0.9)
290.0
–
–
290.0
326.0
–
–
326.0
–
0.4
1.5
1.9
10.4
–
72.2
82.6
22.5
–
–
22.5
–
38.4
154.1
192.5
220.0
–
1,379.5
1,599.5
638.5
–
–
638.5
–
2.7
14.2
16.9
13.9
–
123.6
137.5
39.5
–
–
39.5
–
7.6
42.0
49.6
10.9
–
583.5
594.4
2.9
–
–
2.9
Notes:
1. Total scheme details exclude properties sold in the year.
2. Proposed developments includes costs relating to the acquisition of the remaining 50% share in Buchanan Galleries. Figures provided are for the scheme as a whole (development and existing scheme).
3. Includes profit realised on the disposal of investment properties and any surplus or deficit on investment properties transferred to trading.
4. For proposed development properties the estimated total capital expenditure represents the outstanding costs required to complete the scheme as at 31 March 2015.
5. Includes the property at its market value 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 2015 is included in the estimated total cost. Estimated total development cost includes the cost of residential properties in the development programme (£10.9m for the Retail
Portfolio). Estimated costs for proposed schemes could still be subject to material change prior to final approval.
6. Net headline annual rent on let units plus net ERV at 31 March 2015 on unlet units.
Land Securities Annual Report 2015 Development pipeline and trading property development schemes at 31 March 2015
151
For more information about our
development pipeline go to:
pages 14–15, 30–33
Description
of use
Ownership
interest
%
Size
sq ft
Letting
status
%
Market
value
£m
Net
income/
ERV
£m
Estimated/
actual
completion
date
Total
development
costs to date
£m
Office
Retail
Office
Retail
Office
Retail
Office
Retail
Office
Office
Retail
Office
Retail
Retail
Retail
Residential
100
50
100
100
100
100
50
50
50
259,700
15,600
673,900
14,200
355,300
26,200
188,700
44,500
92,700
274,800
480,300
79,900
72,300
804,500
37,000
68
100
92
100
66
30
32
52
–
100
100
–
24
64
29
377
474
18.6
May 2013
21.8
Dec 2014
437
23.1
Apr 2015
290
63
177
216
68
50
16.0
Jul 2015
5.3
15.5
Apr 2016
Jun 2016
20.0
Jul 2016
3.3
13.9
Nov 2016
Oct 2017
178
229
232
158
43
73
139
28
39
Table 105
Forecast
total
development
cost
£m
178
239
254
177
67
180
248
37
220
Property
Developments after practical completion
62 Buckingham Gate, SW1
20 Fenchurch Street, EC3
Developments approved or in progress
1 & 2 New Ludgate, EC4
The Zig Zag Building, SW11
20 Eastbourne Terrace, W2
1 New Street Square, EC4
Nova, Victoria, SW1 – Phase I
Oriana, W1 – Phase II
Westgate, Oxford
Proposed developments
Buchanan Galleries, Glasgow2
Retail
100
1,170,000
n/a
n/a
n/a
2018
n/a
n/a
Developments let and transferred or sold
123 Victoria Street, SW13
Bishop Centre, Taplow
Office
Retail
Retail
100
100
200,100
28,200
101,500
100
100
100
n/a4
n/a4
14.2
Aug 2012
2.7
Jul 2014
154
38
154
38
1. Includes retail within Kings Gate, SW1.
2. Figures provided are for the scheme as a whole (development and existing scheme).
3. Office refurbishment only. Figures provided are for the property as a whole including the retail element.
4. Once properties are transferred from the development pipeline, we do not report on their individual value.
Where the property is not 100% owned, floor areas and letting status shown above represent the full scheme whereas all other figures represent our proportionate
share. Letting % is measured by ERV and shows letting status at 31 March 2015. Trading property development schemes are excluded from the development pipeline.
Total development cost
Refer to glossary for definition. Of the properties in the development pipeline at 31 March 2015, the only properties on which interest was capitalised on the land
cost were Westgate, Oxford and Nova, Victoria, SW1 - Phase I. The figures for total development costs include expenditure on the residential elements of Westgate,
Oxford (£10.9m).
Net income/ERV
Net income/ERV represents headline annual rent on let units plus ERV at 31 March 2015 on unlet units, both after rents payable.
Trading property development schemes
Property
Kings Gate, SW1
Nova, Victoria, SW1 – Phase I
Oriana, W1 – Phase II
Description
of use
Residential
Residential
Residential
Ownership
interest
%
100
50
50
Size
sq ft
108,700
166,400
20,200
Sales
exchanged
by unit
%
85
78
–
Estimated/
actual
completion
date
Jul 2015
Apr 2016
Nov 2016
Total
development
costs to date
£m
138
92
9
Number
of units
100
170
18
Table 106
Forecast
total
development
cost
£m
161
141
16
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015 152
FIVE YEAR SUMMARY
Land Securities Annual Report 20152015£m2014£m2013£m2012£m2011£mIncome statementGroup revenue770.4716.5736.6671.5701.9Costs(306.6)(253.3)(290.7)(239.6)(270.8)463.8463.2445.9431.9431.1Profit/(loss) on disposal of investment properties107.115.6(3.1)45.475.7Profit on disposal of investments in joint ventures3.32.5–––Net surplus on revaluation of investment properties1,770.6606.6196.7169.8794.1Profit on disposal of other investments––1.6––Release of impairment/(impairment) of trading properties1.95.37.1(2.0)(1.4)Operating profit2,346.71,093.2648.2645.11,299.5Net interest expense(220.0)(179.2)(170.7)(179.4)(216.1)Revaluation of redemption liabilities(8.5)(5.6)(4.5)––Net gain on business combination2.25.01.4––Impairment of goodwill(29.7)––––2,090.7913.4474.4465.71,083.4Share of post-tax profit from joint ventures 325.8195.558.652.2143.9Impairment of investment in joint ventures–––(2.2)–Profit before tax2,416.51,108.9533.0515.71,227.3Income tax0.37.7–8.016.8Profit for the financial year 2,416.81,116.6533.0523.71,244.1Revaluation surplus for the year:Group11,767.8608.5197.0169.8794.1Joint ventures1269.1155.320.521.1114.7Total12,036.9763.8217.5190.9908.8Revenue profit329.1319.6290.7299.4274.71. Includes our non-wholly owned subsidiaries on a proportionate basis. FIVE YEAR SUMMARY
153
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 20152015£m2014£m2013£m2012£m2011£mBalance sheetInvestment properties12,158.09,847.79,651.98,453.28,889.0Intangible assets34.7––––Other property, plant and equipment9.67.38.38.811.3Net investment in finance leases185.1186.9188.0185.0116.8Loan investments49.550.050.050.872.2Investment in joint ventures1,433.51,443.31,301.01,137.6939.6Trade and other receivables54.034.310.6–77.0Other investments12.8––32.31.8Derivative financial instruments–5.3–––Pension surplus7.02.35.9–8.7Total non-current assets13,944.211,577.111,215.79,867.710,116.4Trading properties and long-term development contracts222.3192.9152.8133.1129.3Trade and other receivables402.7366.3344.8759.6352.5Monies held in restricted accounts and deposits10.414.530.929.535.1Cash and cash equivalents14.320.941.729.737.6Total current assets 649.7594.6570.2951.9554.5Non-current assets held for sale283.4––––Borrowings(190.7)(513.2)(436.2)(10.8)(33.0)Trade and other payables(367.3)(319.5)(364.3)(361.3)(423.2)Provisions(2.6)(3.6)(7.0)(8.6)(7.4)Derivative financial instruments(3.8)(5.5)(9.1)––Current tax liabilities(3.7)(2.9)(21.2)(21.6)(35.5)Total current liabilities(568.1)(844.7)(837.8)(402.3)(499.1)Borrowings(3,593.0)(2,849.0)(3,315.2)(3,225.1)(3,351.3)Derivative financial instruments(37.7)(3.5)(10.7)(6.5)(2.0)Pension deficit–––(2.4)–Trade and other payables(29.6)(23.6)(17.4)(27.7)(6.2)Redemption liabilities(35.3)(32.6)(118.1)––Deferred tax(7.3)––––Total non-current liabilities(3,702.9)(2,908.7)(3,461.4)(3,261.7)(3,359.5)Net assets10,606.38,418.37,486.77,155.66,812.3Net debt(3,800.5)(3,330.5)(3,698.6)(3,183.2)(3,313.6)Results per shareTotal dividend payable in respect of the financial year (actual)31.85p30.7p29.8p29.0p28.2pBasic earnings per share306.1p142.3p68.4p67.5p162.3pDiluted earnings per share 304.7p141.8p68.1p67.4p162.2pAdjusted earnings per share141.7p40.7p37.0p38.5p35.5pAdjusted diluted earnings per share1 41.5p40.5p36.8p38.5p35.5pNet assets per share1,343p1,069p959p921p885pDiluted net assets per share1,337p1,065p955p918p884pAdjusted net assets per share1,299p1,017p907p866p827pAdjusted diluted net assets per share 1,293p1,013p903p863p826p1. In 2012 adjusted earnings and adjusted earnings per share were restated to exclude profits on disposals of trading properties and long-term development contracts. The prior years have been adjusted accordingly. 154
INVESTOR INFORMATION
Land Securities Annual Report 2015Financial calendar Table 10720152014/15 final dividendEx-dividend date18 JuneRecord date19 JuneLast day for DRIP elections/receipt of DRIP application 3 July Payment date 24 July Annual General Meeting 23 July 2015/16 1st interim dividend*Ex-dividend date 10 September Record date11 September Last day for DRIP elections/receipt of DRIP application18 September Payment date9 October First quarter interim management statement*22 July2015/16 Half-yearly results announcement10 November 2015/16 2nd interim dividend*Ex-dividend date3 December Record date4 DecemberLast day for DRIP elections/receipt of DRIP application14 December2016Payment date 7 January Third quarter interim management statement* January 2015/16 3rd interim dividend*Ex-dividend date10 March Record date11 MarchLast day for DRIP elections/receipt of DRIP application16 March Payment date8 April 2015/16 financial year end31 March2015/16 Annual results announcement* May* Provisional Payment of dividends to non-UK resident
shareholders
Instead of waiting for a sterling cheque to arrive by
post, shareholders can ask for their dividends to be
paid direct to a personal bank account overseas. This
is a service which the Registrar can arrange in over 30
different countries worldwide, and in local currencies,
and it normally costs less than paying in a sterling
cheque. For more information, you should contact
the Registrar on +44 (0)121 415 7049 or download
an application form online at www.shareview.co.uk.
Alternatively, you can contact Equiniti at the address
given on the left.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan (DRIP) gives
shareholders the opportunity to use their cash
dividends to increase their shareholding in
Land Securities. It is a convenient and cost-effective
facility provided by Equiniti Financial Services
Limited. Under the DRIP, cash dividends are used to
buy shares in the market as soon as possible after the
dividend payment, with any residual cash being
carried forward to the next dividend payment.
Details of the DRIP, including terms and conditions
and participation election forms, are available at
www.landsecurities.com/investors/shareholder-
investor-information/dividend-reinvestment-plan.
They are also available from:
Dividend Reinvestment Plans
Equiniti,
Aspect House, Spencer Road,
Lancing,
West Sussex BN99 6DA
Telephone: 0871 384 2268*
International dialling: +44 (0)121 415 7173
Share dealing facilities
Equiniti provides both existing and prospective
UK shareholders with a simple share dealing facility
for buying and selling Land Securities 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 dealing
instruction form. Existing shareholders will need to
provide the account/shareholder reference number
shown on their share certificate. Other brokers,
banks and building societies also offer similar share
dealing facilities.
Ordinary shares
The Company’s ordinary shares, each of nominal
value 10 pence each, are traded on the main market
for listed securities on the London Stock Exchange
(LON:LAND).
Company website: www.landsecurities.com
The Company’s annual and half year results
announcements and presentations are available to
view and download from its website. Information can
also be found there about the latest Land Securities
share price and dividend information, news about
the Company, its properties and operations, and
how to obtain further information. You can also
access from the website details about managing your
shares electronically, corporate governance and
other debt and equity investor information.
Registrar: Equiniti
All general enquiries concerning shareholdings,
dividends and changes in personal details should be
referred in the first instance 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
An online share management service is available
which enables shareholders to access details of their
Land Securities shareholdings electronically. This is
available at http://www.landsecurities.com/
investors/shareholder-investor-information/
dividend-information
or www.shareview.co.uk/clients/myportfolio
e-Communication
We encourage shareholders to consider receiving
their communications from the Company
electronically. Choosing to receive information in
this way means you will receive it more quickly
and securely. It also allows Land Securities to
communicate in a more environmentally friendly
and cost-effective manner. To register for this service,
you should go to http://www.landsecurities.com/
investors/shareholder-investor-information/
manage-your-shares or www.shareview.co.uk.
Payment of dividends to UK resident
shareholders
Shareholders whose dividends are currently sent to
their registered address may wish to consider having
their dividends paid directly into their personal bank
or building society account. This has a number of
advantages, including the crediting of cleared funds
on the dividend payment date. If you would like your
future dividends to be paid in this way, you should
contact the Registrar or complete a mandate instruction
available from http://www.landsecurities.com/
investors/shareholder-investor-information/
dividend-information and return it to the Registrar.
155
ShareGift
Shareholders with only 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 the Registrar and 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 Account (ISA)
The Company has in place a Corporate ISA which
is managed by Equiniti Financial Services Limited.
They can be contacted at:
Aspect House,
Spencer Road,
Lancing,
West Sussex BN99 6DA
Telephone: 0871 384 2244*
Capital Gains Tax
For the purpose of capital gains tax, the price of a
Land Securities share at 31 March 1982, adjusted for
the capitalisation issue in November 1983 and the
Scheme of Arrangement in September 2002, was
203p. On the assumption that the 5 for 8 Rights
Issue in March 2009 was taken up in full, the
adjusted price would be 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: 0844 481 8180
Website: www.uar.co.uk
Unsolicited mail and shareholder fraud
Shareholders are advised to be wary of unsolicited
mail or telephone calls offering free advice, to buy
shares at a discount or offering free company
reports. To find out more about how to protect
yourself from investment scams visit
http://scamsmart.fca.org.uk/page/be-a-scamsmart-
investor.
Registered Office
5 Strand,
London WC2N 5AF
Registered in England and Wales
No. 4369054
* Calls to 0871 telephone numbers are charged at 8p per minute plus
network extras. Lines open 8.30am to 5.30pm, Monday to Friday,
excluding bank holidays.
Financial statementsGovernanceAdditional informationStrategic reportAdditional informationLand Securities Annual Report 2015 156
GLOSSARY
Adjusted earnings per share (Adjusted EPS)
Earnings per share based on revenue profit after related tax.
Adjusted net asset value (Adjusted NAV) per share
NAV per share adjusted to remove the effect of the de-recognition of the 2004
bond exchange and cumulative fair value movements on interest-rate swaps
and similar instruments.
Adjusted net debt
Net debt excluding cumulative fair value movements on interest-rate swaps,
the adjustment arising from the de-recognition of the bond exchange and
amounts payable under finance leases. It generally includes the net debt of
subsidiaries and joint ventures on a proportionate basis.
Book value
The amount at which assets and liabilities are reported in the financial
statements.
BREEAM
Building Research Establishment’s Environmental Assessment Method.
Combined Portfolio
The Combined Portfolio comprises the investment properties of the Group’s
subsidiaries, on a proportionately consolidated basis when not wholly owned,
together with our share of investment properties held in our joint ventures.
Unless stated otherwise, references are to the Combined Portfolio when the
investment property business is discussed.
Completed developments
Completed developments consist of those properties previously included in
the development programme, which have been transferred from the
development programme since 1 April 2013.
Development pipeline
The development programme together with proposed developments.
Development programme
The development programme consists of committed developments (Board
approved projects with the building contract let), authorised developments
(Board approved), projects under construction and developments which have
reached practical completion within the last two years but are not yet 95% let.
Diluted figures
Reported results adjusted to include the effects of potentially dilutive shares
issuable under employee share schemes.
Dividend Reinvestment Plan (DRIP)
The DRIP provides shareholders with the opportunity to use future cash
dividends received to purchase additional Ordinary shares in the Company
immediately after the relevant dividend payment date. Full details appear on
the Company’s website.
Earnings per share (EPS)
Profit after taxation attributable to owners of the parent divided by the
weighted average number of ordinary shares in issue during the period.
EPRA
European Public Real Estate Association.
EPRA net initial yield
EPRA net initial yield is defined within EPRA’s Best Practice Recommendations
as the annualised rental income based on the cash rents passing at the balance
sheet date, less non-recoverable property operating expenses, divided by the
gross market value of the property. It is consistent with the net initial yield
calculated by the Group’s external valuers.
Equivalent yield
Calculated by the Group’s external valuers, equivalent yield is 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 non-recoverable expenditure
but ignoring future changes in capital value. The calculation assumes rent is
received annually in arrears.
ERV – Gross estimated rental value
The estimated market rental value of lettable space as determined biannually
by the Group’s external valuers. For investment properties in the development
programme, which have not yet reached practical completion, the ERV
represents management’s view of market rents.
Fair value movement
An accounting adjustment to change the book value of an asset or liability to its
market value (see also mark-to-market adjustment).
Finance lease
A lease that transfers substantially all the risks and rewards of ownership from
the lessor to the lessee.
Gearing
Total borrowings, including bank overdrafts, less short-term deposits,
corporate bonds and cash, at book value, plus cumulative fair value movements
on financial derivatives as a percentage of total equity. For adjusted gearing,
see note 22.
Gross market value
Market value plus assumed usual purchaser’s costs at the reporting date.
Head lease
A lease under which the Group holds an investment property.
Interest Cover Ratio (ICR)
A calculation of a company’s ability to meet its interest payments on
outstanding debt. It is calculated using revenue profit before interest, divided
by net interest (excluding the mark-to-market movement on interest-rate
swaps, foreign exchange swaps, bond exchange de-recognition, capitalised
interest and interest on the pension scheme assets and liabilities). The
calculation excludes joint ventures.
Interest-rate swap
A financial instrument where two parties agree to exchange an interest rate
obligation for a predetermined amount of time. These are generally used by the
Group to convert floating-rate debt or investments to fixed rates.
Investment portfolio
The investment portfolio comprises the investment properties of the Group’s
subsidiaries, on a proportionately consolidated basis where not wholly owned.
Joint venture
An entity in which the Group holds an interest and is jointly controlled by the
Group and one or more partners under a contractual arrangement. Decisions
on financial and operating policies essential to the operation, performance and
financial position of the venture require each partner’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 the value of the incentive 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, often used as a reference rate in bank facilities.
Like-for-like managed properties
Properties in the like-for-like portfolio other than those in our joint ventures
which we do not manage operationally.
Like-for-like portfolio
The like-for-like portfolio includes all properties which have been in the
portfolio since 1 April 2013, but excluding those which are acquired, sold or
included in the development pipeline at any time since that date.
Loan-to-value (LTV)
Group LTV is the ratio of adjusted net debt, including subsidiaries and joint
ventures, to the sum of the market value of investment properties and the book
value of trading properties of the Group, its subsidiaries and joint ventures, all
on a proportionate basis, expressed as a percentage. For the Security Group,
LTV is the ratio of net debt lent to the Security Group divided by the value of
secured assets.
Market value
Market value is determined by the Group’s external valuers, in accordance with
the RICS Valuation Standards, as an opinion of the estimated amount for which
a property should exchange on the date of valuation between a willing buyer
and a willing seller in an arm’s-length transaction after proper marketing.
Mark-to-market adjustment
An accounting adjustment to change the book value of an asset or liability to its
market value (see also fair value movement).
Net asset value (NAV) per share
Equity attributable to owners of the parent divided by the number of ordinary
shares in issue at the period end.
Net initial yield
Net initial yield is a calculation by the Group’s external valuers of the yield that
would be received by a purchaser, based on the Estimated Net Rental Income
expressed as a percentage of the acquisition cost, being the market value plus
assumed usual purchasers’ costs at the reporting date. The calculation is in line
with EPRA guidance. Estimated Net Rental Income is determined by the valuer
and is based on the passing cash rent less ground rent at the balance sheet date,
estimated non-recoverable outgoings and void costs including service charges,
insurance costs and void rates.
Net rental income
Net rental income is the net operational income arising from the Group’s
properties, on an accruals basis, including rental income, finance lease interest,
rents payable, service charge income and expense, other property related
income, direct property expenditure and bad debts.
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 ‘reserved matters approval’, including detailed
layout, scale, appearance, access and landscaping, before a project can
proceed. An outline planning permission will lapse if the submission of
‘reserved matters’ has not been made within three years, or if it has not been
implemented within three years or within two years of the final approval of
‘reserved matters’, unless otherwise expressly stated within conditions
attached to the permission itself or, for any permissions granted on or before
1 October 2009, a successful application has been made to extend the time
within which ‘reserved matters’ application can be submitted, or the overall
limit for commencement of development.
Over-rented
Space where the passing rent is above the ERV.
Passing cash rent
The estimated annual rent receivable as at the reporting date which includes
estimates of turnover rent and estimates of rent to be agreed in respect of
outstanding rent review or lease renewal negotiations. Passing cash rent may
be more or less than the ERV (see over-rented, reversionary and ERV). Passing
cash rent excludes annual rent receivable from units in administration save to
the extent that rents are expected to be received. Void units and units that are
in a rent-free period at the reporting date are deemed to have no passing cash
rent. Although temporary lets of less than 12 months are treated as void,
income from temporary lets is included in passing cash rents.
Pre-development properties
Pre-development properties are those properties within the like-for-like
portfolio which are being managed to align vacant possession within a three
year horizon with a view to redevelopment.
Pre-let
A lease signed with an occupier prior to completion of a development.
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
Proposed developments are properties which have not yet received final Board
approval or are still subject to main planning conditions being satisfied, but
which are more likely to proceed than not.
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 income
Rental income is as reported in the income statement, on an accruals basis, and
adjusted for the spreading of lease incentives over the term certain of the lease
in accordance with SIC 15. It is stated gross, prior to the deduction of ground
rents and without deduction for operational outgoings on car park and
commercialisation activities.
Rental value change
Increase or decrease in the current rental value, as determined by the Group’s
external valuers, over the reporting period on a like-for-like basis.
Return on average capital employed
Group profit before interest, plus joint venture profit before interest, divided
by the average capital employed (defined as shareholders’ funds plus adjusted
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 assets and trading
properties, profits on long-term development contracts, valuation
movements, fair value movements 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
adjustment, debt restructuring charges and any items of an unusual nature.
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 (or fall) once the rent
reaches the ERV.
Scrip dividend
A scrip dividend is when shareholders are offered the opportunity to receive
dividends in the form of shares instead of cash.
Security Group
Security Group is the principal funding vehicle for Land Securities and
properties held in the Security Group are mortgaged for the benefit of lenders.
It has the flexibility to raise a variety of different forms of finance.
Temporary lettings
Lettings for a period of one year or less. These are included within voids.
Topped-up net initial yield
Topped-up net initial yield is a calculation by the Group’s external valuers. It is
calculated by making an adjustment to net initial yield in respect of the
annualised cash rent foregone through unexpired rent-free periods and other
lease incentives. The calculation is consistent with EPRA guidance.
Total business return
Dividend paid per share, plus the change 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 cost ratio
Total cost ratio represents all costs included within revenue profit, other than
rents payable and financing costs, expressed as a percentage of gross rental
income before rents payable.
Total development cost (TDC)
Total development cost refers to the book value of the site 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 capitalised interest,
being the Group’s borrowing costs associated with direct expenditure on the
property under development. Interest is also capitalised on the purchase
cost of land or property where it is acquired specifically for redevelopment.
The TDC for trading property development schemes excludes any estimated
tax on disposal.
Total Property Return (TPR)
Valuation movement, 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 combined property portfolio.
Total Shareholder Return (TSR)
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.
Voids
Voids are expressed as a percentage of ERV and represent all unlet space,
including voids where refurbishment work is being carried out and voids in
respect of pre-development properties. Temporary lettings for a period of one
year or less are also treated as voids.
Weighted average cost of capital (WACC)
Weighted average cost of debt and notional cost of equity, used as a benchmark
to assess investment returns.
Weighted average unexpired lease term
The weighted average of the unexpired term of all leases other than short-term
lettings such as car parks and advertising hoardings, temporary lettings of less
than one year, residential leases and long ground leases.
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 2015 CAUTIONARY STATEMENT
The purpose of this Annual Report is to provide information to the members
of Land Securities Group PLC and it has been prepared for, and only for, those
members as a body, and no other persons. The Company, its Directors and
employees, agents and advisers do not accept or assume any responsibility to any
other persons to whom this Annual Report is shown or into whose hands it may
come and any such responsibility or liability is expressly disclaimed.
This Annual Report and the Land Securities website may contain certain
‘forward-looking statements’ with respect to the Company and the Group’s
financial condition, results of its operations and business, and certain plans,
strategy, objectives, goals and expectations with respect to these items and the
economies and markets in which the Group operates.
Forward-looking statements are sometimes, but not always, identified by
their use of a date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘could’,
‘may’, ‘should’, ‘will’, ‘would’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’
or ‘estimates’ or, in each case, their negative or other variations or comparable
terminology. Forward-looking statements are not guarantees of future
performance. By their very nature forward-looking statements are inherently
unpredictable, speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. Many of these
assumptions, risks and uncertainties relate to factors that are beyond the Group’s
ability to control or estimate precisely. There are a number of such factors that
could cause actual results and developments to differ materially from those
expressed or implied by these forward-looking statements. These factors include,
but are not limited to, changes in the economies and markets in which the Group
operates; changes in the legal, regulatory and competition frameworks in which
the Group operates; changes in the markets from which the Group raises finance;
the impact of legal or other proceedings against or which affect the Group;
changes in accounting practices and interpretation of accounting standards
under IFRS, and changes in interest and exchange rates.
Any forward-looking statements made in this Annual Report or the Land
Securities website, or made subsequently, which are attributable to Land
Securities Group PLC or any other member of the Group, or persons acting on
their behalf, are expressly qualified in their entirety by the factors referred to
above. Each forward-looking statement speaks only as of the date it is made.
Except as required by its legal or statutory obligations, the Company does
not intend to update any forward-looking statements.
Nothing in this Annual Report or the Land Securities website should
be construed as a profit forecast or an invitation to deal in the securities
of the Company.
Land Securities Group PLC
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Group PLC.
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