Annual Report 2018
Welcome
to Landsec
What we do
We buy, sell, develop and manage real
estate. That includes contemporary office,
retail, leisure and residential space in
London, and retail and leisure destinations
across the UK.
Why we do it
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.
How we create value
Applying our expertise, we provide a
great experience for everyone we rely on,
from our customers to our communities,
partners and employees. We believe
that’s the best way to create long-term
sustainable value for shareholders. We aim
to provide dependable dividend income
and grow our share price by increasing
revenues and asset values.
How we’ve performed
We work in markets shaped by big impacts
and trends that generate opportunities
and challenges for us. Our clear strategy
has put the business in a strong position
at a time of uncertainty in our markets –
see our performance measures opposite.
How we report
We think about the short- and long-term
effects of our actions. In this Annual Report
we’ve further integrated content on
our broader social and physical impacts,
but we only include what’s material to
our business.
This year we published our first
Economic Contribution report –
you can read it at landsec.com
2018 in numbers
Largest listed real estate
company in the UK by
market capitalisation
£14.1bn
Combined Portfolio
24.0m sq ft
Floor space
125
Assets
615
Employees
1.8%
Total business return
(2017: 1.4%)
£(251)m
(Loss)/profit before tax
(2017: £112m)
£406m
Revenue profit
(2017: £382m)
4.3%
Ungeared total property return
(2017: 3.7%)
53.1p
Adjusted diluted earnings
per share (2017: 48.3p)
153,000
People working across our
workplace, retail and leisure
destinations
1,149
Job opportunities created for
disadvantaged people to date
44.2p
Dividend up 14.7%
1,403p
Adjusted diluted net assets per share
(2017: 1,417p)
28.6%
Carbon intensity (kgCO2/m2)
reduction compared to 2013/14
baseline
£13.2bn
Total contribution to the UK
economy each year from people
based at our assets
London Portfolio
pages 26-29
Retail Portfolio
pages 30-33
We buy, develop, manage and sell
office, retail, leisure and residential
space in central London.
We buy, develop, manage and sell
retail, leisure and residential space
in the best locations.
£7.8bn
of assets
£6.3bn
of assets
6.4m sq ft
portfolio
17.6m sq ft
portfolio
We use our experience to provide
great experiences for those we rely
on – our customers, communities,
partners and employees.
Getting this right enables us to
create long-term, sustainable value
for our shareholders.
This year we’ve been busy letting
space, delivering new assets,
strengthening the portfolio and
our balance sheet, enhancing
our team and creating future
opportunities.
Over the following pages we show
our experience in action. We report
on the value our activity has
generated – financially, physically
and socially. And we share what
others say about our work.
Everything is experience.
Read more
Our
market
page 14
Our
strategy
page 16
Our
performance
page 20
The opportunities
and challenges
presented by our
market environment.
How we’re addressing
our most significant
opportunities and
challenges.
The results we’ve
achieved this year
financially, physically
and socially.
Visit our website: landsec.com
Strategic Report
12
14
16
20
22
24
26
30
34
42
46
52
54
58
58
Chief Executive’s statement
Our market
Our strategy
Key performance indicators
Our business model
Creating sustainable long-term value
London Portfolio review
Retail Portfolio review
Financial review
Physical review
Social review
Managing risk
Our principal risks and uncertainties
Going Concern
Viability Statement
Governance
60
62
64
65
66
70
Letter from the Chairman
Board of Directors
Executive Committee
Governance at a glance
Leadership
Letter from the Chairman of the
Nomination Committee
Effectiveness
Letter from the Chairman of the
Audit Committee
Accountability
Investor Relations
Directors’ Remuneration Report –
Chairman’s Annual Statement
Remuneration at a glance
Annual Report on Remuneration
Summary of Directors’ Remuneration
Policy
Proposed Remuneration Policy
Directors’ Report
72
76
78
84
86
88
90
102
105
112
Financial statements
116
117
123
123
124
125
126
127
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Income statement
Statement of comprehensive income
Balance sheets
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Additional information
172
177
178
179
184
186
186
187
Business analysis – Group
Business analysis – London
Business analysis – Retail
Sustainability performance
Combined Portfolio analysis
Lease lengths
Development pipeline
Development pipeline and trading
property development schemes
Alternative performance measures
Five year summary
Acquisitions, disposals and capital
expenditure
Analysis of capital expenditure
188
189
190
191
192 Subsidiaries, joint ventures and associates
195
198
199
IBC
Shareholder information
Key contacts and advisers
Glossary
Cautionary statement
Landsec Annual Report 2018
01
Strategic Report
20 Eastbourne
Terrace
Transformed.
We’ve turned this outdated 1950s
block near Paddington station
into a contemporary development
with small-format creative spaces
well matched to local demand.
The British Council for Offices
(BCO) Awards named it ‘Best
Refurbished/Recycled Workplace’
this year. The 17-storey building
is now fully let.
The extent and
quality of this clever
refurbishment means
20 Eastbourne Terrace
has evolved into a
modern and relaxing
workplace.”
The British Council for Offices
Awards commentary
Nova
Completed.
Nova is the largest and most
complex single development
project we have undertaken
in London. Completed in 2017,
we’ve created a mixed use space
that’s becoming the heart of
a transformed Victoria. The
combination of modern offices
and contemporary food experiences
enables resident businesses to
keep attracting great talent.
The scheme is 97% let.
02
Landsec Annual Report 2018
20 Fenchurch St.
Sold.
Having started construction
when market confidence and
construction activity were low,
we completed the Walkie Talkie
building in favourable market
conditions in 2014. It quickly
became a celebrated part of
the London skyline but we’ve
always said no asset is sacred.
We sold in July 2017, crystallising
a return of 25.9% per annum
since we started development
and setting a record price for
a UK office building.
To read more go to London
Portfolio review on pages 26-29
Capital
Returned.
Following the sale of 20 Fenchurch
Street, we returned £475m to
shareholders through a capital
payment and accompanied this
with a share consolidation. Given
that our shares were trading at a
discount, this enabled investors to
capture value from our successful
development programme.
Landsec Annual Report 2018
03
Strategic Report
Westgate
Oxford
Launched.
For years, brands and shoppers
had told us there was strong but
unmet demand for a new retail
experience in Oxford. In October
2017, in partnership with The Crown
Estate, we opened Westgate
Oxford. This 800,000 sq ft
destination has transformed the
retail offer in the city, bringing
nearly 70 new retailers to Oxford
and combining it with leisure,
casual and fine dining, and
incorporating two public spaces.
To see the latest news from
Westgate Oxford go to
westgateoxford.co.uk
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Landsec Annual Report 2018
We’re working with
Landsec to make
Westgate the perfect
place to spend a day
and night.”
Julie Blake
Head of Branch, John Lewis Oxford
Job
opportunities
Created.
Westgate Oxford generated 566
jobs during construction and an
estimated 3,400 retail jobs since
opening. We’ve also worked
closely with social enterprise Aspire
Oxford to create job opportunities
for the wider community in
construction and customer service,
helping ex-offenders, long-term
unemployed and ex-homeless
people get back into work. Our
Community Employment activities
at Westgate have pushed us even
closer to our target of getting
1,200 disadvantaged people into
work by 2020.
Sustainable retail
Delivered.
Sustainability was built into
Westgate Oxford from the
beginning. We set 45 ambitious
targets for the development,
embedding sustainability in
every decision, from boosting
UK jobs through innovative
offsite manufacturing techniques
to local sourcing of materials
and creating a low carbon heating
and cooling system. It’s now one
of the most sustainable retail
destinations in the country.
Landsec Annual Report 2018
05
Strategic Report
Our brand
Experienced.
During the year, we launched
an exciting, immersive training
programme for our employees
designed to enhance our customer-
led culture. This is an important
investment in our brand, ensuring
that our ‘Everything is experience’
philosophy is transformed into
action across the business.
To read more go to Social review
on pages 46-51
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Landsec Annual Report 2018
White Rose
Solar-powered.
We’ve installed the largest solar PV
system on a UK retail destination
at our White Rose centre in Leeds.
Roughly the size of 17 tennis courts,
our system significantly lowers the
centre’s reliance on conventional
energy sources and reduces cost
for customers. We’ve also installed
a smaller system at Trinity Leeds
and we’re planning another at
Westgate Oxford.
Bluewater
Refreshed.
Our jewel of a destination in Kent
is hugely popular. To ensure the
centre continues to thrive, we
constantly refresh the space,
brands and experience. This year,
for example, we enabled Apple to
double its floor space, added more
cinema screens and a trampoline
park, and launched an online sales
portal. We’ll shortly be welcoming
Primark too.
Landsec Annual Report 2018
07
Strategic Report
Our supply
partners
Engaged.
Our business relies on powerful
partnerships to get things done.
During the year, we launched
two critical briefing documents
for our partners that set a
new bar for sustainability.
The Sustainability Charter for
partners and Sustainability
Brief for developments define
our ambitions and set out what
we expect of those who work
with us.
Balance sheet
Strengthened.
To take advantage of attractive
interest rates and secure long-term
access to capital at competitive
rates, this year we took an active
approach to improving our debt
position. We lowered our cost
of debt from 4.2% to 2.6% while
ensuring we have the financial
firepower needed to make
acquisitions when required.
08
Landsec Annual Report 2018
Piccadilly
Lights
Illuminated.
The first illuminated advertising
hoarding at Piccadilly Circus was a
Perrier sign, installed in 1908. Some
100 years later – in October 2017 –
we unveiled our new state-of-the-
art LED digital screen. The Lights
are now providing brands with
spectacular creative possibilities
and delighting passers-by 24/7.
Our restoration work has also
created a new development
opportunity in neighbouring
Sherwood Street.
To read more go to London
Portfolio review on page 28
We’re looking forward
to showcasing our
brands through
impactful content
on such an iconic
landmark.”
Gayle Noah
L’Oréal UK & Ireland
Landsec Annual Report 2018
09
Strategic Report
21 Moorfields
Committed.
The original building was vacated
in 2003 but the site – which spans
complex railway infrastructure
and is over an entrance to
Liverpool Street Crossrail station –
proved difficult to develop. Since
the completion of the acquisition
in 2015, we’ve used our deep
experience to design world-class
office space that can work in this
testing site. This year we pre-let
a minimum of 469,000 sq ft to
Deutsche Bank on a 25-year lease,
building on our partnership with
the bank. We’ve obtained planning
consent for a revised scheme and
completion is scheduled for 2021.
To read more go to London
Portfolio review on page 28
We are delighted to
have unanimously
approved the scheme
for the new Deutsche
Bank headquarters
at 21 Moorfields. This
office, located above
a future station, fits
in well with the City’s
ambitions for growth.”
Christopher Hayward
City of London Corporation
New ideas
Incubated.
Things are changing fast. In a
Southwark warehouse, we’ve
created a place for exploring and
testing ideas. The Landsec Lab
objective is to collaborate with
partners and customers to
innovate more inspiring, efficient
and productive spaces. The lab
shares the warehouse with
Sustainable Workspaces, Europe’s
largest co-located community
of innovative businesses focussed
on sustainability, generating
opportunities to collaborate
and test ideas.
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Landsec Annual Report 2018
Reality
Augmented.
In January 2018, we partnered with
Aardman and STUDIOCANAL to
bring Early Man, an animated film
by Wallace & Gromit creator Nick
Park, to life. Through an innovative
CGI-powered ‘augmented reality’
trail at Bluewater and Buchanan
Galleries, visitors could meet
characters from the film and
download exclusive content via
an app. It’s just one of many ways
we’re using technology to enrich
the experience in our centres.
Retail
outlets
Acquired.
In May 2017, we became the
leading owner-manager of outlet
centres in the UK by acquiring
Freeport in Braintree, Clarks Village
in Somerset and Junction 32 in
West Yorkshire. Using expertise
gained at Gunwharf Quays, we’re
now enhancing the experience for
visitors – creating a more exciting
mix of retailers, refreshing the food
offer and enhancing the buildings
and landscapes.
Development pipeline
Prepared.
As planned, we’ve brought
our speculative development
programme in London to a close
for the time being, but that
doesn’t mean we’ve stopped
designing, gaining planning for
and constructing new space.
Including 21 Moorfields, we
have 1.4m sq ft of development
opportunities in the capital.
We’ll progress these through
pre-lets or – when we believe
the time is right – speculative
development. In addition, we
are working on a number of
mixed use destinations in
suburban London.
Landsec Annual Report 2018
11
Strategic Report
Chief
Executive’s
statement
Our results
4.3%
Ungeared total property return
-1.0%
Decrease in adjusted diluted net assets
per share
9.9%
Increase in adjusted diluted earnings per share
1.8%
Total business return
Our activity
— £23m of investment lettings
— £48m of development
lettings including pre-let
at 21 Moorfields, EC2
— Acquisitions of £351m
— Development and refurbishment
expenditure of £183m
— Disposals of £1.1bn of which
£475m returned to shareholders
— £1.5bn (nominal) of bonds
repurchased and £1.4bn of
new issuances
12
Landsec Annual Report 2018
Robert Noel reports
on our performance
during the year and
shares his outlook for
the next 12 months.
Landsec has continued to execute well.
During the year, we completed and let major
development projects at Nova, SW1 and
Westgate Oxford. We pre-let and have
subsequently started a 564,000 sq ft
development at 21 Moorfields. We acquired
three retail outlet destinations. We sold one
of our largest developments, crystallising
exceptional returns, and distributed the majority
of proceeds to shareholders. We further reduced
our cost of debt, increased its duration and
renewed our revolving credit facilities on
improved terms. And we enabled the 1,000th
person from a disadvantaged background
to gain employment through our Community
Employment Programme.
The cost of refinancing £1.5bn of bonds is
behind both the loss for the year of £251m and
the slight fall in adjusted diluted net asset value
per share to 1,403p. Revenue profit is up 6.3% to
£406m and adjusted diluted earnings per share
are up 9.9% to 53.1p. Our Combined Portfolio is
valued at £14.1bn. With adjusted net debt at
£3.7bn, our loan-to-value is 25.8%.
The business is in good shape for the uncertain
market conditions, with a portfolio well
matched to customer needs and with
conservative gearing. We’re recommending
a final dividend of 14.65p – raising the dividend
for the year by 14.7%. This brings the growth
in dividend per share since we restarted
speculative development in 2010 to 58%,
broadly in line with the growth in adjusted
diluted earnings per share we’ve generated
over that period.
Our market
Last year, I said our markets were healthy
but had paused for breath. That prognosis
remained accurate for the year in both the
London office market and the retail sector,
although demand from office occupiers was
somewhat stronger than we anticipated and
demand from retailers weaker. Generally,
vacancy rates are continuing to rise, albeit
slowly, in both our markets. However, our
quality space saw good demand enabling
us to achieve one of our best leasing years
and reduce voids to 2.4%.
We remain confident in our view that London
will continue to be a world-class city with
opportunity for our customers and for Landsec.
We have a growing pipeline of development
opportunities in the capital and a strong
balance sheet, which means we can time when
we deliver new space in line with customer
demand. While our current development
activity is based on pre-lettings, with the
UK’s exit from the EU likely to lead to fewer
construction commitments, speculative
development will become an attractive option
in due course.
The retail market continues to be affected by
structural change in shopping habits and has
been impacted by weaker consumer confidence
as inflation outstripped growth in pay during
the year. Coupled with this, retail businesses
face higher costs, with business rates rising,
increasing investment in multi-channel solutions
and the roll-out of the National Living Wage
increasing employment costs.
So, retailers are operating in tough conditions.
As for retail real estate, the gap between the
best space and the rest keeps growing. To thrive,
an asset must be dominant in its catchment
and provide convenience or experience. The
successful leasing of Westgate Oxford speaks
volumes for the value of experience-led
destinations – delivered in the right way in the
right locations. There’s clearly an important role
for great physical retailing in a multi-channel
world, not least enabling brands and shoppers
to connect in a variety of exciting ways.
Our portfolio
The foundations of the business remain
strong, underpinned by our resilient portfolio
and low leverage.
In London, our modern, well-let space is well
matched to the evolving needs of customers.
The outstanding quality of the space we create
was reflected in the sale of 20 Fenchurch Street
for a record City of London price, generating
exceptional life-cycle returns. This year we
strengthened our portfolio with the completion
of 560,000 sq ft of mixed use space at Nova.
And we’ve started construction of a pre-let
London headquarters for Deutsche Bank
at 21 Moorfields. We continue to work up
substantial development opportunities in
Victoria, Soho and Southwark, together with
options to develop some of our suburban
London shopping centres into mixed use
destinations.
In Retail, we have transformed our portfolio
of destinations in line with our focus on
dominance, convenience and experience.
We continued to enhance the portfolio this
year, completing and letting Westgate Oxford;
carrying out various asset management plans
to bring in exciting brands; and acquiring three
outlet destinations with good growth potential.
Our sustainability
We aim to be the best property company in the
UK in the eyes of our customers, communities,
employees and partners. Their experience of
us determines whether they will continue to
support us, and their support is vital if we’re
to sustain our business. In a year that saw the
tragedy at Grenfell Tower and the collapse of
Carillion, the importance of good governance,
long-term thinking and a wider social purpose
has been brought sharply into focus.
From climate change to social inclusion,
sustainability is so critical to our future that
we embed it in every part of the business.
Our employee engagement scores are in
line with the best performing companies.
We remain the only property company in the
UK with an approved science-based carbon
reduction target and we followed this up by
signing the Task Force on Climate-related
Financial Disclosures’ pledge to demonstrate
our commitment to sustainable business.
Our Community Employment Programme
created 187 new job opportunities this year,
keeping us on track to meet our target of
helping 1,200 disadvantaged people into
employment by 2020.
Our Chairman
After 14 years on the Board and nine years
as Chairman, Dame Alison Carnwath will
be retiring from the Board following the AGM
in July. With her broad range of skills, Alison
helped steer Landsec through the financial
crisis in 2008/9, our subsequent successful
push into speculative development and the
transformation of our Retail Portfolio. She
leaves us a strong business in a very sound
position. On behalf of my colleagues, I would
like to record our thanks for her leadership,
support and challenge. Alison will be succeeded
by Cressida Hogg, a Non-executive Director
who joined the Board in 2014.
Outlook
We are a long-term business and we have to
manage what we do by reference to market
cycles and customer trends. As the UK prepares
for its exit from the EU, we are navigating
uncertain waters in the near term and we
expect investment and leasing volumes in the
property market to be more subdued. We are
prepared for this uncertainty with conservative
gearing and a development exposure which
we have shifted from speculative to pre-let.
Looking ahead, we are working on a growing
pipeline of development opportunities in
London and are ready to buy when we think
the time is right.
Further out, profound change in the way we
work, live, shop, play and travel will be a much
greater force in determining which companies
are sustainable. We will continue to address
and identify opportunities from the big drivers
of change in our market sectors, from product
innovation to sustainability, adapting our
portfolio as appropriate. We are well equipped
for this with a great and increasingly diverse
team, alert to change, with the expertise to
provide great experiences for our customers
and communities – helping businesses and
people to thrive.
Robert Noel
Chief Executive
Landsec Annual Report 2018
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The foundations of the
business remain strong,
underpinned by our
resilient portfolio and
low leverage.”
Strategic Report
Our market
Through our London and
Retail portfolios we’re
active in the two largest
sectors within the UK
commercial property
market.
Market during the year
London office market
13.6m sq ft
Take-up of office space in central London
(2017: 11.9 million sq ft)
4.8%
Vacancy rate (Q1 2017: 4.4%)
-4.5%
Decline in prime headline office
rents in the West End (2017: -8.3%)
-2.1%
Decline in prime headline office rents
in the City (2017: flat)
Source: CBRE
Retail market
-2.2%
Physical retail store sales1
(2017: -1.9%)
-0.1%
All retail sales (including online)1
(2017: +0.3%)
-2.5%
UK footfall2 (2017: -2.5%)
Source:
1. British Retail Consortium
2. ShopperTrak
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Landsec Annual Report 2018
London Portfolio
We buy, develop, manage and sell
office, retail, leisure and residential
space in central London.
Dynamics
The London office market sees marked periods
of over- and under-supply, and the balance
can shift from one to the other quite quickly.
Economic and political uncertainty continues
to influence the decision-making of customers
and property investors in the capital. Overall,
however, the investment market remained
relatively strong this year, with a weaker pound
attracting overseas buyers. This generated
record pricing for trophy assets. Healthy
levels of leasing activity continued, leading
to a pause in the rise of vacancy rates. The
market continued to be shaped by the fast-
evolving needs and expectations of customers.
We are seeing growing demand for serviced
office options.
Enduring appeal
Central London has enduring appeal for
investors and occupiers. It offers:
— Attractive mix of offices, retail and leisure
at street level, which appeals to employees
— Capabilities and opportunities of a global
financial centre
— Deep and liquid property investment market
— International gateway
— Relatively stable tax framework
— Strong business and transport infrastructure
— Diverse community and English-speaking
population
— Access to top universities.
London’s strengths attract a large and varied
mix of property investors, many from overseas.
This helps us when selling assets but increases
competition when buying.
Challenges
Challenges for London include:
— Uncertainty over the outcome of
Brexit negotiations
— Potential impact of Brexit on skills
and capacity in construction sector
— Limitations on economic growth
due to restrictions on immigration
— Lack of housing at affordable or
attractive prices
— Pressure on an ageing infrastructure
— Continued lack of clarity around airport
expansion
— High levels of stamp duty
— Political uncertainty within the UK
— Need for better/faster digital connectivity.
Outlook
We expect uncertainty to continue to affect
demand for space over the short term and the
market to be subdued. Further out, we expect
London to remain a highly successful, dynamic
global city that provides great opportunities
for us and our customers.
Retail Portfolio
We buy, develop, manage and sell
retail, leisure and residential space
in the best locations.
Dynamics
The retail property market is generally less
volatile than the London office market and is
fundamentally driven by long-term structural
changes such as population trends and
the impact of online retailing. But currently
it’s also facing cyclical challenges including
weaker consumer spending and growing cost
and price inflation. Across the market, retail
sales in physical assets were down 2.2%.
Physical stores remain the dominant sales
channel, with 85% of UK spend on retail goods
touching a store. The retail property market
is polarised between destination centres and
convenience-led assets, with space in the
middle facing growing pressure.
Opportunities
Shopping destinations can achieve higher dwell
time and average spend per visit by providing
a great visitor experience based on a strong
mix of retail, food and leisure.
The best destinations continue to drive above
average performance for retailers and attract
the greatest demand for space. In successful
centres, the arrival of new international retailers
is more than offsetting the impact of departing
brands. A growing number of online brands are
using physical stores to create brand experiences.
Challenges
An uncertain economic environment is putting
pressure on discretionary spending. Confidence
is muted as retailers deal with challenges such
as higher business rates, new regulation, a
higher National Living Wage and investment
in multi-channel retailing. Some food and
beverage operators have expanded too fast.
As a result of this pressure, a small number of
retailers have sought to reduce store numbers
using a Company Voluntary Arrangement.
Outlook
The best performing retailers are likely to have a
carefully selected footprint of physical locations
and a good multi-channel offer. Destination
and convenience centres will continue to
outperform other types of retail asset. Success
for asset owners will be driven by being in the
best locations, very active asset management
and smart responses to the changing needs
of retailers and visitors.
Six big drivers shaping our markets
1
3
5
Evolving customer needs
Many office occupiers are placing growing
importance on flexibility of layout, capacity,
service levels, leases and payment terms.
They’re looking for efficient, attractive
environments that promote productivity,
wellbeing and culture – and express their
brand. Physical and digital connectivity,
and technical resilience, are all key. Cost per
head is now more important than £ per sq ft.
Artificial intelligence and other applications
of technology are set to grow demand for
greater flexibility and diversity of space.
In a market increasingly shaped by online,
successful retailers are generally looking
for fewer but larger spaces where they can
showcase their range, provide an experience
and connect directly with consumers. People
are shopping less often but will travel further
for – and stay longer in – the best destination
centres. The food and leisure offer, comfort,
accessibility and a healthy environment are
increasingly valued by customers.
2
Balance of supply and demand
The balance between supply and demand of
space in the London office market is shifting
towards over-supply, but more slowly than
we expected. Overall, investment values
remained high, partly due to demand for
trophy assets which are likely to retain value.
Looking ahead, weaker investment values
would present opportunities for companies
with capital to buy assets. In retail, the market
is generally over-supplied with space, not to
the extent of some other regions such as the
US and not all retail space is the same. Assets
providing a great experience or convenience
are performing better than those caught
between the two. As catchments evolve,
shopping destinations must ensure they
can compete against others further afield.
Market cycle
Sell
Selling in a rising market
crystallises value and focuses
the portfolio on high quality
assets with long leases
Develop
Starting schemes at the
right point in a rising
market helps maximise
value and minimise risk
Economic uncertainty
Wider uncertainty continues to affect the ability
of many customers to plan and take decisions.
For businesses that have to take new space,
there’s good choice and attractive incentives.
Others are opting to sit tight, extending leases
and repurposing space or taking additional
space if required. The full impact of this has
not yet been seen in investment values. For
consumers, increased economic uncertainty –
especially around interest rate rises – may lead
to lower spending. The UK’s vote to leave the EU
has brought change and challenges but also
potential for economic and financial benefits,
not least for businesses and exporters looking
to move into or expand in the UK. Given the
uncertainties and complexities involved in
Brexit, it’s especially important to analyse
economic, financial and business news and
data carefully before drawing conclusions.
4
UK competitiveness
In the short term, ongoing negotiations with
the EU create uncertainty and commercial
caution. Whatever the final agreement, we
fully expect London to continue as one of the
world’s most successful financial and cultural
centres, and we are confident the UK will
remain a major world economy.
Product innovation
Technology and design innovation can
change the face and functionality of
buildings in exciting ways. They also impact
the construction process. While investment
markets can evolve at remarkable speed, the
design, construction, leasing and operation
of commercial property remain relatively
slow and inflexible. We see opportunities
to change that. Our industry can do more
to reduce time-to-market, cut cost and
increase flexibility, resilience, efficiency
and sustainability. Our ongoing challenge
is to design buildings today that will work
successfully in 5-10 years’ time and beyond.
6
Sustainability as advantage
Businesses, government and the public
increasingly recognise the need for long-term
thinking on social and environmental issues.
We are seeing the impact of climate change
and profound social change. And there is
growing scrutiny of how companies treat a
broad range of stakeholders in their supply
chain. How businesses respond to these
issues will determine their resilience and
competitiveness over the long term. Smart,
progressive thinking can help support the
people and resources that companies rely
on to prosper and grow – and it can bring
all sorts of business benefits too. The best
companies in our industry are expected
to lead on areas such as diversity, local
employment, community relations,
responsible supply chains, the wellbeing
of occupiers and visitors, climate risks,
energy and biodiversity.
To see how our strategy directly addresses
these market drivers go to page 17
Manage
Active management of assets
through the cycle helps us
increase income, reduce voids
and address customers’
changing needs
Buy
Falling values bring
opportunities to buy
assets at attractive prices
Landsec Annual Report 2018
15
Strategic Report
Our strategy
Our strategy addresses
short-term opportunities
and changes in our
market sectors together
with the big trends likely
to affect us long term.
Group strategy
Our strategy is simple: we manage
our businesses through property
market cycles, adjusting key
investment and development
activities ahead of changing
conditions to maximise returns
and minimise risk.
Our strategy is designed to ensure we are
a sustainable business through the market
cycles and changing consumer demand,
creating and protecting financial, physical
and social value over the long term.
We focus on two key types of assets – mixed
use buildings in London, and retail and leisure
destinations in vibrant UK locations. We act
early in response to changes and trends in our
markets. And we help lead our industry forward
on critical long-term issues. Our business
strategy is supported by a strong sustainability
programme focused on creating jobs and
opportunities, efficient use of natural resources,
and sustainable design and innovation.
We aim to be the best property company in
the UK in the eyes of the people we rely on –
our customers, communities, partners and
employees – using our experience to provide
them with great experiences. For us, everything
is experience.
London Portfolio
Buy
We aim to buy assets when values are falling
or low, or when we see a long-term opportunity
to enhance value. We’re currently watching
the market carefully, monitoring potential
acquisitions. Our strong balance sheet and
access to capital mean we can buy when
we spot the right opportunity.
Develop
We start to develop early in the cycle so we
benefit from lower construction costs, aiming
to deliver completed schemes when demand
is rising and supply is low. We’ve drawn our
large speculative development programme
to a close but have plenty of options for
development and acquisitions.
Manage
We get to know our customers well so we
understand their changing needs and can
respond quickly. This helps us to retain occupiers
and improve rental values, keeping our portfolio
attractive and resilient.
Sell
We sell assets when we see better ways to use
the capital. We aim to sell when there’s strong
demand for the space and ahead of a turn in
the cycle from demand to supply. We look to
add value through asset management or
refurbishment ahead of selling an asset.
To read about our London Portfolio’s
performance this year go to pages 26-29
Retail Portfolio
Buy
We acquire when we see an opportunity to
transform an under-managed property or land
into a great destination for shoppers and visitors.
Develop
We create destinations where people want
to spend time and return frequently. We help
retailers pursue multi-channel strategies and
we use new technology to enhance the
shopping experience. We de-risk developments
by seeking substantial pre-lettings before we
start construction. And we always contribute
to the local community, which helps to make
our centres busy and well regarded.
Manage
We are proactive managers, constantly looking
to enhance our space in line with the changing
needs of our customers and communities.
We continually refresh the customer mix in
our destinations and work hard to create the
most compelling blend of retail, leisure, food
and drink.
Sell
We dispose of an asset when we see opportunities
to use capital elsewhere to create better, more
valuable space with greater appeal.
To read about our Retail Portfolio’s
performance this year go to pages 30-33
16
Landsec Annual Report 2018
Westgate Oxford: an extraordinary new destination
in the heart of historic Oxford.
Work and play at Nova, SW1 – completed in April 2017.
We’re now the UK’s leading owner-manager
of outlet centres.
Our strategic response to the big drivers shaping our market
1
3
6
Sustainability as advantage
— Continuing to realise value through leading
our industry and the business community
on sustainability
— Building on our leadership position as
the first property company to have an
approved science-based carbon target
so we can deliver operational efficiencies
for our business and our customers
— Creating social value for our partners and
communities through our employment
and educational programmes
— Responding to climate change in order
to protect the long-term interests of our
shareholders and business continuity for
our customers
— Ensuring all of our employees actively
think about and address sustainability
by delivering our Sustainability Matters
employee training programme
— Setting high standards for partners through
our Sustainability Brief and Charter
— Pioneering new systems and solutions,
building on our ground-breaking work with
green gas and renewable electricity.
Evolving customer needs
— Constantly looking to use our
experience to create great experiences
for our customers
— Focusing on well-connected locations in
London and dominant retail destinations
in the UK
— Prioritising customers’ productivity, value
generation and cost per head over cost
per sq ft
— Being agile in our response to customers’
changing priorities, needs and
expectations
— Becoming more of a service provider
who works in ever closer partnership
with key customers
— Developing a more flexible approach
to services and leases
— Providing more serviced office options
within our portfolio
— Creating greater physical flexibility,
connectivity and technical resilience
in our space
— Curating the best mix of customers
in each space and helping brands to
thrive together
— Putting fresh air, light and other
environmental elements at the heart of
the experience we provide in our spaces
Economic uncertainty
— Keeping operational and financial gearing
at conservative levels for the time being
— Ensuring we have access to capital
for acquisitions
— Continuing to grow our development
opportunities and options, timing our activity
carefully in line with the cycle
— Staying alert to both the challenges and
the opportunities created by economic
uncertainty, including the evolving space
and service requirements brought by Brexit
and other macro factors influencing
customers’ decisions.
4
UK competitiveness
— Ongoing investment in physical and social
infrastructure wherever we develop and
manage major assets
— Sharing our strong belief in the positive
prospects of London and the UK
— Taking part in public debate and industry
groups to raise standards in the UK
construction and property sectors
— Creating jobs through the construction and
operation of assets, including candidates
supported through our Community
Employment Programme
— Investing to ensure we understand
— Supporting students from disadvantaged
fast-changing trends and technologies –
and respond in smart, innovative ways.
backgrounds through our education
programme.
2
5
Balance of supply and demand
— Progressing our pipeline of development
Product innovation
— Strengthening our customer-led culture
opportunities in London
— Securing pre-lets on major development
projects in the short term, in both London
and Retail
— Monitoring buying opportunities closely
and being ready to act
— Increasing asset management activity
across our business to create more value
from within the portfolios
— Enhancing the experience for visitors in our
retail assets to ensure they remain popular
and relevant
— Bringing in new customers to our retail
assets, including international brands and
online retailers.
through our Creating Experiences employee
training programme
— Working in partnership with customers to
ensure we understand and respond to their
deeper business priorities, opportunities
and challenges
— Investing in customer insight and forecasting
— Testing and exploring new ideas with
customers and partners
— Putting sustainable design and innovation
at the heart of our activity
— Improving construction and asset
management processes and health and
wellbeing standards through our Customer
Improvement Groups, which bring together
teams from Landsec and key customers
and partners.
Landsec Annual Report 2018
17
Strategic Report
Our strategic choices
To meet our objectives and respond to market
conditions we make a series of strategic choices.
These shape both our immediate, tactical
response to opportunities and risks and our
long-term positioning and priorities.
Market
We focus on two dynamic sectors of the UK
real estate market – offices, retail, leisure and
residential in London; and retail, leisure and
residential outside London. Being active in these
two sectors rather than one provides us with
greater financial stability as they work to
different cycles.
Timing
We apply our experience and insight so we
buy, develop, manage and sell assets at the
right point in the property cycle. This often
means being prepared to act early when we
see an opportunity.
Scale
We aim to maintain our financial and
operational size and strength. This enables
us to deploy our capital if we want to acquire
or develop a number of major assets at the
same time.
Locations
We only buy and develop in thriving locations
or places with excellent potential. Good
transport links coupled with first-class buildings
are becoming more highly valued than
fashionable postcodes.
Finance
We look to enhance returns by using debt to
help finance our investments and activity, using
our assets as security to drive down costs. We
may increase debt when we see substantial
opportunities to buy and develop. We may
decrease debt through sales if we see weaker
demand and lower investment levels ahead.
Risk
We address the risk that space will be left unlet
– or let at low rents – if supply outstrips demand
by owning assets with strong appeal, developing
early in the cycle and managing actively. We
act early to mitigate risks related to changes
in climate, legislation and resource availability.
Relationships
We work to develop close relationships
with our customers, communities, partners
and employees so we understand their
evolving needs and they trust us to meet
their expectations.
Our strategy
continued
We aim to create value
for the people who
matter most to us: our
customers, communities
and partners – including
shareholders – and our
employees.
Our strategic objectives
Our strategic objectives are agreed by the
Board. They form the starting point for our
strategy and inform how we run and report
on the business.
Deliver sustainable long-term
shareholder value
Maximise the returns from the
investment portfolio
Maximise development performance
Ensure high levels of customer satisfaction
Attract, develop, retain and motivate
high performance individuals
Continually improve sustainability
performance
To see how we measure progress against
our strategic objectives go to pages 20-21
18
Landsec Annual Report 2018
Investing through the life-cycle
We aim to buy, develop, manage and sell
assets in a way that benefits those closest to
us – 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 financial, social
and physical value over the long term.
Where we acquire or develop, we work closely
with customers and communities to ensure the
new space meets their needs and expectations.
We manage most of the buildings we own
(by value) which means we get to see how
people interact with them and hear their views.
Asset life-cycle
INVEST
CAPITAL
To see our Stakeholder Engagement Policy,
Responsible Property Investment Policy
and Sustainability Brief go to landsec.com
We can take decisive action to improve things
for the better when we have control of assets.
We aim to develop and manage buildings in a
sustainable and innovative way; make efficient
use of natural resources; and create jobs and
opportunities for the people who live near our
assets, including disadvantaged groups who
are furthest from employment.
We have a clear Stakeholder Engagement Policy
that formally sets out our commitments,
objectives, values and engagement process.
REFURBISH OR RETROFIT TO RE-LET
REINVEST
CAPITAL
Buy
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 create financial value for us.
Our Responsible Property
Investment Policy defines the
standards we set for acquisitions
and guides us when making
buying decisions. An asset may
not fit with our priorities due
to its location or environmental
performance. That doesn’t mean
we will only acquire assets that
meet our current standards;
we may see an opportunity to
improve the asset’s performance
through investment and better
management.
Develop
We develop when we see an
opportunity to create space
that will appeal to customers,
enhance the area and create
financial value for us.
Manage
We work with customers,
communities and partners to
ensure our buildings operate
efficiently and to help increase
local prosperity.
We design for the safety, health
and wellbeing of occupants.
We also design for efficiency and
productivity. And we design to
improve the public realm around
our buildings, including connectivity
and wider infrastructure. Our
development activity creates
job opportunities, both during
construction and when the
development opens.
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, waste and
water as cost efficiency and
environmental factors. 100% of the
electricity we buy for our managed
portfolio is from renewable sources
and we collaborate with customers
to reduce energy consumption.
To support our position as a
sustainability leader in our industry
and the wider business community,
we provide our partners with a
Sustainability Brief. The brief set
out our aspirations and expectations
around sustainability, giving
equal weight to social and
environmental issues.
Thinking about sustainability helps
us to protect the building from
external risks such as price
volatility, changing regulation,
supply issues and premature
obsolescence. And it enables us
and them to meet our business
and sustainability commitments.
Sell
We sell an asset when we see
an opportunity to deploy our
capital more effectively elsewhere.
Through our investment and
activity, the building we sell
should perform at a higher level
than the building we bought –
financially, socially and
environmentally. This should
make it more valuable.
We aim to build a positive legacy,
leaving a place in a better state
than when we arrived. By helping
to improve people’s lives, we
strengthen our reputation and
add value to our asset.
Landsec Annual Report 2018
19
Strategic Report
Key performance
indicators
We work to turn our strategic objectives into
tangible performance, using individual key
performance indicators to measure our progress.
Strategic objectives
Deliver sustainable long-term
shareholder value
Ensure high levels of customer
satisfaction
Maximise the returns from
the investment portfolio
Maximise development
performance
Attract, develop, retain and
motivate high performance
individuals
Continually improve
sustainability performance
Three year total shareholder return (TSR) (%)
Three year total property return (TPR) (%)
6.6
2015/16
1.9
0.4
2016/17
3 years
(0.5)
■ Landsec
■ Comparator group
Chart 1
11.7 11.4
10.6
8.8
6.6
4.4
4.4
3.9
Chart 2
■ Landsec
■ IPD March universe excluding
Landsec
■ IPD March universe excluding
Landsec (estimate)
(8.4)
(12.7)
(8.0)
2017/18
(18.3)
2015/16
2016/17
2017/18
3 years
How we measure it
Three year TSR performance compared to the TSR performance of a
comparator group (weighted by market capitalisation) of property companies
within the FTSE 350 Real Estate Index
How we measure it
Three year TPR performance compared to all March valued properties within
IPD (excluding Landsec)
Our progress in 2018
Not achieved
Our progress in 2018
Not achieved
TSR of -18.3% for the three year period from April 2015 did not exceed our
comparator group at -0.5%
TPR of 6.6% per annum for the three year period from April 2015 did not exceed
the estimated IPD benchmark at 8.8% per annum
One year total property return (TPR) (%)
Revenue profit (£m)
10.6
Chart 3
8.5
5.2
4.4
3.5
2.3
London
Portfolio
Retail
Portfolio
Total
Portfolio
■ Landsec
■ IPD Relevant sector
■ IPD March universe excluding
Landsec (estimate)
362
315
382
406
325
324
Chart 4
■ Reported
■ Threshold
2015/16
2016/17
2017/18
How we measure it
One year TPR compared to all March valued properties within IPD
(excluding Landsec)
How we measure it
Revenue profit adjusted for one-off items compared to an internal minimum
threshold which is re-set every three years
Our progress in 2018
Not achieved
Our progress in 2018
Achieved
One year TPR of 4.4% was below the estimated IPD benchmark of 10.6%
Revenue profit, adjusted to remove the re-financing benefit, was above the
internal threshold for 2017/18 set in April 2015, amended for the return of capital
20
Landsec Annual Report 2018
Piccadilly Lights
Development programme
Customers
How we measure it
The new replacement screen at
Piccadilly Lights to be completed
on time and to budget with
the remaining sections of the
screen let
How we measure it
Open Westgate Oxford on time
and to budget and achieve 95% let
by March 2018
How we measure it
Complete the letting of The Zig
Zag Building, 20 Eastbourne Terrace
and Nova
How we measure it
Ensure that the new Landsec brand
and associated customer-focused
culture is efficiently embedded, both
externally and internally through
delivery of an internal Customer
Experience Programme and
measuring customer satisfaction
Our progress in 2018
Our progress in 2018
Our progress in 2018
Our progress in 2018
Partially achieved
Partially achieved
Progress: Achieved
Achieved
Piccadilly Lights was opened on
time and to budget. The remaining
screens have been let on shorter
leases reflecting the greater
flexibility our customers require
Westgate Oxford opened on time
but exceeded the original budget.
The scheme was 90% let at
31 March 2018
Lettings exceeded the
outperformance target of £9.3m.
20 Eastbourne Terrace is now
fully let. Nova was 97% let and
The Zig Zag Building was 95% let
at 31 March 2018
The new brand has been embedded
across all business areas
Phase 1 of our Customer Experience
Programme has been delivered
Customer satisfaction scores for
Retail and Leisure achieved 93%
satisfied or highly satisfied
Employees
3 out of 4
Significant progress made
towards three of our four 2020
diversity commitments
How we measure it
Achieving progress on our stated
2020 diversity targets
3
Major innovation workstreams
commenced
How we measure it
Innovation – extending our business
capability and embedding our
innovation value
Communities
Environment
192
People from disadvantaged
backgrounds, and/or school
leavers supported into jobs
How we measure it
Extend the Landsec Community
Employment Programme beyond
its focus on construction with
174 people being supported into
jobs across London, retail and
academy trainees
94%
of energy reduction measures
implemented
How we measure it
Drive energy management across
the portfolio in support of our 2030
corporate commitments, with a
focus on higher consuming sites
(>1m kW)
Our progress in 2018
Our progress in 2018
Our progress in 2018
Our progress in 2018
Achieved
Partially achieved
Achieved
Achieved
The percentage of females in
Leader roles has increased
Greater parity of engagement
scores by ethnic group
Progress made on building our
innovation capability but internal
targets were not achieved
187 people from disadvantaged
backgrounds supported into jobs
in both construction and hospitality
and five school leavers recruited to
the Landsec Academy
94% of agreed measures have been
implemented across our portfolio,
with further measures agreed for
the majority of larger consuming
sites for the year ahead
Landsec Annual Report 2018
21
Strategic Report
Our business
model
To create value we buy,
develop, manage and
sell property, drawing
on a range of financial,
physical and social
resources along the way.
Creating and protecting value
We aim to be a sustainable business
through the market cycles by anticipating
and responding to the changing needs
of our customers, communities, partners
and employees. We act early to position
the Group for the conditions we see ahead.
Inputs
Core activities
Financial
Including the different
types of funds we use
to invest in our business,
from shareholder capital
to borrowings.
Physical
Including our land and
buildings, the materials
and technologies we use,
and the natural environment.
Social
Including the relationships
we have with customers,
communities and partners
and the capabilities of
our employees.
22
Landsec Annual Report 2018
SellBuyManageDevelopCAPITAL REINVESTMENTCAPITAL REINVESTMENT We take a long-term view of value creation.
For us, it’s about transforming financial,
physical and social resources into financial,
physical and social value for our shareholders
and society. We work hard to provide our
customers with a great experience, support
local communities, reward investors, recruit
and develop great people, enhance the built
environment and minimise our impact.
Core activities
Outputs
Financial
Long-term growth in income
and asset values, creating
capacity for us to increase
dividends for our shareholders.
Physical
Space that creates value for
us by meeting the changing
requirements of our customers
and communities and a
healthy environment for all.
Social
Our ability to help businesses
and people to thrive – including
our own employees.
Further reading
Read more about
our value outputs
on page 24
To read our
Financial review go
to pages 34-41
Further reading
Read more about
our value outputs
on page 25
To read our
Physical review go
to pages 42-45
Further reading
Read more about
our value outputs
on page 25
To read our
Social review go
to pages 46-51
Landsec Annual Report 2018
23
Strategic Report
Creating
sustainable
long-term
value
Financial
Profit
We aim to grow our long-term
underlying profit. We manage the
business for the long term and
growth in underlying profit ensures
we can provide a sustainable and
growing dividend for shareholders.
Revenue profit and earnings per
share are particularly helpful
indications of how we’re doing.
Our activity generates
value financially,
physically and socially.
The way we manage the
business reflects these
three priorities.
Asset value
Our markets are cyclical. The
London office market tends to
have greater swings between
rising and falling values, but
the retail market is not immune
from cyclical change. Our asset
valuations reflect where we’re at
in the cycle and how we’re doing
in relative terms to our peers. Our
strategy is to act early, reshaping
our portfolios so we can be resilient
through the downturns and ready
for opportunities to buy and
develop as the cycle evolves.
Balance sheet
Loan-to-value (LTV) shows our
debt relative to the value of our
assets. While a low LTV tends to
represent a strong balance sheet,
at times we’ll want to increase debt
to multiply the impact of rising
asset values and fund buying and
development activity. At other
times, we’ll fund that activity
by selling assets. Our adjusted
diluted net assets per share
measure is important: it enables
shareholders to monitor the
movement in the value of our
net assets per share and compare
this with the share price.
Dividend
Our progressive dividend policy
means we aim to increase
distributions to shareholders
at a sustainable rate over time.
We judge the level of dividend
payments carefully, paying out
most of our underlying earnings,
but retaining some funds so
that we have flexibility around
investments and disposals.
To read our Financial review
go to pages 34-41
Revenue profit1
(£m)
Chart 5
Valuation surplus/
(deficit)1, 2 (£m)
Chart 6
Adjusted net debt1 and Chart 8
loan-to-value ratio1
Adjusted diluted earnings1 Chart 9
(pence per share)
382
362
406
320
329
500
400
300
200
100
0
2,037
764
907
2,500
2,000
1,500
1,000
500
0
-147
-91
£000s
5,000
4,000
3,000
2,000
1,000
0
3,948
4,172
3,239
3,261
3,652
%
35
30
25
20
15
10
60
50
40
30
20
10
0
53.1
48.3
45.7
40.5
41.5
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
-500
2014
2015
2016
2017
2018
■ Adj net debt
Group LTV (RHS)
1. Includes proportionate share of joint
ventures and subsidiaries as explained
in the notes to the financial statements.
2. The surplus/(deficit) represents the
increase/decrease in value of the
Combined Portfolio over the year,
adjusted for net investment.
Adjusted diluted NAV
(pence per share)
Chart 7
Dividend
(pence per share)
Chart 10
1,434
1,417
1,403
1,293
1,600
1,400
1,200
1,000
800
600
1,013
44.20
38.55
35.00
30.70
31.85
50.0
45.0
40.0
35.0
30.0
25.0
20.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
24
Landsec Annual Report 2018
Physical
We’ve installed the largest solar photovoltaic (PV) system on a UK shopping centre
at White Rose.
Social
Our headquarters at 80-100 Victoria Street, SW1, is the UK’s largest
WELL Certified™ space.
Portfolio quality
We constantly look to strengthen
our portfolio, to ensure it meets the
changing needs of our customers
and communities. We always aim
to bring social, economic and
environmental benefits to the
areas where we operate.
Climate change
We’re committed to leading
the transition to a low carbon
economy. This helps mitigate
our current and future risk and
presents significant opportunities
for our customers and us.
Sustainable design
and innovation
Great design increases efficiency,
encourages people to spend time
in our spaces and enables buildings
to adapt to changing customer
needs. We think about the long-
term appeal, impacts and
resilience of our assets, designing
with long-term value in mind.
Natural resources
When we buy, use and re-use
resources efficiently we see big
benefits. It can reduce costs for
our customers, our partners and
us. It helps minimise our effect
on the environment. And it helps
us become more resilient to
climate-related challenges.
Target
— To reduce carbon intensity
(kgCO2/m2) by 40% by 2030
compared with a 2013/14
baseline, for property under
our management for at least
two years, with a longer-term
ambition of an 80% reduction
by 2050
— To continue to procure 100%
renewable electricity across
our portfolio and achieve
3 MW of renewable electricity
capacity by 2030
— To send zero waste to landfill
with at least 75% recycled
across all our operational and
construction activities by 2020.
To read our Physical review
go to pages 42-45
Customers
We design our buildings to
support wellbeing and productivity.
From retailers to shoppers and
diners, from office occupiers and
their employees to their visitors,
we aim to provide our customers
with a fabulous experience.
Employees
We invest to attract and develop
great people who add value to our
business. We take the engagement,
wellbeing, diversity and reward
of our people seriously and
conduct regular research within
the company.
Jobs and opportunities
We believe our business should
reflect and support our diverse
communities. We aim to ensure
that everyone who works on our
behalf is treated and paid fairly.
And we help disadvantaged
people and young people to access
job opportunities in our industry.
Health, safety,
security
We work to maintain an
exceptional standard of
health, safety and security in
all the working environments
we control. We also partner
with others to help raise
standards in our industry.
Target
— To help a total of 1,200
disadvantaged people
secure jobs by 2020
— To ensure the working
environments we control are
fair and ensure that everyone
who is working on our behalf
– within an environment we
control – is paid at least the
Living Wage by 2020.
To read our Social review
go to pages 46-51
Landsec Annual Report 2018
25
Strategic Report
London
Portfolio
review
We have a very strong
portfolio of high quality,
well-let London assets
and a big pipeline of
opportunities.
At a glance
0.1%
Valuation surplus1
5.0%
Ungeared total property return
8.5%
The portfolio underperformed its IPD
Quarterly Universe sector benchmark
at 8.5%
£10m
of investment lettings
£45m
of development lettings including the
pre-let of a minimum of 469,000 sq ft
to Deutsche Bank at 21 Moorfields, EC2
2.0%
Like-for-like voids
(31 March 2017: 3.0%)
1. On a proportionate basis.
26
Landsec Annual Report 2018
Having sold well, let well
and progressed our pipeline –
we’re in excellent shape.”
Colette O’Shea, Managing Director, London Portfolio
Actions and outcomes
Focus for 2017/18
Progress in 2017/18
Focus for 2018/19
— Outperform IPD sector
— The total return of the
— Growing like-for-like net
rental income
— Progress on time and
budget at 21 Moorfields
— Progress plans for all
of the 0.8 million sq ft
of development
opportunities in the
existing portfolio and
seek to grow the pipeline
through acquisitions
and partnerships
— Understanding the
changing needs of our
customers and ensuring
our portfolio responds
accordingly
— Securing employment for
a further 90 candidates
via our Community
Employment Programme
— Improving energy
management in support
of 2030 corporate
commitments
benchmark
London Portfolio was 5.0%,
underperforming its IPD
sector benchmark at 8.5%
— Growing like-for-like net
— Like-for-like net rental
rental income
income flat
— Complete the letting
of The Zig Zag Building,
SW1, 20 Eastbourne
Terrace, W2 and
Nova, SW1
— The Zig Zag Building 95%
let, 20 Eastbourne Terrace
100% let and Nova 97% let
— Complete the
— Construction of the new
construction and letting
of Piccadilly Lights, W1
— Progress build to grade
on time and budget
at 21 Moorfields, EC2
screen completed on time
in October 2017, with space
let to a range of advertisers
— Entered into agreement
for lease with Deutsche
Bank for a minimum of
469,000 sq ft
— Resolution to grant
revised planning permission
received
— Enabling works for piling
completed and piling on
programme and to budget
— Growing future
— Progressed plans for
development pipeline
through acquisitions and
1.4 million sq ft of
existing opportunities
within the portfolio
— Secure employment for
a further 95 candidates
via our Community
Employment
Programme
1.4 million sq ft pipeline of
development opportunities
— No acquisitions in the year
— Secured employment for 101
people from disadvantaged
backgrounds
— Improving energy
— 32 energy management
management in support
of 2030 corporate
commitments
initiatives delivered, across
11 sites
Landsec Annual Report 2018
27
Strategic Report
Develop
Nova, SW1 completed in April 2017, helping
to further establish Victoria as a high-profile
business and dining destination. 97% of the
space is now let. Sales of residential apartments
in SW1 remain slower than we would like but we
have just 12 of the 170 apartments remaining.
Nova brought our successful 3 million sq ft
speculative development programme to a
close as planned but we haven’t stopped
designing, preparing sites and building.
Of our 1.4 million sq ft pipeline of development
opportunities, we have begun construction
on 564,000 sq ft at 21 Moorfields and made
good progress with the remainder.
At 21 Moorfields, Deutsche Bank has committed
to take a 25-year lease on a minimum of
469,000 sq ft of the 564,000 sq ft available.
The new building will incorporate state-of-the-art
office services and technologies. Built over an
entrance to Liverpool Street Crossrail station,
our development will help transform this part
of the City. We secured a resolution to grant
planning permission in February 2018 and expect
to complete construction in November 2021.
Following our success at Nova, the next phase
at Nova East provides us with the option to
continue the regeneration of Victoria with a
14 storey 137,000 sq ft mixed use scheme and
a later second building of 59,000 sq ft. We’re
currently working on the detailed design with
a potential start on site in March 2019. In the
West End, completion of the new screen at
Piccadilly Lights, W1 has freed up a 142,000 sq ft
development opportunity on neighbouring
Sherwood Street. We have planning and listed
building consent for an exciting mixed use
scheme and are working on the detailed design
with the potential to be on site in April 2019. In
Southwark we are progressing two substantial
opportunities. At Sumner Street, SE1 we’ve
secured planning permission for a 135,000 sq ft
mixed use scheme and have begun detailed
design, aiming to start on site in October 2019.
At Red Lion Court, SE1 we aim to submit a
planning application for a mixed use scheme
during the course of this financial year.
Manage
We have a portfolio of modern assets well
matched to the evolving needs and expectations
of customers.
In October 2017, we switched the Piccadilly
Lights back on, completing our refurbishment
of this London landmark to time and budget.
The new state-of-the-art LED digital screen
can respond quickly to brand campaigns and
external factors such as weather, engaging
100 million passers-by each year. Core brands
campaigning during the year included Coca-
Cola, Samsung and Hyundai, and we secured
short-term lettings to brands including L’Oréal,
Hunter/Stella McCartney and eBay.
London Portfolio review
continued
Over a busy 12 months,
we focused on maximising
income, letting the
remaining space in
our developments and
advancing our pipeline
of development
opportunities.
Just 20,000 sq ft of the 3 million sq ft
speculative development programme we
started in 2010 remains to be let. We have
a strong, diverse mix of customers and a
weighted average unexpired office lease
term of 9.6 years.
In our market, economic and political uncertainty
continues to weigh on the decision-making of
occupiers and developers. Overall, however, the
investment market remained strong this year,
and continued to be dominated by overseas
investors helped by a weaker pound. This
generated good demand and record pricing for
trophy assets. Healthy levels of leasing activity,
boosted by the serviced office sector, slowed
the rise of the vacancy rate and led to a smaller
decline in headline rents than we expected.
Customers are continuing to look for greater
services, amenities and flexibility. The expansion
of the serviced office and co-worker sector is
in part a response to this need and something
we have been accommodating in the portfolio
by working in partnership with operators.
3% of the portfolio is now let to these occupiers.
Customers and communities continue to set
high expectations around sustainability,
including environmental and social impact,
and this remains central to how we design,
build and manage assets.
Buy
We made no material acquisitions during
the year.
28
Landsec Annual Report 2018
Net rental income1
Like-for-like investment properties
Proposed developments
Development programme
Completed developments
Acquisitions since 1 April 2016
Sales since 1 April 2016
Non-property related income
Net rental income
1. On a proportionate basis.
Year ended
31 March
2018
£m
Year ended
31 March
2017
£m
222
222
–
–
56
–
7
4
–
–
43
–
18
2
289
285
Table 11
Change
£m
–
–
–
13
–
(11)
2
4
We have continued to agree lettings and secure
rent reviews across the portfolio. Investment
lettings were £10m, and we agreed £36m of
rent reviews. At 123 Victoria Street, SW1, we
settled five rent reviews (57% of the income)
at an average of 10% ahead of passing rent and
at 40 Strand, WC2, we reviewed £5m (76%) of
the income, increasing the passing rent by 12%.
At 80-100 Victoria Street, SW1, we completed
the second rent review cycle, reviewing £15m
(54%) of the income, increasing the office rents
by 12% and the retail rents by 19% above
passing rent.
Through our letting and rent review activity,
we have worked closely with our customers to
understand their requirements. Intuit, a growing
technology company, is a good example of this
partnership approach. They have taken 38,000
sq ft in 80 Victoria Street, as their expansion
plans meant they were going to outgrow their
existing space at 123 Victoria Street. They have
increased the space they occupy by 119% and
doubled their lease length to 10 years. They are
also taking overflow space from the serviced
office operator, London Executive Offices, at
Nova until their space at 80 Victoria Street
is ready.
Our like-for-like void rate was 2.0%, down
from 3.0% at 31 March 2017, primarily due
to the success of letting at 80-100 Victoria
Street. As reported at 30 September 2017,
the screen at Piccadilly Lights is excluded
from our void reporting.
Sell
In August 2017, we completed the sale of our
50% interest in 20 Fenchurch Street, EC3 at
a headline price of £1.3bn (100%). The sale
crystallised a profit on cost of £400m (our 50%
share). This development was a success story.
Despite scepticism in some quarters at the time,
we took the opportunity to build in an uncertain
market when construction costs were low. We
saw supply-constrained conditions ahead, used
our experience to create space that was right
for the insurance market, and executed on plan
from design to construction, launch and leasing.
Popular with customers and visitors, the building
enabled us to take advantage of strong investor
interest in trophy assets to sell at a record price
in the City of London.
Trading property disposals totalled £171m
and included sales of residential units at Nova
and Kings Gate, both SW1, together with the
disposal of Eastern Quarry, Ebbsfleet.
Net rental income
Net rental income for the London Portfolio
increased by £4m to £289m, with additional
income from developments more than
offsetting lost income following the disposal
of 20 Fenchurch Street, EC3.
Completed developments, principally
1 New Street Square, EC4 and Nova, SW1,
contributed £13m. This more than offsets the
£11m income lost as a result of the disposal
of 20 Fenchurch Street.
Net rental income from the like-for-like portfolio
was flat with additional income received from
letting activity and completed rent reviews
being offset by higher voids and letting costs at
Piccadilly Lights, W1 and 80-100 Victoria Street,
SW1 and the impact of bad debts.
Outlook
London is a successful global city with enduring
appeal for businesses, talent and property
investors. The capital remains at the top of the
Global Financial Centres index and attracts
more cross-border investment into real estate
than any other global city.
We expect demand for high quality space to
continue, but we must be smart in how we
navigate uncertain market conditions and
continue to provide the right product in the
right locations. Strong take-up meant the fall
in headline rents this year was lower than
anticipated and we expect this shallow decline
to continue. Capital values are likely to be
tested and buying opportunities may emerge.
Our strategy has reduced our speculative
development exposure at this point, though we
have the flexibility to develop and deliver space
as demand evolves. We also have the expertise
and resources needed to make acquisitions
when the right opportunities appear.
To read about our London Portfolio strategy
go to page 16
Pipeline of development opportunities
21 Moorfields, EC2
Nova East, SW1
Sherwood Street, W1
The Southwark Estate, SE1
On site
Earliest start date: March 2019
Earliest start date: April 2019
Earliest start date: October 2019
Landsec Annual Report 2018
29
Strategic Report
Retail
Portfolio
review
We have a great portfolio
of retail assets capable of
competing and thriving in
a fast-changing market.
At a glance
1.7%
Valuation deficit1
3.4%
Ungeared total property return
2.3%
The portfolio outperformed its IPD
Quarterly Universe sector benchmark
at 2.3%
£13m
of investment lettings
£3m
of development lettings
2.7%
Like-for-like voids (31 March 2017: 2.9%)
and units in administration: 0.8%
(31 March 2017: 0.4%)
1. On a proportionate basis.
30
Landsec Annual Report 2018
By repositioning, reinventing
and reinvesting we’ve created
a resilient portfolio of centres
well-matched to customers’
changing expectations.”
Scott Parsons, Managing Director, Retail Portfolio
Actions and outcomes
Focus for 2017/18
Progress in 2017/18
Focus for 2018/19
— Outperform IPD sector
— The total return of the
— Progress feasibility
on suburban London
shopping centres
— Progress planning
applications for physical
improvement plans for
the new outlet centres
— Diversify income streams
through innovation in
retail
— Continue to develop our
Community Employment
Programme in construction
and customer service, with
the aim of supporting
70 disadvantaged people
into jobs
— Drive energy reduction
across the portfolio in
support of our 2030
corporate commitments
benchmark
Retail Portfolio was 3.4%
outperforming its IPD
sector benchmark at 2.3%
— Growing like-for-like net
rental income
— Like-for-like net rental
income down £2m
— Progressing lettings at
Westgate Oxford; Selly
Oak, Birmingham; and
the Plaza reconfiguration
at Bluewater
— Westgate Oxford 90% let;
Selly Oak 91% pre-let; and
the Plaza reconfiguration
at Bluewater 93% let
— Progressing the Plaza
reconfiguration at
Bluewater to time
and budget
— Successfully launching
Westgate Oxford after
achieving practical
completion on time
and on budget
— Plaza reconfiguration at
Bluewater delivered to time
and budget
— Successfully launched
Westgate Oxford on time
but marginally behind
budget due to slightly
higher letting incentives
— Integrating the three
newly acquired outlet
centres
— Three new outlet centres
successfully integrated
into the Retail Portfolio
— Further developing the
Community Employment
Programme beyond
its current focus on
construction with 75
disadvantaged people
being supported into
jobs in retail
— Community Employment
Programme expanded
with programme delivered
at Westgate Oxford,
St David’s, Cardiff and
Lewisham and secured
employment for
86 candidates
— Improving energy
— Successfully implemented
management in support
of 2030 corporate
commitments
28 energy reduction
opportunities across the
portfolio, which have
contributed to a reduction
of 4% in energy use
Landsec Annual Report 2018
31
Strategic Report
Retail Portfolio review
continued
We have taken decisive
steps to reposition our
portfolio with a focus on
vibrant, resilient assets
in the best locations.
Our reinvention of the offer at our centres –
creating and constantly refreshing a diverse mix
of brands and experiences – means our assets
are much better matched to people’s changing
expectations and priorities. And our reinvestment
in the strongest assets helps them to remain
dominant within their catchment and resilient
in uncertain market conditions.
Looking at our market, physical stores remain
the dominant retail sales channel, with more
than 85% of spend on retail goods in the UK
touching a store in some way. The retail
property market is polarised between destination
centres and convenience-led assets, with space
caught in the middle facing growing pressure.
Shopping destinations can achieve higher dwell
time and average spend per visit by providing
a great visitor experience based on a strong mix
of retail, food and leisure.
Buy
In May 2017, we became the leading owner-
manager of outlet centres in the UK when we
acquired Freeport in Braintree, Clarks Village
in Somerset and Junction 32 in West Yorkshire
for £333m. At each centre we’re strengthening
the mix of retailers and enhancing the overall
‘day out’ experience.
Develop
In October 2017, we opened Westgate Oxford –
our 800,000 sq ft retail and leisure destination
in Oxford city centre, developed in joint venture
with The Crown Estate. The centre is anchored
by John Lewis and includes a fantastic range of
100 shops with an eclectic mix of places to eat,
drink and play. The centre attracted 9 million
visitors in the first six months and is now 96%
let or in solicitors’ hands.
The opening of Westgate Oxford was the
culmination of a seven-year journey. We took
on a series of complex challenges to deliver
a centre deserving of its place at the heart of a
very special and under-served city. We set and
achieved the goal of creating one of the most
sustainable retail destinations in the country.
Along the way we created 566 construction
jobs and 3,400 full time equivalent retail jobs,
including 86 jobs created this year for people
from disadvantaged backgrounds through our
Community Employment Programme.
In August 2017, in joint venture with Sainsbury’s,
we started construction at Selly Oak on a
190,000 sq ft scheme that includes a Sainsbury’s
supermarket and retail and leisure units.
32
Landsec Annual Report 2018
It’s 95% pre-let or in solicitors’ hands, with
lettings including M&S, Next and JD Sports.
The development includes a student
accommodation block, which we’ve pre-sold
to Unite. We’re on schedule to complete in
late 2018.
Manage
This year, we secured £13m of investment
lettings. Our like-for-like portfolio has voids
of 2.7% and a weighted average lease term
of 7.9 years.
At Bluewater, Kent, we secured planning
consent and started construction of a new
store for Primark. We’ve also unlocked value
by reconfiguring space, doubling the size of
the Apple store and using previously redundant
space to create a new statement store for
Snow & Rock. We’ve redeveloped the former
Glow events venue too, adding four screens to
provide a state-of-the-art cinema along with a
25,000 sq ft trampoline park. And we launched
an online shopping portal for Bluewater that
supported £5m of transactions during the
year – an example of how digital and physical
retailing can successfully interact.
Key indicators
-1.9%
Footfall in our shopping centres was down 1.9%
(national benchmark down 2.5%)
-0.5%
Same centre non-food retail sales, taking into
account new lettings and occupier changes,
were down 0.5% (national benchmark down
2.2%; including online, down 0.1%)
-1.0%
Same store non-food retail sales were down 1.0%
(national benchmark down 2.9%)
10.3%
Retailers’ rent to sales ratio in our portfolio
was 10.3%, with total occupancy costs
(including rent, rates, service charges and
insurance) representing 17.7% of sales
Net rental income1
Like-for-like investment properties
Proposed developments
Development programme
Completed developments
Acquisitions since 1 April 2016
Sales since 1 April 2016
Non-property related income
Net rental income
1. On a proportionate basis.
At White Rose, Leeds, we opened the new
extension, delivering an 11-screen IMAX cinema
and six new restaurant units. We also completed
the UK’s largest ever installation of solar PV in
a retail asset, with the new rooftop system
providing up to 20% of the centre’s annual
communal energy requirement.
At Gunwharf Quays, Portsmouth, we negotiated
the surrender of the Jamie’s Italian lease to
facilitate a new flagship store for Timberland.
We continued to bring in aspirational outlet
brands, including Kate Spade, Furla and Karl
Lagerfield. And we started work on a longer-
term masterplan with a vision of creating a
day-out destination with the feel of a resort.
In terms of food and beverage, successful
mid-market operators have saturated the
market and visitors seek variety, so we have
worked to keep refreshing the brand mix.
At Westgate Oxford, for example, there’s an
exciting range of food brands at Westgate Social
and fine dining with views on the roof terrace.
Cinemas can play a big role in providing an
experience and we’re now the largest cinema
landlord in the UK. Screens attract visitors,
increase dwell time and boost the turnover of
restaurants. This year we worked with Cine, our
largest cinema operator, to ensure that their
cinemas in our centres remain dominant and
attractive. That means ensuring each cinema
is regularly refurbished and has either an IMAX
or large 4DX screen.
We’re constantly developing new ways to
help brands connect with visitors and provide
customers with a great time. This year we
hosted pop-up experiences throughout our
centres including 3D chocolate printing, the
launch of Shepherd Neame’s first cider and a
Christmas store for sparkling wine brand Chapel
Down. We took London-based brands out to our
regional centres, with Sticks’n’Sushi and Pizza
Pilgrims opening at Westgate Oxford, H&M
sister brand Arket arriving in Bluewater and
international cosmetics brand NYX choosing
Trinity Leeds. Our customers now get to enjoy
virtual reality experiences too, with the first ‘in
cinema’ VR screen at Curzon, Westgate Oxford.
Virgin Holidays has a VR-enabled concept store
in Cardiff, and Vertigo VR is a virtual reality
entertainment centre at Xscape, Milton Keynes.
Year ended
31 March
2018
£m
Year ended
31 March
2017
£m
283
285
–
5
–
20
5
9
322
–
–
–
–
21
9
315
Table 12
Change
£m
(2)
–
5
–
20
(16)
–
7
Sell
Disposals totalled £200m during the year,
which includes the sale of Chester Retail Park
and Ibis, Euston, which was compulsorily
purchased by HS2.
Net rental income
Net rental income has increased by £7m to
£322m for the year. The acquisition of three
outlet centres has resulted in a £20m increase
to net rental income which is partly offset by a
£16m reduction from assets sold. These include
Ibis, Euston and Greyhound Retail Park this
year, and The Cornerhouse, Nottingham and
Printworks, Manchester both sold in the second
half of last year. The £2m reduction in our
like-for-like portfolio is mainly due to lower
surrender receipts, an increase in car park rates
and higher bad debt provisions.
Outlook
The outlook for retail and retail property is
challenging, with the sector facing both
structural and cyclical pressures. We’re not
immune from the challenges but, given the
polarisation in our market between experience
and convenience, our portfolio is well matched
to the trends we see ahead. Over the next
12 months, we’ll continue to be very active
managers – refreshing the mix at our centres
and helping brands to enhance the experiences
they provide and the value they create.
To read about our Retail Portfolio strategy
go to page 16
Landsec Annual Report 2018
33
Strategic Report
Financial
review
Highlights
£406m
Revenue profit1 (2017: £382m)
53.1p
Adjusted diluted earnings per share1
(2017: 48.3p)
44.2p
Dividend per share (2017: 38.55p)
£14.1bn
Combined Portfolio1 (2017: £14.4bn)
1,403p
Adjusted diluted net assets per share
(2017: 1,417p)
1. Including our proportionate share of subsidiaries
and joint ventures, as explained in the Presentation
of financial information on page 35.
34
Landsec Annual Report 2018
r
e
c
ffi
O
l
i
i
a
c
n
a
n
F
f
e
h
C
i
,
e
d
a
l
s
n
e
e
r
G
n
i
t
r
a
M
The company is in
good shape and we
have again delivered
a robust set of results.”
Our loss before tax was £251m, compared with a profit of £112m in
the prior year due to higher costs in Capital and other items. While
the valuation deficit was smaller this year, we incurred higher costs
associated with the redemption of some of our bonds. The loss before
tax drives a 47.2p reduction in earnings per share from 14.3p in the
prior year to a loss per share of 32.9p in the year ended 31 March 2018.
Adjusted diluted earnings per share increased by 9.9% from 48.3p
to 53.1p this year as a result of an increase in revenue profit from
£382m to £406m and a reduction in the weighted average number
of shares in issue.
The reasons behind the movements in revenue profit and Capital and
other items are discussed in more detail overleaf.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Presentation of financial information
Our property portfolio is a combination of properties that are wholly
owned by the Group, part owned through joint arrangements and
those owned by the Group but where a third party holds a non-
controlling interest. Internally, management review the results of
the Group on a basis that adjusts for these forms of ownership to
present a proportionate share. The Combined Portfolio, with assets
totalling £14.1bn, is an example of this approach, reflecting the
economic interest we have in our properties regardless of our
ownership structure. We consider this presentation provides a better
explanation to stakeholders of the activities and performance of
the Group, as it aggregates the results of all of the Group’s property
interests which under IFRS are required to be presented across a
number of line items in the statutory financial statements.
The same principle is applied to many of the other measures we
discuss and, accordingly, 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% with any non-owned element
being adjusted as a non-controlling interest or redemption liability,
as appropriate. Our joint operations are presented on a proportionate
basis in all financial measures.
Most of the measures discussed in this Financial review are presented
on a proportionate basis. Measures presented on a proportionate basis
are alternative performance measures as they are not defined under
IFRS. For further details see table 107 in the Business analysis section.
Martin Greenslade reports on our
financial performance in detail and
explains the movement in our key
financial measures.
In the property markets in which we operate, valuations proved more
resilient than we expected at the start of the year, despite the backdrop
of political and economic uncertainty. Over the year, our assets declined
in value by 0.7% or £91m (including our proportionate share of subsidiaries
and joint ventures) compared with a £147m decline last year.
During the year, we continued to look for opportunities to buy back legacy
bonds in a cost effective manner and issue new debt at the significantly
lower interest rates which prevail today. In total, we repurchased £1,529m
of bonds at a premium of £446m. This debt management activity is
behind the loss per share of 32.9p and the reduction in our net assets.
It is also a significant contributor to the increase in our underlying earnings
as a result of lower ongoing interest costs. Revenue profit was up 6.3%
from £382m to £406m and adjusted diluted earnings per share were up
9.9% at 53.1p.
Adjusted diluted earnings per share grew at a faster rate than revenue
profit as we reduced the number of shares in issue in September 2017
with a 15 for 16 share consolidation. This accompanied the £475m return
of capital associated with the sale of 20 Fenchurch Street, EC3 at record
pricing for a building in the City.
Income statement
Our income statement has two key components: the income we generate
from leasing our investment properties net of associated costs (including
finance expense), which we refer to as revenue profit, and items not
directly related to the underlying rental business, principally valuation
changes, profits or losses on the disposal of properties and finance
charges related to the bond repurchases, which we refer to as Capital
and other items.
We present two measures of earnings per share; the IFRS measure of
earnings per share is based on the total profit for the year attributable
to owners of the parent, while adjusted diluted earnings per share is
based on tax-adjusted revenue profit, referred to as adjusted earnings.
Income statement
Revenue profit
Capital and other items
(Loss)/profit before tax
Taxation
(Loss)/profit attributable to shareholders
Table
14
17
Year ended
31 March
2018
£m
406
(657)
(251)
(1)
(252)
Table 13
Year ended
31 March
2017
£m
382
(270)
112
1
113
Basic (loss)/earnings per share
Adjusted diluted earnings per share
(32.9)p
53.1p
14.3p
48.3p
Landsec Annual Report 2018
35
Financial review
continued
Revenue profit
Revenue profit is our measure of underlying pre-tax profit, presented on a proportionate basis. A full definition of revenue profit is given in the glossary.
The main components of revenue profit, including the contributions from London and Retail, are presented in the table below.
Revenue profit
Gross rental income 1
Net service charge expense
Net direct property expenditure
Net rental income
Indirect costs
Segment profit before finance expense
Net unallocated expenses
Net finance expense
Revenue profit
1. Includes finance lease interest, after rents payable.
Revenue profit increased by £24m to £406m for the year ended
31 March 2018 (2017: £382m). This was the result of an £11m increase
in net rental income for the year and a lower net finance expense,
partly offset by higher net indirect expenses. The movements are
explained in more detail below.
Year ended 31 March 2018
Year ended 31 March 2017
Retail
Portfolio
£m
London
Portfolio
£m
Chart
351
(9)
(20)
322
(22)
300
310
(2)
(19)
289
(17)
272
15
16
Retail
Portfolio
£m
London
Portfolio
£m
335
(4)
(16)
315
(22)
293
302
(1)
(16)
285
(17)
268
Total
£m
661
(11)
(39)
611
(39)
572
(43)
(123)
406
Total
£m
637
(5)
(32)
600
(39)
561
(40)
(139)
382
Table 14
Change
£m
24
(6)
(7)
11
–
11
(3)
16
24
Net indirect expenses
The indirect costs of the London and Retail portfolios and net unallocated
expenses should be considered together as collectively they represent the
net indirect expenses of the Group including joint ventures. In total, net
indirect expenses were £82m (2017: £79m). The £3m increase is the result of
higher share-based payment charges, depreciation and administration costs.
Net finance expense (included in revenue profit)
Chart 15
Net finance expense1 (£m)
Year ended 31 March 2018
Chart 16
139
(30)
150
125
100
75
i
g
n
c
n
a
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fi
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R
7
1
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1
3
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17
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L
Impact of
(3)
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O
123
8
1
0
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a
M
1
3
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p
x
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e
c
n
a
n
fi
t
e
N
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
Our net finance expense has decreased by £16m to £123m, primarily
due to interest savings following the repurchase of medium term notes
in the current and prior years and the redemption of the £273m Queen
Anne’s Gate (QAG) Bond this year. This has been partly offset by lower
capitalised interest following the completion of developments.
Net rental income
Net rental income1 (£m)
Year ended 31 March 2018
650
600
550
500
600
(2)
–
e
h
t
r
o
f
e
m
o
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n
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l
20
(27)
13
2
611
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p
m
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A
1
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A
6
1
0
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A
1
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p
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N
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m
o
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t
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l
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t
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f
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m
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n
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l
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t
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N
8
1
0
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r
a
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1
3
d
e
d
n
e
r
a
e
y
Net rental income movement in the year
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
Net rental income increased by £11m in the year ended 31 March 2018 as
rental income growth from our development portfolio and acquisitions
was only partly offset by the impact of properties sold since 1 April 2016
and a small decline in like-for-like income. Significant disposals included
20 Fenchurch Street, EC3, Greyhound Retail Park, Chester and some
Accor hotels sold in the current year, as well as The Printworks,
Manchester and The Cornerhouse, Nottingham, both sold in the prior
year. Our developments generated £18m of additional net rental income
following the completion of Nova, SW1, 20 Eastbourne Terrace, W2 and
1 New Street Square, EC4. Like-for-like net rental income declined by
£2m primarily due to an increase in bad debt provisions.
Further information on the net rental income performance of the
London and Retail portfolios is given in the respective business reviews.
36
Landsec Annual Report 2018
Capital and other items
An explanation of the main Capital and other items is given below.
Capital and other items1
Valuation and profits on disposals
Valuation deficit
Movement in impairment of trading
properties
Profit on disposal of investment properties
Profit on disposal of trading properties
Profit/(loss) on disposal of investment in
joint venture
Profit on disposal of other investment
Net finance expense
Exceptional items
Head office relocation
Other
Capital and other items
Table
18
Table 17
Year ended
31 March
2018
£m
Year ended
31 March
2017
£m
(91)
(4)
3
30
66
–
(147)
12
20
36
(2)
13
19
(661)
(204)
–
–
1
1
(657)
(270)
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
Valuation of investment properties
Our Combined Portfolio declined in value by 0.7% or £91m compared with a decrease in the prior year of £147m. A breakdown of valuation movements
by category is shown in table 18.
Valuation analysis
Shopping centres and shops
Retail parks
Leisure and hotels
London offices
Central London shops
Other (Retail and London)
Total like-for-like portfolio
Proposed developments
Development programme
Completed developments
Acquisitions
Total Combined Portfolio
Market value
31 March 2018
£m
Valuation
movement
%
Rental value
change1
%
Net initial
yield
%
Equivalent
yield
%
3,558
786
1,304
4,440
1,357
55
11,500
–
447
1,816
340
14,103
(3.0)
(1.1)
0.7
(1.5)
0.9
(11.1)
(1.5)
–
18.3
1.0
(1.9)
(0.7)
0.8
(1.0)
1.0
(1.6)
1.5
(3.5)
(0.2)
n/a
n/a
(1.9)
n/a
(0.4)
4.4
5.4
5.1
4.3
3.1
1.2
4.4
–
0.7
2.1
5.7
4.0
4.9
5.6
5.4
4.6
4.1
3.6
4.8
n/a
4.5
4.2
5.9
4.7
Table 18
Movement
in equivalent
yield
bps
10
(3)
(5)
(4)
2
1
1
n/a
n/a
(5)
n/a
6
1. Rental value change excludes units materially altered during the year.
Over the year to 31 March 2018, we saw a small decline in values in a number of the categories within our Combined Portfolio. Overall values were
down 0.7%, with the like-for-like portfolio down 1.5%. With the property sectors in which we operate experiencing limited change in rental values and
equivalent yields, our valuation performance is more influenced by individual asset performance than wider market movements.
Within the like-for-like portfolio, our shopping centres fell in value by 3.0% as rental value growth was insufficient to offset a 10 basis points outward
yield shift. The largest movement was at Bluewater where the value was down 11% as the valuer moved its yield out by 50 basis points based on the
limited transactional evidence available. The value of our Retail parks was down 1.1% as rental values declined by a similar amount while our Leisure
and hotel assets were up in value by 0.7% as rental values grew. Rental value declines and a 12% fall in the value of one of our oldest assets, Portland
House, SW1 were behind the 1.5% reduction in London office values.
Outside the like-for-like portfolio, our pre-letting to Deutsche Bank at 21 Moorfields, EC2 and completion of Westgate Oxford led to the 18.3% valuation
surplus on our Development programme. Completed developments were up 1.0% in value on the back of the successful letting of Nova, SW1 during the
year, while the requirement to adjust for future purchaser’s costs was behind the 1.9% fall in the value of our Acquisitions, partly offset by rental growth
at the outlets we acquired.
Landsec Annual Report 2018
37
Strategic Report
Financial review
continued
Profits on disposals
Profits on disposals relate to the sale of investment properties, trading
properties, joint ventures and other investments. We made a total profit
on disposals of £99m (2017: £67m). The profit on disposal of trading
properties of £30m primarily relates to the sale of residential units at
Nova and Kings Gate, both SW1, and the disposal of Eastern Quarry,
Ebbsfleet. The £66m profit on disposal of our investment in a joint
venture relates to the sale of 20 Fenchurch Street, EC3.
Balance sheet
Balance sheet
Combined Portfolio
Adjusted net debt
Other net assets
Adjusted net assets
Net finance expense (included in Capital and other items)
This year, we incurred £661m of net finance expense which is excluded
from revenue profit.
Fair value of interest-rate swaps
Bond exchange de-recognition adjustment
Net assets
Net finance expense1
Table 19
Net assets per share
Adjusted diluted net assets per share
31 March
2018
£m
14,103
Table 20
31 March
2017
£m
14,439
(3,652)
(3,261)
(71)
28
10,380
11,206
6
106
(4)
314
10,492
11,516
1,418p
1,403p
1,458p
1,417p
Premium and fees on redemption
of medium term notes (MTNs)
Bond exchange de-recognition adjustment
on redeemed MTNs
Table
24
24
Premium and fees on QAG Bond redemption
Fair value movement on interest-rate swaps
Other
Total
Year ended
31 March
2018
£m
Year ended
31 March
2017
£m
390
189
579
62
(8)
28
661
140
30
170
–
8
26
204
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
The increase this year in net finance expense in Capital and other items
is due to the increased level of debt management activity.
Exceptional items
We have not classified any items as exceptional during the year. In the
prior year a £1m net credit in respect of our London office relocation has
been classified as exceptional. It was excluded from revenue profit by
virtue of its exceptional nature, but formed part of our profit before tax.
Taxation
As a REIT, our income and capital gains from Qualifying activities are
exempt from corporation tax. 90% of this income must be distributed as
a Property Income Distribution, and is taxed at the shareholder level to
give a similar tax position to direct property ownership. Non-qualifying
activities, such as property trading or sales of companies, are subject
to corporation tax.
This year, there was a tax charge of £1m (2017: credit £1m) being a
current tax credit of £1m (2017: nil) and a deferred tax charge of £2m
(2017: credit £1m). The gain on the disposal of the corporate structure
holding the 20 Fenchurch Street property was offset by brought
forward capital losses on which no deferred tax asset had previously
been recognised.
Our tax strategy is published on our corporate website. The Group has
a low tax risk rating from HMRC. In the year, the total taxes we incurred
and collected were £193m (2017: £129m), of which £46m (2017: £41m)
was directly borne by the Group including environmental taxes, business
rates and stamp duty land tax.
38
Landsec Annual Report 2018
Our net assets principally comprise the Combined Portfolio less net debt.
We calculate an adjusted measure of net assets, which is lower than our
net assets reported under IFRS due to an adjustment to increase our net
debt to its nominal value. We believe this better reflects the underlying
net assets attributable to shareholders as it more accurately reflects the
future cash flows associated with our debt instruments. Both our net
assets and our adjusted net assets declined over the year due to the
premiums paid to redeem bonds and the impact of the return of £475m
to shareholders by way of a capital distribution.
At 31 March 2018, our net assets per share were 1,418p, a decrease of
40p or 2.7% from 31 March 2017. Adjusted diluted net assets per share
were 1,403p, a decrease of 14p or 1.0%. These decreases were primarily
driven by the debt management transactions in the year, which have
a greater impact on our net assets per share as the related bond
exchange adjustment is crystallised in addition to the premium payable.
The bond exchange adjustment does not impact adjusted net assets
as this measure already takes into account the face value of the
medium term notes.
Chart 21 summarises the key components of the £826m decrease in
our adjusted net assets over the year.
Movement in adjusted net assets1 (£m)
Year ended 31 March 2018
Chart 21
Diluted per share (pence)
1,417
53
(12)
13
(40)
(51)
(8)
–
(60)
91
1,403
12,000
11,000
10,000
406
(91)
99
(314)
11,206
(390)
(62)
1
(475)
r
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10,380
8
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1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
Movement in adjusted net debt1 (£m)
Year ended 31 March 2018
Chart 23
Table 22
31 March
2018
31 March
2017
£3,548m £2,905m
£3,652m £3,261m
4,000
3,000
2,000
205
(1,065)
350
475
(11)
3,652
3,261
(345)
314
390
62
16
Net debt and gearing
Net debt and gearing
Net debt
Adjusted net debt 1
Gearing
Adjusted gearing 2
Group LTV 1
Security Group LTV
Weighted average cost of debt 1
33.8%
35.2%
25.8%
27.2%
2.6%
25.2%
29.1%
22.2%
28.3%
4.2%
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
2. Adjusted net debt divided by adjusted net assets.
Over the year, our net debt increased by £643m to £3,548m. The main
elements behind this increase are set out in our statement of cash flows
and note 21 to the financial statements.
Adjusted net debt was up £391m to £3,652m. For a reconciliation of
net debt to adjusted net debt, see note 20 to the financial statements.
Chart 23 sets out the main movements behind the increase in our
adjusted net debt.
g
n
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A
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the
Presentation of financial information on page 35.
Net operating cash inflow was £345m, substantially offset by dividend
payments of £314m. Capital expenditure was £205m (£171m on
investment properties and £34m on trading properties), largely relating
to our development programme. Net cash flows from disposals totalled
£1,065m; £247m from the disposal of investment properties, £185m
from the disposal of trading properties and £633m from the disposal
of investments in joint ventures. We incurred an additional £390m to
repurchase the medium term notes and £62m for the redemption of
the QAG Bond.
The most widely used gearing measure in our industry is loan-to-value
(LTV). We focus most on Group LTV, presented on a proportionate basis,
which increased from 22.2% at 31 March 2017 to 25.8% at 31 March 2018,
primarily due to the increase in adjusted net debt explained above.
Despite this increase in the adjusted net debt, our Security Group LTV
decreased from 28.3% to 27.2% primarily due to a permitted change in
the calculation method, which now allows bonds purchased and held
within the Security Group to be offset against debt outstanding.
Landsec Annual Report 2018
39
Strategic Report
Changes in accounting policy
As part of the Group’s review of the impact of adopting IFRS 9 on the
bond exchange de-recognition adjustment (see note 21 for further
details on the bond exchange de-recognition adjustment), the
Group has taken the opportunity to revisit its accounting policy on
determining whether an existing liability has been extinguished when
carrying out a debt refinancing transaction. With effect from 1 April
2018, the Group’s revised policy is:
‘When debt refinancing exercises are carried out, existing liabilities
will be treated as having been extinguished when the new liability
is substantially different from the existing liability. In making this
assessment, the Group will consider the transaction as a whole, taking
into account both qualitative and quantitative characteristics.’
The revised accounting policy will result in the debt refinancing exercise
completed on 3 November 2004 being treated as an extinguishment
of the original debt, and therefore the bond exchange de-recognition
adjustment will no longer be held on the Group’s balance sheet.
Further details are given in note 3.
The revised accounting policy will provide more relevant and reliable
information by more accurately reflecting the Group’s current net
asset position and the carrying value of its borrowings. The Group
currently reports this revised position using alternative performance
measures which adjust net debt (see note 20) and net assets (see
note 5). Under the revised accounting policy, the Group will report
fewer alternative performance measures.
The change in accounting policy will be applied retrospectively and
comparatives restated accordingly. Had this policy been applied at
31 March 2018, net assets would have been £106m lower at £10,386m,
and the loss attributable to shareholders would have been £208m
lower at £44m. Net assets per share would have been 14p lower at
1,404p, and the loss per share would have been 27.1p lower at 5.8p.
The change in accounting policy will have no impact on adjusted net
assets per share and adjusted earnings per share as these measures
already exclude the bond exchange de-recognition adjustment and
the related amortisation charge respectively.
Financial review
continued
Financing
At 31 March 2018, our committed revolving facilities totalled £2,090m
(31 March 2017: £1,940m). The pricing of our facilities which fall due in
more than one year range from LIBOR +65 basis points to LIBOR +80 basis
points. Borrowings under our commercial paper programme typically
have a maturity of less than three months, currently carry a weighted
average interest rate of LIBOR +32 basis points and are unsecured. The
total amount drawn under the syndicated bank debt and commercial
paper programme was £1,100m (31 March 2017: £441m).
During the year, the Group repurchased and redeemed all £273m of the
outstanding QAG Bond for an additional cost of £62m. In addition, in
September, December and March, we conducted tender exercises which
resulted in us buying back £1,256m (nominal value) of medium term notes
(MTNs). Further details are set out in table 24 and note 21 to the financial
statements. In conjunction with the tender offers, in September, we
issued a £500m MTN paying a coupon of 2.625% with an expected
maturity of 2037 and a £500m MTN paying a coupon of 2.750% with an
expected maturity of 2057 and, in March, we issued a £350m MTN paying
a coupon of 2.375% with an expected maturity of 2027.
Redemption of medium term notes
Table 24
Medium term note series
A4
£m
A5
£m
A6
£m
A7
£m
A10
£m
A11
£m
Total
£m
Nominal value purchased
2
398
233
164
15
444 1,256
Premium paid
Fees/unamortised
finance fees written off
Amortisation of bond
exchange de-recognition
adjustment
Redemption of medium
term notes – total cost
–
–
–
–
90
1
91
82
73
1
74
60
57
1
58
47
3
–
3
–
162
385
2
5
164
–
390
189
–
173
134
105
3
164
579
A premium to par of £385m was paid on the MTN purchases, reflecting
future gross coupon savings of £761m. Taking into account the timing
and interest cost of the notes issued to fund the MTN purchases, we
estimate a further net interest saving next year of £24m.
The Group’s debt (on a proportionate basis) has a weighted average
maturity of 13.1 years (up from 9.4 years at 31 March 2017), a weighted
average cost of 2.6% (down from 4.2% at 31 March 2017) and 83% is at
fixed interest rates. At 31 March 2018, we had £1.1bn of cash and available
facilities. This gives the business considerable flexibility to deploy capital
quickly should acquisition opportunities arise.
40
Landsec Annual Report 2018
Dividend
We’re recommending a final dividend of 14.65p to be paid on 27 July 2018
entirely as a Property Income Distribution to shareholders registered at
the close of business on 22 June 2018. Taken together with the three
quarterly dividends of 9.85p per share already paid, our full year dividend
will be up 14.7% at 44.2p per share (2017: 38.55p) or £332m (2017: £305m).
The first quarterly dividend for 2018/19 will be 11.3p per share (2017: 9.85p).
Landsec has a progressive dividend policy, which aims to deliver
sustainable growth in dividends over time, broadly in line with our
underlying earnings growth as measured by our adjusted earnings per
share. The reason we use underlying earnings is that it excludes Capital
and other items such as valuation movements and non-recurring income
or costs.
We don’t pay out a fixed percentage of adjusted earnings each year, due
to the earnings volatility that can come from our investment decisions.
For example, when we empty a building in advance of development, we
lose rent which isn’t recovered until after the new building has been built
and let. Similarly, selling assets in the current low interest rate
environment is likely to be earnings dilutive. Our dividend policy aims to
smooth out that earnings volatility with a more consistent dividend
progression.
The degree to which our adjusted earnings per share exceeds the dividend
per share (known as our dividend cover) will vary for the reasons
described above. In addition, when setting our dividend, we’re mindful
of the earnings risks we have in the business (for example, from unlet
speculative developments) and the degree of flexibility we believe we
require (for example, if we intend to sell properties despite the negative
impact on earnings). In addition to our focus on risk and flexibility when
setting the dividend, we also consider underlying cash flows, recognising
that these are generally lower than underlying earnings due to the lease
incentives we give our customers and refurbishment capital expenditure.
Taking all these factors together, we anticipate that dividend cover will be
in the range of 1.2x to 1.3x. This range is indicative only although it’s
unlikely that we would consistently pay a dividend per share in excess of
our adjusted earnings per share and, as a minimum, we will satisfy our
dividend obligation under the REIT legislation.
The proposed dividend increase for this year is 14.7% compared with
underlying earnings growth of 9.9%, reducing our dividend cover to 1.2x.
With almost no speculative development exposure following our letting
success at Nova, SW1 and Westgate Oxford, we believe it to be appropriate
for our dividend cover to be at the bottom of the anticipated range.
At 31 March 2018, the Company had distributable reserves of £3.1bn
which compares with the dividend payable in respect of this year of
£332m. We don’t anticipate that the level of distributable reserves will
limit distributions for the foreseeable future.
Martin Greenslade
Chief Financial Officer
Landsec Annual Report 2018
41
Strategic Report
Climate change
We’re clear that climate change is happening
now and how we choose to respond will help
determine the health of our business over the
long term. Climate change is already considered
a material issue within Landsec and we were
the first property company with an approved
science-based target.
Launched in 2017, The Task Force on Climate-
related Financial Disclosures (TCFD) encourages
businesses to disclose their response to climate
change by discussing both the risks and
opportunities. We’re committed to the principles
of the TCFD and they inform our reporting here.
Our priorities
Through our sustainability programme and
science-based carbon target, we are determined
to lead the transition towards a low carbon
economy. This presents a significant opportunity
for our business and our customers, and is
already delivering both operational cost savings
and wider stakeholder benefits.
But climate change is creating new risks.
Increasing concentrations of greenhouse gases
in the atmosphere are causing rising average
temperatures and erratic weather patterns.
These trends are manifesting in natural hazards
like high winds, increasing rainfall, flooding and
extreme temperatures. And these natural hazards
have the potential to affect our business. So, as
an organisation that relies on our physical assets
for the creation of value, we need to assess how
hazards could affect us.
Our risk assessment
Rising average annual temperatures could lead
to higher cooling costs for our business and our
customers. More erratic temperature changes
could lead to strain or failure of our mechanical
heating and cooling systems. Storms could lead
to higher maintenance costs. And flooding,
both inland and coastal, could lead to direct
damage to our properties. All of these hazards
can affect our customers’ business continuity.
Physical
review
We believe our assets and
operations should create
financial value while
having a positive impact
on the people and places
we rely on.
Our top ten assets by value
1 New Street Square, EC4
Contemporary offices with retail and
restaurants. Annualised net rent £35.0m
2 80-100 Victoria Street, SW1
Landmark site, home to blue-chip
businesses and retailers. Annualised net
rent £23.3m
3 One New Change, EC4
Office and leisure destination in an iconic
building. Annualised net rent £29.1m
4 Bluewater, Kent
The dominant shopping centre in the south
east of England. Annualised net rent
£28.9m (Landsec share)
5 Gunwharf Quays, Portsmouth
Outlet shopping, leisure and entertainment
on a waterfront location. Annualised net
rent £26.2m
6 Trinity Leeds
778,000 sq ft retail destination developed
by us. Annualised net rent £26.7m
7 1 & 2 New Ludgate, EC4
396,000 sq ft of modern, technically
resilient office space, restaurant and retail.
Annualised net rent £22.8m
8 Queen Anne’s Gate, SW1
Offices built by us in 1977, refurbished in
2008. Annualised net rent £32.4m
9 White Rose, Leeds
814,500 sq ft of contemporary retail space.
Annualised net rent £23.1m
10 Nova, SW1
A stunning new destination in the heart
of Victoria. Annualised net rent £3.6m
This year we have included 1 New Street Square, EC4 in
the total for New Street Square, which lifts the combined
asset to the top of our valuation list. We have split
Piccadilly Lights into two assets: the screens and a
potential redevelopment scheme at neighbouring
Sherwood Street, W1.
42
Landsec Annual Report 2018
To assess these risks we have worked with
Willis Towers Watson, conducting research
using stochastic modelling to help determine
the likelihood of potential weather patterns
and natural hazards. The modelling looked
at how future weather patterns are likely to
impact our assets over two time horizons:
up to 2030 and beyond 2030.
which means storms and flooding could
continue to affect our assets. We also found
that an increase in average temperature is
likely to affect our operational costs of cooling
and heating, but not in a financially material
way. Our modelling shows the requirements
for more cooling, but less heating, will broadly
cancel each other out when it comes to costs.
The likelihood of future weather events was
modelled based on the four Representative
Concentration Pathways (RCPs) which are
used by the Intergovernmental Panel on Climate
Change (IPCC) to illustrate future concentrations
of greenhouse gases in the atmosphere. We
focused on a best-case scenario, where global
average temperature increases by two degrees,
and a worst-case scenario, with a temperature
increase of four degrees.
Our findings
In the period up to 2030, our analysis showed
risks of natural hazards are unlikely to increase
in a material way as a direct result of climate
change. Natural weather variability will continue,
The effects beyond 2030 are likely to be
different. The risk of inland flood, coastal flood
and windstorm will increase. The impact of
these hazards will become more relevant
towards 2050, resulting in an increased negative
impact on the current Landsec portfolio if our
control measures remain the same.
Our response
Because the lifetime of our assets can be
anything between five and 50 years, we need
to take action to address risks now. Through
our Responsible Property Investment Policy
we’re continuing to assess energy efficiency and
climate risks when we buy new assets. Beyond
2030, we may need to consider selling assets
with high residual risk from natural hazards.
We usually design our developments to last
60 years. Using our Sustainability Brief for
developments and engineering specifications,
we will continue to create resilient assets
capable of withstanding extreme temperature
changes. And we’ll continue to include warmer
temperatures in our design parameters to
ensure we don’t create unnecessary heating
capacity. To manage our buildings effectively,
we will continue to invest in controls and
efficient energy systems in the period to 2030.
And we’ll continue to assess our insurance
products to ensure we have adequate cover.
Our disclosure
Our existing processes give us confidence that
our business activities, strategy and financial
planning are resilient to climate-related risks
and we are currently well positioned to benefit
from the transition to a low carbon economy
through to 2030. These processes will also help
us to mitigate risk after 2030, as the effects of
climate change become more severe. We’re
committed to the ongoing review of these risks
and will reassess if there are major changes to
our portfolio or unexpected changes to the
trajectory of climate change.
You can see full details on how we’re
responding to TCFD in our Sustainability
Data Performance Report at landsec.com
Westgate – one of the
UK’s lowest carbon
shopping centres,
delivering efficiency
today, and resilience
for the future.
Our new Sustainability Charter
and Brief
This year we introduced two new
documents to help us progress our
sustainability programme.
Our new Sustainability Charter clearly
outlines our expectations and ambitions to
all partners. We use it to support proactive
conversations and it includes a pledge we
require partners to take. So, when we’re
agreeing contracts or planning a new
project together, this charter plays an
important part in the conversation.
Our new Sustainability Brief clearly sets
out our sustainability ambitions for
developments, the role our designers
and delivery partners can play in creating
the best experiences, and how we
measure success.
You can find both documents at
landsec.com
Climate change advocacy
We recognise we can’t solve key
sustainability issues on our own. That’s
why we actively support public policy
and regulation on issues that align
with our business. Some of our actions
on advocacy:
— We became the first property company
in the world to have its carbon emission
target approved by the Science Based
Targets initiative. This commits Landsec
to reduce emissions in line with the
requirements of the global 2 degree
warming target.
— We were one of the first property
companies to join the We Mean
Business coalition’s RE100 and EP100
campaigns, a group of influential
businesses committed to procuring
renewable energy and improving energy
productivity.
— We are active members of the UK
Green Building Council and Better
Buildings Partnership, working with
our peers to help the entire industry
improve.
— We are working with a coalition chaired
by the World Business Council on
Sustainable Development to expand
science-based target methodologies
for the built environment, helping more
companies take action.
Landsec Annual Report 2018
43
Strategic Report
Physical review
continued
Landsec energy intensity
Chart 25
250
247
214
■ London
■ Retail
■ Landsec
Efficient use of natural resources
200
Carbon and energy
Our commitment is to reduce carbon intensity
(kgCO2/m2) by 40% by 2030 compared with
a 2013/14 baseline for properties under our
management for at least two years, with
a longer-term ambition of an 80% reduction
by 2050. During the year we reduced carbon
intensity further and are now down 28.6%
compared with our 2013/14 baseline, which
keeps us on track to achieving our 2030 and
2050 targets.
We’re on track largely thanks to our active
energy management programme, which
is reducing the energy we use to power our
offices and shopping centres and also due to
the decarbonisation of the UK national grid.
Our energy intensity has reduced by 14.3%
since our 2013/14 baseline keeping us on track
for our target of 40% by 2030. Since 2016/17,
we have implemented 60 energy reduction
projects across our portfolio, which will
contribute further savings in years to come.
We’re also generating more of our own energy
through renewable sources such as solar panels.
Renewables
Our commitment is to continue to procure
100% renewable electricity across our portfolio
and achieve 3 MW of on-site renewable
electricity capacity by 2030. Since 1 April 2016,
our Group electricity contract has been 100%
renewable. At least 15% of gas is now procured
from green sources. We have 1.4MW of on-site
renewable electricity capacity.
We are committed to increasing the amount
of renewable electricity generated on our sites
and pioneering low carbon technologies to
improve efficiency. In August 2017, we installed
the largest solar PV system on a UK shopping
centre at our White Rose centre in Leeds. The
system will provide 20% of our landlord electricity
demands, enough to power 200 UK homes for
a year. That means a reduction of 250 tonnes
of carbon – the equivalent of more than half
a million miles of passenger car emissions.
Waste management performance
129
111
77
64
62
150
100
2
m
/
h
W
k
50
0
2013/
2014
Baseline
2017/
2018
2013/
2014
Baseline
2017/
2018
2013/
2014
Baseline
2017/
2018
2030 target
Waste
Our commitment is to send zero waste to
landfill with at least 75% recycled across all our
operational and construction activities by 2020.
Through smarter procurement and increased
data accuracy we’ve achieved our commitment,
diverting 100% of the waste produced from
operations from landfill. At 74.9%, we continue
to improve our recycling rate by engaging our
customers. All waste that isn’t recycled is sent
to waste to energy plants.
Our focus is on creating a circular economy
where, instead of throwing things away, we
re-use and recycle them. We’re also constantly
looking for innovative ways to reduce our
operational impact on the environment.
For example, three of our retail assets –
including Westgate Oxford – have on-site food
digesters. These use aerobic digestion to break
down up to one tonne of food waste a day and
turn it into wastewater. This ensures no food
waste is taken to landfill and CO2 emissions
are reduced by having fewer waste collections.
Good waste management practices can have
significant financial impacts. For example, our
active approach to recycling has enabled us to
avoid over £2.5m in landfill tax this year.
100%
of waste diverted from landfill
(2017: 99.9%)
74.9%
of used materials sent for recycling
(2017: 70.8%)
Sustainable design and innovation
Great design helps create the best experience
for our customers. It increases efficiency and
encourages people to spend time in our spaces.
This is good for our customers, communities
and partners – and therefore good for us. The
right design also allows buildings to be flexible
across their lifespan, enabling them to adapt
to changing customer needs.
Our approach
For the past ten years we’ve focused on building
strong foundations – achieving energy and
water efficiency, green building certification
and low carbon emissions. But we’ve also been
exploring how we can make our developments
even better. Our approach now centres on
foundations and features. Foundations are
the actions that can build our credibility.
They’re typically not visible to our customers,
but they’re vitally important. They include
improving diversity in our supply chain, reducing
waste and sourcing materials from ethical
supply chains.
The visible actions are features – things like
community employment and wellbeing.
These bring clear benefits to customers and
the community. And because they’re so
tangible, they make our developments even
more popular. They include the creation of new
jobs, installing renewable energy generation
and creating green spaces for our customers
to enjoy.
Carbon in the supply chain
This year we’ve built on our work with the
Carbon Trust to scope out and report on
measurable carbon emissions associated with
our business. This includes the ones we control,
as in our head office or the landlord-controlled
spaces within our properties, and emissions
indirectly associated with our business
(known as scope 3 emissions), like the carbon
emissions produced by construction companies
and suppliers when they work with us. We’ve set
new targets for reducing these emissions, we’re
encouraging all our main contractors, through
our Sustainability Charter, to set science-based
targets, and we’re working with our customers
to help them reduce energy use.
44
Landsec Annual Report 2018
Wellbeing at our new office in Victoria
— 431 employees and 45,000
annual visitors
— 87% of our employees said their
working environment enables
them work productively –
40% above the Leesman Survey
benchmark
— World first dual-certified space
meeting both WELL Silver
Certification and BREEAM
Outstanding
— An LED circadian lighting system
matches external light levels
— White noise machines help
create a sense of privacy in
the open plan environment
— Our ventilation and cleaning
regime is tightly controlled to
keep the air free from harmful
chemicals
— There are over 700 places to
work, from sit-stand and
treadmill desks to quiet working
booths and library spaces
Materials
Our commitment is to source core construction
products and materials from ethical and
sustainable sources. In Retail, our Selly Oak
scheme is on track to achieve 45% responsibly
sourced materials and Westgate has achieved
just over 86%. In London, we’re targeting
70% responsibly sourced materials and are
tracking each development as it progresses
through design.
Biodiversity
Our commitment is to maximise the
biodiversity potential of all our development
and operational sites, and achieve a 25%
biodiversity net gain across the five sites
offering the greatest potential by 2030.
Landsec’s ground-breaking
commitment raises the
bar for its own sector
and others.”
Stephanie Hilborne OBE
Chief Executive, The Wildlife Trusts
We’ve developed a methodology with
The Wildlife Trusts to measure biodiversity
on all sites and are developing net gain plans
at several sites. Our methodology enables
us to determine different sites’ potential for
biodiversity, helping us prioritise our efforts
and investment. A total of ten measures have
been installed since 2016/17.
Wellbeing
Our commitment is to ensure our buildings are
designed and managed to maximise wellbeing
and productivity. Our assets should be great
places to work and visit.
For an office, this means designing spaces
to encourage physical and mental wellbeing.
Our future office developments will follow the
health and wellbeing criteria set by the BREEAM
or WELL certifications. In retail, surveys tell
us atmosphere is one of the most important
reasons customers choose to visit. We need
to focus on lighting, indoor air quality, heating
and acoustics, creating the right conditions
for comfort.
Our award-winning workplace at 80-100
Victoria Street, SW1 is designed for activity-
based working and is the UK’s largest WELL
Certified™ space. We set out to remove all the
barriers to an active, healthy and productive
working day. Employee benefits promote
healthy lifestyles and include discounted
gym membership, on-site yoga classes, free
breakfasts and healthy snacks throughout
the day.
Active working at
80-100 Victoria Street,
SW1 – our home.
Landsec Annual Report 2018
45
Strategic Report
Social review
We use our experience
to help people thrive,
from our customers,
communities and
employees to those
working for our partners.
Our economic contribution
to the UK
This year, for the first time, we set out to
measure the full impact of our assets and
activities. Here are some of the key findings:
£13.2bn
Total contribution to the UK economy each
year from people based at our assets
£5.7bn
Our ten-year contribution to the economy
through property development
153,000
Number of people working at our assets
and employed through our activities over
the last decade
61,000
Jobs created in construction through our
development activities over the last decade
Our customers
We work with a diverse mix of businesses
and organisations, from global corporations
and international consumer brands to local
brands and businesses, fast-growing tech
companies and an array of other enterprises
and organisations.
Understanding and meeting customers’
needs is at the heart of everything we do.
We anticipate people’s evolving expectations
and requirements and consider future market
scenarios carefully. Ensuring high levels of
customer satisfaction is one of our KPIs and
we carry out annual surveys with customers
to assess our performance and gain insight.
Our employees
Most of our people are in professional and
managerial roles. Once again we’ve carried
out an employee engagement survey to ensure
we understand sentiment within the business.
While the overall engagement score of 88%
remained the same, we’ve seen an improvement
in most dimensions of engagement. In particular,
we saw a significant improvement in responses
to “I have the tools and resources required to
do my job effectively” – a great endorsement
of the tools we’ve provided as part of our move
to a new office.
Some of the other key findings from our most
recent employee engagement survey in
October 2017, which was sent to everyone
within the business:
— Our overall engagement score remained at
88% positive – outperforming the Towers
Watson national norm by 11 points and the
norm for ‘high performance’ companies
by 6 points. We continue to outperform the
high performance benchmark in most areas
— 87% of respondents believe that Landsec
is a better employer than others
— 91% of respondents would recommend
Landsec as a good place to work
— 90% of respondents are satisfied working
for Landsec
As always, there were some areas highlighted for
improvement. These included the performance
management system, which a number of
respondents feel is too narrowly focused on KPIs
rather than behaviour. And some respondents
feel there has been a lack of clarity in terms of
career development opportunities. This may
reflect where we are in the market cycle, with a
number of major projects coming to an end and
the possibility of job role changes for affected
employees. Both of these issues will be priority
areas for the HR team in the year ahead. We
asked employees about their understanding
of reward packages and whether our reward
framework drives the right behaviours. Responses
related to reward were down slightly on our last
full survey in 2015, which we believe reflects the
relatively high level of bonuses paid that year.
The reputation of Landsec, and the trust and
confidence of those with whom we deal, is vital
to the sustainability of our business. We are
committed to high ethical standards in the
conduct of our business and to ensuring our
behaviour and practices maintain our integrity.
We have a Business Ethics and Anti-corruption
policy which sets out how our employees are
expected to behave towards each other and all
third parties including occupiers, shareholders,
suppliers, advisers, agents, competitors, the
government and regulators. Adherence to the
policy is a condition of continuing employment
with Landsec.
Creating Experiences
We have developed and delivered a training
programme for all employees to help strengthen
our customer experience-led culture. This is
an essential part of making the business fully
fit to thrive in ever-evolving markets and a
fast-changing world.
Our objective was to help employees understand
what our new brand means in terms of how we
can enhance experience for all our customers.
Our definition of customers includes our occupiers
but also their employees, shoppers, visitors, local
communities, partners and our colleagues.
Launched in September 2017, the first phase
of the Creating Experiences programme was
inspired by some simple principles:
Our employees by numbers
— 98% of respondents fully support our values
— It should include all of our people, from all
— 96% of respondents believe that Landsec
is a responsible company and has strong
sustainability performance
There was no significant difference in the scores
when analysed by ethnic group. Encouragingly,
responses from black and Asian colleagues were
slightly more positive than the Landsec norm.
There was a small but discernible difference
in engagement levels between genders, with
female scores marginally lower. We’re exploring
the reasons behind these small but important
discrepancies.
sites and all levels
— Employees should attend in mixed cohorts
so they get to work outside their teams and
broaden their perspective on the business
— It should showcase our new office to all
employees
— It should be clearly supported and facilitated
by the top 25 senior leaders within the business
— The content and design of the events should
be innovative, empowering and collaborative;
make good use of technology; and provide
practical tools and insights
615
Total headcount
19.4%
Employee turnover – 14.7% resignations
47:53%
Overall male:female ratio
(female representation down 1%)
46
Landsec Annual Report 2018
Progress against our stated diversity targets (at March 2018)
Target
Progress
Ensure that Landsec continues to meet all the
voluntary targets set by the Hampton/Alexander
Review (33% of Board, Executive Committee and
direct reports are female)
Out of a total population of 32, 13 are female (41%).
We continue to meet the voluntary target
Improve female representation at Leader level
to 30% – by 2020
24.4% of our Leader-level colleagues are now female,
an improvement of 1.4% since December 2016
Improve the engagement scores for Black and
Asian colleagues – bringing them in line with
employees overall – by 2018
Black and Asian colleagues made up less than 10%
of the sample, but their responses were slightly more
positive than the Landsec norm in most categories
Improve the transparency of our reporting
of all diversity data, including the accurate
measurement and tracking of other specific
groups – including LGBT and disabled
colleagues – by 2018
19 colleagues identifying themselves as “other” were
less positive and this requires further investigation
We are seeing a slow increase in those who are
willing to disclose disabilities and sexual orientation
A significant proportion still “prefer not to say”
Gender by role (% of total population)
Chart 26
Board & Executive
Business Development
Comms & Sustainability
Development
Engineering & Surveying
Finance
Health, Safety & Security
Human Resources
Information Systems (IS)
Leasing
Legal & CoSec
Marketing
Operations & Facilities Management
PA, Secretarial & Administration
Portfolio & Investment
Project Management
Research & Insights
Risk & Internal Audit
Tax, Treasury & Insurance
Female
Male
0
2
4
6
8
10
12
14
16
18
20
22
Feedback after the events has been very positive.
It’s clear that in general our employees know
who their customers are, now work more
collaboratively, and have a genuine appetite for
change. The second phase of the programme,
which started in April 2018, will see senior
leaders and leaders deliver one-day sessions
for their teams, where they agree how they
will utilise the tools, skills and mindset they
have learnt about to create great customer
experiences. This should help to further embed
our brand in what we do and how we do it.
Diversity
We strongly believe in the benefits of having
diversity at all levels within our workforce and
this is supported by our employee engagement
survey results. A diverse range of people, skills
and capabilities amongst our employees means
that we can make better decisions for our
business and have a better place in which to
work. Our commitment is to make measurable
improvements to the profile – in terms of
gender, ethnicity and disability – of our
employee mix.
This year we continued to be active supporters
of Real Estate Balance, an association run by a
group of female and male leaders in real estate
determined to address the gender imbalance
in our sector. Our Chief Executive, Robert Noel,
has signed up to its CEO commitments. Our
Group Human Resources Director, Diana Breeze,
has been a very active member of the Talent
and Development Committee, which has
pooled the collective capability of the sector
to provide a series of development events
aimed at mid-career females.
Gender split (%)
Chart 27
Gender by level (%)
Chart 28
Gender by ethnicity (%)
Chart 29
■ Female
■ Male
53.5%
46.5%
Non-Executive
Executive
Senior Leader
Leader
Manager
Professional
Support
Grand Total
Asian
Black
Other
Race/Ethnicity
Not Recorded
White
Grand Total
0
20
40
60
80
100
0
20
40
60
80
100
Female
Male
Female
Male
Landsec Annual Report 2018
47
Strategic Report
Social review
continued
Over the past 12 months, we further extended
our Landsec female mentoring programme
and now have over 20 active partnerships.
Although this programme was designed to
support development of women in our business,
the programme is open to all our employees.
As well as the mentoring itself, we’ve given
mentees access to specific professional
development activities and resources such
as London Business Forum and Real Estate
Balance events. Our Group-wide celebration
of International Women’s Day, supported
by our CEO, further promoted our focus on
workplace inclusivity. As part of the campaign,
eight senior women across Landsec shared
their experience of working in an industry that’s
perceived by many to be male-dominated.
In the area of disability, our focus has been
on mental health. Within the business
we’ve set up a network of mental health first
aiders; enhanced our training around stress,
resilience and mindfulness; and run a series
of awareness-raising events.
Huge progress has been
made in the property industry,
but there are still times when
I attend large meetings and
I’m the only woman. That’s
jarring in 2018. It’s also evident
at some networking events.
Landsec, however, doesn’t
feel old-fashioned. I have
amazing female role models
in the business. More needs
to be done, though, and
it doesn’t just sit with the
women – men need to be
part of the conversation.”
Alex Chitty
Development Manager at Landsec
Gender pay
Last year, the UK Government introduced
legislation requiring employers with 250 or more
UK employees to disclose information on their
gender pay gap. Landsec was one of the first
companies to report on gender pay, publishing
our data in last year’s annual report. The data
below therefore represents the second year of
disclosure, based on amounts paid in April 2018.
The definition of pay shown is an hourly pay rate
for each relevant employee as at 5 April 2018,
reflecting base salary and certain allowances.
The bonus figures shown includes total variable
pay over the previous 12 months (bonus paid
plus any proceeds on exercise of SAYE, ESOP
or vesting of LTIP awards).
Male
Female
April 2018
%
difference
Male
Female
April 2017
%
difference
Table 30
Pay gap
year-on-
year
change
(% points)
£45.52
£28.33
(37.8)
£43.26
£28.86
£34.98
83.6%
£21.73
75.5%
(37.9)
£33.36
79.0%
£21.27
77.1%
(33.3)
(36.3)
4.5
1.6
£38,336
£13,838
(63.9) £42,894
£14,282
£10,969
£4,376
(60.1)
£12,741
£12,741
(66.7)
(62.5)
(2.8)
(2.4)
Pay Element
Mean hourly salary
Median hourly salary
Proportion of employees
receiving a bonus
Mean bonus
Median bonus
In our relatively small sized organisation, with
voluntary employee turnover sitting at around
15%, it is unsurprising that we have seen some
swings in our data this year. As the table
above shows, while the gap between median
male and female hourly pay has remained
broadly static, the gap on a mean basis has,
disappointingly, broadened by 4%. Conversely,
and more encouragingly, the gap in both mean
and median bonus awards, although still large,
has narrowed slightly.
The following table shows how the mean hourly
rate and bonus awards compare by quartile.
As was the case last year, the gap is much
wider in the upper quartile, where we have the
lowest proportion of females, indicating that
the key issue is one of female representation
in senior roles.
As at April 2018
Quartile Split
Lower
Lower middle
Upper middle
Upper
Number
138
138
138
138
%
Male
21.7
40.6
55.1
72.5
%
Female
Male
mean
hourly rate
Female
mean
hourly rate
78.3
59.4
44.9
27.5
£16.07
£15.68
£23.33
£34.21
£75.37
£22.39
£33.70
£68.35
Table 31
%
difference
in hourly
rate
2.5
4.0
1.5
9.3
Encouraging more females into leadership roles
has been a key priority for us and, as reported
elsewhere, we are starting to make progress –
almost 25% of our Leader roles are now
occupied by women, and female representation
has risen to 41% at Board, Executive Committee
and the level below. Both these figures are an
improvement on last year. However, it will take
time for this progress to be reflected in headline
pay statistics and, like others in our sector, we
still find it challenging to fill our senior roles
with female candidates, particularly in the core
property and technical disciplines. This has been
borne out by an analysis of our recruitment
activity over the course of the year, although
there are some notable and pleasing exceptions.
The differential in bonus awards appears stark
at a headline level, although it is slightly lower
than last year. However, the figures include
women on maternity leave, and part-timers,
whose bonus payments are pro-rated. Of our
total permanent female population, 17% are
part-time (compared with no part-time males).
Published data as required under The Equality
Act 2010 (Gender Pay Gap Information)
Regulations 2017.
48
Landsec Annual Report 2018
Jobs and opportunities
Addressing social mobility
We believe people shouldn’t be defined by where
they were born or live, yet we know someone
from an area classified as disadvantaged has
less chance of succeeding than someone else.
Our goal is to offer opportunities to the people
who live in the communities where we operate
so that every individual has a fair chance of
reaching their potential.
Our Chief Executive, Robert Noel, was recently
invited to sit on the newly formed Inclusive
Economy Partnership (IEP), a collaboration
between government, business and civil
society whose aim is to address key societal
challenges facing low- and middle-income
families. The IEP is focusing on three key
areas: financial inclusion, mental health
and transition to work.
Community employment
Our commitment is to help a total of 1,200
disadvantaged people secure jobs by 2020.
Since 2011, 1,149 disadvantaged people have
gained work through our nationwide Community
Employment Programme, including 187 this
year. We’re now setting new ambitious targets
for the business beyond 2020.
The programme targets those furthest from
the job market, including homeless people, the
long-term unemployed, veterans, ex-offenders
and serving prisoners. Working with our partners,
local authorities, charities and specialist training
providers, we help people prepare for and find
opportunities in construction and customer
service – usually at one of our assets.
During the year, we placed particular emphasis
on creating opportunities in customer service
and facilities management. In our Nova, SW1
development, for example, we helped our
customer D&D find employees through the
programme, working with partners including
Bywaters, Not Just Cleaning and Corps Security.
At Westgate Oxford, we supported 15 candidates
back into employment through our Community
Employment Programme.
This year we also extended our work with
prisons. In addition to offering a dry lining
and scaffolding centre at HMP Brixton, we’ve
launched an additional facility at HMP Isis.
We will launch a vertical and aerial cleaning
academy at HMP Isis in June 2018. Two of our
offender charity partners, Bounce Back and
The Right Course, estimate that their projects
have cut reoffending rates to less than 12%
compared with a national average of 60%.
Students taking part in
our Girls Can Do It Too
education programme.
1,200
1,000
800
600
400
200
0
Cumulative total number of jobs secured
Chart 32
1,149
962
779
583
426
105
2012
206
2013
2014
2015
2016
2017
2018
We’ve been looking hard at how our assets can
support education. That’s the drive behind our
‘Made in…’ programme, which sets a business-
related challenge for students in the context
of one of our centres. This year, for example,
we ran a Made in Portsmouth challenge at
Gunwharf Quays that saw students challenged
to design a product representing the local area.
Finalists pitched their ideas to a panel of
Landsec experts with the winning team due to
sell their creations in the centre later in the year.
We also continued to run our popular Girls Can
Do It Too programme, which helps to tackle the
gender gap in construction, engineering and
property development by challenging young
women’s perceptions and making them aware
of opportunities.
Jobs
Target
Education
Many young people, especially those from
disadvantaged backgrounds, face barriers
that stop them accessing jobs in our industry.
Through our education programmes we:
— Inspire young people about career
opportunities in property and construction
— Give young people the skills they need
to succeed
— Enable our employees and partners to
volunteer their expertise
Our work encourages more students from a
wide range of backgrounds into our industry,
making businesses like ours more diverse. It also
ensures our assets are more representative of
their local area, which in turn makes them more
appealing to local people.
Since April 2017, we’ve engaged over 1,000 students
between the ages of 12 and 18, particularly in
schools where a higher than average proportion
of children receive free school meals. We also
grew our collaboration with Ahead Partnership,
a social enterprise that connects communities
with businesses through its school-specific
programme Make the Grade.
Landsec Annual Report 2018
49
Strategic Report
The Modern Slavery Act came into force in 2015.
As part of our ongoing review, during the year
we carried out a modern slavery and human
trafficking risk assessment across the business.
We believe the risk of slavery or human
trafficking in the recruitment and engagement
of our employees is low. To ensure it remains
low, we have provided training on modern
slavery for our HR team and taken steps to
make sure our staff and supply chain partners
are aware of the Act and its requirements.
In September 2017 we issued our second Slavery
and Human Trafficking Statement and are
working with employees and suppliers to tackle
slavery-related issues across the supply chain.
We also took part in the global Workforce
Disclosure Initiative (WDI). This is a new
programme that brings together institutional
investors to request comparable workforce data
from listed companies, including data covering
employees in companies’ direct operations and
in their supply chain. WDI has recognised Landsec
for good practice based on our methods of
identifying risks and opportunities in our direct
operations and our supply chain.
Fairness
Our commitment is to ensure the working
environments we control are fair and that
everyone who is working on our behalf –
within an environment we control – is paid
at least the Foundation Living Wage by 2020.
Fairness is partly about paying people a fair
wage. It’s also about upholding their human
rights, celebrating their individuality and
making sure they feel safe and respected
in the workplace. Being fair helps us attract,
motivate and retain great people.
We are an official Living Wage Employer,
accredited by the Living Wage Foundation.
This recognises that everyone in our business
is paid at least the Foundation Living Wage
(£10.20 an hour in London; £8.75 outside
London), except interns and apprentices who
are exempt from the Foundation rates. We ask
supply chain partners to pay the Foundation
Living Wage in their own supply chain and
check this is happening on our behalf. In the
London Portfolio, our strategic partners have
confirmed 100% of those working on our behalf
– within an environment we control – are paid
at least the Foundation Living Wage. In Retail
there’s more to do but we’re confident we’ll
meet our commitment by 2020. In future we’ll
require all contractors to measure and report
on the percentage of their employees paid the
Living Wage. And this year we’ll survey our
largest partners to confirm the Living Wage
is being paid at our sites and in construction.
Social review
continued
Charity partnerships
We partner with local and national charities
to help support people from disadvantaged
backgrounds into work; support and educate
young people; and respond to local issues such
as rising homelessness. Our retail destinations
and larger sites work with at least one local
charity partnership, in addition to our national
charity partner. We support charities through:
fundraising, volunteering, offering pro bono
support and opening our spaces up for
community events.
Our current national charity partner is
Barnardo’s, the UK’s largest children’s charity,
with whom we are working to support young
people – particularly those not in education,
employment or training. This year we raised
over £100,000 for Barnardo’s. We also continued
our work tackling homelessness across the UK.
For example, in Oxford, we’ve partnered with
Homeless Oxfordshire. In London we continue to
support the work of The Passage and Cardinal
Hume Centre, this year raising just under
£20,000 for the Cardinal Hume Centre and
moving over 50 people, who are homeless
or at risk of homelessness, back into work.
Landsec’s approach to working
with charities, authorities and
others to offer people from
disadvantaged backgrounds
work experience and job
opportunities is making
a real difference.”
Caroline Dinenage
Minister of State for Health
and Social Care
Raising funds for
our national charity
partner Barnardo’s
at White Rose.
50
Landsec Annual Report 2018
Sustainability training
programme
213
Number of employees trained
during 2017/18
31%
Employee knowledge increase
after the training
Our move into new headquarters has created a
more agile working environment where people
can collaborate more easily. We’ve supported
this with enhanced health, safety and security
training for employees. We continue to include
our One Best Way standards in tenders and
have a robust assessment process, ensuring
that all partners are clear on our expectations
and requirements.
Our physical and cyber security is supported
by robust processes, policies and governance,
together with mandatory training for
employees in relevant roles. We continually
prepare the business to anticipate and respond
to incidents and we take part in a number of
cross-industry forums. And we integrate security
architecture into the way we design buildings.
During the year we strengthened our team
with the appointment of a Group Security
Protection Manager.
Sustainability Matters
This year we continued our award-winning
sustainability training programme for
employees, Sustainability Matters, which
was launched in 2016. This company-wide
training is designed to ensure that all employees
understand our sustainability commitments
and their specific role in delivering these.
In 2017/18 alone, we’ve delivered 15 workshops
across the business, training 213 employees –
over a third of our workforce.
Consisting of three levels – awareness,
understanding and application – the training
is tailored to our different teams, covering a
range of topics from masterclasses on energy
analysis and measurement to workshops for
our Leasing and Marketing Teams on how
sustainability helps create experiences and
value for our customers.
Our programme was recognised at the 2018
CIBSE Building Performance Awards where
we won the Learning and Development Award.
Health, safety and security
Our commitment is to maintain an exceptional
standard of health, safety and security in all the
working environments we control. The effective
management of health, safety and security is
fundamental to the productivity, culture and
reputation of our business. Our priorities in this
area are:
— Health: to treat health like safety across all
our activities, with both physical and mental
health in mind.
— Safety: provide safe and secure places for
our employees, customers, partners and
communities.
— Security: to raise and maintain awareness
of physical and cyber security, in our own
organisation and across our industry.
This year we reported 26 incidents at our
managed portfolio and construction sites
under the Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 2013, a
decrease on the previous year. We believe our
strong health and safety culture and ongoing
programme of education with employees and
partners are having a positive effect.
Once again we maintained our OHSAS 18001
certification, the benchmark for health and
safety management systems, across 100% of
our sites. Following the tragic fire at Grenfell
Tower, we reviewed the cladding on every
property in the current portfolio as well as
those sold within the last ten years. Our review
identified three properties that require some
remedial work and this is in progress.
Our Health and Wellbeing Customer
Improvement Group helps ensure we give
health the same billing as safety, with mental
health as important as physical health. As part
of the Health in Construction Leadership Group,
this year we actively supported Mates in Mind,
a mental health programme for the construction
industry. We continue to play a key role in
industry initiatives, including HSE’s Helping
Great Britain work well strategy.
Landsec Annual Report 2018
51
Strategic Report
Managing risk
We set out an overview
of our risk management
process explaining the
key elements of our
approach to risk, how
we have continued to
develop our process over
the course of the current
year, the key successes
in risk management and
our priorities for 2018/19.
Our key successes in 2017/18
— Board deep-dive session on
principal risks, emerging risks
and Group risk appetite
— Further embedded risk
management processes and
culture at the business unit level
— Established a business unit
risk champion network
— Facilitated business unit
workshops to establish risk
interdependencies
— Conducted analysis to assess
the physical risks of climate
change to our property portfolio
Our key priorities in 2018/19
— Refine the Group risk appetite
and risk monitoring dashboard
— Operationalise risk appetite at
a business unit level
— Enhance the business key controls
to encompass additional controls
that help improve the mitigation
of our principal risks
— Embed the risk champion network
Governance
The Board has overall responsibility for oversight
of risk and for maintaining a robust risk
management and internal control system.
The Board recognises the importance of
identifying and actively monitoring our strategic,
reputational, financial and operational risks,
and other longer-term threats, trends and
challenges facing the business. The Audit
Committee supports the Board in the
management of risk and is responsible
for reviewing the effectiveness of the risk
management and internal control processes
during the year.
Identification of risks
Identifying risk is a continual process. We have
established a network of risk champions across
the business and we utilise this network, in
conjunction with ongoing discussions with
management, external agencies and
stakeholders, to identify the risks facing our
business. The London and Retail executive
committees also complete a detailed review
of their risks, controls and mitigation strategies
four times a year as we continue to further
embed the risk culture across our business.
This forms the basis for the principal and
emerging risks, which are challenged and
validated by the Executive Committee and
then the Audit Committee. In addition, an
in-depth risk session is held with the Board
every two years, with the latest one completed
in December 2017. As input to the session, we
surveyed all members of the Board, Executive
Committee and senior leadership team. The
session then focussed on our principal risks,
emerging risks and risk appetite, with the results
of the survey providing insight from across the
business to inform the discussion.
Evaluation of risks
The business considers both external and
internal risks from the business units through
to Group level. We use a risk scoring matrix
to ensure risks are evaluated consistently.
Our matrix considers likelihood, financial impact
to income and capital values and reputational
impact. When we evaluate risk, we consider
the inherent or gross risk (the level of the risk
before any mitigating action) and the residual
or net risk (the risk that remains after we
consider the effect of mitigating actions and
controls). From this, we identify principal risks
(current risks with relatively high impact and
certainty) and emerging risks (risks where the
extent and implications are not yet fully
understood). Where there is a relatively high
inherent risk and relatively low residual risk, we
know we have a high dependency on internal
controls, which helps to focus the work of the
Internal Audit function.
Management of risks
Ownership and management of the risks
are assigned to members of the Executive
Committee. They are responsible for ensuring
the operating effectiveness of the internal
control systems and for implementing key
risk mitigation plans.
As part of our risk process this year, we
have also facilitated business unit workshops
to explore and understand how risks are
interconnected and critical risk dependencies.
This allows us to understand risk movement
trends and to prioritise the key mitigating
controls that the business is dependent on.
The Board undertakes an annual assessment
of the principal risks, taking account of those
that would threaten our business model, future
performance, solvency or liquidity as well as
the Group’s strategic objectives.
Helping the business to
navigate the challenges
and opportunities it faces
through proactive risk
management.”
Risk appetite
The Board is responsible for defining the level
and type of risk that the Group is willing to take
and ensuring it remains in line with our strategy.
The Board regularly reviews the risk appetite
of the business, re-assesses the information
available and the risk factors that are relevant.
This ensures our risk exposure remains
appropriate at any point in the cycle and that
risk is considered dynamic. Our risk appetite is
cascaded throughout the organisation by being
embedded within our policies, procedures and
delegated authorities.
One of our key priorities next year is to
consolidate existing risk appetite statements
and tolerance ranges into a single risk
monitoring dashboard for the Board and
Executive Committee. This will explicitly align
our risk appetite and the corresponding key
risk indicators to our strategy and KPIs. It will
help to ensure that risk appetite is consistently
reviewed, understood and applied across the
organisation. This will also allow us to articulate
risk appetite more effectively at an individual
business unit level.
52
Landsec Annual Report 2018
Risk management framework
As shown in the diagram below, we have an
established risk management and control
framework that enables us to effectively
identify, evaluate and manage our principal
and emerging risks. Our approach is not to
eliminate risk entirely, but to ensure we have
the right structure to effectively navigate the
challenges and opportunities we face.
We focus on being risk aware, clearly defining
our risk appetite, responding to changes to
our risk profile quickly and having a strong risk
culture among employees.
The Executive Committee is responsible for
the day-to-day management of risk. Senior
Management also attend the Executive
Committee and the Audit Committee to discuss
specific risk areas, and will be accompanied by
external advisers where relevant. Some of our
specific risk focus areas from this year included
cyber security and data privacy.
The Risk Management function, headed by
the Director of Risk Management and Internal
Audit, assists management with facilitating
the risk discussions and provides challenge and
insight where appropriate. The Risk Management
function also oversees and provides support to
a network of risk champions across the business.
Internal Audit provide assurance to the
Audit Committee and Executive Committee
in evaluating the design and operating
effectiveness of the risk management and
internal control processes, through independent
review. On a quarterly basis, management
self-certify that the key controls within their
area of responsibility have been operating
effectively. These results are independently
validated by Internal Audit through sample
testing. We continue to enhance and refine
the key controls to ensure we have the most
effective set of key controls to mitigate our
principal risks and this is an area of focus
for 2018/19.
Risk management framework
Top-down
Oversight,
identification,
assessment
and mitigation
of risk at a
Group level
Risk
governance
Board
— Set the risk culture
— Approve risk appetite
— Agree the risk programme
— Discuss the Group ‘principal’ risks with executive management
1st line of defence
2nd line of defence
3rd line of defence
Risk
management
Risk
ownership
Bottom-up
Identification,
assessment
and mitigation
of risk at a
business unit
and functional
level
Audit Committee
— Support the Board in
monitoring risk exposure
against risk appetite
— Review the effectiveness
of our risk management
and internal control
processes
Internal Audit
— Provide assurance on
effectiveness of the risk
programme, testing of
key controls and risk
response plans for
significant risks
Risk Management
— Aggregate risk
information
— Assist management with
the identification and
assessment of principal
and emerging risks
— Monitor risks and risk
response plans against
risk appetite and
tolerance levels
— Create a common risk
framework and language
— Provide direction on
applying framework
— Provide guidance and
training
— Facilitate risk escalations
Support functions
— Provide guidance/
support to the risk team
and business units
Executive Committee
— Define the risk appetite
— Evaluate proposed
strategies against risk
appetite and risk
tolerances
— Identify the principal risks
— Design, implementation
and evaluation of the
system of internal
control, and for ensuring
its operational
effectiveness
— Identify and monitor
emerging risks
Business units and
risk champions
— Identify and assess risks
— Respond to risks
— Monitor risks and risk
response
— Ensure operating
effectiveness of key
controls
Landsec Annual Report 2018
53
Strategic Report
Our principal
risks and
uncertainties
Risk heat map
The risk heat maps illustrate the relative positioning of our principal
risks before and after mitigating actions. We set out further details
on our principal risks below, explaining how the risks link to our strategic
objectives, our risk mitigation strategies and the rationale for the risk
movement in the year.
Strategic objectives
Principal risks before and after mitigating actions
Deliver sustainable long-term
shareholder value
Maximise the returns from the
investment portfolio
Maximise development performance
Ensure high levels of customer
satisfaction
Attract, develop, retain and motivate
high performance individuals
Continually improve sustainability
performance
Before mitigating actions
After mitigating actions
1 Customers
2 Market cyclicality
3 Disruption
4 People and skills
5 Major health, safety and
security incident
6 Information security and
cyber threat
7 Sustainability
8 Investment and
development strategy
Change in the year
Increased
No change
Reduced
Risk
Strategic
objective
Mitigation
Change in the year Opportunity
Enhance and
maintain our
position as the
partner of choice
for our customers
by better
understanding
their needs.
The residual risk shows
a decrease in impact,
but an increase in
probability.
This reflects our
inability to prevent
structural changes
to our sectors, but an
ability to reduce the
impact through robust
strategic planning
processes.
— Customer relationship management processes actively monitor
our customer base and performance. We are focused on
establishing strategic relationships and ensuring we properly
understand our customer needs and expectations. We aim to
have the right discussions at the right time
— Quantitative Risk Report is reviewed by the Board twice a
year to monitor risk metrics against defined risk tolerances.
This ensures we remain within our risk appetite. The customer
risk metrics include lease expiries and breaks, and tenant
counterparty credit risk
— Robust credit policy and process which defines what level of
credit risk we will accept
— London and Retail executive committees review customers at
risk and agree the best plan of action, as well as monitoring
online sales trends
— Monthly management review of lease expiries, breaks, re-gears
and comparison of new lettings against estimated rental value.
— Measure footfall and retail sales at our shopping centres to
provide insight into consumer trends
— ‘Share Your Thoughts’ programme measures customer
satisfaction at our shopping centres
— Complete post-occupancy surveys in London to measure
customer satisfaction
— All employees attended the Creating Experiences training
programme focused on creating a customer-centric culture.
1 Customers
Structural changes in customer and
consumer behaviours leading to an
adverse change in demand for our
space and the consequent impact
on new lettings, renewals of existing
leases and rental growth.
Executives responsible:
Colette O’Shea/Scott Parsons
54
Landsec Annual Report 2018
ProbabilityLowVery highImpactVery HighLow5112453763867428
Risk
Strategic
objective
Mitigation
2 Market cyclicality
Market and political uncertainty
leading to a reduction in demand
or deferral of decisions by occupiers,
impacting real estate values and
the ability to buy, develop, manage
and sell assets at the appropriate
time in the property cycle.
Executive responsible:
Robert Noel
3 Disruption
Failure to react effectively
to a disruptive change in
the competitive landscape
resulting in asset obsolescence.
Executive responsible:
Robert Noel
4 People and skills
Inability to attract, retain and
develop the right people and
skills required to deliver the
business objectives in a culture
and environment where
employees can thrive.
Executive responsible:
Diana Breeze
— Strategy team prepares a quarterly report for the Retail and
London executive committees, which measures both macro-
economic and internal risk metrics, against tolerance ranges,
e.g. occupancy vacancy levels
— Strategy team also produces a biannual cycle watch document,
which analyses macro-economic, political and market risk
factors. This drives the assumptions used in our budget and
forecasting process
— Complete scenario analyses as part of our annual budgeting
and five-year forecasting process. Specific scenarios we have
modelled include the impact of different Brexit outcomes and
changes in legislation
— Quantitative Risk Report is reviewed by the Board twice a year to
monitor risk metrics against defined risk tolerances. The market
cyclicality risk metrics include loan-to-value ratios, the debt
maturity profile, analysis of available borrowing facilities, asset
liquidity, asset concentration, investment lot size and average
unexpired lease terms
— Managing Directors prepare quarterly reports which analyse and
interpret market risk for each sector
— Active members of local business and community groups, as
well as industry and professional bodies. This ensures we are
engaged in decisions affecting our business, customers, partners
and communities.
— London and Retail executive committees completed ‘pre-mortem’
exercises identifying potential disruptors for further investigation
which could fundamentally derail the business
— Commissioned independent research into customer trends and
disruptors so that we have a better understanding of the
potential impact on our business
— Our Workplace Director holds a monthly Future of Work forum
examining disruption themes and customer needs
— Actively invest in training our people to help create an innovation
mindset and have established innovation roles in the business
— Reviewing each element of the customer journey in Retail to
identify opportunities to be more innovative through our use
of technology
— In London, we have established an innovation process to capture
ideas and workshop with our customers their needs in a test
office environment
— Innovation team is actively debating and investigating ways
to build more efficiently with our strategic partners.
— Remuneration plans are benchmarked annually to ensure they
remain competitive and support us in attracting and retaining
the best talent
— Talent management programme identifies high potential
individuals within the organisation
— Robust succession plans are in place for senior and critical roles
to mitigate key people risks
— Clear organisation design, with clarity of job roles and individual
accountabilities
— Clear employee objectives and development plans to ensure
alignment to business goals
— Recognise the value of employee health and wellbeing through
our Health and Wellbeing Statement of Practice
— Specific diversity metrics to be achieved by 2020
— Flexible working policy to promote work-life balance, reduce
employee stress and improve performance
— Annual employee engagement survey to understand areas of
strength and opportunities for improvement
— High-profile, market leading developments and assets to
manage, in places people want to work.
Change in the year Opportunity
Assets we would
like to acquire
may become
available at a
reduced price.
The inherent risk has
increased due to
greater UK economic
and political uncertainty
and the potential
impact of Brexit.
Our residual risk has
slightly decreased,
reflecting the changes
in management
structure to incorporate
innovation roles
and focus.
Managing
change
effectively will
enable us to
deliver further
value and
growth while
maintaining
our competitive
advantage.
Build further
expertise,
knowledge
and capability
in the business.
Incremental increase in
both the inherent and
residual risks, reflecting
the level of staff
turnover within the
business and the
challenges in finding
appropriate candidates
for some key roles.
Refer to the section
‘Our employees’ on
page 46.
Landsec Annual Report 2018
55
Strategic Report
Our principal risks
and uncertainties
continued
Risk
Strategic
objective
Mitigation
Change in the year Opportunity
Lead the industry
in health, safety
and security to
reduce incident
levels.
Enhance our
reputation as
a trusted and
responsible
partner.
The gross level of this
risk has increased,
which is largely driven
by the UK threat level.
The residual level has
decreased due to the
appointment of the
Group Security and
Protection Manager,
and the subsequent
progression in the
maturity of physical
security risk
identification and
management
processes.
— Group Health, Safety & Security Committee (HS&S) is chaired
by the CEO and governs the health, safety and security
management systems and processes. Health, safety and
security performance is reported to the Board quarterly
— ‘One Best Way’ standards define mandatory health, safety
and security compliance policies for the business, our supply
chain, and construction projects
— Quarterly customer improvement groups with our principal
contractors and key service providers drive continuous
improvement across our supply chain. All our key service
providers are assessed against health, safety and security KPIs
— All Landsec employees must attend health, safety and
security training
— All of our properties have completed fire risk assessments which
are reviewed annually by a third party specialist consultant
— All accidents and incidents are reported and recorded in our
Accident and Incident system with analysis performed on
trends and root causes of the incidents
— All of our properties have completed security risk assessments,
which drives the physical security measures in place at that
property. Our properties have dedicated security teams, which
are supported by CCTV and other physical security measures
— The HS&S team completes regular property health checks at
our assets to audit compliance with our policies, procedures
and legislation
— Our Group insurance programme protects against losses
of rent and service charge due to terrorism
— All our properties have business continuity and crisis
management plans in place, which are tested at least annually.
Enhance our
reputation as
a trusted and
responsible
partner.
— Dedicated information security team who monitor information
security risk. Team expanded to address new and emerging risks
— Robust IT security management policy sets out our standards
for security and penetration testing, vulnerability and patch
management, data management and access control
— Quarterly management self-certification that key IT controls
are operating effectively
— All third party IT providers must complete an information
security vendor assessment. This must be reviewed and approved
by the Cyber Security Officer before the supplier can be used
— Work closely with our IT service partners to manage risk and
improve technical standards
— Development brief clearly defines the required technical IT
standards for all building systems
— Well defined disaster recovery plan which is regularly reviewed
and updated
— Effective vulnerability management system, including an annual
rolling penetration testing programme for our corporate network
and at our properties
— Internal Audit has conducted audits of IT general controls,
corporate cyber security and cyber security at our buildings.
The gross level of this
risk has increased,
which reflects the
trend of an increasing
number of attempted
cyber attacks. However
the overall residual
risk has remained
unchanged with
improved mitigations.
This follows the
appointment of the
Cyber Security Officer
and the deployment
of a more robust third
party information
security risk assessment
and monitoring
process.
5 Major health, safety
and security incident
Failure to identify or mitigate a
major health, safety or security
related threat and/or react
effectively to an incident, leading to:
— Serious injury, illness or loss of life
to employees, partners, occupiers
or visitors to our properties
— Criminal/civil proceedings
— Loss of consumer confidence
— Delays to building projects and
access restrictions to our properties
resulting in loss of income
— Reputational impact
Executive responsible:
Robert Noel
6 Information security
and cyber threat
Data loss or disruption to the
corporate systems and building
management systems resulting
in a negative reputational,
operational or financial impact.
Executive responsible:
Martin Greenslade
56
Landsec Annual Report 2018
Risk
Strategic
objective
Mitigation
Change in the year Opportunity
7 Sustainability
Failure to properly consider and act
upon the environmental and social
impact of our activities, leading to
negative impact on our reputation,
delays in our development activities,
poor relationships with our customers
or erosion of shareholder value.
Executive responsible:
Miles Webber
— Science-based carbon target means we are reducing carbon
emissions and increasing energy efficiency for our customers
— Stakeholder engagement policy and practice is adopted
through the property life-cycle
— Sustainability charter and processes in place which ensure
our partners treat their employees and sub-suppliers fairly
and in an ethical manner
— Sustainability brief for developments and our associated
processes ensure consideration and creation of social value
for communities.
8 Investment and
development strategy
Unable to effectively execute our
strategy of buying, developing and
selling assets at the appropriate time
in the property cycle. Specifically:
— Investment – inappropriate sector
or asset selection
— Development – unable to deliver
capex programme to agreed
returns and/or occupiers reluctant
to commit to take new space
Executive responsible:
Robert Noel
— Investment Appraisal Guidelines define the key investment
criteria (including hurdle rates and alignment to strategic
objectives), the risk assessment process, key stakeholders and
the delegations of authority to approve investment decisions
— Appointed a Head of Strategy to support the effective
formulation and execution of our strategy
— Actively considering other sector opportunities and running
trials as appropriate to test our propositions and market
demand and requirements
— Quantitative Risk Report is reviewed by the Board twice a
year to monitor risk metrics against defined risk tolerances.
The risk metrics include speculative development exposure,
pre-development exposure, headroom against development
capex and counterparty credit risk for development suppliers
— Highly experienced development team and partners with a
track-record of delivery.
The inherent risk has
increased, to reflect
a global increase in
the risk of failure
of climate change
mitigation and
adaptation. The net
risk is unchanged
reflecting a better
understanding of the
risk and improved
mitigations. Refer to
our Physical review
and climate change
risk disclosure for
more details.
This risk has been
expanded to include
investment, as well
as development.
Lead our business
and the property
sector toward
a low carbon
economy,
creating long-
term value for
our shareholders
and wider
stakeholder
groups.
Enhance and
maintain our
position as the
partner of
choice for our
customers.
Landsec Annual Report 2018
57
Strategic Report
Going
Concern
Viability
Statement
The Directors confirm they have a reasonable
expectation that the Company has adequate
resources to continue in operational existence
for at least 12 months from the date of signing
these financial statements. 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 potential risks and uncertainties
in the business, credit, market and liquidity risks,
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 2018.
The Directors have assessed the viability of the
Group over a five-year period to March 2023,
taking account of the Group’s current position
and the potential impact of our principal risks.
The Directors have determined five years to be
the most appropriate period for the viability
assessment as it fits well with the Group’s
development and leasing cycles, and is broadly
aligned to the maturity of the Group’s floating
rate debt facilities. Our financial planning
process comprises a budget for the next
financial year, together with a forecast for the
following four financial years. Achievement
of the one-year budget has a greater level of
certainty and is used to set near-term targets
across the Group. Achievement of the five-year
plan is less certain than the budget, but provides
a longer-term outlook against which strategic
decisions can be made. The financial planning
process considers the Group’s profitability,
capital values, gearing, cash flows and other
key financial metrics over the plan period.
These metrics are subject to sensitivity analysis,
in which a number of the main underlying
assumptions are flexed to consider alternative
macro-economic environments. Additionally,
the Group also considers the impact of potential
structural changes to the business in light of
varying economic conditions, such as significant
additional sales and acquisitions or refinancing.
The Directors consider the key principal risks
that could impact the viability of the Group
to be ‘Customers’, ‘Market cyclicality’ and
‘Investment and Development strategy’. We
have considered the potential impact of these
on the Group’s ability to remain in operation
and meet its liabilities as they fall due through
a ‘viability scenario’.
The viability scenario assesses the impact of
considerably worse macro-economic conditions
than are currently expected; more specifically,
a severe slowdown in the UK economy following
failure to negotiate an agreement with the EU.
In London, rental values are impacted by the
expected economic slowdown and an increase
in the vacancy rate over the next few years.
In Retail, we assume continued downward
pressure on rental values from the ongoing
impact of online retail and the expected
economic slowdown. In London, it is assumed
that prime rents deteriorate up to March 2021
and then slowly recover in the final two years on
the plan. In Retail, rental values are assumed to
decline throughout the whole of our forecasting
period. Where voids occur, these are expected
to take longer to fill across the portfolio,
reflecting the difficult market conditions.
The fall in rental values, combined with an
outward yield movement, results in a significant
decline in London capital values through to
March 2020, before a recovery from March 2021
onwards. In Retail, it is assumed that yields
expand in all sectors through to March 2020
before flattening then slowly contracting from
March 2021 onwards, resulting in severe capital
values declines through to March 2021 before
a slow increase to March 2023.
In this viability scenario, we assume that any
uncommitted forecast acquisitions, disposals
or developments do not take place. Similarly,
we assume no uncommitted debt refinancing
takes place, and no new debt or bank facilities
are raised or extended.
We have assessed the impact of these
assumptions on the Group’s key financial
metrics over the period, including profitability,
net debt, loan-to-value ratios and available
financial headroom. The scenario represents
a significant contraction in the size of the
business over the five-year period considered,
with net asset value falling by around 28%
at the lowest point. However, our assessment
is that such a scenario would not threaten
the viability of the Group. The Group would
be required to renew or extend options for a
minimum of £759m of its debt facilities at the
end of the period considered, but the Directors
consider this would be possible considering the
Group’s expected loan-to-value ratio.
Based on this assessment, the Directors have
a reasonable expectation that the Group will
continue in operation and meet its liabilities
as they fall due over the period to March 2023.
This Strategic Report was approved by
the Board of Directors on 14 May 2018
and signed on its behalf by:
Robert Noel
Chief Executive
58
Landsec Annual Report 2018
Governance
Contents
60
62
64
65
66
70
72
76
78
84
86
88
90
102
105
112
Letter from the Chairman
Board of Directors
Executive Committee
Governance at a glance
Leadership
Letter from the Chairman of the
Nomination Committee
Effectiveness
Letter from the Chairman of the
Audit Committee
Accountability
Investor Relations
Directors’ Remuneration Report –
Chairman’s Annual Statement
Remuneration at a glance
Annual Report on Remuneration
Summary of Directors’ Remuneration
Policy
Proposed Remuneration Policy
Directors’ Report
Highlights
Letter from
the Chairman
page 60
Letter from the
Chairman of the
Nomination
Committee
page 70
Letter from
the Chairman
of the Audit
Committee
page 76
Directors’
Remuneration
Report –
Chairman’s
Annual
Statement
page 86
Landsec Annual Report 2018
59
Governance
h
t
a
w
n
r
a
C
n
o
s
i
l
A
e
m
a
D
n
a
m
r
i
a
h
C
Letter
from the
Chairman
Highlights
— Sale of 20 Fenchurch Street
— 21 Moorfields pre-let
— Improved retail portfolio with the
opening of Westgate Oxford
— Colette O’Shea and Scott Parsons
join the Board
— Creating Experiences programme
embeds our experience-led culture
— Succession planning to find a new
Chairman
60
Landsec Annual Report 2018
Dear shareholder
I believe that this year’s
Annual Report provides
our most comprehensive
and integrated report
yet, reflecting what we
do and how we operate.
The year
This was very much a year of putting
experience into action at Landsec. The decision
to sell 20 Fenchurch Street, EC3 for £1.28bn
(our share 50%) brought the life-cycle of
this extraordinarily successful development
to a close. The subsequent capital return of
£475m was approved overwhelmingly by our
shareholders. We also secured a substantial
pre-let from Deutsche Bank for its new
London headquarters at 21 Moorfields, EC2.
We improved our portfolio of retail assets
with the successful opening of the Westgate
Oxford shopping centre and the acquisition
of three outlets. Our debt book activity further
reduced our overall cost of borrowing. And we
continued to raise the bar on sustainability,
from creating jobs for disadvantaged members
of the community to driving new standards
and expectations around environmental
performance.
We have to manage our business in anticipation
of market cycles and customer trends. We
ended the year in a resilient position at a time
of increased uncertainty in our markets and
the wider world. This uncertainty is reflected
in weaker rental values and flat capital values
in our markets compared with last year. We
have been clear in our preparation for this – the
Company has conservative financial gearing,
has pivoted its development exposure from
speculative to pre-let, manages a truly world-
class portfolio of well-let assets and is led by
an experienced and ambitious team. We are
pleased to recommend a 14.7% increase to
the full year dividend.
Board priorities
Over the 12 months your Board spent a great
deal of time discussing the wider economic,
political, market and technological environment,
considering the potential impact on Landsec
of the short- and long-term changes we see
ahead, and addressing through our strategic
planning tomorrow’s key opportunities and
challenges.
We invited experts from outside the Company
to share their insights and experience with
the Board, which provided us with a broader
understanding of the factors affecting our
markets, assets and communities.
We gave particularly close consideration to
the evolving dynamics of the retail market,
emerging trends in the design and use of office
space, and innovation within the construction
sector. Technology informs all of these areas
and we received advice on emerging themes
and their potential impact.
This business needs to anticipate and respond
quickly to changes in its markets. We operate
in a fast-moving world and we must be agile.
This Board is not afraid to tackle the biggest
trends and issues in our market head on and
is prepared to break away from conventional
ways of doing things if required.
It is also important that our decisions as a
Board are informed by long-term considerations.
Actions taken today will shape the character
and performance of Landsec’s portfolios – and
determine our impact on the world – for years
to come. By understanding and engaging with
long-term factors, and providing both support
and challenge to management in terms of how
they address material issues, your Board has
acted to create ongoing opportunity for the
business and to protect the interests of
stakeholders in the shorter term.
Leading the Board
has been a stimulating
experience for me. There
have certainly been many
changes and challenges
over the past nine years.”
Governance
We’ve continued to enhance Landsec’s strong,
experience-led culture by investing in a
ground-breaking ‘Creating Experiences’ training
programme for all employees. We are also
working to positively influence our partners –
including the many businesses we rely on
through our supply chain – and the wider
business community. For us, how we do business
is as important as what we do.
Well-publicised failures in corporate culture and
performance tend to dominate the headlines.
It is absolutely right that businesses are held
to account, but we should also recognise
the strong progress being made across the
business sector. Landsec is recognised for its
approach and we support the promotion by the
Government of high standards of governance
and the oversight provided by the governance
bodies. We believe the governance of corporate
behaviour is an essential characteristic of how a
business is run and how it reports, and we place
very high expectations on ourselves. Setting
the right standards on governance protects
the business and the interests of stakeholders.
It is also the right way for a business to behave.
Board changes
I was delighted to welcome Scott Parsons and
Colette O’Shea to the Board on 1 January 2018
as Executive Directors. Both have extensive
property experience they can contribute to
Board discussions, and broader business and
commercial knowledge that will assist us as
we plan for the future.
Having joined the Board in 2004 and been
appointed Chairman in 2008, this will be my
last year as Chairman. I am delighted that,
following a robust process led by the Board,
I will be succeeded by Cressida Hogg, who
joined our Board in 2014 and whose experience
and expertise will prove invaluable to Landsec
and the Board in the coming years.
Leading the Board has been a stimulating
experience for me. There have certainly been
many changes and challenges over the past
nine years. I re-read and reflected on my first
letter to you in the 2009 Annual Report, issued
when property companies were dealing with
extraordinary market conditions following the
global financial crash.
We took decisive, pragmatic action back
then to position the business for growth.
That enabled us to take advantage of the
attractive opportunities we knew would
come. The actions we have taken since have
transformed the resilience of Landsec and
put the Company in an excellent position
to capitalise on the opportunities ahead.
We have seen a considerable increase in the
value of the business over the past ten years.
But it’s how we have achieved the change that
pleases me most. The appointment of Robert
Noel as Chief Executive was pivotal. A much
greater diversity of people, skills and experience
has come through under his tenure. We think
about the customer in a way that wasn’t even
contemplated when I started as Chairman.
And we spend so much more time and effort
addressing how Landsec impacts its environment
and makes a contribution to society. Our
engagement with stakeholders and the
transparency and clarity of our communications
and reporting have developed significantly for
the better, and we are recognised for our
leadership in this area.
I would like to thank my fellow Directors for their
support and contributions over the year, and
in previous years. I would also like to thank all
those who work for Landsec and with Landsec.
Finally, I want to thank you – our shareholders
– for the support and encouragement you have
given me over the years I have worked here.
This is a great Company with an extraordinary
history and an exciting future. I look forward
to seeing it evolve and thrive for years to come.
Dame Alison Carnwath
Chairman
Landsec Annual Report 2018
61
Governance
Board of Directors
Executive Directors
Non-executive Directors
1. Robert Noel
Chief Executive
2. Martin Greenslade
Chief Financial Officer
5. Dame Alison Carnwath
Chairman of the Board
6. Edward Bonham Carter
Senior Independent Director*
N R
N R
Appointed to Board: September 2005
Skills 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. Prior to joining Landsec in
2005, Martin was Group Finance Director
of Alvis plc and prior to that he 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.
Other current appointments
Martin is a trustee of International Justice
Mission UK.
Management committees
A member of the Group’s Executive and
Investment Committees. He attends
Audit Committee meetings at the
invitation of the Committee Chairman.
Appointed to Board: January 2010
Appointed as Chief Executive: April 2012
Skills and experience
Robert is a chartered surveyor and has
over 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. Prior to
joining Landsec in 2010 as Managing
Director of the London Portfolio, Robert
was Property Director at Great Portland
Estates plc and prior to that he was a
director of the property services group,
Nelson Bakewell.
Other current appointments
Robert is a director of the European
Public Real Estate Association (EPRA).
He was appointed a director of the British
Property Federation in July 2016 and will
become its President for 12 months in July
2018 and is also a trustee of the Natural
History Museum.
Management committees
Chairman of the Group’s Executive,
Health, Safety & Security, Investment and
Sustainability Committees. He attends
the Audit, Remuneration and Nomination
Committees at the invitation of the
Committee Chairmen.
Appointed to Board: January 2014
Appointed as Senior Independent
Director: July 2016
Skills 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 comprehensive understanding of
stock markets and investor expectations.
Edward became Vice Chairman of Jupiter
Fund Management plc in March 2014,
having been Chief Executive Officer
of the company since June 2007 where
he oversaw the firm’s listing on the
London Stock Exchange in 2010. He
started his career at Schroders as an
investment analyst before moving to
Electra Investment Trust where he was
a fund manager.
Other current appointments
Edward is Vice Chairman of Jupiter Fund
Management plc, a Board member of
The Investor Forum, a trustee of the
Esmeé Fairbairn Foundation, a trustee of
the Orchestra of the Age of Enlightenment
Trust and a member of the Strategic
Advisory Board of Livingbridge.
Appointed to Board: September 2004
Appointed as Chairman: November 2008
Skills 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 her fellow Directors
both during and outside meetings. She has
expertise in alternative asset management,
banking and global manufacturing.
Dame Alison worked in investment banking
and corporate finance for 20 years before
pursuing a portfolio career. During her
banking career, she held senior positions
at J. Henry Schroder Wagg & Co., Phoenix
Securities and 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 was appointed a Dame in
2014 for her services to business.
Other current appointments
Dame Alison is currently a non-executive
director of Zurich Insurance Group Limited
and Chairman of its Audit Committee,
a non-executive Director of Paccar Inc
(a Fortune 500 company) and CICAP
Limited, and a senior adviser to Evercore
Partners. She is also a member of the UK
Panel on Takeovers and Mergers and a
supervisory board member and audit
committee chair of the Frankfurt listed
chemicals company, BASF SE.
3. Colette O’Shea
Managing Director, London Portfolio
4. Scott Parsons
Managing Director, Retail Portfolio
7. Chris Bartram
Non-executive Director*
8. Nicholas Cadbury
Non-executive Director*
A N
A
Appointed to Board: January 2018
Appointed to Board: January 2018
Appointed to Board: August 2009
Appointed to Board: January 2017
Appointed to Board: January 2012
11. Stacey Rauch
Non-executive Director*
A N
Key to symbols
A Audit Committee
Skills and experience
Scott has more than 20 years’ of
investment and finance experience in
the UK real estate market. He re-joined
Landsec in 2010 and was Head of Property,
London Portfolio, before being appointed
as Managing Director, Retail Portfolio,
in April 2014. Prior to re-joining Landsec,
Scott held senior positions at Brookfield
Asset Management and GE Capital
Real Estate.
Other current appointments
Scott was appointed a Property
Committee member of the RNLI in
April 2016 and is a trustee of LandAid.
Management committees
A member of the Group’s Executive
and Investment Committees. Chairman
of the Retail Executive Committee.
Skills and experience
Nicholas brings wide-ranging and
international financial and general
management experience to the Group
gained from working in consumer facing
businesses, particularly in the retail,
leisure and hospitality sectors. He also has
extensive commercial and operational
knowledge and skills in relation to strategy
and IT development. Nicholas is Group
Finance Director of Whitbread PLC, a
position he has held since November 2012.
Before that, he was Chief Financial
Officer of Premier Farnell PLC, and prior to
that he worked at Dixons Retail PLC in a
variety of management roles, including
Chief Financial Officer. Nicholas originally
qualified as an accountant with Price
Waterhouse. Nicholas became Chairman
of our Audit Committee in September 2017.
Other current appointments
Nicholas is Group Finance Director of
Whitbread PLC.
Skills 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. Chris was
Chairman and Partner of Orchard Street
Investment Management LLP, a leading
commercial property investment
manager focused on the UK market
and continued to act as an adviser to
that firm until 31 March 2017. He has
also been a Board Member of The Crown
Estate and has held senior positions at
Haslemere NV and Jones Lang Wootton
Fund Management. He was previously
President of the British Property
Federation and Chairman of the Bank
of England Property Forum. Chris is
a chartered surveyor.
Other current appointments
Chris is currently a Wilkins Fellow of
Downing College, University of Cambridge,
a Governor of Oundle School and an
advisory board member to certain
overseas entities within the Brack Capital
Real Estate Group.
Skills and experience
Colette has over 20 years’ property
experience in London, operating in
investment, asset management and
development. She joined Landsec in 2003
and was Head of Development, London
Portfolio, before being appointed its
Managing Director in April 2014. Colette
led the London business through its 2010
three million sq ft speculative London
development programme, including
the transformation of Victoria. Prior to
joining Landsec, Colette was Head of
Estates at the Mercers’ Company where
she led the property team whilst also
gaining extensive office, retail and
residential experience.
Other current appointments
Colette was appointed as a Business
Board Member of the Mayor of
London’s Local Enterprise Partnership
for London (LEAP) in 2016 and is Joint
Chair of the Royal Docks Enterprise
Zone Programme Board.
Management committees
A member of the Group’s Executive
and Investment Committees. Chairman
of the London Executive Committee.
62
Landsec Annual Report 2018
9. Cressida Hogg
Non-executive Director*
10. Simon Palley
R
Non-executive Director*
R N
Appointed to Board: January 2014
Appointed as Chairman with effect
from 12 July 2018
Skills and experience
Appointed to Board: August 2010
Skills and experience
A senior figure within the private equity
industry, Simon has extensive
Cressida has experience of building and
understanding of portfolio management,
developing businesses both in the UK
and globally. From 2014 to April 2018,
she was Global Head of Infrastructure
at the $350bn Canada Pension Fund
financial metrics and the impact of
interest rates on capital markets. He has
expertise in private equity and capital
markets and considerable experience
Investment Board, managing a portfolio
managing highly talented professionals.
of investments worth c.£16bn. After
starting her career at JP Morgan,
Cressida worked for 3i Group Plc, first
in private equity and then co-founding
its infrastructure business. From 2009
to 2014, as Managing Partner, she was
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 and then
BC Partners where he worked for 17 years,
responsible for managing 3i Infrastructure
rising to the position of Managing Partner.
plc, a FTSE 250 investment company. She
Simon then became Chairman of the
has extensive Board experience, including
private equity firm Centerbridge Partners
most recently on the Boards of Anglian
Europe, a post he held until 2013.
Water Group and Associated British Ports.
Other current appointments
Cressida has no other current
appointments.
Other current appointments
Simon is a non-executive director of
UK Government Investments, a Senior
Adviser to TowerBrook Capital Partners
and an adviser to the private equity
arm of GIC. Simon is also a trustee
of the University of Pennsylvania and
The Tate Foundation.
N Nomination Committee
R Remuneration Committee
* Independent (as per the UK
Corporate Governance Code).
Dame Alison Carnwath was considered
independent upon appointment as
Chairman. Cressida Hogg will also be
considered as independent upon
appointment as Chairman.
Full Board biographies are available to
view on our website: landsec.com/about/
our-management
Skills 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. Stacey is a Director (Senior
Partner) 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. She has significant board level
experience gained through non-executive
positions held in retail and other industries.
Other current appointments
Stacey is Chairman of the Board of Fiesta
Restaurant Group Inc and a director of
Ascena Retail Group Inc, (both NASDAQ
listed companies).
Executive Directors
Non-executive Directors
2. Martin Greenslade
Chief Financial Officer
Skills and experience
Appointed to Board: January 2010
Appointed as Chief Executive: April 2012
Appointed to Board: September 2005
Appointed to Board: September 2004
Appointed to Board: January 2014
Appointed as Chairman: November 2008
Appointed as Senior Independent
Skills and experience
Martin brings extensive and wide-ranging
Skills and experience
Robert is a chartered surveyor and has
over 30 years’ experience in a number of
sectors within the property market and
extensive knowledge of the London
financial experience to the Group from
the property, engineering and financial
sectors in the UK and overseas. He also
has extensive financial expertise,
Dame Alison has very significant board
Skills and experience
level experience gained across a range of
Edward has significant experience of
industries and countries. This enables her
general management as a former CEO
to create the optimal Board environment
of a private equity backed and a large
commercial property market in particular.
particularly in relation to corporate
and get the best out of her fellow Directors
listed company. Having been a fund
Director: July 2016
He was appointed a director of the British
Mission UK.
He has substantial executive leadership
and listed company experience. Prior to
joining Landsec in 2010 as Managing
Director of the London Portfolio, Robert
was Property Director at Great Portland
Estates plc and prior to that he was a
director of the property services group,
Nelson Bakewell.
Other current appointments
Robert is a director of the European
Public Real Estate Association (EPRA).
Property Federation in July 2016 and will
become its President for 12 months in July
2018 and is also a trustee of the Natural
History Museum.
Management committees
Chairman of the Group’s Executive,
Health, Safety & Security, Investment and
Sustainability Committees. He attends
the Audit, Remuneration and Nomination
Committees at the invitation of the
Committee Chairmen.
finance and investment arrangements,
both during and outside meetings. She has
manager for many years, he also has
and significant listed company experience
expertise in alternative asset management,
a comprehensive understanding of
at board level. Prior to joining Landsec in
banking and global manufacturing.
stock markets and investor expectations.
2005, Martin was Group Finance Director
Dame Alison worked in investment banking
Edward became Vice Chairman of Jupiter
of Alvis plc and prior to that he worked
and corporate finance for 20 years before
Fund Management plc in March 2014,
in corporate finance serving as a member
pursuing a portfolio career. During her
having been Chief Executive Officer
of the executive committee of Nordea’s
banking career, she held senior positions
of the company since June 2007 where
investment banking division and
at J. Henry Schroder Wagg & Co., Phoenix
he oversaw the firm’s listing on the
Managing Director of its UK business.
Securities and Donaldson, Lufkin &
London Stock Exchange in 2010. He
Other current appointments
Martin is a trustee of International Justice
Management committees
A member of the Group’s Executive and
Investment Committees. He attends
Audit Committee meetings at the
invitation of the Committee Chairman.
Jenrette. She has served as a non-executive
started his career at Schroders as an
director of Friends Provident plc, Gallaher
investment analyst before moving to
Group plc, Glas Cymru Cyfyngedig (Welsh
Electra Investment Trust where he was
Water), Barclays plc and Man Group plc.
a fund manager.
Dame Alison was appointed a Dame in
2014 for her services to business.
Other current appointments
Other current appointments
Edward is Vice Chairman of Jupiter Fund
Management plc, a Board member of
Dame Alison is currently a non-executive
The Investor Forum, a trustee of the
director of Zurich Insurance Group Limited
Esmeé Fairbairn Foundation, a trustee of
the Orchestra of the Age of Enlightenment
Trust and a member of the Strategic
Advisory Board of Livingbridge.
and Chairman of its Audit Committee,
a non-executive Director of Paccar Inc
(a Fortune 500 company) and CICAP
Limited, and a senior adviser to Evercore
Partners. She is also a member of the UK
Panel on Takeovers and Mergers and a
supervisory board member and audit
committee chair of the Frankfurt listed
chemicals company, BASF SE.
Skills and experience
Colette has over 20 years’ property
experience in London, operating in
investment, asset management and
Skills and experience
Skills and experience
Skills and experience
Scott has more than 20 years’ of
Chris is a scion of the property industry,
Nicholas brings wide-ranging and
investment and finance experience in
with decades of property investment,
international financial and general
the UK real estate market. He re-joined
fund management and capital allocation
management experience to the Group
development. She joined Landsec in 2003
Landsec in 2010 and was Head of Property,
experience gained across a range of
gained from working in consumer facing
and was Head of Development, London
London Portfolio, before being appointed
businesses and disciplines within the
businesses, particularly in the retail,
Portfolio, before being appointed its
as Managing Director, Retail Portfolio,
real estate sector. He has significant
leisure and hospitality sectors. He also has
Managing Director in April 2014. Colette
in April 2014. Prior to re-joining Landsec,
experience of general management as
extensive commercial and operational
led the London business through its 2010
Scott held senior positions at Brookfield
a former Chief Executive and Chairman
knowledge and skills in relation to strategy
Asset Management and GE Capital
of significant businesses. Chris was
and IT development. Nicholas is Group
three million sq ft speculative London
development programme, including
the transformation of Victoria. Prior to
joining Landsec, Colette was Head of
Estates at the Mercers’ Company where
she led the property team whilst also
gaining extensive office, retail and
residential experience.
Other current appointments
Colette was appointed as a Business
Board Member of the Mayor of
London’s Local Enterprise Partnership
for London (LEAP) in 2016 and is Joint
Chair of the Royal Docks Enterprise
Zone Programme Board.
Management committees
A member of the Group’s Executive
and Investment Committees. Chairman
of the London Executive Committee.
Real Estate.
Other current appointments
Scott was appointed a Property
Committee member of the RNLI in
April 2016 and is a trustee of LandAid.
Management committees
A member of the Group’s Executive
and Investment Committees. Chairman
of the Retail Executive Committee.
Chairman and Partner of Orchard Street
Finance Director of Whitbread PLC, a
Investment Management LLP, a leading
position he has held since November 2012.
commercial property investment
manager focused on the UK market
and continued to act as an adviser to
that firm until 31 March 2017. He has
Before that, he was Chief Financial
Officer of Premier Farnell PLC, and prior to
that he worked at Dixons Retail PLC in a
variety of management roles, including
also been a Board Member of The Crown
Chief Financial Officer. Nicholas originally
Estate and has held senior positions at
qualified as an accountant with Price
Haslemere NV and Jones Lang Wootton
Waterhouse. Nicholas became Chairman
Fund Management. He was previously
of our Audit Committee in September 2017.
Other current appointments
Nicholas is Group Finance Director of
Whitbread PLC.
President of the British Property
Federation and Chairman of the Bank
of England Property Forum. Chris is
a chartered surveyor.
Other current appointments
Chris is currently a Wilkins Fellow of
Downing College, University of Cambridge,
a Governor of Oundle School and an
advisory board member to certain
overseas entities within the Brack Capital
Real Estate Group.
1. Robert Noel
Chief Executive
5. Dame Alison Carnwath
Chairman of the Board
6. Edward Bonham Carter
Senior Independent Director*
N R
N R
9. Cressida Hogg
Non-executive Director*
10. Simon Palley
Non-executive Director*
R
R N
Appointed to Board: January 2014
Appointed as Chairman with effect
from 12 July 2018
Skills and experience
Cressida has experience of building and
developing businesses both in the UK
and globally. From 2014 to April 2018,
she was Global Head of Infrastructure
at the $350bn Canada Pension Fund
Investment Board, managing a portfolio
of investments worth c.£16bn. After
starting her career at JP Morgan,
Cressida worked for 3i Group Plc, first
in private equity and then co-founding
its infrastructure business. From 2009
to 2014, as Managing Partner, she was
responsible for managing 3i Infrastructure
plc, a FTSE 250 investment company. She
has extensive Board experience, including
most recently on the Boards of Anglian
Water Group and Associated British Ports.
Other current appointments
Cressida has no other current
appointments.
Appointed to Board: August 2010
Skills and experience
A senior figure within the private equity
industry, Simon has extensive
understanding of portfolio management,
financial metrics and the impact of
interest rates on capital markets. He has
expertise in private equity and capital
markets and considerable experience
managing highly talented professionals.
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 and then
BC Partners 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.
Other current appointments
Simon is a non-executive director of
UK Government Investments, a Senior
Adviser to TowerBrook Capital Partners
and an adviser to the private equity
arm of GIC. Simon is also a trustee
of the University of Pennsylvania and
The Tate Foundation.
3. Colette O’Shea
4. Scott Parsons
Managing Director, London Portfolio
Managing Director, Retail Portfolio
7. Chris Bartram
Non-executive Director*
8. Nicholas Cadbury
Non-executive Director*
A N
A
11. Stacey Rauch
Non-executive Director*
A N
Appointed to Board: January 2018
Appointed to Board: January 2018
Appointed to Board: August 2009
Appointed to Board: January 2017
Appointed to Board: January 2012
Skills 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. Stacey is a Director (Senior
Partner) 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. She has significant board level
experience gained through non-executive
positions held in retail and other industries.
Other current appointments
Stacey is Chairman of the Board of Fiesta
Restaurant Group Inc and a director of
Ascena Retail Group Inc, (both NASDAQ
listed companies).
Key to symbols
A Audit Committee
N Nomination Committee
R Remuneration Committee
* Independent (as per the UK
Corporate Governance Code).
Dame Alison Carnwath was considered
independent upon appointment as
Chairman. Cressida Hogg will also be
considered as independent upon
appointment as Chairman.
Full Board biographies are available to
view on our website: landsec.com/about/
our-management
2
4
6
8
10
1
3
5
7
9
11
Landsec Annual Report 2018
63
Governance
Executive Committee
1. Robert Noel
Chief Executive
Full biography on page 62
2. Martin Greenslade
Chief Financial Officer
Full biography on page 62
3. Colette O’Shea
Managing Director, London Portfolio
Full biography on page 62
4. Scott Parsons
Managing Director, Retail Portfolio
Full biography on page 62
5. Tim Ashby
Group General Counsel and
Company Secretary
Joined Landsec in September 2015
Skills and experience
Tim is a qualified solicitor and has
significant legal, compliance and
commercial experience gained across
a number of different sectors and
businesses both in the UK and overseas.
Tim leads the Legal, Company Secretarial,
Real Estate Information Management
and GDPR teams and is responsible for
legal, compliance and governance
activity across the Group. He provides
advice and support to the Board and its
Committees and holds the Group’s
relationships with its external law firms,
and investor and shareholder bodies.
Prior to joining Landsec, he was Group
General Counsel and Company Secretary
of Mothercare plc and previously Tim
held senior roles at Yum Brands Inc.
and PepsiCo Inc.
Other current appointments
Tim is on the executive committee of
the GC100.
Management Committees
A member of the Group’s Executive
Committee. Attends all Board and
Audit, Nomination and Remuneration
Committee meetings in his capacity
as Company Secretary. He also attends
meetings of the Investment Committee.
6. Diana Breeze
Group Human Resources Director
Joined Landsec in June 2013
Skills and experience
Diana has over 25 years’ HR and
organisational consulting experience.
At Landsec, Diana has end-to-end
responsibility for the articulation and
delivery of a clear people strategy for
Landsec, including talent, reward,
organisational design and engagement.
Since joining Landsec, Diana has
focused upon the key areas of talent
and leadership, and has implemented a
number of initiatives to evolve the culture
of the business including, most recently,
the Creating Experience Programme.
She has previously held a number of
senior HR roles at J Sainsbury plc, and
the Human Capital practice of Accenture.
Other current appointments
Diana is a non-executive board member
and chair of the Remuneration Committee
of HM Land Registry. She has also recently
been appointed to the Board of Trustees
of the UK Green Building Council where
she is a member of the Personnel and
Nomination Committees. In addition, she is
a member of the Business Leaders’ Council
of TeachFirst, the educational charity.
Management Committees
A member of the Group’s Executive
and Sustainability Committees. Attends
Investment Committee meetings and
both the Remuneration and Nomination
Committee meetings at the invitation
of the Committee Chairmen.
7. Miles Webber
Director of Corporate Affairs
and Sustainability
Joined Landsec in May 2015
Skills and experience
Miles has more than 25 years’ experience
in communications and public affairs.
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).
Before joining Landsec, Miles was 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 where roles included Vice President,
Corporate Communications, followed
by Director of Public Affairs, EMEA.
Other current appointments
Miles is a board director of the Inspirasia
Foundation and the Westminster Forum.
Management Committees
A member of the Group’s Executive
and Sustainability Committees. Attends
Investment Committee meetings.
Full Executive Committee biographies
are available to view on our website:
landsec.com/about/our-management
4
1
5
2
6
3
7
64
Landsec Annual Report 2018
Governance
at a glance
Best practice awards
Board composition – gender
(All Directors)
Chart 33
Board tenure
(Non-executive Directors including Chairman)
Chart 34
■ Female
■ Male
36%
64%
■ 0–3 years
■ 4–6 years
■ 7–9 years
■ 9+ years
14%
43%
29%
14%
Landsec won Best
Annual Report FTSE 100
at the ICSA awards
in November 2017.
Landsec won Britain’s
Most Admired Companies
Corporate Governance
Award in December 2017.
Board skills and experience
Table 35
Retail/consumer
Finance
Property
Stacey
Rauch
Simon
Palley
Martin
Greenslade
Chris
Bartram
Colette
O’Shea
Nicholas
Cadbury
Dame
Alison
Carnwath
Cressida
Hogg
Robert
Noel
Edward
Bonham
Carter
Scott
Parsons
Board attendance schedule
Board1
Audit
Committee
Nomination
Committee2
Remuneration
Committee2
Dame Alison Carnwath
Robert Noel
Martin Greenslade
Colette O’Shea3
Scott Parsons3
Edward Bonham Carter
Chris Bartram4
Nicholas Cadbury
Cressida Hogg
Kevin O’Byrne5
Simon Palley
Stacey Rauch
8/8
8/8
8/8
2/2
2/2
8/8
8/8
8/8
8/8
3/3
8/8
8/8
4/4
3/3
4/4
4/4
1/1
4/4
4/4
3/4
2/2
4/4
4/4
3/3
3/3
3/3
1. Time was scheduled at every Board meeting for the Non-executive Directors to meet without the Executive Directors present.
2. In addition to the meetings listed, Remuneration and Nomination Committee meetings were held in November 2017
to approve the appointment of Colette O’Shea and Scott Parsons as Directors.
3. Appointed to the Board on 1 January 2018.
4. Chris Bartram missed a Nomination Committee meeting due to a diary conflict. This meeting was scheduled at short
notice to increase the number of meetings per year to spend more time on corporate governance.
5. Kevin O’Byrne retired from the Board on 27 September 2017 after serving nine years as a Director.
Landsec Annual Report 2018
65
Governance
Leadership
Board
Collectively responsible for the long-term success of the Group.
With due regard to the views of shareholders and other stakeholders (including
its customers, communities, employees and partners), it provides leadership
and direction including establishing the Group’s culture, values and ethics; setting
strategy and overseeing its implementation, ensuring only acceptable risks are
taken, taking long-term factors into consideration; and being responsible for
corporate governance and the overall financial performance of the Group.
Board committees*
Audit Committee
Reviews and is responsible for oversight of
the Group’s financial and narrative reporting
processes and the integrity of the financial
statements and supports the Board in risk
management.
See pages 76-83.
Remuneration Committee
Reviews and recommends to the Board the
executive remuneration policy; determines
the remuneration packages of the Executive
Directors and other members of the Executive
Committee; and has oversight of the Group’s
remuneration policy for all employees.
See pages 86-111.
Nomination Committee
Reviews the structure, size and composition
of the Board and its Committees, reviews and
oversees the succession planning of Directors
and members of the Executive Committee
and leads any appointment process, and makes
recommendations to the Board accordingly.
Monitors and responds to developments in
corporate governance.
See pages 70-75.
Matters reserved to the Board and
delegated authorities
To retain control of key decisions and ensure
there is a clear division of responsibilities between
the running of the Board and the running of the
business, the Board has identified certain ‘reserved
matters’ that only it can approve. Other matters,
responsibilities and authorities have been
delegated as above.
The matters reserved to the Board and the terms
of reference for each of its Committees can be
found on our website: landsec.com/governance.
Any matters outside of these fall within the Chief
Executive’s responsibility and authority. He reports
on the activities of all management committees
through his (and the Chief Financial Officer’s)
regular reports to the Board. These are augmented
by the London and Retail Portfolio reports that are
now presented to the Board by Colette O’Shea and
Scott Parsons.
The Board and each Committee receive sufficient,
reliable and timely information in advance of
meetings and are provided with or given access
to all necessary resources and expertise to enable
them to fulfil their responsibilities and undertake
their duties in an effective manner.
* Terms of reference of each Board Committee can be
found on our website: landsec.com/board-committees
66
Landsec Annual Report 2018
Chief Executive
Responsible for leadership of the Group and articulation of the
Group’s vision, developing and implementing strategy, managing
the overall performance of the business and ensuring an effective
and motivated leadership team.
He can approve transactions with a value of between £10m and £20m.
Executive Committee
An advisory committee that operates under the direction and
authority of the Chief Executive.
It sets the vision for the Group and assists the Chief Executive, the Chief Financial
Officer and the other Executive Directors in preparing and agreeing strategy,
operating plans, budgets, policies and procedures, and managing the operational
and financial performance of the Group. It also addresses other key business
and corporate related matters, including competitive forces, risk and reputation
management, cycle watch, brand, resource allocation, succession planning,
organisational development and employee remuneration.
Management committees
Investment Committee
Considers and approves significant investment
transactions and commercial agreements,
including the acquisition, disposal and
development of assets with a value between
£20m and £150m. It also reviews and
recommends higher value transactions to the
Board and implements the annual funding
strategy approved by the Board.
Assesses 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. Also addresses the likely
impact of macro-economic developments
on the business.
London and Retail Executive Committees
Responsible for the financial, operational and
governance performance of the London and
Retail business portfolios, each of which are
significant in their own right. Each Committee
can approve transactions up to a value of £10m.
Sustainability Committee
Develops and implements the Group’s
sustainability strategy as integrated with the
Group’s overall corporate strategy. In doing so,
it also considers environmental, social, economic
and energy issues affecting the business and the
impact of these issues on our customers.
Health, Safety and Security Committee
Oversees the Group’s health and safety policy
and operations, security governance, policy and
procedures at all Group properties, performance
against targets and progress towards goals.
Following the tragedy at Grenfell Tower, the
Committee led our investigation into the cladding
in place at all properties in our portfolio and
agreed actions to address the three properties
which were identified as having insufficient
mitigation measures in place.
Board composition and roles
Chairman
Dame Alison Carnwath
Leads the Board, governance, major shareholder
and other stakeholder engagement.
Chief Executive
Robert Noel
Responsible for the leadership of the Group,
implementation of strategy, managing overall business
performance and leading the executive team.
Chief Financial Officer
Martin Greenslade
Supports the Chief Executive in developing and
implementing strategy and Group financial
performance.
Managing Director, London Portfolio
Colette O’Shea
Responsible for our London Portfolio comprising offices,
leisure, retail and residential space.
Managing Director, Retail Portfolio
Scott Parsons
Responsible for our Retail Portfolio of shopping and
outlet destinations, retail parks and leisure and
residential space.
Senior Independent Director
Edward Bonham Carter
Acts as a sounding board for the Chairman and a trusted
intermediary for other Directors. Available to discuss
with shareholders any concerns that cannot be resolved
through the normal channels of communication with
the Chairman or the Executive Directors. Leads the other
independent Non-executive Directors in the performance
evaluation of the Chairman and led the Board evaluation
process this year.
Independent Non-executive Directors
Chris Bartram, Nicholas Cadbury, Cressida Hogg,
Simon Palley and Stacey Rauch
Responsible for bringing an external perspective, sound
judgement and objectivity to the Board’s deliberations
and decision-making. Support and constructively
challenge the Executive Directors using their broad range
of experience and expertise. Monitor the delivery of the
agreed strategy within the risk management framework
set by the Board.
Group General Counsel and Company Secretary
Tim Ashby
Provides advice and assistance to the Board, the Chairman
and other Directors, particularly in relation to formulating
the agenda for Board meetings, corporate governance,
induction training and development.
Ensures that Board procedures are complied with,
applicable rules are followed and good information flow
exists to the Board and its Committees. The appointment
and removal of the Company Secretary is a matter for
the Board as a whole.
Landsec Annual Report 2018
67
Governance
Leadership
continued
Board activity
The table shows the key areas of Board
activity during the year to support our
strategic objectives. The key below highlights
the link between our strategic objectives
and what the Board did during the year.
Setting strategy
— Monitored property cycle and sector trends
— Reviewed Group performance versus budget,
targets, external benchmarks and peers,
consideration of share price versus NAV
Shareholders, stakeholders
and governance
— Reviewed feedback from institutional
shareholders, roadshows and other
engagement activities
— Analysed portfolio liquidity and development
— Discussed Board evaluation and
exposure
— Approved Going Concern and Viability
Statements
— Approved dividend policy, debt funding
arrangements and gearing levels
— Considered the bond funding strategy
including the Queen Anne’s Gate Bond
redemption
— Continued focus on innovation
— Approved significant acquisitions and
disposals – including this year the sale
of 20 Fenchurch Street and the return of
capital to shareholders and the acquisition
of the retail outlets at Braintree, Street
and Castleford
— Approved the 21 Moorfields development
and pre-let to Deutsche Bank
— Considered the performance of key schemes
and assets acquired, completed or
developed versus Board approval – with
particular consideration of the Westgate
Oxford development.
Link to Strategic objectives
effectiveness review
— Considered the Group’s 2020 sustainability
strategy, including progress versus annual
targets and improvements planned
— Reviewed regular health, safety and security
updates, including the impact of the tragedy
at Grenfell Tower and the subsequent review
carried out by Landsec of all properties in
its portfolio
— Reviewed developments in corporate
governance and received key legal and
regulatory updates
— Received regular meeting reports from the
Chairman of the Audit, Remuneration and
Nomination Committees
— Reviewed and approved no change to the
annual fees for Non-executive Directors
— Approved the Group’s Slavery and Human
Trafficking Statement
— Considered the factors set out in section 172
of the Companies Act where appropriate.
Link to Strategic objectives
Section 172 Companies Act 2006
The duties placed on Directors by section 172
of the Companies Act have been discussed at
the Board and at the Nomination Committee
during the year. We believe that the Board does
take into account the factors set out in section
172 where appropriate when making decisions,
and this is reinforced by the Group’s focus in
recent years on being the best UK property
company in the eyes of its customers, partners,
employees and communities. We have
nevertheless reminded decision-makers
throughout our business of the importance of
keeping these factors in mind and this has been
tabled specifically at meetings of each of the
Company’s management committees.
What it means for us to be
on the Board
I’m delighted to be part of the Board
and to benefit from the diverse
business and leadership experience
that the Board has as we discuss
a wide range of issues.”
Colette O’Shea
I really enjoy being part of the Board
and participating in discussions
about our business. The Chairman
and other Directors bring a broad
spectrum of expertise to the table.”
Scott Parsons
Strategic objectives
Deliver sustainable long-term
shareholder value
Maximise the returns from the
investment portfolio
Maximise development
performance
Ensure high levels of customer
satisfaction
Attract, develop, retain and motivate
high performance individuals
Continually improve sustainability
performance
Sale of 20 Fenchurch Street
(the ‘Walkie Talkie’)
In July 2017, the Board approved the sale of
20 Fenchurch Street for a headline price of
£641m for our 50% share. This crystallised
an exceptional life-cycle return for our
shareholders. The sale completed in August,
and in September we called an Extraordinary
General Meeting of our shareholders to seek
approval for a capital return of £475m
(or 60p per share) and accompanying share
consolidation. Shareholders overwhelmingly
approved both resolutions. Importantly, after
completion of the sale, with our customers in
mind, we continued to provide ongoing facilities
management services to occupiers on behalf
of the purchaser.
Further details on the share consolidation can
be found on page 113.
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Landsec Annual Report 2018
Board activity
The table shows the key areas of Board
activity during the year to support our
strategic objectives. The key below highlights
the link between our strategic objectives
and what the Board did during the year.
Ensuring acceptable risk
— Reviewed the Group’s risk register and the
effectiveness of the systems of internal
control and risk management
— Reviewed the risk framework and reporting
structure
— Reviewed risk appetite which included the
results of questionnaires issued to the Board,
Executive Committee and Senior Leaders
— Debated significant and emerging risks,
including cyber security, terrorism, the loss
of key people, uncertainty arising from the
Brexit process and other political risks
— Reviewed cladding throughout London
and Retail portfolios
— Assessed GDPR risk.
Providing leadership and
direction
— Discussed the composition of the Board
and its Committees, including succession
planning, with a particular focus on the
succession planning for the Chairman
following her decision to retire in 2018
— Reviewed the development of people and
potential talent in the Group, including
succession planning for Senior Leaders
— Discussed new Head of Strategy and Head
of Innovation roles
— Discussed feedback from ‘Creating Experiences’
— Undertook development sessions on
property valuations and accounting and
peer company review.
Link to Strategic objectives
Link to Strategic objectives
Financial performance
— Considered the financial performance
of the business and approved the annual
budget, key performance targets and
discussed the five year plan
— Reviewed the half-yearly and annual
results and presentations to analysts and
approved the Annual Report
— Considered the half-yearly and full year
valuation of the Group’s portfolio by the
external valuer.
Link to Strategic objectives
Sale of 20 Fenchurch Street
(the ‘Walkie Talkie’)
In July 2017, the Board approved the sale of
20 Fenchurch Street for a headline price of
£641m for our 50% share. This crystallised
an exceptional life-cycle return for our
shareholders. The sale completed in August,
and in September we called an Extraordinary
General Meeting of our shareholders to seek
approval for a capital return of £475m
(or 60p per share) and accompanying share
consolidation. Shareholders overwhelmingly
approved both resolutions. Importantly, after
completion of the sale, with our customers in
mind, we continued to provide ongoing facilities
management services to occupiers on behalf
of the purchaser.
Further details on the share consolidation can
be found on page 113.
Section 172 Companies Act 2006
The duties placed on Directors by section 172
of the Companies Act have been discussed at
the Board and at the Nomination Committee
during the year. We believe that the Board does
take into account the factors set out in section
172 where appropriate when making decisions,
and this is reinforced by the Group’s focus in
recent years on being the best UK property
company in the eyes of its customers, partners,
employees and communities. We have
nevertheless reminded decision-makers
throughout our business of the importance of
keeping these factors in mind and this has been
tabled specifically at meetings of each of the
Company’s management committees.
What it means for us to be
on the Board
I’m delighted to be part of the Board
and to benefit from the diverse
business and leadership experience
that the Board has as we discuss
a wide range of issues.”
Colette O’Shea
I really enjoy being part of the Board
and participating in discussions
about our business. The Chairman
and other Directors bring a broad
spectrum of expertise to the table.”
Scott Parsons
Landsec Annual Report 2018
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Letter from the
Chairman of
the Nomination
Committee
Committee members
Dame Alison Carnwath (Chairman)
Edward Bonham Carter
Chris Bartram
Simon Palley
Stacey Rauch
Highlights
— Full compliance with the 2016
UK Corporate Governance Code
— Two awards in recognition of
our governance and reporting
— Focus on Board composition
and succession
Key responsibilities
— Structure, size and composition
of the Board and its Committees
— Succession planning of the Board
and Senior Management
— Monitors corporate governance,
including section 172 Companies
Act obligations
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Landsec Annual Report 2018
Dear shareholder
I am pleased to present
the Nomination
Committee report
which reviews our work
over the past year.
Governance
I can report that we complied in full with the
principles of the 2016 UK Corporate Governance
Code throughout the year.
The Nomination Committee oversees the
governance agenda on behalf of the Board.
It considers the papers and proposals issued by
Government and regulatory bodies and it agrees
the scope and nature of our submissions in
reply. It then ensures that decisions taken by the
Board and its delegated Committees are made
in the best interests of the Company and that
they address any relevant wider implications.
Corporate governance received much attention
during the year following the Government’s
consultation and Green Paper and, more
recently, the consultation on the UK Corporate
Governance Code led by the FRC. Added to
this, some high-profile corporate failures have
brought into sharp focus the wide impact
such events have on employees, pensioners,
partners, suppliers and the wider community.
We responded to both consultations. Most
importantly, we promote the spirit of good
governance within the business and we are
already taking measures to address some of
the changes anticipated in the revised Code
to be issued later this year.
I am delighted to report that we were
recognised again for the standards we set,
winning ‘Britain’s Most Admired Companies
Award – corporate governance’ and the
ICSA ‘Annual Report of the Year 2017’ award.
You will find more detail regarding our
compliance, governance and effectiveness
elsewhere in this report.
Board and Committee changes
We announced the appointment of Colette
O’Shea and Scott Parsons as Executive Directors
during the year. Both manage significant
portfolios in their own right and their attendance
has brought added property expertise to the
Board. Their views enrich our discussions,
especially their perspectives on the impact
of changing consumer behaviour and the
evolution of the workplace on the property
sector. On behalf of the Committee, I am
delighted that we were able to propose their
nomination to the Board.
Having served nine years as Chairman, the
Company announced my intention to retire
during 2018. The process to find my successor,
which started in late 2017, has been led by the
Committee and supported by Egon Zehnder, an
independent search consultancy with particular
expertise in this field. Obviously, I have had
no involvement in the search process. The
appointment of a Chairman is a major decision
for any company and I can assure you that the
Committee was thorough in its approach to
finding the best candidate.
I am delighted that Cressida has been appointed
to succeed me as Chairman, taking over following
our AGM in July. Her experience of being part
of Landsec for over three years, combined with
her broader business expertise, are strengths
she can use at the Board in the years ahead.
Cressida is also joining the Nomination
Committee with effect from 15 May 2018.
Board composition and succession
With the changes made during the year, we
believe that the current composition of the
Board and its Committees remains appropriate
for the time being. We keep this under regular
review, however, and the range of skills and
capabilities at Board level are assessed for
their relevance to the execution of our strategy.
We held a Board strategy session in February
and the wide range of business experience at
Director level really contributed to the breadth
of that discussion.
The Committee supports the ongoing
development of Directors and the Executive
team to ensure that we retain and recruit the
best talent for our needs. As a matter of
prudence, we monitor a range of candidates
who may be suitable replacements for existing
Directors because it is impossible to predict
when people may move on. We believe that
Non-executive Directors should generally
stay for nine years, with the appointment
of new Directors providing an opportunity
to add diverse perspectives and skills. However,
as I noted last year in my letter to you, it is
important we ensure that experience gained
through one property cycle is available for the
next. Therefore, the Committee may determine
occasionally that it is in the Company’s best
interests for a Non-executive Director with
particular skills to stay beyond the nine-year
term identified in the UK Corporate Governance
Code. Should this occur, we would explain our
rationale to shareholders and address any
governance concerns.
Finally, the Committee supports the Board in
its work to secure the long-term health of the
Company and its strategy for success in a
fast-changing world. This can only be achieved
with the right people in the organisation.
This year, the Committee considered the likely
business needs of the Company, its management
capability and succession plans at Executive and
Senior Management level. We also recognised
and supported the extensive leadership
development work being undertaken with all
management levels, which addresses both
what we need to do and how we go about it.
This cultural focus is important.
Independence and re-election to the Board
The independence, effectiveness and
commitment of each of the Non-executive
Directors has been reviewed by the Committee.
We were satisfied with the contributions and
time commitment of all the Non-executive
Directors during the year. On behalf of the
Committee, I conducted a specific review in
relation to Stacey Rauch as she has been in
office for more than six years. The Committee
was confident that Stacey, and each of the
other Non-executive Directors, remains
independent and will be in a position to
discharge their duties and responsibilities in
the coming year. With the exception of Scott
and Colette, whose appointment is being
ratified for the first time, and me as I am
retiring from the Board, all the Directors will
stand for re-election at the Annual General
Meeting with the support of the Board.
Committee effectiveness
I am pleased to report that the recent internal
Board performance evaluation concluded that
the Nomination Committee operated well.
I think the way that we debated the appointment
of new Executive Directors to the Board and the
manner in which the Committee has handled
my succession planning has been excellent. As
has the Committee’s ongoing work to lead the
attitude and approach to corporate governance
and sustainability. We were innovative too,
proposing the separation of the Board’s
performance review – which was led by Edward as
Senior Independent Director – and the Directors’
performance appraisals, which I handled. The
Board accepted this proposal and I believe that
our internal evaluation process this year was
the better for it.
You will find more information on these topics,
the other work of the Committee, and more
details of the Board evaluation process and its
outcomes, on the following pages.
Dame Alison Carnwath
Chairman, Nomination Committee
Landsec Annual Report 2018
71
Governance
Effectiveness
The separation of the
Board evaluation and
appraisal process worked
well. The Board evaluation
was led by the Senior
Independent Director
and the Directors’
appraisals were led
by the Chairman.
Board evaluation process 2017/18
This year’s review of the Board’s effectiveness
was conducted internally. This year, for the first
time, the effectiveness review was performed
in two parts, with the Board evaluation led
by the Senior Independent Director (SID),
and the Director appraisal process conducted
by the Chairman, both supported by the
Company Secretary.
Board evaluation
The first part of the evaluation required each
Director to complete an anonymous online
survey and questionnaire that focused on
matters such as the Board’s performance and
collective judgement, the performance of each
of its Committees, the Board’s focus on
strategy, innovation and risk and the relationship
between the Non-executive and Executive
Directors. The evaluation addressed issues
raised in last year’s review and the effectiveness
of some of the changes that were implemented.
The survey included open questions that
encouraged Directors to provide comments or
enabled them to raise any concerns. The output
of this survey was collated and provided to the
Board for discussion.
As SID, Edward Bonham Carter then met
separately with each Director and used the
output of the survey and questionnaire to explore
in more detail the issues raised and obtain
supplementary comments and observations.
Board appraisals
Separately, the Chairman held appraisal
meetings with each Director focusing on their
own performance and contribution to the
Board, using a structured questionnaire to bring
consistency to the approach at each interview.
The SID separately evaluated the performance
of the Chairman having first collated points
of view and questions from the other Directors
and then discussed the outcome with her.
The output of this year’s effectiveness review
was presented at the Board meeting in March
and discussed by the Directors. Separate
reports were prepared for each of the Audit,
Remuneration and Nomination Committees
based on the feedback received, and in each
case the conclusions were discussed by those
Committees at their meetings in March 2018.
Conclusions from this year’s Board
evaluation
The conclusion from this year’s Board evaluation
was that the Board and its Committees
continue to operate to a high standard and work
well and effectively. The results overall ranged
from positive to very positive, and there were no
specific concerns raised by any of the Directors
to the Chairman or SID, or anonymously through
the online survey. Strengths identified included:
— a positive atmosphere and culture;
— strong working relationships between the
Executives and Non-executives;
— good collective judgement, demonstrated by
decisions taken on the sale of 20 Fenchurch
Street, people planning, succession and
culture; and
— the quality of information provided to the
Board and the level of discussion at meetings.
Board, Committee and Directors’ performance evaluation cycle
BOARD EVALUATION 2017/18
Year 2
Review focused
on Year 1 issues
raised and any
new issues arising
Year 3
Year 2 progress
reviewed and
areas of focus
identified
A combination of
Board evaluation and
Director appraisal
Performance review
against targets set
for 2017/18
Areas of focus
identified for 2018/19
Year 1
Independent,
externally facilitated
review
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Landsec Annual Report 2018
As always, there are some areas that provide
room for improvement. The following areas
were identified:
— improve and embed the use of the Board’s
action plan to monitor performance;
— enhance the focus on strategy, innovation
and risk at Board meetings; and
— greater exposure at Board meetings to
experts in other sectors that complement
and are relevant to our business.
The meetings held by Edward Bonham Carter
with each Director were useful in exploring
in more detail some of the themes emerging
from the questionnaire responses. The overall
message was that the Board agenda must
remain focused on the challenges ahead and
that time be allocated to them accordingly.
Other themes that emerged were:
— the Board is conscious of the need to spend
time on succession planning and the value
of doing so;
— the Board should keep spending time on
innovation in general, and customers in
particular, to match the pace of change;
— the Group should be ready to experiment –
the Group is financially strong and is able
to rely on its core business to pay for testing
some new ideas;
— Board meetings should continue with the
progress made over the past year to increase
the use of external speakers, including
customers and experts in other sectors,
to provide diverse perspectives;
— at a time of change and market uncertainty,
the Board should reassess risk on a frequent
basis; and
— the Board should retain its strong focus
on the success of the Company, and the
recognition of its broader impact on others
with its continued focus on all stakeholders.
Finally, the Board recognised its role in the
oversight and governance of the business and
its culture at a time of increased focus on
corporate governance matters. This impacts
the behaviour displayed within the Group
as well as its external reputation. Pleasingly,
Landsec was recognised externally during the
year for the high standards it delivers and
promotes in this respect.
Conclusions from this year’s Directors’
appraisal process
The Directors’ appraisals provided the Chairman
with the opportunity to assess the performance
of each Director and listen to their perspective
on the Board operation and dynamics. The
messages support the weighting of Board time
and debate to matters and topics of long-term
interest to the Group and its success, supported
by ongoing training and development.
Progress against targets set for 2017/18
Table 36
Objective
Performance
Strategy
Board meetings to allocate sufficient
time to both medium- and
longer-term strategic discussion
The changes made to the Board’s agenda timing, and the
inclusion of more Board development sessions with external
speakers, have enabled the Board to allocate more time to
strategic discussions.
Innovation
Appreciate the impact of rapid
technological development on
us and our customers
The Board has received several presentations during the year on
how technology may impact the future of the business, ranging
from developing new sectors, the changing way people work and
live and modern methods of construction.
Risk
Further develop the approach to risk,
especially in the context of the wider
economic and political framework in
which we will be operating
The Board held an in-depth review of the Group’s risks, looking at
the principal risks, emerging risks and risk appetite of the business.
The review was based on a risk survey of the Board and senior
leadership team. The Board received briefings on risk factors that
may affect the broader commercial environment, including
economic, political and Brexit risk, and reports from both London
and Retail on past investment decisions.
Culture and people
Provide oversight and support to
management as Landsec introduces
its new brand framework
The Company adopted the name Landsec during the year and
underpinned this by its ‘Creating Experiences’ cultural programme
involving everyone in the organisation, all of which were supported
by the Board.
Areas of focus for 2018/19
The Board challenges itself to keep improving
year on year and, using the results of this year’s
evaluation, intends to focus on the areas listed
below for 2018/19. They are similar to last year
which reflects that they are not topics that
can be concluded in a year.
— Strategy and innovation – this continues as
an ongoing requirement each year, and for
2018/19 the Board intends to keep accessing
diverse expertise and, where appropriate, to
test and experiment as a part of the process
to understand customer requirements.
— Risk – be willing to re-assess risk on a regular
basis by reference to the changing situation.
This may involve new areas of business or
re-considering past decisions.
— People and succession planning – this is
fundamental to any business, and the Board
will continue to assess its own requirements,
together with that of the Executive team
and senior leaders within the organisation.
Next year
We believe that our internal Board evaluation
process has provided a thorough review of our
performance over the past year. The separate
roles performed by the Chairman and SID,
coupled with the combination of the
questionnaire, SID interviews and individual
appraisals, was comprehensive. However,
in 2018/19, in line with our three-year cycle,
we will be conducting an externally facilitated
performance evaluation as required by the
UK Corporate Governance Code.
Survey responses
...honest and challenging
debates with all Directors
contributing...
...conversations more
wide-ranging and less
operational...
...freedom of thought
is encouraged...”
Where does the Board think
it has added most value in
the last year?
Management
succession and talent
development
Engagement
and perspective on
strategic issues
Support and
challenge on
investment
decisions
Landsec Annual Report 2018
73
Governance
Effectiveness
continued
Board environment and access to
appropriate information
The Board environment and its culture of
transparency and openness were again rated
favourably in this year’s effectiveness review.
In addition to the Board meetings, and the
private sessions scheduled at each Board meeting
held by the Chairman and the Non-executive
Directors, there are other opportunities arranged
during the year when Directors meet and at
which relevant items can be discussed in detail.
The Board and its Committees receive papers
in a timely fashion and Directors have access
to information, support and advice from the
Company Secretary and members of his team
throughout the year. The Board is complimentary
of the quality of papers it receives but has set
an ongoing challenge to reduce the volume of
papers it receives where it is appropriate to do so.
Choosing the new Chairman
At the Board’s request, the Nomination
Committee led the process to find a successor
to Dame Alison after she signalled her intention
to retire as Chairman after serving nine years
leading the Board. The Committee was
supported by Egon Zehnder, an independent
search consultancy with expertise in board
level appointments, and considered a wide
and diverse range of internal and external
candidates with different skills and business
backgrounds that would be suitable for the
role. Interviews were held by the Nomination
Committee with selected candidates, following
which the Committee recommended the
appointment of Cressida Hogg as Chairman
based on her complementary experience and
expertise. The Board unanimously approved
the appointment.
Induction
As Colette O’Shea and Scott Parsons clearly
know the business well, their induction focused
on the role and responsibilities of a director of
a listed company. They both received training
from the law firm Slaughter and May in this
respect. Following his appointment to the Board
in January 2017, Nicholas Cadbury’s induction
to the Board continued during this year and
included asset visits and meeting with key
advisors to the business, EY and CBRE.
The appointment of Colette and Scott
is a welcome addition to the Board and
demonstrates good internal development
and bench strength in Landsec. Both bring
their extensive property experience and broad
business and commercial knowledge to our
Board discussions. They are proven leaders
who live Landsec values. We are delighted
to have them as Directors.”
Dame Alison Carnwath, Chairman
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Landsec Annual Report 2018
Professional development, support and
training for Directors
The Board held an increased number of specific
knowledge development sessions during the
year, on such matters as property company
financial and accounting metrics, political
and economic risk factors that may affect
the business or the wider property market
in the UK and market trends. The Board also
refreshed its review of risk this year and carried
out an in-depth session on risk and risk appetite.
This followed an internal survey on risk and
risk appetite which was issued to the Board,
Executive Committee and Senior Leaders.
Board strategy
The Board considers strategy throughout the
year, encompassing topics such as funding and
capital allocation, competition and emerging
sectors. Additionally, the Board held its regular
two-day strategy meeting in February that
enabled it to explore and debate in detail
a wide range of items such as:
— the business and customer trends relevant
to the property market;
— possible longer-term threats and challenges
to our portfolio; and
— geopolitical and macro-economic trends.
Directors continued to receive regular reports
facilitating greater awareness and understanding
of the Group’s business and the legal, regulatory
and industry-specific environment in which it
operates. This is complemented by visits to
properties owned, managed or being developed
by the Group which enable a deeper insight into
the operations of the business and provide
Directors with the opportunity to meet with
senior and local management teams.
Diversity policy
The Board embraces diversity in its broadest
sense, believing that a wide range of experience,
background, perspective, skills and knowledge
combine to contribute towards a high performing,
effective Board, which is better able to support
and direct us as a business.
We continue to make good progress in terms of
diversity. The addition of Colette O’Shea to the
Board increased the percentage of women on
the Board to 36% (from 30% last year). Diversity
is more than just gender based and the Board
will continue to focus on this important issue
in the wider context. Further information on
diversity throughout Landsec can be found
on pages 47 and 48.
Conflicts of interest
The Board operates a policy to identify and,
where appropriate, manage any potential
conflicts of interest that Directors may have.
The Nomination Committee monitors the
situation and determines the actions necessary
to address potential conflicts of interest,
as detailed in the table below.
Conflicts of interest
Table 37
Director
Potential conflict situation
Nomination Committee decision and mitigating action taken
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.
Edward Bonham Carter
Vice Chairman of Jupiter Fund Management plc,
a fund manager which invests in listed company
shares including, at times, the Company. Jupiter
is also a customer of the Group.
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 Dame Alison Carnwath and Zurich Insurance
were unlikely to occur.
Mr 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. Since operational matters, such
as office leasing, are unlikely to be considered at Board level,
the Committee concluded that in practice conflicts of interest
involving Mr Bonham Carter and his employer were unlikely
to occur.
Nicholas Cadbury
Cressida Hogg
Group Finance Director of Whitbread PLC which,
through its Costa Coffee operations, leases a
number of retail properties from the Company
around the UK.
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 Mr Cadbury and his
employer were unlikely to occur.
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.
In her role, Ms Hogg did not have any involvement with the
development in question as this was managed by a different
business unit within CPPIB. As an additional precaution, the
Group did not share any sensitive information on that development
with her and she agreed not to participate in any Board
discussion that related to it. Ms Hogg stepped down from
her role at CPPIB in April 2018.
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Letter from
the Chairman
of the Audit
Committee
Committee members
Nicholas Cadbury (Chairman)
Chris Bartram
Stacey Rauch
Kevin O’Byrne
(until 27 September 2017)
Highlights
— New Committee Chairman
— Oversight of significant property
acquisitions and disposals
— In-depth review of risk and
internal audit
Key responsibilities
— Monitors the integrity of the
reporting process and financial
management
— Oversees risk management and
internal control
— Scrutinises annual and half-yearly
results
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Landsec Annual Report 2018
Dear shareholder
I am pleased to report on
the key activities and focus
of the Audit Committee
during the year.
I was delighted to become Chairman of this
Committee on 28 September 2017 following
Kevin O’Byrne’s planned retirement as Chairman
of this Committee after more than nine years
as a Director of the Company. I would like to
thank Kevin for his support during the transition
period and for all his work leading this Committee.
The role of the Audit Committee has not
changed. It monitors the integrity of the Group’s
reporting process and financial management.
It ensures that risks are carefully identified
and assessed and that robust systems of risk
management and internal control are in place.
It scrutinises the annual and half-yearly financial
statements before proposing them to the Board
for approval, and reviews in detail the work of
the external auditor and external valuer and
any significant financial judgement made by
management. The Committee receives detailed
reports from management supplemented by
other conversations and meetings as appropriate
during the year and ensures that it allocates
sufficient time on the agenda to both financial
and risk matters.
Acquisitions and disposals; liability
management
The Company made a number of property
acquisitions and disposals during the year in line
with its strategy. The largest disposal, measured
by capital value, was that of 20 Fenchurch
Street for £634m (our share), following which
£475m was returned to shareholders by way
of capital repayment; we also acquired three
outlet centres for £333m to add to our Retail
Portfolio. The Committee reviewed the accounting
treatment of all material transactions and
ensured that it was appropriate in each case.
During the year, the Company continued its
review of its debt financing and this resulted in
the redemption of some bonds and the issue of
new bonds as part of its liability management
work. This financing activity, and its accounting
treatment, was considered by the Committee.
Risk
The risk landscape evolves every year but, for
Landsec, the principal risks have remained
much the same over the comparative period.
These are set out on pages 54-57 of this Annual
Report and include market cyclicality, structural
changes in customers and customer behaviours
and information security. It is also appropriate
that we include in our register risks relating to
health, safety and security of employees,
customers and partners and data protection
(including General Data Protection Regulation),
and the longer-term nature of sustainability risks.
The Group’s Executive Committee regularly
reviews the risk register and this is used by the
Committee as the basis of its risk assessment.
Additionally, the Audit Committee reflected
on changes at a macro-economic and political
level as context against which it assessed risk.
During the year, the Company engaged in a
bottom-up risk process involving all the functions
within the organisation to improve the quality
and thoroughness of the review. This involved
seeking views from across the business on
existing, new or emerging risks. The Company
also sought the views of its Directors, Executive
Committee and senior leaders to inform the
discussion on risk and risk appetite. The output
was discussed first at the Audit Committee and
subsequently by the Board at its risk session in
December (including the review of risk appetite).
Internal audit
The Company maintains its own risk management
and internal audit function. The Committee
again reviewed the scope, skills and competencies
of this function, and the level of resource
available to it, and listened to fresh ideas from
the newly appointed Director of Risk
Management and Internal Audit. We decided
that the knowledge, skills and resources of our
internal audit team, and their understanding of
the business, were appropriate. However, there
are occasions when we require and benefit from
the expertise that can be offered by specialist
external advice (such as IT and security)
and, accordingly, the Committee considered
when such advice was appropriate. We believe
that the combination of internal and external
advisers continues to provide us with the
best insight into areas of risk and appropriate
controls, and allows us to report to the Board
that the system of internal processes is robust.
The internal audit function has an annual plan
of work that is approved by the Committee.
The plan is assessed against the risk register
which is reviewed in detail twice yearly. Internal
audit reports are received by the Committee
and any follow up recommendations or actions
are tracked until completion.
External valuations and CBRE as valuer
CBRE was appointed in 2015 to act as the Group’s
valuer and we remain pleased with the level
of support they provide to the business, the
rigorous process that they apply to their
work and their broad industry expertise and
knowledge. For Landsec, as a property company
whose share price is influenced by the net asset
value of its total portfolio, this is an important
relationship and one that the Committee
assesses carefully.
External auditor
Ernst & Young LLP (EY) was appointed as the
Company’s auditor in 2013. This year’s internal
review of their effectiveness and performance
concluded that they continue to operate at a
high standard. After five years in post, Eamonn
McGrath will be stepping down as our audit
partner following the publication of our 2017/18
results, and we welcome Kath Barrow as his
replacement. Kath was appointed following
a selection process led by me. The fee basis
for EY’s services are contained on page 80
in the Accountability section. Based on the
Committee’s recommendation, the Board
is proposing that EY be reappointed to office
at this year’s AGM.
Fair, balanced and understandable
The Committee assessed and recommended
to the Board that, taken as a whole, the
Company’s 2018 Annual Report is fair, balanced
and understandable.
Viability Statement
The Viability Statement, together with the
rationale behind the chosen five-year time
horizon, is set out on page 58. The Committee
again considered whether there should be any
change to the period chosen for the Statement,
as it will do every year, but remained of the
opinion that five years was appropriate taking
into account the balance sheet and financial
strength of the Company and its current
exposure to development risk.
UK Corporate Governance Code/FRC
Guidance on Audit Committees
The Committee considered its compliance
with the 2016 UK Corporate Governance Code
and the FRC Guidance on Audit Committees.
We believe that we have addressed both
the spirit and the requirements of both; this
conclusion is supported by our external auditor.
Committee effectiveness
The internally facilitated evaluation of the
Committee’s performance, conducted as
part of the overall Board effectiveness review,
confirmed that the Committee continued to
operate at a high standard, with clear priorities,
well-defined responsibilities and clarity around
its workplan. I will continue this approach
in 2018/19.
The year ahead
The Committee achieved a consistently high
performance during a busy year, highlighted by
some large and well-publicised transactions and
underpinned by a robust and inclusive approach
to identifying risk and assessing risk appetite.
The Committee will continue to work with
management, and provide clear reports to the
Board, to ensure that it addresses these issues
in a way that is consistent with the Company’s
culture and values, it retains its focus on customers
and supports the governance regime in place.
I would like to thank the other members of the
Committee, together with management and
EY, for their support during the year and I hope
that you find this review, and the report that
follows, a helpful explanation of the work of
the Committee.
Nicholas Cadbury
Chairman, Audit Committee
Landsec Annual Report 2018
77
Governance
Accountability
The new Chairman of the
Committee has continued
the thorough oversight
of the Group’s risk
assessment and control,
reporting process and
financial management.
Structure and operations
The Audit Committee’s structure and operations,
including its delegated responsibilities and
authority, are governed by terms of reference
which are reviewed annually and approved by
the Board. The Terms of Reference are available
on our website: landsec.com/board-committees.
To maintain effective communication between
all relevant parties, and in support of its
activities, the Chief Executive, Chief Financial
Officer, Group General Counsel and Company
Secretary, Director of Risk Management and
Internal Audit, the partner and representatives
of our external auditor, Ernst & Young LLP (EY),
and other members of the senior finance team
regularly attend Committee meetings.
The Chairman of the Board and all Directors
are invited to attend meetings when the
Group’s external valuer, CBRE, makes property
valuation presentations.
The Committee has private sessions with the
internal and external audit teams. In addition,
the Committee Chairman has private and
informal sessions with the EY audit teams and
the CBRE valuation team to ensure that open
lines of communication exist in case they wish
to raise any concerns outside of formal meetings.
The Committee members collectively have
a broad range of financial, commercial and
property sector expertise that enables them
to provide oversight of both financial and risk
matters, and to advise the Board accordingly.
Nicholas Cadbury is determined by the Board as
having recent and relevant financial experience
for the purposes of satisfying the UK Corporate
Governance Code. Details of the experience
of all members of the Committee can be found
on pages 62 and 63.
The Committee works to a structured
programme of activities and meetings to
coincide with key events around our financial
calendar. Following each meeting, the
Committee Chairman reports on the main
discussion points and findings to the Board.
External auditor
EY is engaged to conduct a statutory audit
and express an opinion on the Company’s and
the Group’s financial statements. Their audit
includes an assessment of the systems of
internal control that produce the information
contained in the financial statements, and a
review by EY of the property valuation process
and methodology using its own chartered
surveyors (more details below), in each case to
the extent necessary to express an audit opinion.
Structure and operations
Audit
Committee
meeting
Regular attendance
at meetings to support
the Committee
All Directors are invited
to attend meetings when
the Group’s external valuer,
CBRE, makes property
valuation presentations
Committee
private sessions
Chief
Executive
Chief
Financial
Officer
Group
General
Counsel and
Company
Secretary
Chairman of
the Board
Internal
audit team
EY
CBRE
valuation
team
Director
of Risk
Management
and Internal
Audit
EY
Members
of senior
finance team
All Directors
78
Landsec Annual Report 2018
Audit Committee activity
The table shows the key areas of Audit
Committee activity during the year.
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 action
— quarterly reports on investigated
internal control issues significant to
the Group
— quarterly reports on the Group’s risk
register, including significant and
emerging risks
— the implications, management and
implementation of the new General
Data Protection Regulation (GDPR)
— 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 processes.
Financial reporting
— the quality, appropriateness and integrity
of the half-yearly and full year financial
statements
— the information, underlying assumptions
and stress test analysis presented in
support of Going Concern and the
Viability Statement
— the consistency and appropriateness
of the financial control and reporting
environment
— the dividend policy with due regard to
the Company’s REIT status
— the fair, balanced and understandable
assessment of the Annual Report (and
any other financial statements such as
the half-yearly statement).
External audit
— the external audit plan
— the independence and objectivity of EY
— the quality and effectiveness of EY’s
audit services
— the level of fees paid to EY in
accordance with the policy for the
provision of non-audit services
— the appointment of Kath Barrow as
the new EY audit engagement partner
for the 2018/19 financial year
— EY’s reappointment to office as
external auditor.
Internal audit
External property valuation
— the scope of the internal audit plan
— the quality and appropriateness of
and resourcing requirements
— the independence, appropriateness
and effectiveness of internal audit.
the half-yearly and full year external
valuation of the Group’s property
portfolio, together with an assessment
of the methodology applied
— the independence and effectiveness
of the external valuer.
Other
Significant financial matters
— the Committee’s terms of reference
— the appropriateness of significant
and performance effectiveness
— compliance with the Code and the Group’s
regulatory and legislative environment.
financial matters made connection
with the financial statements as set
out on page 83.
Landsec Annual Report 2018
79
Governance
Accountability
continued
Audit plan
EY presented their proposed audit plan
(reviewed by Senior Management and the
Director of Risk Management and Internal
Audit) to the Committee for discussion.
The objective was to ensure that their work
remained aligned to the Group’s structure and
strategy. The audit plan was again risk and
materiality focused, challenge based and
designed to provide valuable insights beyond
the audit.
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
— the mitigation actions we take 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). Eamonn
McGrath has now completed five years as
audit engagement partner following the
completion of the 2017/18 Annual Report.
Kath Barrow has been appointed as EY
audit engagement partner for the 2018/19
financial year
— the internal performance and effectiveness
review 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.
Effectiveness of the external audit
Following the issue of our Annual Report,
the Director of Risk Management and Internal
Audit conducts a performance evaluation
and effectiveness review of the external audit.
This is conducted against structured guidelines
in consultation with the Executive Directors
and members of the senior finance team.
This year’s review will continue to use an audit
quality assessment based on the Practice Aid
guidelines issued by the Financial Reporting
Council (FRC). The Committee Chairman meets
privately with the audit engagement partner
before the Committee considers the results
of the review.
The Committee’s preliminary view is that,
in line with the conclusions from last year’s
performance review, EY have again performed
their audit services effectively and to a high
standard. Areas identified for development
will be shared with them for inclusion in their
audit and service delivery plans going forward.
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, we will be required to
retender the audit by no later than the 2023/24
financial year. After five years in post, Eamonn
McGrath stepped down as audit engagement
partner following the publication of our 2017/18
financial results, and has been replaced by
Kath Barrow. The Board took the opportunity
of the audit partner rotation to review the
position of EY as the Group’s auditor and, on
the recommendation of the Audit Committee,
concluded that there was no reason to consider
an audit retender at this time. There are no
contractual restrictions in relation to the
Company’s choice of external auditor. On the
recommendation of the Audit Committee,
the Board is proposing a resolution at this year’s
Annual General Meeting that EY be reappointed
to office for a further year.
Audit fee
The audit fees payable to EY for the audit
and half-yearly review for 2017/18 are £811,000
(2017: £836,000).
Non-audit services
To help safeguard EY’s objectivity and
independence, we operate a non-audit services
policy that sets out the circumstances and
financial limits within which EY may be permitted
to provide certain non-audit services (such as
assurance work) where an audit opinion is
not required.
The Committee monitors compliance with the
policy, including the prior approvals required for
non-audit services, which are as follows:
Table 38
Per
assignment
(£)
Aggregate
during the
year (£)
0 – 25,000
<100,000
25,000 – 100,000
100,000 – 321,000
Chief
Financial
Officer
Audit
Committee
Chairman
Committee >100,000
>321,000
Details of the fees charged by EY during the
year can be found in note 8 to the financial
statements. Total fees for non-audit services,
including the half-yearly review and other
assurance-related services, amounted to
£216,000. This sum represented 35% of the total
Group audit fees, and 29% of the total audit
fees payable by the Group to EY during the
year (including the audit of its joint ventures).
No non-audit fees were approved or paid on
a contingent basis.
External valuations and valuers
The valuation of the Group’s property portfolio,
including properties held within the development
programme and in joint arrangements, is
undertaken by external valuers. The Group
provides input, such as source data, and support
to the valuation process. CBRE has been the
Company’s principal valuer since September
2015. The valuation helps to determine a
significant part of the Group’s net asset value,
which has consequential implications for the
Group’s reported performance and the level
of variable remuneration received by Senior
Management through bonus and long-term
incentive schemes. Accordingly, the scrutiny of
each valuation and the valuer’s independence,
objectivity and effectiveness represent an
important part of the Committee’s work.
Valuations for the full and half-year were
presented to the Committee by CBRE. These
were reviewed and challenged by management
and the Committee, with reference to CBRE’s
approach, methodology, valuation basis and
underlying property and market assumptions.
Other Non-executive Directors attended the
final full and half-year presentations. The
Committee Chairman also met separately
with CBRE.
Additionally, CBRE met with EY and exchanged
information independently of management.
EY has experienced chartered surveyors on its
team who consider the valuer’s qualifications
and assess and challenge the valuation
approach, assumptions and judgements made
by them. Their audit procedures are targeted at
addressing the risks in respect of the valuations
and the potential for any undue management
influence in arriving at them. This year, EY
identified 35 properties (comprising 67% of
the portfolio by valuation) for substantive
review by its valuation experts primarily on
the basis of their value, type, risk profile and
location. EY performed site visits for a sample
of assets and completed analytical reviews over
the input data for the valuations, comparing
this to market data. The Committee reviewed
their findings.
80
Landsec Annual Report 2018
Primary responsibility for operation of
the Company’s internal control and risk
management systems, which extend to include
financial, operational and compliance controls
(and accord with the FRC’s 2014 ‘Guidance on
Risk Management, Internal Control and Related
Financial and Business Reporting’), 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 goals and can provide only
reasonable, not absolute, assurance against
material misstatement or loss.
Risk management
Under the overall supervision of the Committee,
there are several sub-committees and work
groups that oversee and manage day-to-day
risk within the business. The Group has a
Director of Risk Management and Internal
Audit (with a direct reporting line to the Audit
Committee Chairman) who provides regular
oversight of risk matters, evaluates emerging
risks that may affect the business and monitors
compliance to ensure that any mitigating
actions are properly managed and completed.
The Committee, in consultation with
management, agrees the annual work plan
(including any assistance that may be
required from external specialists) of the risk
management and internal audit function to
ensure alignment with the needs of the business
and compliance with its governance charter.
Internal control
The key elements of the Group’s internal control
are as follows:
— an established organisation structure with
clear lines of responsibility, approval levels
and delegated authorities
— a disciplined 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
— 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, safety and security
— a compliance certification process from
management conducted in relation to
the half-yearly and full year results, and
business activities generally
— a quarterly self-certification by
management confirming that key internal
controls within their area of responsibility
have been operating effectively
— a risk management and internal audit
function whose work spans the whole
Group
— a focused post-acquisition review and
integration programme to ensure the
Group’s governance, procedures,
standards and control environment are
implemented effectively and on time
— a financial and property information
management system.
An internal evaluation of CBRE’s performance
and effectiveness will be conducted after the
year-end results are finalised with the results
reported to the Committee.
A fixed-fee arrangement (subject to adjustment
for acquisitions and disposals) is in place with
CBRE for the valuation of the Group’s properties
and, given the importance of their work, we
have disclosed the fees paid to them in note 9
to the financial statements. The total valuation
fees paid by the Company to CBRE during the
year represented less than 5% of their total fee
income for the year.
Significant financial matters
The Committee reviewed two significant
financial matters in connection with the
financial statements, namely the valuation
of the Group’s property portfolio and revenue
recognition. Further details are set out in the
table on page 83.
These items were considered to be significant
taking into account the level of materiality
and the degree of judgement exercised by
management and, in respect of the valuation,
the external valuer. The Committee discussed
these with both parties, as well as EY. In addition,
the Committee considered, took action and
made onward recommendations to the Board,
as appropriate, in respect of other key matters
including the Viability Statement, the going
concern basis on which the financial statements
are prepared, accounting for property acquisitions
and disposals, bond buy-backs and new
issuance, maintenance of the Group’s REIT
status and other specific areas of individual
property and audit focus.
The Committee was satisfied that all issues had
been fully and adequately addressed and that
the judgements made were reasonable and
appropriate and had been reviewed and debated
with the external auditor who concurred with
the approach taken by management.
Risk management framework
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
strategic objectives. The Committee supports
the Board in the management of risk and is
responsible for reviewing the effectiveness of
risk management and internal control processes
during the year.
An overview of the risk management process
explaining the key elements of the approach
to risk, the developments in the process over
the course of the current year and the key risk
management priorities for 2018/19 are described
on pages 52 and 53.
Landsec Annual Report 2018
81
Governance
Fair, balanced and understandable
The Committee applied the same due diligence
approach adopted in previous years in order
to assess whether the Annual Report is fair,
balanced and understandable, one of the key
UK Corporate Governance Code requirements.
The Committee received assurance from the
verification process carried out on the content
of the Annual Report by the Executive Directors
to ensure consistent reporting and the existence
of appropriate links between key messages and
relevant sections of the Annual Report.
Taking the above into account, together with
the views expressed by EY, the Committee
recommended, and in turn the Board confirmed,
that the 2018 Annual Report, taken as a whole,
is fair, balanced and understandable and provides
the necessary information for shareholders to
assess the Company’s position, 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 about suspected impropriety or
wrongdoing (whether financial or otherwise)
within the Group on a confidential basis, and
anonymously if preferred. These include an
independent third party reporting facility
comprising a telephone hotline and an
alternative online process. Any matters reported
are investigated by the Company Secretary and
escalated to the Committee, as appropriate.
During the year, there were no whistleblowing
incidents reported.
Each year we run a whistleblowing awareness
campaign, reminding employees of the process
should they ever need to blow the whistle.
The arrangements also form part of the
induction programme for new employees.
The whistleblowing hotline has been included
in our recently introduced Sustainability Charter
and is included within our procurement tender
documentation.
Bribery and corruption policy
The Board has a zero tolerance policy for bribery
and corruption of any sort. We give regular
training to staff on the procedures, highlighting
areas of vulnerability, and this year ran a
programme for relevant employees on the
new legislation on the facilitation of tax evasion.
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.
Accountability
continued
Additionally, 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
— 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.
General Data Protection Regulation (GDPR)
With GDPR taking effect in May 2018, the
Committee provided oversight of the Company’s
approach to data protection matters. A GDPR
project team has been established, led by our
Group General Counsel and Company Secretary,
and we appointed a Privacy and Compliance
Officer with specific GDPR experience. As part
of its risk assessment process, the Committee
required the Company to explain the extent to
which personal data was held by the Group,
the business reasons for holding such data, the
protections in place to safeguard the data and
process for reporting any breach should that
occur. The Committee also ensured that there
was sufficient communication and training
across all parts of the business to emphasise the
importance of data protection compliance, and
to explain how GDPR would or may impact the
way we do business. In addition to the training,
data protection policies and processes have
been revised. Following the implementation of
GDPR in May, the Committee will keep GDPR
compliance under review as part of ongoing
oversight of information security.
Effectiveness
The Board has undertaken a robust assessment
of the principal risks faced by the Group, including
those that could threaten the business model,
future performance, solvency or liquidity.
Assisted by the Committee, the Board also
reviewed the effectiveness of the 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
(which is supplemented by external specialist
resource as necessary) and the relevant process,
controls and testing work undertaken by EY
as part of their half-yearly 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.
82
Landsec Annual Report 2018
Significant financial matters
Table 39
Significant financial matters considered
How the Committee addressed the matters
Valuation of the Group’s property portfolio (including investment
properties, investment properties held in joint ventures and trading
properties)
The valuation of the Group’s property portfolio is a major determinant of
the Group’s performance and drives an element of the variable remuneration
for Senior Management. Although the portfolio valuation is conducted by an
external valuer, the nature of the valuation estimates is inherently subjective
and requires the making of significant judgements and assumptions by
management and the valuer.
Significant assumptions and judgements made by the valuer 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 (including the timing of revenue recognition,
the treatment of rents, incentives and recognition of trading
property proceeds)
Certain transactions require management to make judgements as to
whether and to what extent they should be recognised as revenue in the year.
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.
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. The Group uses CBRE, a leading firm in the
UK property market, as its principal valuer. It also involves EY as the external
auditor which is assisted by its own specialist team of chartered surveyors who
are familiar with the valuation approach and the UK property market.
EY met with CBRE 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 valuer arriving at its valuations.
CBRE submits its valuation report to the Committee as part of the half-yearly
and full year results process. They were asked to attend and present their report
to the Board and to highlight any significant judgements made or disagreements
which existed between themselves and management. There were none.
The valuer proposed changes to 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, objectively and in accordance with the valuer’s
professional standards.
The Committee and EY considered the main areas of judgement exercised
by management in accounting for matters related to revenue recognition,
including timing and treatment of rents, incentives, surrender premia and
other property-related revenue.
EY 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.
It performed data analytics over the whole population of leases in the Group’s
portfolio, analysing data held in the Group’s document and property
management system.
In its assessment, the Committee, in consultation with EY, considered all relevant
facts, challenged the recoverability of occupier 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 EY and management.
The Committee, having consulted with EY, concurred with the judgements
made by management and were satisfied that the revenue reported for the
year had been appropriately recognised.
The above description of the significant financial matters should be read
in conjunction with the Independent Auditor’s Report on pages 117-122
and the significant accounting policies disclosed in the notes to the
financial statements.
Further details on significant accounting judgements and key estimations
of uncertainty can be found in note 2 to the financial statements on
page 128.
Landsec Annual Report 2018
83
Governance
Engaging with our investors
We regularly review and
refresh our engagement
with shareholders, lenders
and bondholders.”
2018 investor conference
This year’s investor conference focused on
the Retail Portfolio and was held in Oxford.
Almost 50 investors and analysts attended
the day together with around 25 Landsec
colleagues from every function of the
Retail business.
The day started at Balliol College with
a presentation about Oxford, followed by
a walk through Oxford’s main shopping
streets before arriving at Westgate Oxford.
At Westgate, a management presentation
was followed by a tour of the centre
to highlight particular aspects of the
scheme such as design, construction
and sustainability. The event finished with
lunch at one of the restaurants on the roof
terrace of Westgate, demonstrating the
quality of food offering in this latest
addition to the Landsec Retail Portfolio.
Investor
Relations
Approach to investor relations
We are committed to maintaining an open
dialogue with shareholders and the Board
recognises the importance of that relationship
in the governance process. The Chairman,
supported by the Executive Directors, has overall
responsibility for ensuring that we listen to and
effectively communicate with our shareholders.
We have a comprehensive investor relations
programme (designed for institutional investors,
private shareholders and debt investors)
which aims to help our existing and potential
investors understand our business, strategy and
performance. Shareholder feedback is provided
to the Board to ensure that it understands the
objectives and views of major investors.
We approach our debt investor relations on a
partnership basis, ensuring that any feedback
is considered and that we take into account
best practice guidance from the Investment
Association.
Institutional shareholders’ programme
— The Executive Directors had meetings with
shareholders representing more than half
the register by value during the year
— The geographic spread of the programme
covered Europe, North America, South Africa
and the Far East
— The Senior Independent Director, and other
Non-executive Directors, were available to
meet with shareholders
— Institutional shareholders were invited to
attend the Company’s full year and half-
yearly results presentations.
Investor conference
The investor conference is held annually and
focuses on the Retail and London portfolios
in alternate years.
The presentations and an audio recording of
the conference were made available on the
corporate website to enable non-attendees
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, including Gunwharf
Quays, Westgate Oxford and key properties
in Victoria, SW1, and 20 Fenchurch Street, EC3.
We conducted meetings during the year with
the sales teams of the major investment banks
which provided the Executive Directors with
the opportunity to present our strategy and
performance directly and take questions.
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 and JP Morgan conferences
in London, the Bank of America Merrill Lynch
conference in New York, the Kempen conferences
in Amsterdam and New York, The Citi conference
in Miami and the HSBC conference in Cape Town.
Other initiatives
The Senior Independent Director 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 Company Secretary.
During the year they were also able to meet
Directors at the Annual General Meeting
and the Extraordinary General Meeting
in September.
Investor relations events
2017
April
May
June
July
August
September
October
November
December
January
February
March
Close
period
Preliminary
results
Post-results
investor
meetings in
London and
Scotland
Real estate
investor
conference in
The Netherlands
84
Landsec Annual Report 2018
Investors
meetings in
Zurich and
Frankfurt
North
American
investor roadshow:
Toronto, New York
and Boston
Fitch
annual
review
meeting
Bond
holder
updates
Annual
General
Meeting
Standard
& Poor’s
annual review
meeting
Analyst
meetings
with the Chief
Financial
Officer
Real estate
conference in
New York
Close
period
Extraordinary
General
Meeting
Half-yearly
results
Post results
investor meetings
in London and
The Netherlands
Real estate
investor
conference
in London
Bond
holder
updates
Investors
meetings in
the Far East
and South
Africa
Bond
holder
updates
North
American
investor roadshow:
Toronto, New York
and Boston
Landsec
investor
conference
in Oxford
Sales team
presentations
(CEO and CFO)
Moody’s
annual
rating
review
Real estate
investor
conference
in Miami
Sales team
presentations
(CEO and CFO)
Real estate
investor
conference in
New York
Heads
of equity
dinner
2018
Real estate
investor
conference
in London
Listening to our shareholders
Common themes raised by
our institutional and individual
shareholders throughout the
year included:
— Our view on the market
and the positioning of the
business. In particular,
the short-term outlook for
the London office market
and the pressures facing
the retail market
— Sources of rental growth in
the short term
— The acquisition of the three
outlets
— Share buybacks
— Bond purchases and issuance
— The pre-letting of 21 Moorfields
to Deutsche Bank
— The sale of 20 Fenchurch Street
— The return of capital and
share consolidation
— The serviced office market
in London
— The valuation of Bluewater
Our 2017 shareholder meetings
We held both our July Annual General Meeting
(AGM) and our Extraordinary General Meeting
(EGM) in September at our offices in Victoria
Street, SW1. Holding these meetings on-site
gave our shareholders the opportunity to
visit one of our buildings and also see our
developments around Victoria.
Our AGM provided all shareholders with an
opportunity to question the Board and the
Chairmen of each Board Committee on
matters put to the meeting. Shareholders who
attended the AGM received a strategic progress
update from the Chairman. Questions from
shareholders included detail on the letting
market and rents following completion of our
developments, what we had done to assess
our properties in light of the Grenfell Tower
tragedy and our borrowing and debt activity.
Our EGM was held for shareholders to approve
the return of part of the proceeds of our sale of
20 Fenchurch Street. Shareholders approved the
receipt of 60p per share and a resulting share
consolidation which changed the denomination
of our shares to 102/3p. It also provided our
shareholders with an opportunity to ask
questions about the transaction and return of
capital. For more detail on our return of capital
and share consolidation see page 113.
The results of voting at general meetings
are published on the Company’s website:
landsec.com/investors.
Reuniting our shareholders with
unclaimed dividends
In December 2017, together with our Registrar
Equiniti and its partner ProSearch, we launched
an asset reunification programme with the
intention of reuniting our shareholders with
uncashed dividend entitlements. To date, we
have successfully returned over £70,000 to
shareholders. The programme will continue
until the end of June 2018.
Debt investors’ programme
Credit side institutional investors and analysts
Our treasury team held non-deal specific
meetings with credit side institutional
investors and analysts after the half-year
and full year results.
In addition, the team met with a number
of accounts to gather feedback on the bond
tender and new issue exercises in February/April
of this year.
1:1 meetings were offered to investors and
analysts in September and March to support
the bond tender and new issue exercises.
Banks
Regular dialogue is maintained with our
key relationship banks, including at least
bi-annual meetings with our treasury team
and in-house dinners hosted by the Executive
and Non-executive Directors.
Our treasury team also actively engaged with
potential lenders.
Credit rating agencies
During the year, business and financial updates
were provided by our treasury team and Senior
Management to Standard & Poor’s, Fitch Ratings
and Moody’s.
Further information for our debt investors can
be found on our website: landsec.com/investors.
Independent feedback on investor relations
During the coming year, the Board will
commission an independent adviser to
conduct the biennial investor audit of investor
perceptions of the Company, its management,
strategy, governance and the investor relations
programme. The feedback from the audit will
be presented to the Board to help Directors
develop their understanding of shareholders’
needs and expectations.
Investor relations events
2017
2018
April
May
June
July
August
September
October
November
December
January
February
March
Close
period
Preliminary
results
Post-results
investor
meetings in
London and
Scotland
Real estate
investor
conference in
The Netherlands
Investors
meetings in
Zurich and
Frankfurt
North
American
investor roadshow:
Toronto, New York
and Boston
Fitch
annual
review
meeting
Bond
holder
updates
Annual
General
Meeting
Standard
& Poor’s
annual review
meeting
Analyst
meetings
with the Chief
Financial
Officer
Real estate
conference in
New York
Close
period
Extraordinary
General
Meeting
Half-yearly
results
Post results
investor meetings
in London and
The Netherlands
Real estate
investor
conference
in London
Bond
holder
updates
Investors
meetings in
the Far East
and South
Africa
Bond
holder
updates
North
American
investor roadshow:
Toronto, New York
and Boston
Real estate
investor
conference
in London
Landsec
investor
conference
in Oxford
Moody’s
annual
rating
review
Sales team
presentations
(CEO and CFO)
Real estate
investor
conference
in Miami
Real estate
investor
conference in
New York
Sales team
presentations
(CEO and CFO)
Heads
of equity
dinner
Landsec Annual Report 2018
85
Governance
n
o
i
t
a
r
e
n
u
m
e
R
n
a
m
r
i
a
h
C
y
e
l
l
a
P
n
o
m
i
S
e
e
t
t
i
m
m
o
C
Directors’
Remuneration
Report –
Chairman’s
Annual
Statement
Committee members
Simon Palley (Chairman)
Dame Alison Carnwath
Edward Bonham Carter
Cressida Hogg
Highlights
— Appointment of Colette O’Shea
and Scott Parsons to the Board
— Review of all elements of our
Directors’ Remuneration Policy
— Annual bonus outturns broadly
in line with last year
— A challenging year for the
Long-Term Incentive Plan
Key responsibilities
— Ensuring the Directors’
Remuneration Policy remains fit
for purpose and is implemented
reasonably
— Maintaining a strong link
between returns to shareholders
and reward for Executives
— Oversight of all key reward
matters across the Group,
including Gender Pay reporting
— Approving individual reward
outcomes for the Executive
Directors and the Executive
Committee
86
Landsec Annual Report 2018
Dear shareholder
I am pleased to
introduce the Directors’
Remuneration Report
for the year.
In the context of continued uncertainty in
our two key markets, the Board has continued
to focus on ensuring that the business is in
the best possible position to withstand the
currents of change and take advantage of
new opportunities as and when they arise.
The appointment of Colette O’Shea and Scott
Parsons to the Board has enabled the Non-
executive Directors to spend more time with
these senior executives, and the Remuneration
Committee has spent time ensuring that
this was a smooth transition from a reward
perspective. We have also sought to incentivise
the executives in their quest to identify and
measure those leadership capabilities that will
be critical to business performance in the years
ahead – innovation and customer insight being
two key examples.
In late 2017, we conducted a thorough review
of our Directors’ Remuneration Policy (DRP),
in conjunction with our independent advisers,
AON Hewitt. Our DRP was last put before
shareholders in 2015, and so we are now seeking
approval to cover the three-year period to 2021.
We have been very aware of the level of scrutiny
focused on executive pay by all stakeholder
groups, and the differing opinions on the
optimum construct of both short- and long-
term elements of remuneration. With this in
mind, we have conducted a detailed review
of each element of our policy to ensure that
they reflect current external sentiment, and,
crucially, continue to drive the right leadership
behaviour from our most senior employees.
Key considerations in the review included our
business strategy, the views of shareholders and
other stakeholders, and the latest institutional
investor guidelines and market practice. We
have also reflected on whether now was the
right time to radically simplify our long-term
incentive arrangements, and we looked at
our key performance measures (Total Property
Return, Total Shareholder Return and Revenue
Profit) in detail to see whether adjustments
might produce more precise and meaningful
measures of absolute and relative performance.
Our conclusion was that, in the absence of any
compelling reason to change, maintaining
consistency is important, particularly when
market conditions toughen and the targets
become, if anything, more stretching.
the leaders of the business to focus on those
key capabilities that will drive relative, rather
than absolute outperformance, however the
market behaves. I am very grateful to those
shareholders who have engaged with us in
the consultation process, and provided such
positive and constructive feedback.
The proposed DRP is laid out in detail in the
following pages, and, as we did last year, we
have also included a summary of how the DRP
will be applied in the year ahead. Following
positive feedback from shareholders, we have
again included an “at a glance” summary of
remuneration outturns for the year in a broader
organisational context, including our gender pay
report. This is followed by all the supporting detail
on both short- and long-term incentive plans.
Remuneration outcomes for the year
The annual bonus for the year was slightly
above target for Executive Directors, broadly
in line with last year. The performance can
be summarised as follows:
— As in prior years, our measure of Total
Property Return uses a challenging unweighted
IPD benchmark of all March valued properties.
The benchmark was not available at the
time of writing, but on the strength of the
monthly and quarterly data, we expect to
underperform, resulting in no payment from
this element of the bonus.
— The revenue profit performance was again
very strong, significantly above our threshold
set in 2015. This reflects the successful leasing
of our London development programme
and the acquisition of the outlet portfolio
in Retail. This element of the plan paid out
at near maximum level.
— Performance against the specific business
objectives was more mixed. Although
Westgate Oxford was a very successful
launch, costs slightly exceeded the original
estimate, and we fell just short of the
extremely stretching leasing targets set.
The same can be said for the Piccadilly
Lights refurbishment in London, although
the London team have done exceptionally
well to all but complete the letting of the
speculative development programme.
The challenging objectives set around
Community, Sustainability and Diversity
have seen pleasing progress.
When this performance was combined with the
strong performance against their individual
objectives, the total bonus pay-out was 88.2%
of salary for both Robert Noel and Martin
Greenslade. Colette O’Shea and Scott Parsons
remained on their previous bonus arrangements
for the duration of the year, and their outturns
were 73.5% and 63.5% of salary respectively.
We are therefore proposing only one change to
our DRP – the equalisation of pension provision
for the Executive Directors with the normal
arrangements for the wider workforce. This
policy will apply to all new Executive Directors.
Outside of this, we are happy that our current
DRP remains fit for purpose, in that it incentivises
Turning to the Long-Term Incentive Plan,
which is for performance over the three years
to 31 March 2018, I am disappointed to report
that we do not anticipate any pay-out this year,
based on our relative Total Property Return and
Total Shareholder Return. Although the business
is in strong shape, outperforming our FTSE 350
peer group is particularly challenging for a
large, generalist player whose strategy has
been to strengthen the balance sheet and
de-risk the business. In a market downturn,
it is possible that our relative performance
will be much stronger than our absolute, and
in this scenario the Executive Directors will be
rewarded accordingly.
Looking forward
Having reviewed our DRP in detail this year,
I don’t anticipate any major changes in the
focus of the Committee over the coming year.
We will continue to support the Landsec
executives in achieving the right balance
between the management of short-term
challenges and the identification of long-term
opportunities, and believe that we have the
right remuneration framework in place to
enable us to do this.
As I said earlier, I am very grateful to all of our
shareholders for their ongoing support and
feedback, and I hope very much that you will
feel able to approve the continued application
of our Directors’ Remuneration Policy with its
one small revision.
Simon Palley
Chairman, Remuneration Committee
In this section
Page 88 Remuneration
at a glance
— Remuneration Principles
and Structure
— Outcomes for the year.
Page 90 Annual Report on
Remuneration
— Detail on outcomes
for each element of
remuneration and for
each individual Director
— Performance targets
for the year ahead.
Page 105 Remuneration Policy
— Proposed Remuneration
policy for approval
— Application of the Policy
in the year ahead.
Landsec Annual Report 2018
87
Governance
Remuneration
at a glance
Remuneration policy and structure
Remuneration principles
We will reward competitively to attract and retain the best talent.
We will materially differentiate reward according to performance.
The breakdown of fixed and variable pay will be appropriate
to each role.
Performance targets will be stretching, and will balance both long-
and short-term performance, absolute and relative measures.
Our framework will be transparent with clear line of sight from
Landsec’s performance to individual outcomes.
Fixed
Variable
Short-term
Long-term
Basic salary
Annual Bonus
Long-term
incentive plan
awards
Benefits
Pension
Details on page 105
Details on page 106
Details on page 107
Linking remuneration to strategy
KPIs
Link to remuneration (% of the total maximum)
Outturn 2017/18
50%
50%
26%
26%
Three-year TSR
Three-year TPR
Total
One year TPR
Revenue profit
Piccadilly Lights refurbishment
London development programme
Westgate Oxford opening
Embedding brand and culture
Progress towards diversity targets
Creating innovation capability
4%
7%
7%
5%
3%
3%
Delivering sustainability targets
6%
Individual targets
Total
13%
To read more about our strategy, go to page 16
To read more about our KPIs, go to page 20
88
Landsec Annual Report 2018
100%
100%
Remuneration across the Group
Gender pay reporting
CEO remuneration
91.8%
37.8%
-37%
of employees received a pay increase
Gender Pay Gap (mean hourly pay)
Total remuneration
2.5%
37.9%
Average pay increase in the annual review
Gender Pay Gap (median hourly pay)
£1,693,302
CEO single figure 2018
89.6%
of employees received a bonus
£14,198
Average bonus
£52m
Total spend on pay
63.9%
Mean bonus Gap
60.1%
Median bonus Gap
+2.2%
Annual bonus
0%
LTIP vesting
Summary of Executive Directors’ remuneration1
Table 40
Robert Noel,
Chief Executive
(£000)
Martin Greenslade,
Chief Financial Officer
(£000)
Colette O’Shea,
Managing Director,
London Portfolio
(£000)
Scott Parsons,
Managing Director,
Retail Portfolio
(£000)
£4,000
£3,000
£2,000
£1,000
0
2,692
1,693
1,774
1,108
197
186
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
Basic salary
784
769
510
500
104
Benefits
Pension allowance
Annual bonus paid
in cash
Annual bonus
deferred into shares
21
196
392
300
21
192
384
293
20
128
255
195
19
125
250
181
Total emoluments
1,693
1,659
1,108
1,075
Long-term incentives
vested
–
1,033
–
699
4
13
76
–
197
–
–
–
–
–
–
–
–
104
5
11
66
–
186
–
–
–
–
–
–
–
–
1. All the data and charts shown for Colette O’Shea and Scott Parsons reflect their appointment to the Board on 1 January 2018, and therefore represent the period from 1 January to 31 March 2018.
To read more go to page 91
Landsec Annual Report 2018
89
Linking remuneration to strategy
To read more about our strategy, go to page 16
To read more about our KPIs, go to page 20
Governance
Dates of appointment for Directors
(Unaudited) Table 41
Name
Executive Directors
Robert Noel
Martin Greenslade
Colette O’Shea
Scott Parsons
Non-executive Directors
Dame Alison Carnwath
Kevin O’Byrne1
Chris Bartram
Simon Palley
Stacey Rauch
Edward Bonham Carter
Cressida Hogg
Nicholas Cadbury
Date of appointment
Date of contract
1 January 2010
23 January 2012
1 September 2005
1 January 2018
1 January 2018
1 September 2004
1 April 2008
1 August 2009
1 August 2010
1 January 2012
1 January 2014
1 January 2014
1 January 2017
9 May 2013
1 January 2018
1 January 2018
13 May 2015
13 May 2015
13 May 2015
13 May 2015
13 May 2015
13 May 2015
13 May 2015
1 January 2017
1. Kevin O’Byrne stepped down from the Board on 27 September 2017.
1. Remuneration outcomes for
Directors during the year
In this section, we explain the pay outcomes
for Directors in relation to the financial year
ended 31 March 2018. Tables 42 and 43 show
the payments we expect to make and then
tables 44 to 48 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.
1.1 Directors’ emoluments (Audited)
The basis of disclosure in the table on page 91
is on an ‘accruals’ basis. This means that the
annual bonus column includes the amount
that will be paid in June 2018 in connection
with performance achieved in the financial year
ended 31 March 2018. It should be noted that
the annual bonus figure has been estimated
for the purposes of the table, as final data
on the Company’s Total Property Return
versus the peer group using the benchmark
(i.e. all March-valued properties) will not be
available until after the date of this report’s
publication. The estimate has been derived
from the most up-to-date performance
information available, and any payment made
will be based on the final performance data
when received and verified.
The values shown for the 2015 LTIP awards
for the three year performance period ended
31 March 2018 are based on estimated
achievements against the performance
measures. Currently we estimate the vesting
level on the 2015 LTIP to be zero.
Annual
Report on
Remuneration
The Annual Report on Remuneration describes
how the Directors’ Remuneration Policy
(“The Policy”), approved by shareholders at the
Annual General Meeting in July 2015, has been
applied in the financial year ended 31 March
2018. As previously stated, the policy has been
reviewed in 2018 and will be put to shareholders
for approval at the AGM in July.
During the course of 2017/18, the Remuneration
Committee was engaged in a number of key
matters, including:
— Conducting a thorough review of the
existing Directors’ Remuneration Policy
(including evaluation of alternative models),
and consulting with key shareholders
and their representatives on the proposed
minor revisions
— Determining the appropriate remuneration
arrangements for the two new Executive
Directors, Colette O’Shea and Scott Parsons.
— Overseeing the calculation and publishing
of the Group’s Gender Pay Report
— Determining salary increases for the Executive
Directors and Executive Committee members,
together with the overall level of salary
increases for employees across the Group
— Setting and subsequently reviewing the
outcomes for corporate, business unit and
personal targets under the annual bonus
scheme for Executive Directors and Executive
Committee members
— Reviewing and determining the outturns
against the performance conditions, and
subsequent vesting outcome, of awards
granted under the Long-Term Incentive Plan
(LTIP) and Matching Share Plan (MSP) in 2015
— Determining the annual level of LTIP grants
to Executive Directors,and LTIP and MSP
grants to Executive Committee members
and Senior Management
— Monitoring Directors’ compliance with the
Company’s share ownership guidelines
— Monitoring developments in stakeholder
sentiment on executive pay and corporate
governance more generally, including
participating in consultation exercises
where appropriate.
Unless otherwise stated, narrative and tables
are unaudited.
90
Landsec Annual Report 2018
Remuneration structure
Fixed
Variable
Short-term
Long-term
Basic salary
Annual Bonus
Long-term
incentive plan
awards
Benefits
Pension
Details on page 105
Details on page 106
Details on page 107
Single total figure of remuneration for each Executive Director (£000)
(Audited) Table 42
Basic salary1
Benefits2
Pension
allowance3
Annual bonus
paid in cash
Annual bonus
deferred into
shares
Total
emoluments
Long-term
incentives
vested4
Total
2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17
Executive Directors
Robert Noel
Martin Greenslade
Colette O’Shea5
Scott Parsons5
784
510
104
104
769
500
–
–
21
20
4
5
21
19
–
–
196
128
13
11
192
125
–
–
392
255
76
66
384
250
300
195
293
1,693 1,659
– 1,033
1,693 2,692
181
1,108 1,075
–
–
–
–
–
–
197
186
–
–
–
–
–
699
1,108 1,774
–
–
197
186
–
–
1. Basic salary is stated as a per annum figure for Robert Noel and Martin Greenslade. Actual salaries in the year were £781,479 (Robert Noel) and £508,700 (Martin Greenslade).
2. Benefits consist of a car allowance, private medical insurance, income protection and life assurance premiums.
3. The pension amount for Robert Noel and Martin Greenslade is based on a cash allowance of 25% of basic salary. The pension amounts shown for Colette O’Shea and Scott Parsons are
based on the maximum employer contributions into the Group Personal Pension Plan.
4. The long-term incentives for 2017/18 did not meet the performance criteria and therefore will vest at 0%. The long-term incentives vesting in 2016/17 were estimated in last year’s report,
so have been adjusted to reflect actual values based on a share price of £10.06 which was the market price on 3 July 2017 (first working day post vesting date). The impact of the adjustment
was a reduction of £29,765 for Robert Noel and a reduction of £20,135 for Martin Greenslade. As the values in the table above are based on the market price at vesting, the amounts may
differ to the values exercised during the year.
5. All information shown for Colette O’Shea and Scott Parsons has been pro-rated to reflect their appointments to the Board on 1 January 2018, and therefore relates to the period from
1 January to 31 March 2018. Annual basic salary for both was £415,000 per annum at 31 March.
Single total figure of remuneration for each Non-Executive Director (£000)
(Audited) Table 43
Basic salary
Benefits
Pension
allowance
Annual bonus
paid in cash
Annual bonus
deferred into
shares
Total
emoluments
Long-term
incentives
vested
Total
2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17 2017/18 2016/17
Non-executive Directors
Dame Alison Carnwath
375
375
Kevin O’Byrne1
Chris Bartram
Simon Palley
Stacey Rauch2
Edward Bonham Carter
Cressida Hogg
Nicholas Cadbury3
45
70
85
80
80
70
80
93
70
85
70
77
70
18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
375
375
45
70
85
80
80
70
80
93
70
85
70
77
70
18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
375
375
45
70
85
80
80
70
80
93
70
85
70
77
70
18
1. Kevin O’Byrne stepped down from the Board on 27 September 2017.
2. Stacey Rauch received a £10,000 supplement to her fee for leading the Chairman’s succession process on behalf of the Nomination Committee.
3. Nicholas Cadbury was appointed to the Board on 1 January 2017, and as Audit Committee chair on 27 September 2017.
Landsec Annual Report 2018
91
Governance
Annual Report on
Remuneration
continued
1.2 Annual Bonus Outturn
In the year under review, the Chief Executive (Robert Noel) and Chief Financial Officer (Martin Greenslade) had the potential to receive a maximum
annual bonus of up to 150% of basic salary. Of this, 130% was dependent on meeting Group targets and 20% dependent on meeting personal targets.
As the Managing Director, London Portfolio (Colette O’Shea), and the Managing Director, Retail Portfolio (Scott Parsons) were appointed to the Board
on 1 January 2018, their bonus potential remained at the existing level (up to 125% of basic salary) for the entire year to 31 March. Of this, 95% of basic
salary was dependent on meeting Group targets and 30% dependent on meeting personal targets. The proposed policy relating to maximum annual
bonus opportunity (150% of basic salary in total, split as for the other two Executive Directors) will apply to Colette O’Shea and Scott Parsons from
1 April 2018.
All targets were set at the beginning of the year. The following table confirms the targets and their respective outcomes. The on-target bonus
expectation for the year to 31 March 2018 was 75% of salary for Robert Noel and Martin Greenslade, and 62.5% of salary for Colette O’Shea and
Scott Parsons. The numbers below show full year outturns for Ms O’Shea and Mr Parsons.
Annual bonus outturn
Target
Assessment
Total Property Return – the Group’s ungeared Total Property
Return (TPR) relative to an IPD benchmark comprising all
March-valued properties (excluding Landsec). Total benchmark
value c. £170bn.
— The Group’s Total Property Return for the year was 4.4%,
an under-performance of 6.2% versus the estimated IPD
benchmark
0.0
— Therefore, none of this element is likely to pay out.
Share in long-term real growth in Group revenue profit.
— Revenue profit, adjusted to remove the re-financing benefit,
significantly exceeded the inflation-adjusted threshold level
set in 2015
— This element therefore paid out at 98% of the maximum.
Table 44
Proportion of total bonus
opportunity and percentage of
maximum awarded
Achieved
Maximum
98.0
Achieved
Maximum
Key business targets
Westgate Oxford – targets were set around the opening of the
centre on time and on budget, and on achieving specific leasing
targets by 31 March 2018. Net effective, rather than headline,
rents were used as the key measure of performance.
— For any payment, the centre had to be open on time (target
was on budget, and outperformance ahead of budget)
25.0
— The target was to be 95% let with a threshold target of
£24.3m and a maximum of £25.5m
— The centre opened successfully on time but was slightly
behind its budgeted cost and leasing targets
— This element therefore paid out at 25% of the maximum.
Achieved
Maximum
Completion of the London Development Programme – specific
targets were set relating to the key Victoria office buildings
(Nova and The ZigZag Building) and to 20 Eastbourne Terrace.
Again, net effective, rather than headline, rents were used as
the key measure of performance.
— Net effective rent targets were set ranging from £5.6m
100.0
for threshold to £9.3m for maximum
— The net effective rents achieved exceeded the
outperformance target for the aforementioned buildings
— This element therefore paid out in full.
Achieved
Maximum
Piccadilly Lights – completion of the screen replacement
programme on time and on budget with all screens let in line
with budget by 31 March 2018.
— The replacement programme was completed on time
50.0
and the remaining screens were let but marginally below
budgeted rents
— This element therefore paid out at 50% of the maximum.
Achieved
Maximum
Customers – ensuring that the new Landsec brand
and associated customer focused culture is embedded via the
rollout of a major internal programme. An improvement to
(already high) customer satisfaction scores in the Retail and
Leisure portfolios was also sought.
— The internal programme was rolled out across Landsec
66.6
and received very positive feedback
— The aggregate consumer satisfaction scores for Retail
were 93% (“highly satisfied” and “satisfied”)
— This element therefore paid out at 66.6% of the maximum.
Achieved
Maximum
92
Landsec Annual Report 2018
Annual bonus outturn continued
Target
Assessment
Proportion of total bonus
opportunity and percentage of
maximum awarded
People – make measurable progress towards our stated 2020
diversity targets:
1. Ensure that Landsec continues to meet all the voluntary
targets set by the Hampton/Alexander Review (33% of
Executive Committee and direct reports are female)
2. Increase female representation at Leader level to
30% – by 2020
3. Improve the engagement scores for BAME colleagues –
bringing them into line with employees overall
4. Improve the transparency of our reporting of all diversity
data, including the accurate measurement, and tracking
of engagement of other specific groups – including LGBT
and disabled colleagues.
People – build a new business capability around innovation,
including establishing an Innovation team and embedding
the Innovation value.
— Measurable progress has been made against 3 out of 4 targets
75.0
(see page 47 for more detail):
— Landsec continues to meet the voluntary Hampton/
Alexander target
— Female representation at Leader level has increased by 1.4%
— The October 2017 engagement survey showed no significant
disparity of engagement levels between ethnic groups
— This element therefore paid out at 75% of the maximum.
Achieved
Maximum
— The Innovation team is not yet established, although
33.3
progress has been made
— However, there are several active workstreams in
operation with the objective of harnessing new opportunities
(for example, via technology, or review of adjacent sub-
sectors) to serve our customers more effectively
— Therefore, this element paid out at 33.3% of the maximum.
Achieved
Maximum
Community Employment Programme – a target was set
to secure permanent employment for 174 (target) and 194
(maximum) candidates on the Community Employment
Programme and Landsec Trainee Academy.
— Employment was secured for 187 candidates on the
81.0
programme across the Group
— This element therefore paid out at 81% of the maximum.
Achieved
Maximum
Environment – larger energy-consuming sites (>1m kW) were
tasked with identifying and starting to implement energy
reduction opportunities.
— 88% of approved energy reduction opportunities have
100.0
commenced implementation
— This element therefore paid out in full.
Bonus paid as a % of basic salary
Target
Total Group elements
Executive Directors’ personal targets
The Chief Executive and Chief Financial Officer received
a number of personal targets, which included:
Percentage
of basic
salary
(maximum)
130.0
130.0
95.0
95.0
20.0
Assessment
Robert Noel
Martin Greenslade
Colette O’Shea
Scott Parsons
Achieved
Maximum
Table 45
Percentage
of basic
salary
awarded
72.2
72.2
52.8
52.8
— Personal development of succession candidates for all
— All members of the Executive Committee and ‘high potential’ employees have active
senior roles
personal development plans
— Addressing topics from the 2017 Board effectiveness
— Significant progress has been made on the amount of Board time allocated to Strategy,
review
Innovation, Risk and Culture
— Embedding new risk framework and responsibilities
— A new Head of Internal Audit and Risk Management has been appointed and a focus has
through the Business
been given to the embedding of the new framework
— Leadership in Creating Experiences programme
— All Executive Directors took a leading role in the rollout of the “Creating Experiences”
Programme
— Driving innovation strategy and embedding innovation
mindset through the business
— A search process is underway for a new Head of Innovation to lead a newly-created team.
Clear sponsorship has been provided for a variety of Innovation workstreams (see above)
— Ensuring Landsec’s leadership position on Sustainability.
— The Chief Executive continues to lead the Group’s Sustainability Committee, ensuring that
the agenda remains ambitious, and integrated into all business activities.
For 2017/18, the Managing Directors were assessed
against a number of personal objectives using an overall
ratings system, rather than a score. Their individual
bonus outcomes are shown opposite:
Total bonus opportunity
Robert Noel
Martin Greenslade
30.0
Colette O’Shea
Scott Parsons
150.0
150.0
125.0
125.0
Robert Noel
Martin Greenslade
Colette O’Shea
Scott Parsons
16.0
16.0
20.7
10.7
88.2
88.2
73.5
63.5
Landsec Annual Report 2018
93
Governance
Annual Report on
Remuneration
continued
1.3 Long-Term Incentive Plan and Matching Share Plan outturns
The table below summarises how we have assessed our LTIP performance achievement over the three years to 31 March 2018. Awards granted in 2015
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 54
for more detail on how vesting levels are determined.
The performance calculation for awards granted in 2015 and vesting in 2018 are illustrated below:
Long-Term Incentive Plan and Matching Share Plan outturns
Target
Ungeared Total
Property Return
Total Shareholder Return
Percentage
of basic salary
(maximum)
75 + 75 (maximum
shares pledged)
75 + 75 (maximum
shares pledged)
Assessment
The Group’s Total Property Return1 over the three-year period was 6.6% per annum
compared with the estimated performance of the unweighted IPD index including
all March-valued properties at 8.8%. Therefore, this element does not vest.
The Group’s Total Shareholder Return over the three-year period was -18.3%
versus that of the comparator group at 0.5%. As this return was below the
benchmark, this element of the total award does not vest.
Table 46
Outturn
Percentage
of maximum
0.0
0.0
1. The outturn is adjusted to take account of the performance of trading properties.
In total, therefore, no portion of the awards made in 2015 will vest in July 2018.
For awards granted in 2016, the Group’s performance over the two years to 31 March 2018 would, if sustained over the third year to 31 March 2019, result
in 0% of the LTIP share awards vesting. For awards granted in 2017, performance over the one-year period to 31 March 2018 would, if sustained over the
second and third years of the period to 31 March 2020, also result in 0% of the LTIP share awards vesting.
Total Shareholder Return – comparator group
Year of award
Table 47
Name
Assura PLC
Big Yellow Group PLC
Capital & Counties
Properties PLC
CLS Holdings PLC
Daejan Holdings PLC
Derwent London PLC
F&C Commercial Property
Trust Ltd
Grainger PLC
2015
2016
2017
20181
Name
2015
2016
2017
20181
Name
2015
2016
2017
20181
Great Portland Estates PLC
Hammerson PLC
Hansteen Holdings PLC
Intu Properties PLC
Londonmetric Property PLC
NewRiver REIT PLC
Redefine International REIT
PLC
Safestore Holdings PLC
Segro PLC
Shaftesbury PLC
St Modwen Properties PLC
The British Land Company PLC
Tritax Big Box REIT PLC
UK Commercial Property Trust
UNITE Group PLC
Workspace Group PLC
1. As proposed to apply for awards to be made this year under the LTIP.
94
Landsec Annual Report 2018
1.4 Individual outcomes by Executive Director versus Target and Maximum
Robert Noel,
Chief Executive
(£000)
Martin Greenslade,
Chief Financial Officer
(£000)
Colette O’Shea,
Managing Director,
London Portfolio1
(£000)
Scott Parsons,
Managing Director,
Retail Portfolio1
(£000)
Table 48
£4,000
£3,000
£2,000
£1,000
0
y
a
p
d
e
x
F
i
t
e
g
r
a
t
-
n
O
m
u
m
x
a
M
i
*
l
a
u
t
c
A
■ Basic salary
(20.6%)
■ Pension
(5.2%)
■ Benefits
(0.6%)
■ Annual bonus
(30.9%)
■ Long-term incentives (42.7%)
* Percentages are of
the maximum.
y
a
p
d
e
x
F
i
t
e
g
r
a
t
-
n
O
m
u
m
x
a
M
i
*
l
a
u
t
c
A
■ Basic salary
(20.6%)
■ Pension
(5.2%)
■ Benefits
(0.8%)
■ Annual bonus
(30.8%)
■ Long-term incentives (42.6%)
y
a
p
d
e
x
F
i
t
e
g
r
a
t
-
n
O
m
u
m
x
a
M
i
*
l
a
u
t
c
A
■ Basic salary
(12.6%)
■ Pension
(1.6%)
■ Benefits
(0.5%)
■ Annual bonus
(15.8%)
■ Long-term incentives (69.5%)
y
a
p
d
e
x
F
i
t
e
g
r
a
t
-
n
O
m
u
m
x
a
M
i
*
l
a
u
t
c
A
■ Basic salary
(13.2%)
■ Pension
(1.4%)
■ Benefits
(0.6%)
■ Annual bonus
(16.5%)
■ Long-term incentives (68.3%)
Outturn
Outturn
Outturn
Outturn
Percentage
of
maximum
achieved
(%)
Maximum
potential
(£000)
784
196
21
1,019
157
1,624
3,801
n/a
n/a
n/a
55.6
80.0
–
(£000)
784
196
21
566
126
–
1,693
Percentage
of
maximum
achieved
(%)
Maximum
potential
(£000)
510
128
20
663
102
1,057
2,480
n/a
n/a
n/a
55.6
80.0
–
(£000)
510
128
20
369
81
–
1,108
Percentage
of
maximum
achieved
(%)
Maximum
potential
(£000)
n/a
n/a
n/a
55.6
68.0
–
104
13
4
99
31
575
826
(£000)
104
13
4
55
21
–
197
Percentage
of
maximum
achieved
(%)
Maximum
potential
(£000)
n/a
n/a
n/a
55.6
35.0
–
104
11
5
99
31
539
789
(£000)
104
11
5
55
11
–
186
Element of pay
Basic salary
Pension
Benefits
Annual bonus2
— Company Performance
element
— Individual element
Long-term incentives3
Total
1. The figures and charts shown here for Colette O’Shea and Scott Parsons have been pro-rated to reflect the period from 1 January (when they were appointed to the Board) to 31 March,
with the exception of the maximum LTIP vesting where the whole amount applying to the three year performance period ending 31 March 2018 is shown.
2. Robert Noel – £300,000 of the annual bonus will be deferred into shares for one year. Martin Greenslade – £195,000 of the annual bonus will be deferred into shares for one year.
Colette O’Shea and Scott Parsons – all paid in cash as under 75% of salary (under previous bonus arrangements).
3. Value of shares due for vesting in 2018 calculated on basis of £9.54 average share price for the three-month period to 31 March 2018.
Landsec Annual Report 2018
95
Governance
Annual Report on
Remuneration
continued
2. Directors’ interests (Audited)
2.1 Total shareholding
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 required holding value
under the Company’s share ownership guidelines.
Directors’ shares
(Audited) Table 49
Name
Robert Noel2
Martin Greenslade3
Colette O’Shea3
Scott Parsons3
Dame Alison Carnwath4,5
Kevin O’Byrne (until September 2017)4
Chris Bartram4
Simon Palley4
Stacey Rauch4,6
Edward Bonham Carter4
Cressida Hogg4
Nicholas Cadbury4
Deferred
bonus shares
under holding
period
29,046
17,934
Salary/Fee
(£)
784,401
510,367
415,000
415,000
375,000
45,000
70,000
85,000
80,000
80,000
70,000
80,000
Required
holding
value
(£)
1,961,003
1,020,734
830,000
830,000
375,000
45,000
70,000
85,000
70,000
80,000
70,000
80,000
Holding
(ordinary
shares)
1 April
2017
293,849
386,223
43,168
53,490
151,338
11,552
14,478
17,061
8,000
10,000
10,000
1,900
Holding
(ordinary
shares)
31 March
2018
381,842
422,153
65,315
75,914
156,175
11,552
13,572
15,995
8,000
9,375
9,375
4,481
Value of
holding
(£)1
3,577,860
3,955,574
612,002
711,314
1,463,360
108,242
127,170
149,873
74,960
87,844
87,844
41,987
1. Using the closing share price of £9.37 on 31 March 2018.
2. Requirement for the Chief Executive to own shares with a value of 2.5x basic salary within five years of appointment.
3. Requirement for other Executive Directors to own shares with a value of 2.0x basic salary within five years of appointment.
4. Requirement for Non-executive Directors to own shares with a value of 1.0x their annual fee within three years of appointment.
5. On 6 April 2018, Dame Alison Carnwath acquired an additional 1,196 shares as a result of her participation in the Dividend Reinvestment Programme in respect of the third interim dividend
paid by the Company.
6. Stacey Rauch’s fee includes a one-off supplement of £10,000, not included for the purposes of the shareholding guidelines.
2.2 Outstanding share awards held by Executive Directors (Audited)
The table below shows the LTIP share awards granted and the LTIP and MSP awards vested during the year to the Executive Directors, together with
the outstanding and unvested LTIP and MSP share awards at the year end. From 2015, MSP awards for Executive Directors have been discontinued.
Outstanding LTIP and MSP share awards and those which vested during the year
(Audited) Table 50
Robert Noel
LTIP Shares
Name
Martin Greenslade
Matching Shares
LTIP Shares
Colette O’Shea
Matching Shares
LTIP Shares
Matching Shares
Scott Parsons
LTIP Shares
Matching Shares
96
Landsec Annual Report 2018
Performance
period to
31 March
2017
2018
2019
2020
2017
2017
2018
2019
2020
2017
2018
2019
2020
2018
2019
2020
2018
2019
2020
2018
2019
2020
Market
price at
award
date
(p)
1,039
1,335
1,005
1,029
1,039
1,039
1,335
1,005
1,029
1,039
1,335
1,005
1,029
1,335
1,005
1,029
1,335
1,005
1,029
1,335
1,005
1,029
Award
date
01/07/2014
10/08/2015
27/06/2016
26/06/2017
01/07/2014
01/07/2014
10/08/2015
27/06/2016
26/06/2017
01/07/2014
10/08/2015
27/06/2016
26/06/2017
10/08/2015
27/06/2016
26/06/2017
10/08/2015
27/06/2016
26/06/2017
10/08/2015
27/06/2016
26/06/2017
Nil-cost
options
awarded
102,638
170,240
229,453
228,583
102,638
69,431
110,816
149,361
148,795
69,431
37,650
50,497
49,908
22,590
30,298
29,945
35,297
47,574
47,017
21,178
28,544
28,210
Market
price at
date of
vesting
(p)
1,006
Nil-cost
options
vested
51,319
51,319
34,715
1,006
1,006
34,715
1,006
Vesting
date
01/07/2017
10/08/2018
27/06/2019
26/06/2020
01/07/2017
01/07/2017
10/08/2018
27/06/2019
26/06/2020
01/07/2017
10/08/2018
27/06/2019
26/06/2020
10/08/2018
27/06/2019
26/06/2020
10/08/2018
27/06/2019
26/06/2020
10/08/2018
27/06/2019
26/06/2020
2.3 Directors’ options over ordinary shares (Audited)
The options over shares set out below for Martin Greenslade relate to the Company’s Savings Related Share Option Scheme. The Scheme is open to all
qualifying employees (including Executive Directors) and under HMRC rules does not include performance conditions.
Outstanding Savings Related Share Options grants and those which were exercised during the year
(Audited) Table 51
Name
Martin Greenslade
Colette O’Shea
Scott Parsons
Exercised/(lapsed) during year
Number
of options
at 1 April
2017
1,060
878
–
1,938
–
–
1,767
1,767
Exercise
price per
share (p)
848.5
1,024.0
859.0
859.0
848.5
Number
of options
granted in
year to
31 March
2018
–
–
1,047
1,047
1,047
1,047
–
–
Number of
options
exercised1
Market
price at
exercise (p)
1,060
920
–
–
1,060
–
–
–
–
–
–
–
–
Number of
options at
31 March
2018
–
878
1,047
1,925
1,047
1,047
1,767
1,767
Exercisable dates
08/2017 – 02/2018
08/2018 – 02/2019
08/2020 – 02/2021
08/2020 – 02/2021
08/2019 – 02/2020
1. During the year, Martin Greenslade exercised options with a closing share price of £9.20 resulting in a gain of £758.
3. Application of Policy for 2018/19
3.1 Executive Directors’ base salaries
A formal salary benchmarking exercise was conducted this year for both the Chief Executive and Chief Financial Officer roles. The Managing Director
roles were not formally benchmarked this year, as both received salary increases based on market information in 2017. The conclusion of the 2018
benchmarking exercise was that the current remuneration arrangements for the Chief Executive and Chief Financial Officer continue to be competitive.
The Committee has therefore awarded all four Executive Directors a basic salary increase of 2%. This is slightly below the average increase received by
employees across the Group.
Accordingly, the following salary increases will take effect from 1 June 2018:
Executive Directors
Name
Robert Noel
Martin Greenslade
Colette O’Shea
Scott Parsons
Current
(£000)
784
510
415
415
From 1 June 2018
(£000)
Percentage
increase
Average percentage
increase over five years
(including 2018/19)
Table 52
800
521
423
423
2.0
2.0
2.0
2.0
N/A
N/A
3.2 Non-executive Directors’ fees
The fees for Non-executive Directors were last increased in 2016. In November 2017, we conducted a review in conjunction with our external advisers,
Aon Hewitt, to ensure that they remained broadly competitive. The conclusions from this review were that the current fees remain appropriate, and
therefore no changes are necessary.
Non-executive Directors’ fees
Chairman
Non-executive Director
Audit Committee Chairman
Remuneration Committee Chairman
Senior Independent Director
Table 53
(£000)
375.0
70.0
20.0
15.0
10.0
Landsec Annual Report 2018
97
Governance
Annual Report on
Remuneration
continued
3.3 Performance targets for the coming year
Table 54
Metric
Link to strategy and value for shareholders
Performance measure
Performance range
Long-Term Incentive Plan (LTIP)
— 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 £6.9bn, a 3% per annum
outperformance over three years
would generate approximately
£0.6bn 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
based on a comparator group
comprising all of the property
companies within the FTSE 350
Real Estate Index weighted by
market capitalisation (excludes
Landsec)
— 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.
— Threshold: Matching the
performance of the index
— Target: Outperformance of
the index by 1.3% per annum
— Maximum: 3% or more per
annum outperformance of the
index for maximum vesting.
— Ungeared Total Property Return
— 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 £14.1bn, 1% per annum
outperformance over three years
generates approximately £0.4bn
of value over and above that
which would have been received
had the portfolio performed in line
with the benchmark.
— Rewards annual 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 £14.1bn, 2%
outperformance would generate
approximately £0.3bn 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 three-year plan
set in 2018
— Adjustment for significant net
investment/disinvestment gives a
like-for-like view of performance
— Encourages sustainable dividend
growth and cover over the
medium-term.
(50.0% of overall award)
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)
98
Landsec Annual Report 2018
— Threshold: Matching the
performance of the benchmark
— Target: Outperformance of the
benchmark by 0.4% per annum
— Maximum: Outperformance
of the benchmark by 1% or more
per annum.
Measured over a period of three
financial years:
— The Group’s ungeared Total
Property Return (TPR) relative to
an IPD benchmark comprising all
March-valued properties (excluding
Landsec). Total benchmark value
c. £170bn
— 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.
— The Group’s ungeared Total
— Threshold: Matching the
Property Return (TPR) relative to
an IPD benchmark comprising all
March-valued properties (excluding
Landsec). Total benchmark value
c. £170bn
— 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.
performance of the benchmark
— Target: Outperformance of the
benchmark by 0.7% for the year
— Maximum: Outperformance of
the benchmark by 2% for the year
for the maximum award.
— Once the Group has met a
Will be confirmed in the 2019 report.
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.
3.3 Performance targets for the coming year continued
Metric
Link to strategy and value for shareholders
Performance measure
Performance range
Annual bonus – specific business targets
— Development of 21 Moorfields,
EC2 to be on programme and
on budget (4.3% of award, or
6.5% of salary)
— Feasibility work progressed on two
suburban London shopping centres
– O2 Finchley Road and W12
(4.3% of award, or 6.5% of salary)
— A high-profile City development
and key driver of income and
revenue profit in the future
— Proves the value of the development
and drives capital growth.
— Potential driver of income, revenue
profit and capital growth
— Positive impact on the local
communities.
— Execution of improvement
— Key in the delivery of projected
programmes for the three outlets
acquired in 2017 (4.3% of award,
or 6.5% of salary)
— Progress of Innovation workstreams
(8.6% of award, or 13% of salary)
performance targets
— Driver of income, revenue profit
and capital growth.
— Ensures that we are looking for
innovative ways of generating
value to shareholders
— Fosters a culture of innovation
in the business, enabling us to
attract high quality people.
— Specific threshold and stretch
targets have been set for the
21 Moorfields development (project
progress vs time and budget).
— Specific targets have been set
around the completion of
feasibility studies and submission
of planning applications.
— Specific targets have been set
around the completion of
feasibility work and submission
of planning applications.
— Three specific workstreams have
been selected for close review by
the Board and the Committee.
— Will be confirmed in the 2019 report.
— Will be confirmed in the 2019 report.
— Will be confirmed in the 2019 report.
— Significant progress is required for
maximum payout.
— Embedding of a truly customer-
centric culture and the Landsec
brand (4.3% of award, or 6.5%
of salary)
— Diversity – achieving real progress
on our stated 2020 targets
(3.5% of award, or 5.2% of salary)
— Community Employment
Programme (2.7% of award,
or 3.9% of salary)
— Ensures that the needs of
— Externally-facilitated qualitative
customers, both current and
future, are at the heart of our
culture, ways of working, and
decision-making.
research will be carried out with all
key stakeholder groups including
customers and employees.
— Allows us to attract and retain the
diverse talent (in terms of gender,
ethnicity and background)
necessary to fully anticipate the
changing needs of our customers.
— Further measurable progress, by
the end of March 2019, towards our
stated 2020 targets around gender
balance, ethnicity and data
transparency.
— Significant positive movement will
be required for maximum payout.
— For maximum, progress must have
been made against all four stated
targets (see page 47).
— A key way in which Landsec can
deliver on its commitment to the
communities in which it operates,
and create a sustainable future
by building a skilled workforce.
securing permanent employment
for further candidates by
extending the programme beyond
its current focus.
— A target has been set around
— Threshold: A further 143
— Environment – delivering
quantifiable energy reduction
targets across the portfolio
(2.7% of award or 3.9% of salary)
— Key to our long-term sustainability
and reputation as a responsible
business.
— Clear targets have been set
around the measurement of
energy reduction in our highest
consuming sites.
— Individual targets for Executive
Directors (13.0% of award, or
20.0% of salary)
— Ensures that each Executive
Director focuses on his or her
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 individual
goals set at the beginning of
the year.
candidates into employment
— Target: A further 160 candidates
into employment
— Maximum: A further 180
candidates into employment.
— Threshold: Agree to implement
initiatives leading to a 1%
reduction vs the 2013/14 corporate
baseline
— Target: Agree to implement
initiatives leading to a 2%
reduction vs the 2013/14 corporate
baseline
— Maximum: Agree to implement
initiatives leading to a 3%
reduction vs the 2013/14
corporate baseline.
— Will be confirmed in the 2019 report.
Landsec Annual Report 2018
99
Governance
Annual Report on
Remuneration
continued
4. Comparison of Chief Executive 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 nine 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 nine years is also included.
Adjacent to this chart is a table showing how the ‘single number’ of total remuneration for the Chief Executive has moved over the same period.
It should be noted that Robert Noel became Chief Executive in March 2012.
Total Shareholder Return
Chart 55
359.9
324.7
325.2
323.9
326.9
304.0
303.0
298.8
250.3
250.9
214.2
203.0
285.0
264.4
201.5
224.1
207.5
188.2
176.4
170.3
188.9
163.6
162.5
156.7
150.4
183.6
161.6
)
d
e
s
a
b
e
r
(
)
£
(
e
u
a
V
l
400
350
300
250
200
150
100
50
0
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Land Securities Group PLC
FTSE 100
FTSE 350 Real Estate
This graph shows the value, by 31 March 2018, of £100 invested in Landsec on 31 March 2009, compared with the value of £100 invested in the FTSE 100
and FTSE 350 Real Estate Indices on the same date.
Chief Executive remuneration over nine years
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
Chief Executive
Robert Noel
Robert Noel
Robert Noel
Robert Noel
Robert Noel
Robert Noel
Francis Salway
Francis Salway
Francis Salway
Single figure
of total
remuneration
(£000)
Annual bonus
award against
maximum
opportunity1
(%)
Table 56
Long-term
incentive vesting
against amount
awarded
(%)
1,693
2,692
2,011
4,776
2,274
2,678
2,769
1,798
1,694
58.8
58.8
67.5
94.5
71.0
86.0
24.0
39.0
34.0
0.0
50.0
13.1
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 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.
100
Landsec Annual Report 2018
5. The context of pay in Landsec
5.1 Pay across the Group
a. Senior Management
During the year under review, bonuses (including discretionary bonuses) for our 14 most senior employees (excluding the Executive Directors) ranged
from 36% to 64% of salary (2017: 37.6% to 74.5%). The average bonus was 52% of salary (2017: 55.6%). The LTIP and MSP 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 2.5%. Including salary adjustments and promotions for employees
below the Board, this rose to 2.75%. The ratio of the salary of the Chief Executive to the average salary across the Group (excluding Directors) was 14:1
(£784,041: £54,558).
% change
Chief Executive
Average employee
Salary
(%)
+2.0
+2.5
Benefits
No change
No change
5.2 The relative importance of spend on pay
The chart below shows the total spend on pay for all Landsec employees, compared with our returns to shareholders in the form of dividends:
Spend on pay1
Dividend paid2
1. Including base salaries for all employees, bonus and share-based payments.
2. See note 11 to the financial statements.
March 2018
(£m)
52
314
March 2017
(£m)
50
289
Table 57
Bonus
(%)
+2.1
+9.0
Table 58
% change
4.0
8.7
6. Dilution
Awards granted under the Company’s long-term incentive arrangements, which cover those made under the LTIP, MSP, Deferred Share 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 Group PLC shares in the market. The Employee Benefit Trust held 1,178,179 shares at 31 March 2018.
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, can be satisfied by the allotment of newly issued shares. At 31 March 2018, the total number of shares which could
be allotted under this Scheme was 304,582 shares, which represents less than 0.1% 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, Edward Bonham Carter and Cressida Hogg. The Committee meetings were also
attended by the Chief Executive, the Group Human Resources Director, and the Group General Counsel and 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 AON Hewitt. 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 General
Counsel and Company Secretary and the Group Human Resources Director. AON Hewitt 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 remuneration for roles below the Board, AON Hewitt has no other connection with the Group. For the financial year under review,
it received fees of £71,035 in connection with its work for the Committee. The increase on last year can be explained by the support provided by
AON Hewitt for the review of the Directors’ Remuneration Policy.
8. Results of the voting on the Directors’ Remuneration Report at the AGM in 2017
The votes cast on the resolutions seeking approval in respect of the Directors’ Remuneration Report at the Company’s 2017 AGM were as follows:
Resolution
To approve the Annual Report on Remuneration for the year ended 31 March 2017
% of votes
For
98.83
% of votes
Against
1.17
1. A vote withheld is not a vote at law.
The Directors’ Remuneration Report was approved by the Board on 14 May 2018 and signed on its behalf by:
Simon Palley
Chairman of Remuneration Committee
Table 59
Number of votes
withheld1
590,685
Landsec Annual Report 2018
101
Governance
As before, once it has been approved, the
Committee will operate within the policy at all
times. It will also operate the various incentive
plans and schemes according to their respective
rules and consistent with normal market
practice, the UK Corporate Governance Code
and, as applicable, the Listing Rules. Within the
DRP, 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 year’s Annual
Report on Remuneration.
The diagram below shows the structure of our
remuneration arrangements. More detail on the
discretion reserved to the Committee for each
element of the remuneration package can be
found on pages 105-108.
— A two-year LTIP post-vesting holding period
operates; and
— There is shareholding requirement of 250%
of salary for the CEO and 200% of salary
for other Executive Directors.
There have been no material changes in the
nature or scope of the business over the past
three years, which remains focussed on the
UK commercial real estate sector. We believe
the current DRP provides a competitive and
targeted remuneration package that will only
reward the Executive Directors for delivering
our collective key long-term objectives of
long-term sustainable returns to shareholders
and maximising investment returns on the
Company’s property portfolio.
The one area we are proposing to change is our
approach to pension provision for our Executive
Directors. Some shareholders have expressed
a desire for pension allowances to be aligned
downward with the employer contribution
percentages for the wider workforce. We are
proposing a reduction in the pension allowance
level for new Executive Director appointments
from the current 25% to 10.5% of basic salary.
This will bring the contribution level for new
Executive Directors into line with normal
maximum employee contributions for the
general company workforce.
Outside of this one important change to
pension arrangements, we believe that the
current DRP remains fit for purpose and no
other material changes are proposed. We are
very grateful for the time that our key investors
have given to reviewing our proposals, including
those with whom we have held very helpful
face-to-face meetings. The DRP as stated below
will therefore be put to a formal shareholder
vote at the 2018 Annual General Meeting in July.
Summary
of Directors’
Remuneration
Policy
Approach to policy
As was highlighted last year, the three-year
approval of our Remuneration Policy by
shareholders expires in 2018 and we are
therefore seeking a fresh mandate from our
shareholders at the 2018 AGM for a new policy.
Over the last three years, we have been very
appreciative of the support demonstrated for
our current policy, and last year’s Remuneration
Report received a 99% vote in favour. We do
not believe that there is a compelling case for
proposing a radical change to the design of
our Executive Pay policy at this point, and the
changes we are proposing are therefore limited.
The current and proposed Directors’
Remuneration Policy (DRP) includes the
following key features:
— It is based on a pay-for-performance model
(fixed pay, plus annual bonus and Long-Term
Incentive Plan (LTIP));
— Annual performance is assessed against
a scorecard of financial and strategic key
performance indicators (KPIs), with an
emphasis on financial outcomes;
— Part of the annual bonus is deferred
into shares;
— Long-term performance is assessed by the
delivery of long-term sustainable returns to
shareholders (relative total shareholder return
(TSR)) and superior relative investment
returns on the Company’s property portfolio;
Remuneration structure
Fixed
Variable
Short-term
Long-term
Basic salary
Annual Bonus
Long-term
incentive plan
awards
Benefits
Pension
Details on page 105
Details on page 106
Details on page 107
102
Landsec Annual Report 2018
Fixed and variable pay reward
scenarios
Total opportunity at maximum and
target levels
The charts that follow illustrate the
remuneration opportunity provided to each
Executive Director at different levels of
performance for the coming year.
Fixed and variable pay reward scenarios (£000)
£5,000
£4,621
Table 60
£4,000
£3,000
£2,000
£1,000
0
£5,000
£4,000
£3,000
£2,000
£1,000
0
£2,821
£1,021
y
a
p
d
e
x
F
i
t
e
g
r
a
t
-
n
O
m
u
m
x
a
M
i
£3,013
£1,842
t
e
g
r
a
t
-
n
O
m
u
m
x
a
M
i
£671
y
a
p
d
e
x
F
i
Robert Noel, Chief Executive
Martin Greenslade, Chief Financial Officer
£493
y
a
p
d
e
x
F
i
£1,233
t
e
g
r
a
t
-
n
O
£1,974
m
u
m
x
a
M
i
£487
y
a
p
d
e
x
F
i
£1,227
t
e
g
r
a
t
-
n
O
£1,968
m
u
m
x
a
M
i
Colette O’Shea, Managing Director,
London Portfolio
Scott Parsons, Managing Director,
Retail Portfolio
■ Fixed pay
■ Annual bonus
■ Long-term incentives
In developing the above scenarios, the following assumptions have been made:
Fixed pay
— Consists of the latest basic salary,
benefits and pension allowances
— Pension allowance calculated at
25% of new basic salary for Robert
Noel and Martin Greenslade,
12.5% for Colette O’Shea and
10.5% for Scott Parsons.
Robert Noel,
Chief Executive
Martin Greenslade,
Chief Financial Officer
Colette O’Shea,
Managing Director, London Portfolio
Scott Parsons,
Managing Director, Retail Portfolio
Based on what an Executive Director
would receive if performance was in
line with expectations:
— Annual bonus pays out at 50%
of the maximum
— LTIP is assumed to vest at 50%
of the total award
On-target
award
Maximum
award
Annual bonus pays out in full;
LTIP vests in full
Basic salary
(£000)
Benefits
(£000)
Pension
(£000)
Total fixed
(£000)
800
521
423
423
21
20
17
19
200
130
53
45
1,021
671
493
487
Landsec Annual Report 2018
103
Governance
Summary of Directors’
Remuneration Policy
continued
Payment schedule
The following table illustrates in which financial
years the various payments in the charts are
actually made or released to Executive Directors.
For illustration purposes only, the table assumes
that the annual bonus payment is equivalent to
at least 100% of salary.
Payment schedule
Chart 61
Financial year
Base year
Base year +1
Base year +2
Base year +3
Base year +4
Base year +5
Element on
remuneration
received
1
Basic salary
2
Benefits
3
Pension
4
6
7
The annual bonus
targets are measured
and the first portion
of the annual bonus
(i.e. up to 50% of
salary) is paid in cash
5
The remainder is
deferred into nil-cost
options
The first deferred
portion of the annual
bonus (i.e. between
50% and 100% of
salary) vests
The final portion of
the annual bonus
(i.e. awards in
excess of 100% of
salary) vests
8
LTIP awards vest
but remain subject
to a two-year
holding period1
9
Holding period on
LTIP awards ends
APR
SEP
MAR APR
SEP
MAR APR
SEP
MAR APR
SEP
MAR APR
SEP
MAR APR
SEP
MAR
1 2 3
4 5 6 7
8 9
Annual bonus (cash and deferred shares) and vested and unvested
LTIP awards are subject to withholding and recovery provisions
Performance period
Basic salary review
Payout
1. Assumes base year is year 1 of a three-year performance period.
104
Landsec Annual Report 2018
Proposed Remuneration
Policy
1. Executive Directors
Purpose and link to strategy
Operation
Opportunity
Discretion
1
Basic salary
— To aid the recruitment, retention
and motivation of high performing
Executive Directors
— To reflect the value of their
experience, skills and knowledge,
and importance to the business
2
Benefits
— To provide protection and market
competitive benefits to aid
recruitment and retention of high
performing Executive Directors
3
Pension
— To help recruit and retain high
performing Executive Directors
— To reward continued contribution to
the business by enabling Executive
Directors to build retirement benefits
— For 2018/19, the annual basic salaries
of the Executive Directors are
£799,722 (Chief Executive), £520,574
(Chief Financial Officer), and
£423,300 for each of the two
Managing Directors. This represents
a 2% increase for each, slightly below
the average increase for the
workforce in general
— The Committee has the discretion
to determine the precise amount
of basic salary within the DRP,
including approving the salary for a
newly-appointed Executive Director.
It will also determine whether there
are specific reasons to award salary
increases greater than those for the
wider workforce
— The maximum annual salary increase
will not normally exceed the average
increase across the rest of the
workforce (2018: 2.5%). 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 Executive Director
— Where the Executive 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 DRP will always apply as stated,
unless there are specific individual
circumstances why it should not
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 an Executive
Director’s role may also require a
further adjustment to salary
Executive Directors receive
a combination of:
— 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
— Participation into a defined
— Unless they choose to take
— The DRP will normally apply as stated.
contribution pension scheme
or cash equivalent
However, the Committee has the
discretion to maintain existing
arrangements for current Directors
membership of the occupational
pension scheme, Directors receive
a pension contribution or cash
allowance of 10.5% of salary, in
line with the maximum employer
contribution for employees in
the Company’s Group Personal
Pension Plan. The current Chief
Executive Officer and Chief Financial
Officer each receives a cash
contribution of 25% of salary, which
was the previous policy. The Managing
Director, London Portfolio receives a
cash contribution of 12.5% of salary, an
historic personal term of employment
Landsec Annual Report 2018
105
Governance Proposed
Remuneration Policy
continued
1. Executive Directors continued
Purpose and link to strategy
Operation
Opportunity
Discretion
— The Committee has the discretion to
set targets and measures each year
— Although many of the outturns for
the Group element of the bonus plan
are calculated formulaically and
therefore the Committee has no
discretion to adjust these, it applies its
judgement to assess progress against
some of the broader measures, and in
every case is able to use its discretion
to adjust them down if appropriate
— The Committee does have the
discretion to award appropriate
bonus payments under the individual
element (maximum 20% of basic
salary) to reflect the performance
and contribution of an individual
Executive 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 Executive
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 Executive
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
4 5 6 7
Annual bonus
— To incentivise the delivery of
— All measures and targets are
— Minimum bonus payable is 0%
of salary
— Maximum bonus potential is 150%
of salary
stretching, near-term business targets
and personal performance objectives
— To reward near-term outperformance
relative to industry benchmarks
— Specific business measures and
targets, for example development
lettings targets, progress of new
developments, and asset
management initiatives, will protect
the value of our properties in the
short term, provide future
opportunity for the business, and
create long-term revenue profit
performance
— The inclusion of broader KPIs – for
example Sustainability and Diversity
targets, ensure that these important
priorities get the required focus from
the executives
— 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
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
— 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 basic salary) of an Executive
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 individual 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
106
Landsec Annual Report 2018
Purpose and link to strategy
Operation
Opportunity
Discretion
8 9
Long-Term Incentive Plan (LTIP)
— Incentivises value creation over the
long-term in excess of that created
by general market increases, and
equally rewards outperformance
of our peer group when the overall
market has declined
— Rewards execution of our strategy
and the long-term outperformance
of our competitors
— The Committee may make an
annual award of shares under
the LTIP
— Vesting is determined on the basis
of the Group’s achievements
against stretching performance
targets over a fixed three-year
financial period and continued
employment. There is no re-testing
— Aligns the long-term interests of
— The Committee reviews the
— Award limit – 300% of salary
Executive Directors and shareholders
— Promotes retention
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
— In order to give the participants
greater flexibility over the timing
of exercise, the awards are given
as nil-cost share options with a
seven-year exercise period. Any
outstanding awards also vest as
nil-cost options, and dividends
accrue on vested options where
they are subject to a two-year
holding period, but not thereafter
— Executive Directors are required
to hold vested awards 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
— The Committee may use its discretion
to make lower grants of shares to
Executive Directors if appropriate.
For example the two Managing
Directors will receive share awards
equivalent to 200% of salary in 2018
— 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 DRP, 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 Executive
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
Landsec Annual Report 2018
107
Governance Proposed
Remuneration Policy
continued
1. Executive Directors continued
Purpose and link to strategy
Operation
Opportunity
Discretion
Savings Related Share Option Scheme (SAYE Scheme)
— To encourage all employees to make
— All employees, including Executive
a long-term investment in the
Company’s shares, through a
savings-related arrangement
Directors, are entitled to participate
in the SAYE Scheme operated by the
Company in line with UK HMRC
guidelines currently prevailing
— The maximum participation levels
may vary in line with HMRC limits.
For 2018/19, participants may save
up to £500 per month for either
three 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
— The DRP will apply as stated
— Within the DRP, the Committee
will retain the flexibility to determine
whether a departing Executive
Director should be treated as a
‘good leaver’
— The Executive Directors will be eligible
to participate in any other HMRC-
approved all-employee shareplans
that may be implemented
Share ownership guidelines
— To provide close alignment between
— Executive Directors are expected to
— N/A
— The DRP will apply as stated
the longer-term interests of Executive
Directors and shareholders in terms
of the Company’s growth and
performance
build up and maintain shareholdings
with a value set at a percentage of
basic 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
2. Non-executive Directors
Purpose and link to strategy
Operation
Opportunity
Base fee
— To aid the recruitment, retention and motivation
of high performing Non-executive Directors
— To reflect the time commitment given by Non-
executive Directors to the business
— The Chairman is paid a single fee for all Board
duties and the other Non-executive Directors
receive a basic Board fee, with supplementary
fees payable for additional responsibilities
— 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 current fees for Non-executive Directors are
shown in the Annual Report on Remuneration
on page 97
— 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
— Reviewed (but not necessarily changed) annually
required from Non-executive Directors in chairing
various Board sub-committees or becoming the
Board’s Senior Independent Director. Occasionally
awarded to a Non-executive Director who
completes a specific additional piece of work
on behalf of the Board
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 Non-executive
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
108
Landsec Annual Report 2018
Purpose and link to strategy
Operation
Opportunity
Other incentives and benefits
— N/A
— Non-executive Directors do not receive any other
remuneration or benefits beyond the fees noted
above. Expenses in relation to Company business
will be reimbursed (including any tax thereon,
where applicable)
— If deemed necessary, and in the performance
of their duties, Non-executive Directors may
take independent professional advice at the
Company’s expense
Share ownership
— To provide close alignment between the longer-term
interests of Non-executive Directors and shareholders
in terms of the Company’s growth and performance
— The current share ownership guidelines require
— N/A
Non-executive Directors to achieve an ownership
level of 100% of annual fees within three years
of appointment
3. Directors’ Service Agreements
and Letters of Appointment
3.1 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 at any time
by either party on giving 12 months’ prior
written notice.
The Company allows Executive Directors to hold
external non-executive directorships, subject to
the prior approval of the Board, and to retain
fees from these roles.
3.2 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 Director’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
Director 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 will vest on a pro-rated basis and
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 automatically lapse.
3.3 Remuneration of newly appointed
Executive Directors
The remuneration package for a new externally
appointed Executive Director will be set in
accordance with the terms of the Company’s
approved DRP in force at the time of
appointment. The Committee has the flexibility
to set the basic salary of a new hire at a
discount to the market level initially, with a
series of planned increases implemented over
the following few years (subject to performance
in the role) to bring the salary to the desired
positioning. Only in very exceptional
circumstances will the salary of a newly
appointed Executive Director exceed the market
median benchmark for the role.
The annual bonus will operate in accordance
with the terms of the approved DRP, 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 will also
operate in accordance with the DRP. The
maximum level of variable pay that may be
offered to a new Executive Director is therefore
at an aggregate maximum of 450% of salary,
but it may be lower. This limit does not include
the value of any buy-out arrangements deemed
appropriate (see over the page).
Landsec Annual Report 2018
109
Governance
4. Application of the Policy
Basic salary
Benefits
Pension
Annual Bonus
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
4 5 6 7
Annual bonus
Details on
page 98-99
— The maximum bonus potential
for the Executive Directors
will remain at 150% of salary.
No changes are proposed to
the weighting of the elements
of the plan which remain at:
— 26% based on the Company’s
Total Property Return
performance versus that
of the market
— 26% based on the Company’s
Revenue Profit performance
— 35% based on delivery of
specific business objectives
for the year
— 13% based on the delivery
of individual targets
1
Basic salary
Details on
page 105
2
Benefits
Details on
page 105
3
Pension
Details on
page 105
— The increase in current salaries
for the Executive Directors will
be 2%, just below the average
increase to employees’ pay
across the Group in 2018.
Therefore, the new annual gross
salaries will be £799,782 for
Robert Noel, £520,574 for
Martin Greenslade, and
£423,300 for Colette O’Shea
and Scott Parsons. These will
be effective from 1 June 2018
— No changes to the current
benefit arrangements (which
mainly covers annual holiday
entitlement, car allowance,
life assurance, private medical
cover and income protection
insurance) are proposed
during the year
— Although the new policy
will apply from 2018, the
Committee has used its
discretion to maintain a
supplement of 25% of basic
salary (gross) to Robert Noel
and Martin Greenslade. Due
to a historic term of her
employment, Colette O’Shea
will retain a cash supplement
of 12.5% of her salary. The new
policy of 10.5% of salary will
be applied to Scott Parsons,
equivalent to the previous
contribution he received in
respect of pension
Long-Term Incentive Plan awards (and
Matching Share Plan awards for 2018 vesting)
Savings Related Share Option Scheme
Non-executive Director fees
8 9
Details on
page 98
Details on
page 97
— As the fees for Non-executive
Directors were reviewed in late
2017, no further revisions will
take place over the course of
the year. The annual fee for
Dame Alison Carnwath as
Chairman remains at £375,000
until July 2018, and this will
be the same fee payable to
Cressida Hogg upon her
appointment as Chairman.
The annual base fee for all
other Non-executive Directors
remains at £70,000. These have
been in effect since 1 April 2016.
Additional fees also apply for
Committee chairmen, and
these remain unchanged
— The value of this year’s
Long-Term Incentive Plan (LTIP)
award to the Executive
Directors will not exceed the
current individual limit of 300%
of salary. Robert Noel and
Martin Greenslade will each
receive an award of 300% of
salary. In view of their lower
levels of Board experience,
Colette O’Shea and Scott
Parsons will each receive an
award equivalent to 200%
of salary for 2018. Awards are
made in the form of nil-cost
options with a seven-year
exercise period.
— Outstanding LTIP and
Matching Share Plan
awards granted in 2015 will
vest later in 2018 subject to
the performance conditions
set at the time and the
plan rules under which they
were granted
Details on
page 108
— The Executive Directors, and all
other eligible employees, will
be entitled to participate in the
Company’s Savings Related
Share Option Scheme (which
is operated in line with current
UK HMRC guidelines)
Share Ownership Guidelines
Details on
page 108
— The existing share ownership
levels (i.e. 250% of salary for
the Chief Executive and 200%
of salary for other Executive
Directors) will continue to
apply, recognising that the
two newly-appointed Directors
will be given time to build up
their shareholding
Executive Director Recruitment and
Termination Provisions
Details on
page 109
— External recruitment and
termination activity during the
year is currently not envisaged;
however should this occur, the
Policy will apply as stated
Service Agreements and Letters of
Appointment
Details on
page 109
— If new Service Agreements,
or variations to existing ones,
are required over the course
of the year, the Policy will apply
as stated
— Any new Non-executive Director
joining the Board will be
contracted under a Letter of
Appointment as per the Policy
Proposed
Remuneration Policy
continued
In addition to the elements of the remuneration
package covered by the policy, the Committee
may ‘buy out’ certain existing remuneration
arrangements 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 will be based solely on
remuneration lost when leaving the former
employer and will take into account the existing
delivery mechanism (i.e. cash, shares, options),
time horizons and performance conditions.
In the case of an internally appointed Executive
Director, any variable pay element awarded
in respect of the prior role would be paid out
according to its terms, adjusted as relevant to
take into account the appointment. In addition,
any other ongoing remuneration obligations
existing prior to appointment will 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, for a limited
period only, 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 Executive
Directors at the time of their appointment.
This was the case when the two Managing
Directors for the London and Retail portfolios
were appointed to the Board in January 2018.
3.4 Chairman and Non-executive Directors’
Letters of Appointment
The Chairman and the Non-executive Directors
do not have Service Agreements with the
Company. Instead, each of them has a Letter of
Appointment which sets out the terms of their
appointment, including the three months’ prior
written notice on which their appointment can
be terminated by either party at any time. The
dates of the current Letters of Appointment are
shown in the Annual Report on Remuneration
and these, together with the Executive
Directors’ Service Agreements, are available for
inspection at the Company’s registered office.
On appointment, the fee arrangements for
a new Non-executive Director are set in
accordance with the approved remuneration
policy in force at that time.
110
Landsec Annual Report 2018
4 5 6 7
Annual bonus
Details on
page 98-99
— The maximum bonus potential
for the Executive Directors
will remain at 150% of salary.
No changes are proposed to
the weighting of the elements
of the plan which remain at:
— 26% based on the Company’s
Total Property Return
performance versus that
of the market
— 26% based on the Company’s
Revenue Profit performance
— 35% based on delivery of
specific business objectives
for the year
— 13% based on the delivery
of individual targets
4. Application of the Policy
1
Basic salary
Details on
page 105
2
Benefits
Details on
page 105
3
Pension
Details on
page 105
— The increase in current salaries
for the Executive Directors will
be 2%, just below the average
increase to employees’ pay
across the Group in 2018.
Therefore, the new annual gross
salaries will be £799,782 for
Robert Noel, £520,574 for
Martin Greenslade, and
£423,300 for Colette O’Shea
and Scott Parsons. These will
be effective from 1 June 2018
— No changes to the current
benefit arrangements (which
mainly covers annual holiday
entitlement, car allowance,
life assurance, private medical
cover and income protection
insurance) are proposed
during the year
— Although the new policy
will apply from 2018, the
Committee has used its
discretion to maintain a
supplement of 25% of basic
salary (gross) to Robert Noel
and Martin Greenslade. Due
to a historic term of her
employment, Colette O’Shea
will retain a cash supplement
of 12.5% of her salary. The new
policy of 10.5% of salary will
be applied to Scott Parsons,
equivalent to the previous
contribution he received in
respect of pension
Long-term
incentive plan
awards
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
Policy Element
Application in 2018/19
8 9
Long-Term Incentive Plan awards (and
Matching Share Plan awards for 2018 vesting)
Savings Related Share Option Scheme
Non-executive Director fees
Details on
page 98
— The value of this year’s
Long-Term Incentive Plan (LTIP)
award to the Executive
Directors will not exceed the
current individual limit of 300%
of salary. Robert Noel and
Martin Greenslade will each
receive an award of 300% of
salary. In view of their lower
levels of Board experience,
Colette O’Shea and Scott
Parsons will each receive an
award equivalent to 200%
of salary for 2018. Awards are
made in the form of nil-cost
options with a seven-year
exercise period.
— Outstanding LTIP and
Matching Share Plan
awards granted in 2015 will
vest later in 2018 subject to
the performance conditions
set at the time and the
plan rules under which they
were granted
— As the fees for Non-executive
Directors were reviewed in late
2017, no further revisions will
take place over the course of
the year. The annual fee for
Dame Alison Carnwath as
Chairman remains at £375,000
until July 2018, and this will
be the same fee payable to
Cressida Hogg upon her
appointment as Chairman.
The annual base fee for all
other Non-executive Directors
remains at £70,000. These have
been in effect since 1 April 2016.
Additional fees also apply for
Committee chairmen, and
these remain unchanged
Details on
page 108
— The Executive Directors, and all
other eligible employees, will
be entitled to participate in the
Company’s Savings Related
Share Option Scheme (which
is operated in line with current
UK HMRC guidelines)
Details on
page 97
Share Ownership Guidelines
Details on
page 108
— The existing share ownership
levels (i.e. 250% of salary for
the Chief Executive and 200%
of salary for other Executive
Directors) will continue to
apply, recognising that the
two newly-appointed Directors
will be given time to build up
their shareholding
Executive Director Recruitment and
Termination Provisions
Details on
page 109
— External recruitment and
termination activity during the
year is currently not envisaged;
however should this occur, the
Policy will apply as stated
Service Agreements and Letters of
Appointment
Details on
page 109
— If new Service Agreements,
or variations to existing ones,
are required over the course
of the year, the Policy will apply
as stated
— Any new Non-executive Director
joining the Board will be
contracted under a Letter of
Appointment as per the Policy
Landsec Annual Report 2018
111
Governance Directors’
Report
Dividends
The results for the year are set out in the financial statements on pages 123-170.
The Company has paid three quarterly interim dividends to shareholders for the year under review,
each of 9.85p per ordinary share:
1st Interim
2017/18
PID
2nd Interim
2017/18
Non-PID
3rd Interim
2017/18
PID
Final 2017/18
(proposed)
PID
Table 63
Property Income Distribution
(PID)/Non-PID
Record Date
Payment Date
8 September 2017 1 December 2017
9 March 2018
22 June 2018
6 October 2017
5 January 2018
6 April 2018
27 July 2018
Amount (per ordinary share)
9.85p
9.85p
9.85p
14.65p
The Company is proposing a final dividend of
14.65p per share. The proposed final dividend
brings the total dividend for the year to 44.2p,
an increase of 14.7% over the prior year. Subject
to shareholders’ approval at the 2018 AGM,
the final dividend will be paid on 27 July 2018
to shareholders on the register at the close
of business on 22 June 2018.
The Board has also declared a first quarterly
dividend in respect of the 2018/19 financial
year of 11.3p per ordinary share, to be paid on
5 October 2018 to shareholders on the register
at the close of business on 7 September 2018.
In addition to the payment of dividends,
the Company made a return of capital to
shareholders, details of which can be found
on page 113.
A Dividend Reinvestment Plan (DRIP) election
is currently available in respect of all dividends
paid by Landsec.
Events since the balance sheet date
Since 31 March 2018, there have been no
material items to report.
Directors
The names and biographical details of the
current Directors and the Board Committees
of which they are members are set out on
pages 62-63.
All the Directors held office throughout the year
except Colette O’Shea and Scott Parsons, both
of whom joined the Board on 1 January 2018.
Kevin O’Byrne stepped down as a Non-executive
Director of the Board on 27 September 2017.
The Service Agreements of the Executive
Directors and the Letters of Appointment
of the Non-executive Directors are available
for inspection at Landsec’s registered office.
Brief details of these are also included in
the Directors’ Remuneration Report on
pages 109-110.
Appointment and removal of Directors
The appointment and replacement of Directors
is governed by Landsec’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 Landsec AGM. In addition to any power of
removal conferred by the Act, Landsec may by
ordinary resolution remove any Director before
the expiry of their period of office and may,
subject to the Articles, by ordinary resolution
appoint another person who is willing to act as
a Director in their place. In line with the Code
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 Landsec
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 and being approved by at
least three quarters of the votes cast.
Directors’ interests
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 Landsec or any of its
subsidiaries. At no time during the year ended
31 March 2018 did any Director hold a material
interest, directly or indirectly, in any contract
of significance with Landsec or any subsidiary
undertaking other than the Executive Directors
in relation to their Service Agreements.
The Directors present their report for the year
ended 31 March 2018.
Additional disclosures
Other information that is relevant to this report,
and which is also incorporated by reference,
including information required in accordance
with the UK Companies Act 2006 and Listing
Rule 9.8.4R, can be located as follows:
Likely future developments
in the business
Employee engagement
Going Concern and
Viability Statement
Governance
Capitalised interest
Financial instruments
Table 62
Pages 12-13
Page 46
Page 58
Pages 59-114
Page 136
Page 156
Credit, market and liquidity risks
Pages 157-160
Related party transactions
Page 169
Greenhouse gas emissions
Pages 182-183
UK Corporate Governance Code
The Company has complied in full with the
principles of the 2016 UK Corporate Governance
Code throughout the year. The Code can be
found on the FRC’s website: frc.org.uk.
Company status
Land Securities Group PLC is a public limited
liability company incorporated under the laws
of England and Wales. It has 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.
Landsec 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.
Disclaimer
The purpose of this Annual Report is to provide
information to the members of the Company
and it has been prepared for, and only for, the
members of the Company as a body, and no
other persons. The Company, its Directors and
employees, agents and advisers do not accept
or assume responsibility to any other person
to whom this document is shown or into whose
hands it may come and any such responsibility
or liability is expressly disclaimed.
A cautionary statement in respect of
forward-looking statements contained in this
Annual Report appears on the inside back cover
of this document.
112
Landsec Annual Report 2018
Substantial shareholders
As at 31 March 2018, the Company had been notified under the Disclosure and Transparency Rules
(DTR 5) of the following holdings of voting rights in its issued share capital:
Shareholders holding 3% or more of the Company’s Issued Share Capital
Table 64
Shareholder name
Number of ordinary shares
Percentage of total voting rights
attaching to issued share capital1
BlackRock, Inc.
Norges Bank Investment
Management
The Vanguard Group, Inc.
Legal & General Investment
Management Ltd
67,987,111
52,729,065
25,235,050
23,930,321
9.17
7.11
3.40
3.23
1. The total number of voting rights attaching to the issued share capital of the Company on 31 March 2018 was 741,459,785.
The Company received no DTR notifications,
by way of change to the above information
or otherwise, during the period from 1 April to
14 May 2018, being the period from the year
end through to the date on which this report
has been signed. Information provided to the
Company under the DTR is publicly available
to view via the regulatory information service
on the Company’s website.
Employee Benefit Trust
ACS HR Solutions Share Plan Services
(Guernsey) Limited is a shareholder who acts
as the trustee (Trustee) of Landsec’s offshore
discretionary Employee Benefit Trust (EBT).
It is used to purchase Land Securities Group PLC
ordinary shares in the market from time to time
for the benefit of employees, including for
satisfying outstanding awards under Landsec’s
various employee share plans. The EBT
purchased a total of 1,063,770 shares in the
market during the year for an aggregate
consideration of £10,886,169 (including all
dealing costs). Of these shares purchased,
63,770 were purchased using the 60p per share
from the return of capital. The EBT released
678,147 shares during the year to satisfy vested
share plan awards. At 31 March 2018, the EBT
held 1,178,179 Land Securities Group PLC shares
in trust. A dividend waiver is in place from the
Trustee in respect of all dividends payable by
Landsec on shares which it holds in trust.
Further details regarding the EBT, and of shares
issued pursuant to Landsec’s various employee
share plans during the year, are set out in
note 35 to the financial statements.
Shareholder voting rights and restrictions
on transfer of shares
All the issued and outstanding ordinary shares
of Landsec 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, the Trustee has agreed
not to vote any shares held in the EBT at any
general meeting. However, at the EGM held
in September 2017 we asked the EBT to vote
in favour of the return of capital and share
consolidation. While the EBT usually waives its
right to any dividends, the EBT accepted the
capital return and used the funds to purchase
shares in the market to take its shareholding up
to the same level as before the consolidation.
If any offer is made to all shareholders to
acquire their shares in Landsec, the Trustee will
not be obliged to accept or reject the offer in
respect of any shares which are at the time
subject to subsisting awards, but will have
regard to the interests of the award holders and
will have power to consult them to obtain their
views on the offer. Subject to the above, the
Trustee may take such action with respect to
the offer as it thinks fit.
Directors’ indemnities and insurance
Landsec 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
Landsec’s registered office and will be available
at the 2018 AGM. Landsec has in place
appropriate Directors’ & Officers’ Liability
insurance cover in respect of potential legal
action against its Directors.
Share capital
Landsec has a single class of share capital which
is divided into ordinary shares of nominal value
102/3p each ranking pari passu. No other
securities have been issued by the Company.
At 31 March 2018, there were 751,298,964
ordinary shares in issue and fully paid, of which
9,839,179 are held in treasury. No shares were
bought back during the year. Further details
relating to share capital, including movements
during the year, are set out in note 34 to the
financial statements.
Return of capital and share consolidation
The nominal value of the Company’s shares and
the number of shares in issue changed during
the year. On 27 September 2017, Landsec held
an EGM to seek shareholder approval in relation
to the return of capital to shareholders of the
majority of the proceeds of the sale of
20 Fenchurch Street, EC3. The amount returned
totalled £475m, equivalent to 60p per share,
effected by way of a B share scheme.
Shareholders were issued B shares which were
immediately redeemed by the Company for
60p per share. This was followed by a 15 for
every 16 share consolidation which changed the
nominal value of our shares from 10p to 102/3p.
The rationale for the share consolidation was
to maintain comparability, so far as possible,
between the historical per share financial
information, for example, dividends per share,
and future financial information on a per share
basis without being distorted by the effect of
the return of capital.
At the EGM, shareholders also refreshed the
authority previously given at Landsec’s AGM
held on 13 July 2017 for the Company to make
market purchases of ordinary shares, to allot
shares and to disapply pre-emption rights within
certain limits. These authorities will expire at the
2018 AGM and a renewal of each authority will
be sought.
Further information on our return of capital
and share consolidation, together with a worked
example for shareholders of the tax calculation
on the return of capital, can be found on our
website: landsec.com/2017-return-capital.
Landsec Annual Report 2018
113
Governance
Directors’ report
continued
Landsec 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 Landsec’s ordinary shares, are set
out in the Articles and in the explanatory notes
that accompany the Notice of the 2018 AGM.
These documents are available on Landsec’s
website at: landsec.com/agm.
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.
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
or otherwise that occurs specifically because
of a takeover.
Political donations
The Company did not make any political
donations or expenditure in the year that
requires disclosure (2016/17: nil).
Auditor 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 2018 AGM. The
reappointment has been recommended to the
Board by the Audit Committee and EY has
indicated its willingness to remain in office.
2018 Annual General Meeting
This year’s AGM will be held at 10.00 am on
Thursday, 12 July 2018, at 80 Victoria Street,
London SW1E 5JL. A separate circular,
comprising a letter from the Chairman,
Notice of Meeting and explanatory notes in
respect of the resolutions proposed, can be
found on our website: landsec.com/agm.
The Directors’ Report was approved by the
Board on 14 May 2018.
By Order of the Board
Tim Ashby
Group General Counsel and Company Secretary
Land Securities Group PLC
Company number 4369054
Human rights and equal opportunities
Landsec operates a Human Rights Policy which
aims to recognise and safeguard the human
rights of all citizens in the business areas in
which we operate. We support the principles set
out within both the UN Universal Declaration
of Human Rights and the International Labour
Organisation’s Declaration on Fundamental
Principles and Rights at Work. Our Policy is built
on these foundations including, without
limitation, the principles of equal opportunities,
collective bargaining, freedom of association
and protection from forced or child labour.
The Policy has been extended to take account
of the new Modern Slavery Act that came into
force in October 2015 and requires Landsec to
report annually on its workforce and supply
chain, specifically to confirm that workers are
not enslaved or trafficked. Landsec’s second
slavery and human trafficking statement,
relating to the financial year ended 31 March
2017, was approved by the Board on
28 September 2017 and posted on our website
on 30 September 2017.
Landsec 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. Landsec 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. Landsec 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 Landsec takes steps to
accommodate the disability by making
adjustments to their existing employment
arrangements, or by redeployment and
providing appropriate retraining to enable
continued employment in the Group.
Further information can be found in the Social
review on pages 46-51.
114
Landsec Annual Report 2018
Financial statements
Contents
116
117
123
123
124
125
126
127
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Income statement
Statement of comprehensive income
Balance sheets
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Landsec Annual Report 2018
115
Financial statements
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 appear below, confirm that to the
best of their knowledge:
— the Group financial statements, which have
been prepared in accordance with IFRS as
adopted by the EU, give a true and fair view
of the assets, liabilities, financial position and
profit of the Group; and
— the Company financial statements, prepared
in accordance with IFRS 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
— 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 position, 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
landsec.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
— Colette O’Shea, Managing Director,
London Portfolio
— Scott Parsons, Managing Director,
Retail Portfolio
— Edward Bonham Carter, Senior Independent
Director*
— Chris Bartram*
— Nicholas Cadbury*
— Cressida Hogg*
— Simon Palley*
— Stacey Rauch*
* Non-executive Directors
The Statement of Directors’ Responsibilities
was approved by the Board of Directors on
14 May 2018 and is signed on its behalf by:
Robert Noel
Chief Executive Chief Financial Officer
Martin Greenslade
Statement
of Directors’
Responsibilities
The Annual Report 2018 contains the following
statements regarding responsibility for the
financial statements and business reviews
included therein.
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 (IFRS) 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 IFRS 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 IFRS 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; and
— prepare the Group’s and Company’s financial
statements on a going concern basis, unless
it is inappropriate to do so.
116
Landsec Annual Report 2018
Independent Auditor’s Report
To the members of Land Securities Group PLC
Our opinion on the financial statements
In our opinion:
— Land Securities Group PLC’s Group financial statements and Parent company financial statements (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 2018 and of the Group’s loss 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 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
Land Securities Group PLC’s financial statements comprise:
Group
Parent company
Consolidated balance sheet as at 31 March 2018
Balance sheet as at 31 March 2018
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year then ended
Consolidated statement of changes in equity for the year then ended
Statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Statement of cash flows for the year then ended
Related notes 1 to 40 to the financial statements
Related notes 1 to 40 to the financial statements
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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are
independent of the Group and Parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to report to you
whether we have anything material to add or draw attention to:
— the disclosures in the Annual Report set out on pages 54-57 that describe the principal risks and explain how they are being managed or mitigated;
— the Directors’ confirmation set out on pages 52-53 in the Annual Report that they have carried out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity;
— the Directors’ statement set out on page 58 in the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements;
— whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
— the Directors’ explanation set out on page 58 in the Annual Report as to how they have assessed the prospects of the Group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Landsec Annual Report 2018
117
Financial statements
Independent Auditor’s Report
continued
Overview of our audit approach
Key audit
matters
— The valuation of the property portfolio, including investment properties, investment properties held in joint ventures and trading properties
— Revenue recognition, including the timing of revenue recognition, the treatment of rents and incentives and recognition of trading property proceeds
Audit scope
— 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. This included the Group audit team performing direct audit procedures on joint venture balances included within the Group
financial statements
Materiality
— Overall Group materiality of £124m which represents 1% of the carrying value of investment properties line item in the Group balance sheet
at 31 March 2018
— Specific materiality of £20m which represents 5% of revenue profit before tax is applied to account balances not related to investment
properties (either wholly owned or held within joint ventures)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Key observations communicated
to the Audit Committee
We have audited the
inputs, assumptions and
methodology used by the
external valuer. We conclude
that the methodology applied
is reasonable and that the
external valuations are an
appropriate assessment of
the market value of
investment properties and net
realisable value of trading
properties at 31 March 2018.
Our Chartered Surveyors
concluded that the sample of
valuations they reviewed were
within a reasonable range.
We conclude that
management provided an
appropriate level of review
and challenge over the
valuations, but we did not
identify evidence of undue
management influence.
Risk
Our response to the risk
The valuation of the
property portfolio, including
investment properties,
investment properties held
in joint ventures and trading
properties
2018: £12,336m in investment
properties, £1,235m (the
Group’s share) in investment
properties held in joint ventures
and £24m in trading properties
(2017: £12,144m in investment
properties, £1,763m in
investment properties held
in joint ventures and £122m
in trading properties).
Refer to the Accountability
section of the Annual Report
(pages 78-83); Accounting
policies (page 139-140); notes
14, 15 and 16 of the financial
statements (pages 141-149).
The valuation of property
(including investment
properties, investment
properties held in joint ventures
and trading properties) requires
significant judgement and
estimates by management and
the external valuer. 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 property included:
We evaluated the Group’s controls over data used in the valuation of the property portfolio
and management’s review of the valuations.
We evaluated the competence of the external valuer which included consideration of their
qualifications and expertise.
We met with the Group’s external valuer to discuss their valuation approach and the
judgements they made in assessing the property valuation such as estimated rental value,
yield profile and other assumptions that impact the value.
For a sample of properties we performed testing over source documentation provided by
the Group to the external valuer. This included agreeing a sample of this documentation
back to underlying lease data and vouching costs incurred to date in respect of
development properties. We also assessed the reasonableness of the costs to complete
information in respect of properties in the course of development by comparing the total
forecast costs to contractual arrangements and approved budgets.
We included Chartered Surveyors on our audit team who reviewed and challenged the
valuation approach and assumptions for a sample of properties which comprised 67% of
the market value of investment properties (including investment properties held in joint
ventures) and 95% of the carrying value of trading properties. Our Chartered Surveyors
compared the equivalent yields applied to each property to an expected range of yields
taking into account market data and asset specific considerations. They also considered
whether the other assumptions applied by the external valuer, such as the estimated rental
values, voids, tenant incentives and development costs to complete were supported by
available data such as recent lettings and occupancy levels.
Together with our Chartered Surveyors, we met with the external valuer to discuss the
findings from our audit work described above and to seek further explanations as required.
We also discussed the impact of current market conditions, including Brexit, on the
property valuations.
We conducted analytical procedures on the properties not included in the sample reviewed
in detail by our Chartered Surveyors by comparing assumptions and the value of each
property in the portfolio by reference to our understanding of the UK real estate market,
external market data and asset specific considerations to evaluate the appropriateness
of the valuations adopted by the Group. We investigated further the valuations of some
properties which included further discussions with management and, where appropriate,
obtaining evidence to support the movement in values and involvement of our Chartered
Surveyors.
We attended meetings between management and the external valuer to assess for
evidence of undue management influence and we obtained a confirmation from the
external valuer that they had not been subject to undue influence from management.
We utilised our analytical procedures and work of the Chartered Surveyors described above
in order to assess for evidence of undue management influence.
We performed site visits accompanied by our Chartered Surveyors for a sample of properties
in the development programme, which enabled us to assess the stage of completion of,
and gain specific insights into, these developments. We also performed site visits to some
investment properties which are not under development, in order to gain a better
understanding of the assets.
118
Landsec Annual Report 2018
Risk
Our response to the risk
The valuation of the
property portfolio, including
investment properties,
investment properties held
in joint ventures and trading
properties continued
We met with development directors and project managers for major properties in the
development programme and assessed project costs, progress of development and
leasing status and considered the reasonableness of 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 development directors and the project
managers through valuation review, site visits and cost analysis. We also reviewed
development feasibilities and monthly development reporting against budget.
Key observations communicated
to the Audit Committee
Revenue recognition,
including the timing of
revenue recognition,
the treatment of rents
and incentives and
recognition of trading
property proceeds
2018: £612m rental income and
£96m trading property sales
proceeds (2017: £587m rental
income and £62m trading
property sales proceeds).
Refer to the Accountability
section of the Annual Report
(pages 78-83); Accounting
policy (page 133); and note 6
of the financial statements
(page 133).
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.
On trading properties, we compared cost to net realisable value (actual sales prices
achieved or market evidence) to identify any potential indicator of impairment.
Scope of our procedures
We performed full scope audit procedures over valuation of all properties, including
investment properties, investment properties held in joint ventures and trading properties.
Our audit procedures over revenue recognition included:
We carried out testing relating to controls over revenue recognition and the treatment
of rents which have been designed by the Group 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.
We selected a sample of new or amended lease agreements in the year and agreed the
data input into PIMS, the property information management system, including lease
incentive clauses.
Detailed analytical procedures and cut off procedures were performed using data
analytics tools on the recognition of revenue, including rents, incentives and other property
related revenue to assess whether revenue had been recognised in the appropriate
accounting period.
We agreed a sample of lease agreements to the schedules used to calculate straight-lining
of revenue in accordance with SIC 15 Operating Leases – Incentives and corroborated the
arithmetical accuracy of these schedules and the resulting amounts in revenue for straight-
lining of tenant lease incentives.
We assessed the recoverability of tenant lease incentives’ 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 IFRS 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.
We tested a sample of trading property proceeds recognised during the year through
agreement to contracts and cash to bank in order to verify that revenue is recognised when
the significant risks and rewards of ownership have been transferred to the buyer.
Scope of our procedures
The whole Group was subject to full scope audit procedures over revenue.
We audited the timing
of revenue recognition,
treatment of rents and
incentives and recognition
of trading property proceeds
and assessed the risk of
management override.
Based upon the audit
procedures performed, we
concluded that revenue has
been recognised on an
appropriate basis in the year.
Compared to the prior year, we have expanded the definition of the significant risk around valuation of property to include trading properties. There
have been no other changes to our assessment of the risks of material misstatement.
An overview of the scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity
within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements.
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. 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.
Landsec Annual Report 2018
119
Financial statements
Independent Auditor’s Report
continued
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and
in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
The table below sets out the materiality, performance materiality and threshold for reporting audit differences applied on our audit:
Overall
Account balances not related to
investment properties (either wholly
owned or held within joint ventures)
Basis
1% (2017: 0.5%) of carrying value of
investment properties
Revenue profit before tax (2017: Profit
before tax, excluding the impact of the
net deficit on revaluation of investment
properties either wholly owned or held
within joint ventures and the impact of
the redemption of medium term notes
(Adjusted PBT))
Materiality
£124m
(2017: £61m)
£20m
(2017: £21m)
Performance materiality
Audit differences
£93m
(2017: £46m)
£15m
(2017: £16m)
£6m
(2017: £3m)
£1m
(2017: £1m)
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 85% of the Group’s total assets (2017: 82%) 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.
We benchmarked our basis for overall materiality against other UK listed REITs and determined that it is appropriate to increase overall planning
materiality from 0.5% to 1% of investment property value so that a comparable approach is applied. Based on this, we have determined that it is
appropriate to increase overall planning materiality to 1% of the carrying value of investment property (2017: 0.5%).
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 revenue profit before tax of £406m (2017: £382m). We believe that it is appropriate to use a
profit based measure as profit is also a focus of users of the financial statements. The basis of materiality for other account balances not related to
investment properties has changed from Adjusted PBT in 2017 to revenue profit before tax in 2018. For clarity purposes we have refined the measure to
be revenue profit as it is considered to be a more appropriate measure to adopt in this regard, as it is the Group’s primary measure of underlying profit.
During the course of our audit, we reassessed initial materiality and, as the actual carrying value of investment properties was in line with that which
we had used as the initial basis for determining overall materiality, our final materiality was consistent with the materiality we calculated initially.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
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 and specific performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Group
should be 75% (2017: 75%) of the respective materiality. We have set performance materiality at this percentage due to our past experience of the
audit that indicates a lower risk of misstatements, both corrected and uncorrected. 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.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to the Committee all uncorrected audit differences in excess of £6m (2017: £3m), as well
as audit differences in excess of £1m (2017: £1m) that relate to our specific testing of the other account balances not related to investment properties
which are set at 5% of their respective planning materiality. We also agreed to report differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
120
Landsec Annual Report 2018
Other information
The other information comprises the information included in the Annual Report, including Strategic Report and Governance other than the financial
statements and our auditor’s report thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and
to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
— Fair, balanced and understandable set out on page 116 – the statement given by the Directors that they consider the Annual Report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
— Audit Committee reporting set out on pages 76-83 – the section describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee is materially inconsistent with our knowledge obtained in the audit; or
— Directors’ statement of compliance with the UK Corporate Governance Code set out on page 116 – the parts of the Directors’ statement required under
the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
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.
In our opinion, based on the work undertaken in the course of the audit:
— 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; and
— the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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.
Responsibilities of directors
As explained more fully in the Directors’ responsibilities statement set out on page 116, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the Group or the Parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Landsec Annual Report 2018
121
Financial statements
Independent Auditor’s Report
continued
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud;
to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and
implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary
responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
— We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant
frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting framework (IFRS, the
Companies Act 2006 and UK Corporate Governance Code) and the relevant tax regulations in the United Kingdom, including the UK REIT
regulations.
— We understood how the Company is complying with those frameworks through enquiry with management, and by identifying the Company’s
policies and procedures regarding compliance with laws and regulations. We also identified those members of management who have the primary
responsibility for ensuring compliance with laws and regulations, and for reporting any known instances of non-compliance to those charged with
governance.
— We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by reviewing the
Companies risk register, enquiry with management and the Audit Committee during the planning and execution phases of our audit.
— Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved
the following:
— Inquire of members of Senior Management, and when appropriate, those charged with governance regarding their knowledge of any non-compliance
or potential non-compliance with laws and regulations that could affect the financial statements.
— Reading minutes of meetings of those charged with governance.
— Obtaining and reading correspondence from legal and regulatory bodies including HMRC.
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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
— We were appointed by the Company at the AGM on 18 July 2013 to audit the financial statements for the year ending 31 March 2014 and subsequent
financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is five years, covering all year ends
between 31 March 2014 and 31 March 2018. Our audit engagement letter was refreshed on 23 January 2018.
— The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company and we remain independent of the
Group and the Company in conducting the audit.
— The audit opinion is consistent with the additional report to the Audit Committee.
Eamonn McGrath (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
14 May 2018
Notes:
1. The maintenance and integrity of the Land Securities Group PLC website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these
matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions
122
Landsec Annual Report 2018
Income statement
for the year ended 31 March 2018
Revenue
Costs
Profit on disposal of investment properties
Profit/(loss) on disposal of investment in joint venture
Profit on disposal of other investment
Net deficit on revaluation of investment properties
Operating profit/(loss)
Share of post-tax profit from joint ventures
Finance income
Finance expense
(Loss)/profit before tax
Taxation
(Loss)/profit attributable to shareholders
Earnings per share attributable to shareholders:
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Revenue
profit
£m
Capital and
other items
£m
753
(261)
492
–
–
–
–
492
9
31
(126)
406
–
406
99
(82)
17
1
66
–
(98)
(14)
18
8
(669)
(657)
(1)
(658)
2018
Total
£m
852
(343)
509
1
66
–
(98)
478
27
39
(795)
(251)
(1)
(252)
(32.9)p
(32.9)p
Notes
6
7
14
16
10
10
12
5
5
Statement of comprehensive income
for the year ended 31 March 2018
(Loss)/profit attributable to shareholders
Items that may be subsequently reclassified to the income statement:
Fair value movement on cash flow hedges arising during the year
Revaluation of other investments
Items that will not be subsequently reclassified to the income statement:
Net re-measurement loss on defined benefit pension scheme
Deferred tax credit on re-measurement above
Other comprehensive income/(loss) attributable to shareholders
Revenue
profit
£m
Capital and
other items
£m
721
(242)
479
–
–
–
–
479
21
37
(155)
382
–
382
Notes
32
66
(24)
42
19
(2)
13
(186)
(114)
48
–
(204)
(270)
1
(269)
2018
Total
£m
(252)
20
(1)
(2)
1
18
2017
Total
£m
787
(266)
521
19
(2)
13
(186)
365
69
37
(359)
112
1
113
14.3p
14.3p
2017
Total
£m
113
–
–
(12)
2
(10)
Total comprehensive (loss)/income attributable to shareholders
(234)
103
Landsec Annual Report 2018
123
Financial statements
Balance sheets
at 31 March 2018
Non-current assets
Investment properties
Intangible assets
Net investment in finance leases
Investments in joint ventures
Investments in subsidiary undertakings
Trade and other receivables
Other non-current assets
Total non-current assets
Current assets
Trading properties
Trade and other receivables
Monies held in restricted accounts and deposits
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Borrowings
Trade and other payables
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Trade and other payables
Other non-current liabilities
Redemption liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Capital and reserves attributable to shareholders
Ordinary shares
Share premium
Other reserves
Merger reserve
Retained earnings
Total equity
Notes
14
19
18
16
28
26
29
15
26
22
23
21
27
30
21
27
31
34
36
2018
£m
12,336
34
162
1,151
–
165
49
Group
2017
£m
12,144
36
165
1,734
–
123
51
Company
2017
£m
2018
£m
–
–
–
–
–
–
–
–
6,211
6,205
–
–
–
–
13,897
14,253
6,211
6,205
24
471
15
62
572
122
418
21
30
591
–
–
4
–
4
–
17
4
–
21
14,469
14,844
6,215
6,226
(872)
(294)
(14)
(1,180)
(404)
(302)
(7)
(713)
–
–
(2,258)
(1,394)
–
–
(2,258)
(1,394)
(2,752)
(2,545)
–
(8)
(37)
(25)
(9)
(36)
(2,797)
(2,615)
–
–
–
–
–
–
–
–
–
–
(3,977)
(3,328)
(2,258)
(1,394)
10,492
11,516
3,957
4,832
80
317
26
–
80
791
30
–
10,069
10,492
10,615
11,516
80
317
38
374
3,148
3,957
80
791
39
374
3,548
4,832
The loss for the year of the Company was £93m (2017: £68m).
The financial statements on pages 123 to 170 were approved by the Board of Directors on 14 May 2018 and were signed on its behalf by:
R M Noel
Directors
M F Greenslade
124
Landsec Annual Report 2018
Statement of changes in equity
for the year ended 31 March 2018
At 1 April 2016
Total comprehensive income for the financial year
Transactions with shareholders:
Share-based payments
Dividends paid to shareholders
Acquisition of own shares
Total transactions with shareholders
Attributable to shareholders
Ordinary
shares
£m
80
Share
premium
£m
790
Other
reserves
£m
28
Retained
earnings
£m
10,801
Group
Total
equity
£m
11,699
–
–
–
–
–
–
1
–
–
1
–
8
–
(6)
2
103
103
–
(289)
–
(289)
9
(289)
(6)
(286)
At 31 March 2017
80
791
30
10,615
11,516
Total comprehensive loss for the financial year
Transactions with shareholders:
Share-based payments
Capital distribution
Dividends paid to shareholders
Acquisition of own shares
Total transactions with shareholders
–
–
–
–
–
–
–
1
(475)
–
–
(474)
–
6
–
–
(10)
(4)
(234)
(234)
2
–
(314)
–
(312)
9
(475)
(314)
(10)
(790)
At 31 March 2018
80
317
26
10,069
10,492
At 1 April 2016
Total comprehensive loss for the financial year
Share-based payments
Dividends paid to shareholders
At 31 March 2017
Total comprehensive loss for the financial year
Share-based payments
Capital distribution
Dividends paid to shareholders
At 31 March 2018
1. Available for distribution.
Ordinary
shares
£m
80
Share
premium
£m
790
Other
reserves
£m
42
Merger
reserve
£m
374
Retained
earnings1
£m
3,898
Company
Total
equity
£m
5,184
–
–
–
–
1
–
80
791
–
–
–
–
–
1
(475)
–
–
(3)
–
39
–
(1)
–
–
–
–
–
(68)
7
(289)
(68)
5
(289)
374
3,548
4,832
–
–
–
–
(93)
7
–
(314)
(93)
7
(475)
(314)
80
317
38
374
3,148
3,957
Landsec Annual Report 2018
125
Financial statements
Statement of cash flows
for the year ended 31 March 2018
Cash flows from operating activities
Net cash generated from operations
Interest received
Interest paid
Capital expenditure on trading properties
Disposal of trading properties
Other operating cash flows
Net cash inflow from operating activities
Cash flows from investing activities
Investment property development expenditure
Acquisition of investment properties
Other investment property related expenditure
Disposal of investment properties
Disposal of investment in joint venture
Cash contributed to joint ventures
Loan advances to joint ventures
Loan repayments by joint ventures
Cash distributions from joint ventures
Other investing cash flows
Net cash inflow from investing activities
Cash flows from financing activities
Proceeds from new borrowings (net of finance fees)
Repayment of borrowings
Redemption of medium term notes
Premium paid on redemption of medium term notes
Redemption of QAG Bond
Premium paid on redemption of QAG Bond
Issue of medium term notes (net of finance fees)
Net cash inflow/(outflow) from derivative financial instruments
Dividends paid to shareholders
Capital distribution
Other financing cash flows
Net cash outflow from financing activities
Increase in cash and cash equivalents for the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
13
16
16
16
21
21
21
21
21
21
11
23
2018
£m
2017
£m
439
29
(100)
(24)
102
(1)
445
(33)
(349)
(58)
158
633
(111)
(72)
–
190
–
358
629
–
(1,256)
(385)
(273)
(61)
1,334
31
(314)
(475)
(1)
(771)
32
30
62
464
15
(152)
(12)
69
2
386
(46)
(16)
(80)
245
13
(67)
(45)
54
44
(19)
83
356
(391)
(690)
(137)
–
–
698
(4)
(289)
–
(7)
(464)
5
25
30
The Company did not hold any cash and cash equivalents balances at 31 March 2018 (2017: none) and therefore did not have any cash flows in the year
then ended (2017: none).
126
Landsec Annual Report 2018
Notes to the financial statements
for the year ended 31 March 2018
Section 1 – General
This 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 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 consolidation
Basis of preparation
These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards as
adopted by the EU (IFRS), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements
have been prepared in Pounds Sterling (rounded to the nearest one million), which is the presentation currency of the Group (Land Securities Group
PLC and all 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 principles (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. Further details on the Group’s significant accounting judgements and estimates are
included in note 2.
Land Securities Group PLC (the Company) has not presented its own statement of comprehensive income (and separate income statement), as
permitted by Section 408 of Companies Act 2006. 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. Other reserves includes the
Capital redemption reserve, which represents the nominal value of cancelled shares, the Share-based payment reserve and Own shares held by
the Group.
Basis of consolidation
The consolidated financial statements for the year ended 31 March 2018 incorporate the financial statements of the Company and all its subsidiary
undertakings. 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 policies of subsidiaries and joint ventures which differ from Group accounting policies are adjusted on
consolidation.
Where instruments in a subsidiary held by third parties are redeemable at the option of the holder, these interests are classified as a financial liability,
called the redemption 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.
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. 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. Interests in joint ventures
are equity accounted. 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. 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.
Landsec Annual Report 2018
127
Financial statements
2. Significant accounting judgements and estimates
The preparation of financial statements in conformity with IFRS requires management to exercise judgement in applying the Group‘s accounting
policies. 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.
Judgements
— Accounting for property acquisitions and disposals (note 14).
— Compliance with the Real Estate Investment Trust (REIT) taxation regime and the recognition of deferred tax assets and liabilities (note 12).
Estimates
— Valuation of investment and trading properties (note 14).
3. Changes in accounting policies and standards
The accounting policies used in these financial statements are consistent with those applied in the last annual financial statements, as amended
where relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year. These amendments
have not had an impact on the financial position or performance of the Group, but have resulted in additional disclosures. Additional disclosures
included in the financial statements as a result of adopting the Amendments to IAS 7 Statement of Cash Flows, relating to changes in liabilities
resulting from financing activities are included in note 21.
Change in accounting policy
As part of the Group’s review of the impact of adopting IFRS 9 on the bond exchange de-recognition adjustment (see note 21 for further details
on the bond exchange de-recognition adjustment), the Group has taken the opportunity to revisit its accounting policy on determining whether
an existing liability has been extinguished when carrying out a debt refinancing transaction. Under the Group’s current accounting policy, the result
of the quantitative ‘10% test’, as described in IAS 39, is the key criterion considered to determine whether an existing liability has been extinguished.
Under the revised policy, greater weight will be given to qualitative factors when assessing the appropriate treatment. With effect from 1 April 2018,
the Group’s revised policy is:
‘When debt refinancing exercises are carried out, existing liabilities will be treated as having been extinguished when the new liability is substantially
different from the existing liability. In making this assessment, the Group will consider the transaction as a whole, taking into account both qualitative
and quantitative characteristics.’
This change in accounting policy will result in the debt refinancing exercise completed on 3 November 2004 being treated as an extinguishment of the
original debt, and therefore the bond exchange de-recognition adjustment will no longer be held on the Group’s balance sheet.
The revised accounting policy will provide more relevant and reliable information by more accurately reflecting the Group’s current net asset position
and the carrying value of its borrowings. The Group currently reports this revised position using alternative performance measures which adjust net
assets (see note 5) and net debt (see note 20). Under the revised accounting policy, the Group will report fewer alternative performance measures.
The change in accounting policy will be applied retrospectively and comparatives restated accordingly. Had this policy been applied at 31 March 2018,
net assets would have been £106m lower at £10,386m, and the loss attributable to shareholders would have been £208m smaller at £44m. Net assets
per share would have been 14p lower at 1,404p, and the loss per share would have been 27.1p smaller at 5.8p. The change in accounting policy will have
no impact on adjusted net assets per share and adjusted earnings per share as these measures already exclude the bond exchange de-recognition
adjustment and the related amortisation charge respectively.
Amendments to IFRS
A number of new standards and amendments to standards have been issued but are not yet effective for the Group. The most significant of these,
and their potential impact on the Group’s accounting, are set out below:
— IFRS 9 Financial Instruments (effective from 1 April 2018) – the standard applies to classification and measurement of financial assets and financial
liabilities, impairment provisioning and hedge accounting. The Group has completed its impact assessment and does not expect IFRS 9 to have a
material impact on its reported results.
— IFRS 15 Revenue from Contracts with Customers (effective 1 April 2018) – the standard will be applicable to service charge income, other property
related income, trading property sales proceeds and proceeds from the sale of investment properties, but not rental income arising from the Group’s
leases with tenants. Based on the transactions impacting the current financial year and future known transactions, the Group does not expect the
adoption of IFRS 15 to have a material impact on the Group’s reported results. However, service charge income and expense will be presented on
a net basis for those properties where the property management activities are performed by a third party, which the Group considers to be the
principal delivering the service. The impact on presentation for the year ended 31 March 2018 is expected to be a £21m reduction in both service
charge income and expense.
— IFRS 16 Leases (effective from 1 April 2019) – the Group continues to assess the impact of IFRS 16 Leases, effective from 1 April 2019. Based on the
initial impact assessment, the Group expects to report separately service charge income for leases where a single payment is received to cover both
rent and service charge. The total payment received is currently reported as rental income, but upon adoption of the standard, the service charge
component will be separated and reported as service charge income in the notes to the financial statements. There will be no net impact on profit
attributable to shareholders.
128
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued Section 2 – Performance
This 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.
Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint arrangements and properties
owned by the Group but where a third party holds a non-controlling interest. Internally, management review the results of the Group on a basis that
adjusts for these different forms of ownership to present a proportionate share. The Combined Portfolio, with assets totalling £14.1bn, is an example
of this approach, reflecting the economic interest we have in our properties regardless of our ownership structure. We consider this presentation
provides a better explanation to stakeholders of the activities and performance of the Group, as it aggregates the results of all of the Group’s property
interests which under IFRS are required to be presented across a number of line items in the statutory financial statements.
The same principle is applied to many of the other measures we discuss and, accordingly, 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, 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’s interest in joint ventures is presented as one line on the income statement and balance sheet, and
all subsidiaries are consolidated at 100% with any non-owned element being adjusted as a non-controlling interest or redemption liability, as appropriate.
Our joint operations are presented on a proportionate basis in all financial measures.
Our income statement has two key components: the income we generate from leasing our investment properties net of associated costs (including
interest expense), which we refer to as revenue profit, and items not directly related to the underlying rental business, principally valuation changes,
profits or losses on the disposal of properties, refinancing activity and exceptional items, which we refer to as Capital and other items. Our 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 IFRS; the other columns provide additional information. We believe revenue profit
better represents the results of the Group’s operational performance to stakeholders as it focuses on the rental income performance of the business
and excludes Capital and other items which can vary significantly from year to year. 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.
4. Segmental information
The Group’s operations are organised into two operating segments, being the London Portfolio and the Retail 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),
hotel and leisure assets and retail parks. 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 Group
General Counsel and Company Secretary, the Group HR Director and the Corporate Affairs and Sustainability 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 finance expenses (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.
All items in the segmental information note are presented on a proportionate basis. A reconciliation from the Group income statement to the
information presented in the segmental information note is included in table 70.
Landsec Annual Report 2018
129
Financial statements
4. Segmental information continued
Revenue profit
Rental income
Finance lease interest
Gross rental income (before rents payable)
Rents payable 1
Gross rental income (after rents payable)
Service charge income
Service charge expense
Net service charge expense
Other property related income
Direct property expenditure
Net rental income
Indirect property expenditure
Depreciation
Segment profit before finance expense
Joint venture finance expense
Segment profit
Group services – other income
– expense
Finance income
Finance expense
Revenue profit
Retail
Portfolio
£m
359
1
360
(9)
351
60
(69)
(9)
20
(40)
322
(21)
(1)
300
(8)
292
London
Portfolio
£m
304
9
313
(3)
310
45
(47)
(2)
18
(37)
289
(16)
(1)
272
(20)
252
Retail
Portfolio
£m
342
1
343
(8)
335
56
(60)
(4)
20
(36)
315
(21)
(1)
293
(4)
289
London
Portfolio
£m
296
9
305
(3)
302
45
(46)
(1)
14
(30)
285
(16)
(1)
268
(17)
251
2018
Total
£m
663
10
673
(12)
661
105
(116)
(11)
38
(77)
611
(37)
(2)
572
(28)
544
2
(45)
31
(126)
406
1. Included within rents payable is finance lease interest payable of £1m (2017: £1m) and £1m (2017: £1m) for the Retail and London portfolios respectively.
Reconciliation of revenue profit to (loss)/profit before tax
Revenue profit
Capital and other items
Valuation and profits on disposals
Profit on disposal of investment properties
Profit/(loss) on disposal of investment in joint venture
Profit on disposal of other investment
Net deficit on revaluation of investment properties
Movement in impairment of trading properties
Profit on disposal of trading properties
Net finance expense
Fair value movement on interest-rate swaps
Amortisation of bond exchange de-recognition adjustment
Redemption of medium term notes (MTNs)1
Amortisation of bond exchange de-recognition adjustment on redeemed MTNs 1
Redemption of QAG Bond
Other
Exceptional items
Head office relocation
Other
(Loss)/profit before tax
2018
Total
£m
406
3
66
–
(91)
(4)
30
4
8
(19)
(390)
(189)
(62)
(9)
(661)
–
–
–
(251)
2017
Total
£m
638
10
648
(11)
637
101
(106)
(5)
34
(66)
600
(37)
(2)
561
(21)
540
2
(42)
37
(155)
382
2017
Total
£m
382
20
(2)
13
(147)
12
36
(68)
(8)
(24)
(140)
(30)
–
(2)
(204)
1
1
1
112
1. Previously included within Exceptional items. The cost of redeeming medium term notes, and the associated amortisation of the bond exchange de-recognition adjustment have been
reclassified to Net finance expense within Capital and other items in the current year as a result of the increased frequency of these types of transactions. The comparative disclosures
have been restated accordingly. There is no impact on EPRA, Adjusted or IFRS earnings per share as a result of this change.
130
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
5. Performance measures
Three of the Group’s key financial performance measures are adjusted diluted earnings per share, adjusted diluted net assets per share and total
business return. In the tables below we present earnings per share and net assets per share calculated in accordance with IFRS, together with our
own adjusted measures and certain measures required by EPRA. We also present the calculation of total business return.
Adjusted earnings, which is a tax adjusted measure of revenue profit, is the basis for the calculation of adjusted earnings per share. We believe
adjusted earnings and adjusted earnings per share better represent the results of the Group’s operational performance to stakeholders as they
focus on the rental income performance of the business and exclude Capital and other items which can vary significantly from year to year.
Adjusted net assets excludes the fair value of interest-rate swaps used for hedging purposes and the bond exchange de-recognition adjustment.
We believe this better reflects the underlying net assets attributable to shareholders as it more accurately reflects the future cash flows associated
with our debt instruments.
Total business return is calculated as the cash dividends paid in the year plus the change in adjusted diluted net assets per share, divided by the
opening adjusted diluted net assets per share. We consider this to be a useful measure for shareholders as it gives an indication of the total return
on investment over the year.
EPRA measures for both earnings per share and net assets per share have been included to assist comparison between European property companies.
Earnings per share
(Loss)/profit attributable to shareholders
Taxation
Valuation and profits on disposal
Net finance expense 1
Exceptional items 2
Other
2018
2017
Loss for
the
financial
year
£m
(252)
–
–
–
–
–
EPRA
earnings
£m
Adjusted
earnings
£m
(252)
1
(4)
642
–
–
(252)
1
(4)
661
–
–
Profit for
the
financial
year
£m
113
–
–
–
–
–
EPRA
earnings
£m
Adjusted
earnings
£m
113
(1)
68
180
–
(1)
359
113
(1)
68
204
(1)
(1)
382
(Loss)/profit used in per share calculation
(252)
387
406
113
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
IFRS
EPRA
Adjusted
(32.9)p
(32.9)p
50.6p
50.6p
53.1p
53.1p
IFRS
14.3p
14.3p
EPRA
Adjusted
45.4p
45.4p
48.4p
48.3p
1. The difference in the adjustment for EPRA earnings and adjusted earnings relates to the amortisation of the bond exchange de-recognition adjustment, which is included in EPRA earnings,
but excluded from Adjusted earnings. Net finance expense now includes the cost of redeeming MTNs and, for Adjusted earnings, the associated bond exchange de-recognition adjustment.
These items were previously reported as exceptional items.
2. The difference in the adjustment for EPRA earnings and Adjusted earnings in 2017 relates to the head office relocation costs, which are included in EPRA earnings, but excluded from
Adjusted earnings.
Net assets per share
Net assets attributable to shareholders
Fair value of interest-rate swaps – Group
– Joint ventures
Bond exchange de-recognition adjustment
Deferred tax liability arising on business combination
Goodwill on deferred tax liability
Excess of fair value of debt over book value (note 21)
Net assets
£m
10,492
EPRA net
assets
£m
10,492
EPRA
triple net
assets
£m
10,492
2018
Adjusted
net assets
£m
10,492
Net assets
£m
11,516
EPRA net
assets
£m
11,516
–
–
–
–
–
–
(6)
–
–
4
(4)
–
–
–
–
–
(4)
(323)
(6)
–
(106)
4
(4)
–
–
–
–
–
–
–
2
2
–
4
(4)
–
Net assets used in per share calculation
10,492
10,486
10,165
10,380
11,516
11,520
Net assets per share
Diluted net assets per share
IFRS
1,418p
1,418p
EPRA
n/a
EPRA
triple
n/a
1,417p
1,374p
Adjusted
1,403p
1,403p
IFRS
1,458p
1,456p
EPRA
n/a
1,456p
1,328p
EPRA
triple net
assets
£m
11,516
–
–
–
–
(4)
(1,010)
10,502
EPRA
triple
n/a
2017
Adjusted
net assets
£m
11,516
2
2
(314)
4
(4)
–
11,206
Adjusted
1,418p
1,417p
Landsec Annual Report 2018
131
Financial statements
5. Performance measures continued
Number of shares
Ordinary shares
Treasury shares
Own shares
Number of shares – basic
Dilutive effect of share options
Number of shares – diluted
Total business return
Decrease in adjusted diluted net assets per share
Dividend paid per share in the year (note 11)
Total return (a)
Adjusted diluted net assets per share at the beginning of the year (b)
Total business return (a/b)
Weighted
average
(million)
2018
31 March
(million)
Weighted
average
(million)
2017
31 March
(million)
776
(10)
(1)
765
–
765
751
(10)
(1)
740
–
740
801
(10)
(1)
790
1
791
2018
pence
(14)
40
26
1,417
1.8%
801
(10)
(1)
790
1
791
2017
pence
(17)
37
20
1,434
1.4%
132
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued 6. Revenue
Accounting policy
The 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.
Rental income, including fixed rental uplifts, 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. 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.
Service charge income and management fees are recorded as income in the period in which they are earned.
When property is let under a finance lease, the Group recognises a receivable 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 and is recognised within revenue.
Proceeds received on the sale of trading properties are recognised when the significant risks and rewards of ownership transfer to the buyer. This
generally occurs on unconditional exchange or on completion, particularly if completion is expected to occur significantly after exchange or if the
Group has significant outstanding obligations between exchange and completion.
Revenue on long-term development contracts is recognised over the life of the contract according to the stage of the contract reached, by reference
to the value of work completed using the costs incurred to date. An appropriate estimate of the profit will be recognised as the Group satisfies its
performance obligations in accordance with the contract.
All revenue is classified within the ‘Revenue profit’ column of the income statement, with the exception of proceeds on the sale of trading properties,
income arising from long-term development contracts and the non-owned element of the Group’s subsidiaries which are presented in the ‘Capital and
other items’ column.
Rental income (excluding adjustment for lease incentives)
Adjustment for lease incentives
Rental income
Service charge income
Other property related income
Trading property sales proceeds
Finance lease interest
Other income
Revenue per the income statement
Revenue
profit
£m
Capital and
other items
£m
581
29
610
95
36
–
10
2
753
2
–
2
1
–
96
–
–
99
2018
Total
£m
583
29
612
96
36
96
10
2
852
Revenue
profit
£m
Capital and
other items
£m
541
44
585
92
32
–
10
2
721
2
–
2
2
–
62
–
–
66
The following table reconciles revenue per the income statement to the individual components of revenue presented in note 4.
Rental income
Service charge income
Other property related income
Trading property sales proceeds
Finance lease interest
Long-term development contract income
Other income
Revenue in the segmental information note
Group
£m
612
96
36
96
10
–
2
852
Adjustment
for
non-wholly
owned
subsidiaries1
£m
Joint
ventures
£m
53
10
2
86
–
6
–
157
(2)
(1)
–
–
–
–
–
2018
Total
£m
663
105
38
182
10
6
2
Adjustment
for
non-wholly
owned
subsidiaries1
£m
Joint
ventures
£m
53
9
2
72
–
–
–
(2)
(2)
–
–
–
–
–
Group
£m
587
94
32
62
10
–
2
(3)
1,006
787
136
(4)
2017
Total
£m
543
44
587
94
32
62
10
2
787
2017
Total
£m
638
101
34
134
10
–
2
919
1. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.
Landsec Annual Report 2018
133
Financial statements
7. Costs
Accounting policy
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. 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.
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 arising on business combinations, head office relocation costs, and the
non-owned element of the Group’s subsidiaries which are presented in the Capital and other items column.
Rents payable
Service charge expense
Direct property expenditure
Indirect property expenditure
Cost of trading property disposals
Movement in impairment of trading properties1
Head office relocation2
Amortisation of intangible asset
Impairment of goodwill
Costs per the income statement
Revenue
profit
£m
Capital and
other items
£m
11
104
65
81
–
–
–
–
–
261
–
1
–
–
79
–
–
2
–
82
2018
Total
£m
11
105
65
81
79
–
–
2
–
Revenue
profit
£m
Capital and
other items
£m
10
95
58
79
–
–
–
–
–
–
1
–
–
33
(12)
(1)
2
1
24
343
242
2017
Total
£m
10
96
58
79
33
(12)
(1)
2
1
266
1. The movement in impairment of trading properties in the year ended 31 March 2017 relates to the reversal of previous impairment charges related to residential land, where the valuer’s
assessment of net realisable value increased over the year.
2. The net credit of £1m in respect of the head office relocation in the prior year comprises the £2m release of an onerous lease provision following the assignment of the lease on the Group’s
previous head office at lower net cost than originally anticipated, partly offset by relocation costs incurred in the year.
The following table reconciles costs per the income statement to the individual components of costs presented in note 4.
Rents payable
Service charge expense
Direct property expenditure
Indirect property expenditure
Cost of trading property disposals
Movement in impairment of trading properties
Long-term development contract expenditure
Head office relocation
Amortisation of intangible asset
Impairment of goodwill
Group
£m
11
105
65
81
79
–
–
–
2
–
Costs in the segmental information note
343
Adjustment
for
non-wholly
owned
subsidiaries1
£m
Joint
ventures
£m
1
12
12
3
73
4
6
–
–
–
111
–
(1)
–
–
–
–
–
–
–
–
2018
Total
£m
12
116
77
84
152
4
6
–
2
–
Group
£m
Joint
ventures
£m
Adjustment
for
non-wholly
owned
subsidiaries1
£m
10
96
58
79
33
(12)
–
(1)
2
1
266
1
11
8
2
65
–
–
–
–
–
–
(1)
–
–
–
–
–
–
–
–
87
(1)
2017
Total
£m
11
106
66
81
98
(12)
–
(1)
2
1
352
(1)
453
1. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.
The Group’s costs include employee costs for the year of £62m (2017: £60m), of which £6m (2017: £7m) is within service charge expense and £56m
(2017: £53m) is within indirect property expenditure, of which £26m relates to Group services (2017: £22m).
134
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
Employee costs
Salaries and wages
Employer payroll taxes
Other pension costs (note 32)
Share-based payments (note 33)
The average monthly number of employees during the year was:
Indirect property or contract and administration
Direct property or contract services:
Full-time
Part-time
2018
£m
46
6
4
6
62
2017
£m
45
6
4
5
60
2018
Number
2017
Number
422
138
10
570
421
153
9
583
With the exception of two of the Executive Directors, the Company Secretary and two employees who are members of the Defined Benefit Pension
scheme, who are employed by Land Securities Group PLC, all employees are employed by subsidiaries of the Group. The employee costs for Land
Securities Group PLC are borne by another Group company.
During the year, one (2017: nil) of the Executive Directors had retirement benefits accruing under the defined contribution pension scheme. None (2017: nil)
of the Executive Directors had retirement benefits accruing under the defined benefit scheme. Information on Directors’ emoluments, share options and
interests in the Company’s shares is given in the Directors’ Remuneration Report on pages 86 to 111.
Details of the employee costs associated with the Group’s key management personnel are included in note 38.
8. Auditor remuneration
Services provided by the Group’s auditor
Audit fees:
Audit of parent company and consolidated financial statements
Audit of subsidiary undertakings
Audit of joint ventures
Non-audit fees:
Audit related assurance services
Other assurance services
2018
£m
0.4
0.3
0.1
0.8
–
0.1
0.9
2017
£m
0.4
0.3
0.1
0.8
0.1
0.1
1.0
It 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.
Landsec Annual Report 2018
135
Financial statements
9. External valuer’s remuneration
Services provided by the Group’s external valuer
Year end and half-yearly valuations – Group
– Joint ventures
Other consultancy and agency services
2018
£m
0.7
0.2
1.6
2.5
2017
£m
0.7
0.2
3.2
4.1
CBRE Limited (CBRE) is the Group’s principal valuer. The fee arrangement with CBRE for the valuation of the Group’s properties is fixed, subject to an
adjustment for acquisitions and disposals. CBRE undertakes other consultancy and agency work on behalf of the Group. CBRE has confirmed to us that
the total fees paid by the Group represented less than 5% of its total revenues in the current year.
10. Net finance expense
Finance income
Interest receivable from joint ventures
Fair value movement on interest-rate swaps
Other interest receivable
Finance expense
Bond and debenture debt
Bank and other short-term borrowings
Fair value movement on interest-rate swaps
Fair value movement on other derivatives
Amortisation of bond exchange de-recognition adjustment
Redemption of medium term notes1
Amortisation of bond exchange de-recognition adjustment on redemption1
Redemption of QAG Bond1
Revaluation of redemption liabilities
Other interest payable
Interest capitalised in relation to properties under development
Net finance expense
Joint venture net finance expense
Net finance expense included in revenue profit
Revenue
profit
£m
Capital
and other
items
£m
Revenue
profit
£m
Capital
and other
items
£m
Year ended
31 March 2018
Total
£m
31
8
–
39
(112)
(15)
–
(7)
(19)
(390)
(189)
(62)
(2)
(2)
(798)
3
(795)
–
8
–
8
–
–
–
(7)
(19)
(390)
(189)
(62)
(2)
–
(669)
–
(669)
31
–
–
31
(112)
(15)
–
–
–
–
–
–
–
(2)
(129)
3
(126)
(95)
(28)
(123)
35
–
2
37
(144)
(15)
–
–
–
–
–
–
–
(1)
(160)
5
(155)
(118)
(21)
(139)
Year ended
31 March 2017
Total
£m
35
–
2
37
(144)
(15)
(8)
–
(24)
(140)
(30)
–
(3)
–
(364)
5
(359)
–
–
–
–
–
–
(8)
–
(24)
(140)
(30)
–
(3)
1
(204)
–
(204)
(661)
(756)
(204)
(322)
1. During the year, the Group redeemed the QAG Bond in its entirety and repurchased £1,256m of medium term notes. Further details are given in note 21.
Finance lease interest payable of £2m (2017: £2m) is included within rents payable as detailed in note 4.
136
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
11. Dividends
Accounting policy
Interim 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.
Ordinary dividends paid
For the year ended 31 March 2016:
Third interim
Final
For the year ended 31 March 2017:
First interim
Second interim
Third interim
Final
For the year ended 31 March 2018:
First interim
Second interim
Gross dividends
Pence per share
Year ended 31 March
Payment date
PID
Non-PID
Total
8 April 2016
28 July 2016
7 October 2016
7 January 2017
7 April 2017
27 July 2017
6 October 2017
5 January 2018
8.15
10.55
8.95
–
8.95
11.70
9.85
–
–
–
–
8.95
–
–
–
9.85
8.15
10.55
8.95
8.95
8.95
11.70
9.85
9.85
2018
£m
71
92
78
73
314
2017
£m
64
83
71
71
289
A third quarterly interim dividend of 9.85p per ordinary share, or £73m in total (2017: 8.95p or £71m in total), was paid on 6 April 2018 as a Property
Income Distribution (PID). The Board has recommended a final dividend for the year ended 31 March 2018 of 14.65p per ordinary share (2017: 11.7p)
to be paid as a PID. This final dividend will result in a further estimated distribution of £108m (2017: £92m). Subject to shareholders’ approval at the
Annual General Meeting, the final dividend will be paid on 27 July 2018 to shareholders registered at the close of business on 22 June 2018. The total
dividend paid and recommended in respect of the year ended 31 March 2018 is therefore 44.2p per ordinary share (2017: 38.55p). The first quarterly
dividend for the year ending 31 March 2019 will be 11.3p. It will be paid on 5 October 2018, to shareholders on the register at the close of business on
7 September 2018.
A Dividend Reinvestment Plan (DRIP) has been available in respect of all dividends paid during the year.
12. Income tax
Accounting policy
Income 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.
Significant accounting judgement
The Group is a Real Estate Investment Trust (REIT). As a result, the Group does not pay UK corporation tax on its profits and gains from the qualifying
rental business in the UK. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal. In order to maintain
group REIT status, certain ongoing criteria must be met. 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 REIT for the foreseeable future, with the result that deferred tax is no longer recognised on
temporary differences relating to the property rental business.
Deferred tax assets and liabilities require management judgement in determining the amounts, if any, to be recognised. In particular, judgement is
required when assessing the extent to which deferred tax assets should be recognised, taking into account the expected timing and level of future
taxable income. Deferred tax assets are only recognised when management believe they will be recovered against future taxable profits.
Landsec Annual Report 2018
137
Financial statements
12. Income tax continued
The income tax charge (2017: credit) in the income statement comprises the movement in deferred tax on intangible assets and property, plant and
equipment of £2m (2017: £1m credit) and adjustments in respect of prior financial years of £1m (2017: £nil). The tax for the year is lower than the
standard rate of corporation tax in the UK of 19% (2017: 20%). The differences are explained in the table below.
(Loss)/profit before tax
Loss/(profit) before tax multiplied by the rate of corporation tax in the UK of 19% (2017: 20%)
Exempt property rental profits and revaluations in the year
Effects of:
Timing difference on repurchase of medium term notes
Interest rate fair value movements and other temporary differences
Non-allowable expenses and non-taxable items
Movement in unrecognised tax losses
Adjustment in respect of prior years
Total income tax (charge)/credit in the income statement
The Group’s deferred tax liability is analysed as follows:
Capital allowances claimed in excess of depreciation
Arising on business combination
Arising on pension surplus
Total deferred tax liability
2018
£m
(251)
48
44
92
(68)
(39)
15
(2)
1
(1)
2018
£m
2
4
2
8
Deferred tax is calculated at the rate substantively enacted at the balance sheet date 17% (2017: 17%) which comes into effect from 1 April 2020.
The movement in the deferred tax liability arising on the re-measurement gain on the defined benefit pension scheme surplus is included within
Other comprehensive income in the Statement of comprehensive income.
There are unrecognised deferred tax assets on the following items due to the high degree of uncertainty as to their future utilisation by non-REIT
qualifying activities.
Revenue losses
Capital losses
Other unrecognised temporary differences
Total unrecognised items
2018
£m
35
233
484
752
2017
£m
112
(22)
45
23
(25)
(6)
6
3
–
1
2017
£m
–
4
3
7
2017
£m
2
589
140
731
The other unrecognised temporary differences relate to the premium paid on the redemption of the Group’s medium term notes. For further details
see note 21.
138
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued 13. Net cash generated from operations
Reconciliation of operating profit/(loss) to net cash generated from operations
Operating profit/(loss)
Adjustments for:
Net deficit on revaluation of investment properties
Movement in impairment of trading properties
Profit on disposal of trading properties
Profit on disposal of investment properties
Profit on disposal of other investment
(Profit)/loss on disposal of investment in joint venture
Share-based payment charge
Other
Changes in working capital:
Increase in receivables
(Decrease)/increase in payables and provisions
Net cash generated from operations
Section 3 – Properties
2018
£m
478
98
–
(17)
(1)
–
(66)
6
8
506
(53)
(14)
439
Group
2017
£m
365
Company
2017
£m
(30)
2018
£m
(32)
186
(12)
(29)
(19)
(13)
2
5
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
493
(32)
(30)
(17)
(12)
464
–
32
–
–
30
–
This 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.
Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint arrangements and properties
owned by the Group but where a third party holds a non-controlling interest. In the Group’s IFRS balance sheet, wholly owned properties are presented
as either ‘Investment properties’ or ‘Trading properties’. 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’.
Internally, management review the results of the Group on a basis that adjusts for these forms of ownership to present a proportionate share. The
Combined Portfolio, with assets totalling £14.1bn, is an example of this proportionate share, reflecting the economic interest we have in our properties
regardless of our ownership structure. We consider this presentation to better explain to stakeholders the activities and performance of the Group,
as it aggregates the results of all of the Group’s property interests which under IFRS are required to be presented across a number of line items in the
statutory financial statements.
The Group’s 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 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 14.
Accounting policy
Investment properties
Investment properties are properties, either owned or leased by the Group, that are held either to earn rental income or for capital appreciation, or
both. Investment properties are measured initially at cost including related transaction costs, and subsequently at fair value. Fair value is based on
market value, as determined by a professional external valuer at each reporting date. 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.
Investment properties are presented on the balance sheet within non-current assets.
Some of the Group’s investment properties are owned through long-leasehold arrangements, as opposed to the Group owning the freehold. Where the
Group is a lessee and the lease 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, and a corresponding liability is recorded within borrowings. Each lease payment is
allocated between repayment of the liability and a finance charge to achieve a constant rate on the outstanding liability. The investment properties
held under finance leases are subsequently carried at their fair value.
Landsec Annual Report 2018
139
Financial statements
Trading properties
Trading properties are those properties held for sale, or those being developed with a view to sell. Trading properties are recorded at the lower of cost
and net realisable value. The net realisable value of a trading property is determined by a professional external valuer at each reporting date. If the net
realisable value of a trading property is lower than its carrying value, an impairment loss is recorded in the income statement. If, in subsequent periods,
the net realisable value of a trading property that was previously impaired increases above its carrying value, the impairment is reversed to align the
carrying value of the property with the net realisable value. Trading properties are presented on the balance sheet within current assets.
Acquisition of properties
Properties are treated as acquired when the Group assumes the significant risks and returns of ownership.
Capital expenditure and capitalisation of borrowing costs
Capital expenditure on properties consists of costs of a capital nature, including costs associated with developments and refurbishments. Where a
property is being developed or undergoing major refurbishment, interest costs associated with direct expenditure on the property are capitalised.
The interest capitalised is calculated using the Group’s weighted average cost of borrowings. Interest is capitalised from the commencement of the
development work until the date of practical completion. Certain internal staff and associated costs directly attributable to the management of
major schemes are also capitalised.
Transfers between investment properties and trading properties
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.
Disposal of properties
Properties are treated as disposed when the significant risks and rewards of ownership are transferred to the buyer. Typically, this will either occur on
unconditional exchange or on completion. Where completion is expected to occur significantly after exchange, or where the Group continues to have
significant outstanding obligations after exchange, the risks and rewards will not usually transfer to the buyer until completion.
The profit on disposal is determined as the difference between the sales proceeds and the carrying amount of the asset at the beginning of the
accounting period plus capital expenditure to the date of disposal. The profit on disposal of investment properties is presented separately on the face
of the income statement. Proceeds received on the sale of trading properties are recognised within Revenue, and the carrying value at the date of
disposal is recognised within Costs.
Significant accounting estimates
Valuation of the Group’s properties
The valuation of the Group’s property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location
and the expected future rental revenues from that particular property. As a result, the valuations the Group places on its property portfolio are subject
to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low
transaction flow in the property market.
The investment property valuation contains a number of assumptions upon which the Group’s valuer has based its valuation of the Group’s properties.
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 UK 2014 (revised April 2015).
The estimation of the net realisable value of the Group’s trading properties, in particular 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 its valuations prove to be inaccurate, this may have an impact on the value of the Group’s
investment and trading properties, which could in turn have an effect on the Group’s financial position and results.
Significant accounting judgements
Acquisition and disposal of properties
Property transactions can be complex in nature and material to the financial statements. To determine when an acquisition or disposal should be
recognised, management consider whether the Group holds the risks and rewards of ownership, and the point at which this is obtained or relinquished.
Consideration is given to the terms of the acquisition or disposal contracts and any conditions that must be satisfied before the contract is fulfilled.
In the case of an acquisition, management must also consider whether the transaction represents an asset acquisition or business combination.
140
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued 14. Investment properties
Net book value at the beginning of the year
Acquisitions
Transfer from trading properties
Capital expenditure: Investment portfolio
Development programme
Capitalised interest
Disposals
Net movement in finance leases
Net deficit on revaluation of investment properties
Net book value at 31 March
2018
£m
12,144
351
1
53
39
3
(157)
–
(98)
12,336
2017
£m
12,358
14
–
80
46
5
(205)
32
(186)
12,144
The market value of the Group’s investment properties, as determined by the Group’s external valuer, 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.
Net book value
Plus: tenant lease incentives
Less: head leases capitalised
Plus: properties treated as finance leases
Group
(excl. joint
ventures)
£m
12,336
337
(31)
241
Adjustment
for
proportionate
share2
£m
2018
Combined
Portfolio
£m
(35)
13,536
(1)
–
(1)
366
(39)
240
Joint
ventures1
£m
1,235
30
(8)
–
Group
(excl. joint
ventures)
£m
12,144
311
(31)
238
Adjustment
for
proportionate
share2
£m
(34)
(1)
–
–
Joint
ventures1
£m
1,763
57
(8)
–
2017
Combined
Portfolio
£m
13,873
367
(39)
238
Market value
12,883
1,257
(37)
14,103
12,662
1,812
(35)
14,439
Net (deficit)/surplus on revaluation
of investment properties
(98)
7
–
(91)
(186)
40
(1)
(147)
1. 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 which is consolidated in the Group numbers.
The net book value of leasehold properties where head leases have been capitalised is £2,096m (2017: £1,169m).
Investment properties include capitalised interest of £209m (2017: £206m). The average rate of interest capitalisation for the year is 4.0% (2017: 4.7%).
The historical cost of investment properties is £7,081m (2017: £6,713m).
Valuation process
The fair value of investment properties at 31 March 2018 was determined by the Group’s external valuer, CBRE. 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 valuer are
reviewed internally by Senior Management and relevant people within the London and Retail business units. This process includes discussions of the
assumptions used by the valuer, 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 valuer on a half-yearly basis.
The valuer’s 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 current market derived estimated rental values (market rents) together with estimated costs, are discounted at market
derived capitalisation rates to produce the valuer’s 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.
Properties in the development programme are typically 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. As the development approaches completion, the valuer may consider the income capitalisation
approach to be more appropriate.
Landsec Annual Report 2018
141
Financial statements
14. Investment properties continued
The Group considers all of its investment properties to fall within ‘Level 3’, as defined by IFRS 13 and as explained in note 25(iii). Accordingly, there have
been no transfers 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.
The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2018:
Market
value
Estimated rental value
£ per sq ft
Equivalent yield
%
2018
Costs
£ per sq ft
£m
Low
Average
High
Low
Average
High
Low
Average
High
Retail Portfolio
Shopping centres and shops
Retail parks
Leisure and hotels
Other1
Total Retail Portfolio (excluding developments)
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other1
3,412
786
1,287
18
5,503
2,845
1,222
1,347
324
5,738
1,435
41
Total London Portfolio (excluding developments)
7,214
Developments: residual method
Development programme
166
166
Market value at 31 March 2018 – Group
12,883
7
11
6
n/a
6
20
55
31
27
20
17
n/a
17
71
71
36
21
9
n/a
27
62
62
57
35
60
65
n/a
60
71
71
53
28
20
n/a
53
72
65
64
51
72
179
n/a
179
4.2%
3.5%
2.0%
n/a
2.0%
2.9%
4.1%
4.3%
4.7%
2.9%
2.9%
n/a
2.9%
71
71
4.4%
4.4%
5.0%
8.5%
5.6% 10.0%
5.4%
n/a
8.9%
n/a
5.1% 10.0%
4.4%
4.5%
4.4%
4.9%
4.5%
4.1%
n/a
4.4%
4.4%
4.4%
4.9%
5.9%
4.5%
5.5%
5.9%
6.5%
n/a
6.5%
4.4%
4.4%
–
–
–
n/a
–
–
–
–
–
–
–
7
1
–
n/a
4
9
6
2
1
6
2
n/a
n/a
–
–
–
5
–
–
17
13
3
n/a
17
30
20
3
14
30
29
n/a
30
–
–
1. 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:
Sensitivities
Total Retail Portfolio (excluding developments)
Total London Portfolio (excluding developments)
Developments: residual method
Market value at 31 March 2018 – Group
Impact on
valuations of
5% change in
estimated rental value
Impact on
valuations of
25 bps change in
equivalent yield
2018
Impact on
valuations of
5% change
in costs
Increase
£m
Decrease
£m
Decrease
£m
Increase
£m
Decrease
£m
Increase
£m
234
264
22
(221)
(256)
(21)
289
452
31
(262)
(401)
(28)
2
5
23
(4)
(5)
(21)
Market
value
£m
5,503
7,214
166
12,883
142
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2017:
Market
value
Estimated rental value
£ per sq ft
Equivalent yield
%
2017
Costs
£ per sq ft
£m
Low
Average
High
Low
Average
High
Low
Average
High
Retail Portfolio
Shopping centres and shops
Retail parks
Leisure and hotels
Other1
Total Retail Portfolio (excluding developments)
London Portfolio
West End
City
Mid-town
Inner London
Total London offices
Central London shops
Other1
3,134
855
1,361
20
5,370
2,423
1,291
1,336
323
5,373
1,364
41
Total London Portfolio (excluding developments)
6,778
Developments: income capitalisation method
Development programme
514
514
Market value at 31 March 2017 – Group
12,662
4
11
5
n/a
4
19
56
31
27
19
14
n/a
14
45
45
34
21
16
n/a
27
62
63
57
35
59
79
n/a
63
73
73
51
28
31
n/a
51
72
66
64
50
72
130
n/a
130
76
76
4.1%
3.5%
3.8%
n/a
3.5%
2.9%
4.1%
4.3%
4.7%
2.9%
2.9%
n/a
2.9%
4.1%
4.1%
4.8%
5.6%
5.3%
n/a
5.0%
4.6%
4.6%
4.5%
5.0%
4.6%
3.9%
n/a
4.4%
4.2%
4.2%
7.7%
10.0%
8.6%
n/a
10.0%
5.0%
5.8%
4.6%
5.5%
5.8%
5.8%
n/a
5.8%
4.5%
4.5%
–
–
–
n/a
–
–
–
–
–
–
–
n/a
–
–
–
5
2
2
n/a
4
1
31
1
–
8
–
n/a
6
–
–
14
16
28
n/a
28
24
462
2
–
462
1
n/a
462
–
–
1. 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:
Sensitivities
Total Retail Portfolio (excluding developments)
Total London Portfolio (excluding developments)
Developments: income capitalisation method
Market value at 31 March 2017 – Group
Impact on
valuations of
5% change in
estimated rental value
Impact on
valuations of
25 bps change in
equivalent yield
2017
Impact on
valuations of
5% change
in costs
Increase
£m
Decrease
£m
Decrease
£m
Increase
£m
Decrease
£m
Increase
£m
229
264
16
(216)
(256)
(16)
288
428
33
(263)
(381)
(30)
2
19
–
(2)
(20)
(17)
Market
value
£m
5,370
6,778
514
12,662
Landsec Annual Report 2018
143
Financial statements
15. Trading properties
At 1 April 2016
Capital expenditure
Disposals
Movement in impairment
At 31 March 2017
Capital expenditure
Disposals
Transfer to investment properties
At 31 March 2018
Development
land and
infrastructure
£m
Residential
£m
88
17
(9)
12
108
17
(104)
–
21
36
2
(24)
–
14
(2)
(8)
(1)
3
Total
£m
124
19
(33)
12
122
15
(112)
(1)
24
The cumulative impairment provision at 31 March 2018 in respect of Development land and infrastructure was £nil (31 March 2017: £67m); and in respect
of Residential was £1m (31 March 2017: £1m).
16. Joint arrangements
Accounting policy
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. The treatment as either a joint venture or a joint operation will depend
on whether the Group has rights to 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, has
rights to the net assets of the arrangement. 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 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.
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.
144
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued Percentage owned
and voting rights
Business
segment
Year end date1
Joint venture partner
The Group’s joint arrangements are described below:
Joint ventures
Held at 31 March 2018
Nova, Victoria2
Southside Limited Partnership3
St. David’s Limited Partnership
Westgate Oxford Alliance Limited Partnership
The Oriana Limited Partnership4, 5
Harvest5, 6
The Ebbsfleet Limited Partnership5
West India Quay Unit Trust5, 7
Joint operation
Bluewater, Kent
50%
50%
50%
50%
50%
50%
50%
50%
Ownership
interest
30%
The following joint arrangement was liquidated in the year ended 31 March 2018:
Joint venture
Millshaw Property Co. Limited
Ownership
interest
50%
The following joint arrangement was sold in the year ended 31 March 2018:
Joint venture
20 Fenchurch Street Limited Partnership8
Ownership
interest
50%
London
Retail
Retail
Retail
London
Retail
London
Retail
Business
segment
Retail
Business
segment
Retail
Business
segment
London
31 March
31 March
Canada Pension Plan Investment Board
Invesco Real Estate European Fund
31 December
Intu Properties plc
31 March
31 March
31 March
31 March
31 March
The Crown Estate Commissioners
Frogmore Real Estate Partners Limited
Partnership
J Sainsbury plc
Ebbsfleet Property Limited
Schroder Exempt Property Unit Trust
Joint operation partners
M&G Real Estate and GIC
Lend Lease Retail Partnership
Royal London Asset Management
Aberdeen Asset Management
Joint venture partner
Evans Property Group Limited
Joint venture partner
Canary Wharf Group plc
1. 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, Nova Residential Limited Partnership and Victoria Circle Developer Limited.
3. On 13 April 2017, Metro Shopping Fund Limited Partnership (Metro) completed the sale of one of its assets to DV4 (a fund advised by Delancey Real Estate Asset Management Limited
(Delancey)). On the same date Delancey sold its stake in Metro to Invesco Real Estate European Fund. The partnership was subsequently renamed Southside Limited Partnership.
4. On 12 April 2018, the Group purchased the remaining 50% interest in The Oriana Limited Partnership which it did not already own for consideration of £4m. The Group therefore owns 100%
of the share capital as of 12 April 2018.
5. Included within Other in subsequent tables.
6. Harvest includes Harvest 2 Limited Partnership, Harvest Development Management Limited, Harvest 2 Selly Oak Limited, Harvest 2 GP Limited and Harvest GP Limited.
7. West India Quay Unit Trust is held in the X-Leisure Unit Trust (X-Leisure) in which the Group holds a 95% share.
8. On 24 August 2017, the Group disposed of its interest in 20 Fenchurch Street Limited Partnership for £633m, realising a profit of £66m, after settling outstanding interest receivable of £36m.
All 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 which holds development land as trading properties.
The Westgate Oxford Alliance Limited Partnership, Nova, Victoria and The Oriana Limited Partnership are also engaged in the development of
investment and 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 Southside Limited Partnership and West India Quay Unit Trust which are
registered in Jersey.
Landsec Annual Report 2018
145
Financial statements
16. Joint arrangements continued
Joint ventures
Comprehensive income statement
Revenue2
Gross rental income (after rents payable)
Net rental income
Segment profit before finance expense
Finance expense
Capitalised interest
Net finance expense
Revenue profit/(loss)
Capital and other items
Net surplus/(deficit) on revaluation of investment
properties
Impairment of trading properties
Profit on disposal of investment properties
Profit on disposal of trading properties
Profit/(loss) before tax
Post-tax profit/(loss)
Total comprehensive income/(loss)
20 Fenchurch
Street
Limited
Partnership
100%
£m
21
16
16
16
(8)
–
(8)
8
–
–
–
–
8
8
8
Nova,
Victoria
100%
£m
147
20
11
9
(33)
–
(33)
(24)
24
(8)
–
19
11
11
11
Southside
Limited
Partnership1
100%
£m
St. David’s
Limited
Partnership
100%
£m
Westgate
Oxford
Alliance
Partnership
100%
£m
17
14
13
11
(6)
–
(6)
5
–
–
1
–
6
6
6
44
35
28
26
–
–
–
26
(44)
–
–
–
(18)
(18)
(18)
41
15
11
11
(15)
5
(10)
1
20
–
–
4
25
25
25
Group share of total comprehensive income/(loss)
50%
4
50%
6
50%
3
50%
(9)
50%
12
Year ended 31 March 2018
Individually
material
JVs (Group
share)
50%
£m
135
Other
Group share
£m
Total
Group share
£m
22
157
50
39
36
(31)
3
(28)
8
–
(4)
1
11
16
16
16
16
2
1
1
–
–
–
1
7
–
1
2
11
11
11
11
52
40
37
(31)
3
(28)
9
7
(4)
2
13
27
27
27
27
1. Previously called Metro Shopping Fund Limited Partnership.
2. 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.
146
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued Joint ventures
Comprehensive income statement
Revenue2
Gross rental income (after rents payable)
Net rental income
Segment profit before finance expense
Finance expense
Capitalised interest
Net finance expense
Revenue profit/(loss)
Capital and other items
Net surplus/(deficit) on revaluation of investment
properties
Profit on disposal of investment properties
Profit on disposal of trading properties
Profit before tax
Post-tax profit
Total comprehensive income
20 Fenchurch
Street
Limited
Partnership
100%
£m
48
39
37
36
(22)
–
(22)
14
43
–
–
57
57
57
Nova,
Victoria
100%
£m
147
7
2
1
(36)
25
(11)
(10)
41
–
14
45
45
45
Southside
Limited
Partnership1
100%
£m
St. David’s
Limited
Partnership
100%
£m
Westgate
Oxford Alliance
Partnership
100%
£m
21
17
15
15
(8)
–
(8)
7
–
2
–
9
9
9
43
35
29
27
–
–
–
27
(22)
–
–
5
5
5
3
3
2
2
(11)
10
(1)
1
19
–
–
20
20
20
Group share of total comprehensive income
50%
28
50%
23
50%
5
50%
2
50%
10
Individually
material
JVs (Group
share)
50%
£m
131
50
43
41
(39)
18
(21)
20
40
1
7
68
68
68
68
Year ended 31 March 2017
Other
Group share
£m
Total
Group share
£m
5
2
1
1
–
–
–
1
–
–
–
1
1
1
1
136
52
44
42
(39)
18
(21)
21
40
1
7
69
69
69
69
1. Previously called Metro Shopping Fund Limited Partnership.
2. 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.
Landsec Annual Report 2018
147
Financial statements
16. Joint arrangements continued
Joint ventures
Balance sheet
Investment properties2
Non-current assets
Cash and cash equivalents
Other current assets
Current assets
Total assets
Trade and other payables and provisions
Current liabilities
Non-current liabilities
Non-current liabilities
Total liabilities
Net assets
Market value of investment properties2
Net cash/(debt)
Balance sheet
Investment properties2
Non-current assets
Cash and cash equivalents
Other current assets
Current assets
Total assets
Trade and other payables and provisions
Current liabilities
Non-current liabilities
Non-current liabilities
Total liabilities
Net assets
Market value of investment properties2
Net cash/(debt)
20 Fenchurch
Street
Limited
Partnership
100%
£m
Nova,
Victoria
100%
£m
Southside
Limited
Partnership1
100%
£m
St. David’s
Limited
Partnership
100%
£m
Westgate
Oxford
Alliance
Partnership
100%
£m
Individually
material
JVs (Group
share)
50%
£m
1,177
1,177
10
74
84
549
549
10
21
31
580
1,261
(15)
(15)
–
–
(15)
(28)
(28)
(152)
(152)
(180)
664
664
2
18
20
684
(12)
(12)
(16)
(16)
(28)
656
565
1,081
661
(15)
708
708
4
21
25
733
(12)
(12)
(16)
(16)
(28)
562
10
412
412
10
15
25
437
(32)
(32)
–
–
(32)
1,198
2
1,676
1,676
40
165
205
1,881
(179)
(179)
(79)
(79)
(258)
31 March 2018
Total
Group
share
£m
1,235
1,235
16
94
110
1,345
(33)
(33)
(161)
(161)
(194)
1,151
1,257
8
31 March 2017
1,763
1,763
49
194
243
2,006
(184)
(184)
(88)
(88)
(272)
1,734
1,812
(46)
Other
Group
share
£m
58
58
6
20
26
84
(5)
(5)
(9)
(9)
(14)
70
59
6
87
87
9
29
38
125
(5)
(5)
(9)
(9)
(14)
111
88
9
208
705
405
1,623
379
(166)
707
(12)
411
10
1,724
(55)
295
295
2
8
10
305
(5)
(5)
(143)
(143)
(148)
157
298
1
376
376
6
7
13
389
(39)
(39)
(142)
(142)
(181)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,046
1,046
16
93
109
1,155
(100)
(100)
–
–
845
845
7
101
108
953
(24)
(24)
(144)
(144)
(168)
785
874
7
809
809
43
195
238
1,047
(174)
(174)
–
–
(100)
(174)
1,055
1,135
16
873
815
43
1. Previously called Metro Shopping Fund Limited Partnership.
2. The difference between the book value and the market value of investment properties is the amount recognised in respect of lease incentives, head leases capitalised and properties treated
as finance leases, where applicable.
148
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
Joint ventures
Net investment
At 1 April 2016
Total comprehensive income
Cash contributed
Loan advances
Loan repayments
Other distributions
Cash distributions
Disposal of investment
At 31 March 2017
Total comprehensive income/(loss)
Cash contributed
Cash distributions
Disposal of investment
At 31 March 2018
1. Previously called Metro Shopping Fund Limited Partnership.
17. Capital commitments
20 Fenchurch
Street
Limited
Partnership
50%
£m
Nova,
Victoria
50%
£m
Southside
Limited
Partnership1
50%
£m
St. David’s
Limited
Partnership
50%
£m
Westgate
Oxford
Alliance
Partnership
50%
£m
491
28
–
8
–
–
–
–
527
4
–
–
(531)
–
414
23
–
37
(37)
–
–
–
437
6
20
(70)
–
393
103
366
5
–
–
(1)
–
(3)
–
104
3
–
(29)
–
78
2
–
–
(16)
–
–
–
352
(9)
–
(15)
–
328
126
10
67
–
–
–
–
–
203
12
79
(12)
–
282
Individually
material
JVs (Group
share)
50%
£m
1,500
68
67
45
(54)
–
(3)
–
1,623
16
99
(126)
(531)
1,081
Contracted capital commitments at the end of the year in respect of:
Investment properties
Trading properties
Joint ventures (our share)
Total capital commitments
Other
Group
share
£m
168
1
–
–
–
(12)
(41)
(5)
111
11
12
(64)
–
70
2018
£m
69
1
70
61
131
Total
Group
share
£m
1,668
69
67
45
(54)
(12)
(44)
(5)
1,734
27
111
(190)
(531)
1,151
2017
£m
48
3
51
79
130
Landsec Annual Report 2018
149
Financial statements
18. Net investment in finance leases
Accounting policy
Where 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.
Non-current
Finance leases – gross receivables
Unearned finance income
Unguaranteed residual value
Current
Finance leases – gross receivables
Unearned finance income
Net investment in finance leases
Gross receivables from finance leases due:
No later than one year
Later than one year but not more than five years
More than five years
Unearned finance income
Unguaranteed residual value
Net investment in finance leases
2018
£m
262
(134)
34
162
12
(9)
3
165
12
50
212
274
(143)
34
165
2017
£m
274
(143)
34
165
12
(9)
3
168
12
49
225
286
(152)
34
168
The Group has leased out a number of investment properties under finance leases, which range from 30 to 99 years in duration from the inception of
the lease. The fair value of the Group’s finance lease receivables, using a discount rate of 2.6% (2017: 4.2%), is £243m (2017: £218m).
150
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued 19. Intangible assets
Accounting policy
Intangible assets comprise goodwill and other intangible assets arising on business combinations and software used internally within the business.
Intangible assets arising on business combinations are initially recognised at fair value. Goodwill is not amortised, but is tested at least annually for
impairment. Other intangible assets arising on business combinations are amortised to the income statement over their expected useful lives.
Software assets are stated at cost less accumulated amortisation and are amortised on a straight-line basis over their estimated useful economic
lives, normally three to five years.
At 1 April 2016
Capital expenditure
Amortisation
Impairment of goodwill on unwind of deferred tax liability
At 31 March 2017
Capital expenditure
Amortisation
At 31 March 2018
Goodwill
£m
Software
£m
Other
intangible
asset
£m
Total
intangible
assets
£m
5
–
–
(1)
4
–
–
4
5
2
(1)
–
6
2
(2)
6
28
–
(2)
–
26
–
(2)
24
38
2
(3)
(1)
36
2
(4)
34
The other intangible asset relates to the Group’s acquisition of its interest in Bluewater, Kent in 2014 and represents the estimated fair value of the
management rights for the centre. The fair value at the date of acquisition was £30m and the asset is being amortised over a period of 20 years. On
recognition of the intangible asset, the Group recognised a deferred tax liability of £6m, and corresponding goodwill of the same amount. The deferred
tax liability is being released to the income statement as the intangible asset is amortised, and the corresponding element of the goodwill is being
tested for impairment.
Section 4 – Capital structure and financing
This 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. The table in note 20 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. 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.
Under IFRS, a large part of our net debt is carried at below its final redemption amount and is increased over its life to its nominal value. We view
our capital structure as if the debt were carried at its full redemption amount. From 1 April 2018, the Group has changed its accounting policy for debt
refinancing transactions such that the bond exchange de-recognition adjustment will no longer be held on the balance sheet. See note 21 for an
explanation of the bond exchange de-recognition adjustment and note 3 for further details on the change in accounting policy.
Landsec Annual Report 2018
151
Financial statements
20. Capital structure
Property portfolio
Market value of investment properties
Trading properties and long-term contracts
Total property portfolio (a)
Net debt
Borrowings
Monies held in restricted accounts and deposits
Cash and cash equivalents
Fair value of interest-rate swaps
Fair value of foreign exchange swaps and forwards
Net debt (b)
Less: Fair value of interest-rate swaps
Reverse bond exchange de-recognition (note 21)
Adjusted net debt (c)
Adjusted total equity
Total equity (d)
Fair value of interest-rate swaps
Reverse bond exchange de-recognition (note 21)
Adjusted total equity (e)
Gearing (b/d)
Adjusted gearing (c/e)
Group LTV (c/a)
Security Group LTV
Weighted average cost of debt
Group
£m
12,883
24
12,907
3,624
(15)
(62)
(6)
7
3,548
6
106
3,660
10,492
(6)
(106)
10,380
33.8%
35.3%
28.4%
27.2%
2.6%
Adjustment
for
non-wholly
owned
subsidiaries1
£m
2018
Combined
£m
Group
£m
(37)
14,103
12,662
–
74
122
(37)
14,177
12,784
Joint
ventures
£m
1,257
50
1,307
8
–
(16)
–
–
(8)
–
–
(8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,632
2,949
(15)
(78)
(6)
7
(21)
(30)
2
5
3,540
2,905
6
106
3,652
(2)
314
3,217
10,492
11,516
(6)
(106)
2
(314)
10,380
11,204
33.7%
35.2%
25.8%
2.6%
25.2%
28.7%
25.2%
28.3%
4.2%
Joint
ventures
£m
1,812
126
1,938
93
–
(49)
2
–
46
(2)
–
44
–
2
–
2
Adjustment
for
non-wholly
owned
subsidiaries1
£m
2017
Combined
£m
(35)
14,439
–
248
(35)
14,687
–
–
–
–
–
–
–
–
–
–
–
–
–
3,042
(21)
(79)
4
5
2,951
(4)
314
3,261
11,516
4
(314)
11,206
25.6%
29.1%
22.2%
4.2%
1. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.
152
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
21. Borrowings
Accounting policy
Borrowings, other than bank overdrafts, are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
borrowings are stated at amortised cost with any difference between the amount initially recognised and the 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, 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.
Secured/
unsecured
Fixed/
floating
Effective
interest rate
%
Nominal/
notional
value
£m
Fair
value
£m
2018
Book
value
£m
Nominal/
notional
value
£m
Secured
Fixed
5.3
Unsecured
Floating
LIBOR + margin
Unsecured
Floating
LIBOR + margin
Unsecured
Floating
LIBOR + margin
Unsecured
Floating
LIBOR + margin
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Secured
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
5.5
5.0
2.0
5.4
5.4
5.4
2.5
2.4
5.4
5.1
2.6
2.8
–
–
833
–
39
872
46
14
400
25
186
84
350
300
156
56
500
500
–
–
833
–
39
872
50
16
401
30
229
107
352
300
210
78
498
512
–
–
833
–
39
872
46
14
399
25
186
84
347
299
156
56
493
494
18
3
261
28
94
404
46
28
400
27
585
318
–
300
321
500
–
–
Fair
value
£m
22
3
261
28
94
408
53
34
411
33
749
420
–
314
441
689
–
–
Current borrowings
Sterling
5.253% QAG Bond
Commercial paper
Sterling
Euro
Swiss Franc
US Dollar
Total current borrowings
Non-current borrowings
Sterling
A3 5.425% MTN due 2022
A10 4.875% MTN due 2025
A12 1.974% MTN due 2026
A4 5.391% MTN due 2026
A5 5.391% MTN due 2027
A6 5.376% MTN due 2029
A16 2.375% MTN due 2029
A13 2.399% MTN due 2031
A7 5.396% MTN due 2032
A11 5.125% MTN due 2036
A14 2.625% MTN due 2039
A15 2.750% MTN due 2059
Bond exchange de-recognition adjustment
2,617
2,783
Secured
Secured
Fixed
5.3
Floating
LIBOR + margin
Unsecured
Fixed
5.7
–
228
31
–
228
64
(106)
2,493
–
228
31
2,525
3,144
255
55
31
310
55
42
5.253% QAG Bond
Syndicated bank debt
Amounts payable under finance
leases
Total non-current borrowings
2017
Book
value
£m
18
3
261
28
94
404
46
28
399
27
583
317
–
299
320
499
–
–
(314)
2,204
255
55
31
2,876
3,075
2,752
2,866
3,551
2,545
Total borrowings
3,748
3,947
3,624
3,270
3,959
2,949
Landsec Annual Report 2018
153
Financial statements
21. Borrowings continued
Reconciliation of the movement in borrowings
At the beginning of the year
Proceeds from new borrowings
Repayment of borrowings
Redemption of MTNs
Redemption of QAG Bond
Issue of MTNs (net of finance fees)
Amortisation of bond exchange de-recognition adjustment on redeemed MTNs
Amortisation of bond exchange de-recognition adjustment
Foreign exchange movement on non-Sterling borrowings
Other
At 31 March
Reconciliation of movements in liabilities arising from financing activities
Borrowings
Derivative financial instruments
2018
£m
2,949
632
–
(1,256)
(273)
1,334
189
19
26
4
2017
£m
2,873
361
(391)
(690)
–
698
30
24
23
21
3,624
2,949
Non-cash changes
2018
At 1 April
2017
£m
2,949
7
2,956
Cash flows
£m
Changes
in fair values
£m
Other
changes
£m
At 31 March
2018
£m
437
31
468
–
(53)
(53)
238
16
254
3,624
1
3,625
Medium term notes
The MTNs are secured on the fixed and floating pool of assets of the Security Group (see note 25). The Security Group includes investment properties,
development properties and the Group’s investment in the X-Leisure fund, Westgate Oxford Alliance Limited Partnership, Nova, Victoria, St. David’s
Limited Partnership and Southside Limited Partnership, in total valued at £13.7bn at 31 March 2018 (31 March 2017: £12.9bn). 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 respectively. If these limits are exceeded, the operating environment becomes more restrictive with provisions to
encourage a reduction in gearing. The interest rate of each MTN is fixed until the expected maturity, being two years before the legal maturity date of
the MTN, whereupon the interest rate for the last two years may either become floating on a LIBOR basis plus an increased margin (relative to that at
the time of issue), or subject to a fixed coupon uplift, depending on the terms and conditions of the specific notes.
The effective interest rate is based on the coupon paid and 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.
During the year, the Group conducted tender exercises and purchased £1,256m of MTNs for a total premium of £385m, with associated costs of £5m.
Details of the purchases and associated premium by series are as follows:
MTN purchases
A3 5.425% MTN due 2022
A10 4.875% MTN due 2025
A4 5.391% MTN due 2026
A5 5.391% MTN due 2027
A6 5.376% MTN due 2029
A7 5.396% MTN due 2032
A11 5.125% MTN due 2036
31 March 2018
31 March 2017
Purchases
£m
Premium
£m
Purchases
£m
Premium
£m
–
15
2
398
233
164
444
1,256
–
3
–
90
73
57
162
385
209
272
184
23
2
–
–
690
29
57
44
6
1
–
–
137
In conjunction with the tender exercises, in September 2017, the Group issued a £500m 2.625% MTN due 2039 and a £500m 2.750% MTN due 2059 and,
in March 2018, the Group issued a £350m 2.375% due 2029.
154
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued
Syndicated and bilateral bank debt
Syndicated debt
Bilateral debt
Maturity
as at
31 March
2018
2022-23
2022
Authorised
Drawn
Undrawn
2018
£m
1,965
125
2,090
2017
£m
1,815
125
1,940
2018
£m
103
125
228
2017
£m
55
–
55
2018
£m
1,862
–
1,862
2017
£m
1,760
125
1,885
At 31 March 2018, our committed revolving facilities totalled £2,090m (31 March 2017: £1,940m). The £150m increase in committed facilities is the result
of an increase in the syndicated debt facility arranged on 29 March 2018.
All syndicated and bilateral facilities are committed and secured on the assets of the Security Group. During the year ended 31 March 2018, the amounts
drawn under the Group’s facilities increased by £173m.
The 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 2018 were £990m
(31 March 2017: £1,499m), compared with undrawn facilities of £1,862m (31 March 2017: £1,885m).
Queen Anne’s Gate Bond
In two tranches, on 25 April 2017 and 9 May 2017, the Group repurchased and redeemed the £273m QAG Bond in its entirety for a total premium to
nominal value of £61m, with associated costs of £1m.
Fair values
The fair values of any floating rate financial liabilities are assumed to be equal to their nominal value. The fair values of the MTNs and the QAG Bond
fall within Level 1, the syndicated and bilateral facilities, commercial paper, interest-rate swaps and foreign exchange swaps fall within Level 2, and the
amounts payable under finance leases fall within Level 3, as defined by IFRS 13. The fair value of the amounts payable under finance leases is
determined using a discount rate of 2.6% (31 March 2017: 4.2%).
Bond exchange de-recognition
On 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 conditions to be considered 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 finance expense in the income statement,
as part of the Capital and other items column. From 1 April 2018, the Group has changed its accounting policy for debt refinancing transactions such
that the bond exchange de-recognition adjustment will no longer be held on the balance sheet. See note 3 for further details.
22. Monies held in restricted accounts and deposits
Accounting policy
Monies 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. Holding cash in restricted accounts does not prevent the Group
from optimising returns by putting these monies on short-term deposit.
Cash at bank and in hand
Short-term deposits
2018
£m
7
8
15
Group
2017
£m
12
9
21
Company
2017
£m
4
–
4
2018
£m
4
–
4
The 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.
Counterparties with external credit ratings
A
BBB+
2018
£m
15
–
15
Group
2017
£m
13
8
21
Landsec Annual Report 2018
155
Financial statements
23. Cash and cash equivalents
Accounting policy
Cash and cash equivalents comprises cash balances, deposits held at call with banks and other short-term highly liquid investments with original
maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are
deducted from cash and cash equivalents for the purpose of the statement of cash flows.
Group
Company
Cash at bank and in hand
Short-term deposits
2018
£m
62
–
62
2017
£m
21
9
30
2018
£m
–
–
–
Short-term deposits
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.
Counterparties with external credit ratings
A
BBB+
24. Derivative financial instruments
Accounting policy
2018
£m
62
–
62
2017
£m
–
–
–
Group
2017
£m
29
1
30
The 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 recognised on the balance sheet 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 gain or loss on derivatives are recognised immediately in the
income statement, within net finance expense.
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 instruments
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total
Notional amount
Interest-rate swaps
Foreign exchange forward
Foreign exchange swaps
156
Landsec Annual Report 2018
2018
£m
1
6
(8)
–
(1)
2018
£m
400
45
878
1,323
2017
£m
–
–
(5)
(2)
(7)
2017
£m
400
–
389
789
Notes to the financial statementsfor the year ended 31 March 2018 continued 25. Financial risk management
Introduction
A review of the Group’s objectives, policies and processes for managing and monitoring risk is set out in ”Managing risk” and “Our principal risks and
uncertainties” (pages 52 to 57). 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’:
Loans and receivables
Cash and cash equivalents
Available for sale financial instruments
Financial liabilities at amortised cost
Financial instruments at fair value through profit or loss
Financial risk factors
2018
£m
743
62
12
2017
£m
672
30
13
(3,775)
(38)
(3,118)
(43)
(2,996)
(2,446)
(i) Credit risk
The Group’s principal financial assets are cash and cash equivalents, trade and other receivables, finance lease receivables and amounts due from
joint ventures. Further details concerning the credit risk of counterparties is provided in the note that specifically relates to each type of asset.
Bank and financial institutions
The principal credit risks of the Group arise 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. For UK banks and financial institutions with which the Group has a committed lending relationship, the minimum
rating is lowered to BBB+. The Group’s treasury function currently performs a weekly review of the credit ratings of all financial institution counterparties.
Furthermore, the treasury function ensures that funds deposited with a single financial institution remain within the Group’s policy limits.
Trade receivables
Trade receivables are presented in the balance sheet net of allowances for doubtful receivables. Impairment is made where there is objective evidence
that the Group will not be able to collect all amounts due according to the original terms of the receivables concerned. The balance is low relative
to the scale of the balance sheet and, owing to the long-term nature and diversity of 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, if any, 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.
(ii) Liquidity risk
The Group actively maintains a mixture of notes with final maturities between 2022 and 2059, 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:
Cash and cash equivalents
Available facilities
Cash and available undrawn facilities
As a proportion of drawn debt
2018
£m
62
990
1,052
28.3%
2017
£m
30
1,499
1,529
47.2%
The Group’s core financing structure is in the Security Group, although the Non-restricted Group may also secure independent funding.
Landsec Annual Report 2018
157
Financial statements
25. Financial risk management continued
Security Group
The 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 and certain investments in joint ventures. 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 2018, the reported LTV for the Security Group was 27.2% (2017: 28.3%), 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 Group
The 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 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.
Less than
1 year
£m
955
Between
1 and 2
years
£m
130
Between
2 and 5
years
£m
467
2
8
5
28
87
3
28
–
2
1
–
–
–
–
–
–
1,116
133
5
6
–
–
–
–
–
37
515
Less than
1 year
£m
531
2
1
11
34
80
6
39
–
704
Between
1 and 2
years
£m
145
Between
2 and 5
years
£m
537
2
2
–
–
–
–
–
–
149
5
1
–
–
–
–
–
36
579
Over
5 years
£m
3,455
203
–
–
–
–
–
–
–
2018
Total
£m
5,007
212
15
5
28
87
3
28
37
3,658
5,422
Over
5 years
£m
3,374
205
(2)
–
–
–
–
–
–
2017
Total
£m
4,587
214
2
11
34
80
6
39
36
3,577
5,009
Borrowings (excluding finance lease liabilities)
Finance lease liabilities
Derivative financial instruments
Trade payables
Capital accruals
Accruals
Amounts owed to joint ventures
Other payables
Redemption liability
Borrowings (excluding finance lease liabilities)
Finance lease liabilities
Derivative financial instruments
Trade payables
Capital accruals
Accruals
Amounts owed to joint ventures
Other payables
Redemption liability
158
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued (iii) Market risk
The Group is exposed to market risk through interest rates, availability of credit and foreign exchange movements.
Interest rates
The Group uses derivative products to manage its interest rate exposure, and has a hedging policy that generally requires at least 70% 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 from time to time to fix the interest
rate exposure on our debt. Where specific hedges are used to fix the interest exposure on debt, these may qualify for hedge accounting.
At 31 March 2018, the Group (including joint ventures) had pay-fixed interest-rate swaps in place with a nominal value of £400m (2017: £70m), and
forward-starting pay-fixed interest-rate swaps of £nil (2017: £400m) and its net debt was 83.3% fixed (2017: 88.9%). Based on the Group’s debt
balances at 31 March 2018, a 1% increase in interest rates would increase the annual net finance expense in the income statement and reduce equity
by £6m (2017: £2m). The sensitivity has been calculated by applying the interest rate change to the variable rate borrowings, net of interest-rate swaps
and cash and cash equivalents.
Foreign exchange
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the
Group’s functional currency.
As it is solely UK based, the Group’s foreign exchange risk is low. The vast majority of the Group’s foreign currency transactions relate to foreign
currency borrowing under the Group’s commercial paper programme. It is the Group’s policy to hedge 100% of this exposure. At 31 March 2018, the
Group had issued €947m (2017: €307m), $55m (2017: $118m) and CHF nil (2017: CHF35m) of commercial paper, fully hedged through foreign exchange
swaps. A 10% weakening of strengthening of Sterling would therefore have £nil (2017: £nil) impact in the income statement and equity arising from
foreign currency borrowings.
Where additional foreign exchange risk is identified (not linked to commercial paper borrowing), it is the Group’s policy to assess the likelihood of
the risk crystallising and if deemed appropriate use derivatives to hedge some or all of the risk. At 31 March 2018, the Group had €50m (2017: €nil)
of foreign currency exposure, relating to a forward foreign currency contract entered into in order to economically hedge forecast foreign currency
purchases. A 10% (weakening)/strengthening of Sterling would have a (£5m)/£4m (2017: £nil) impact on the income statement and equity.
Financial maturity analysis
The interest rate profile of the Group’s undiscounted borrowings is set out below:
Sterling
Euro
US Dollar
Swiss Franc
The expected maturity profiles of the Group’s borrowings are as follows:
One year or less, or on demand
More than one year but not more than two years
More than two years but not more than five years
More than five years
Borrowings
Effect of hedging
Borrowings net of interest-rate swaps
Fixed
rate
£m
2,648
–
–
–
Floating
rate
£m
228
833
39
–
2018
Total
£m
2,876
833
39
–
Fixed
rate
£m
2,829
–
–
–
2,648
1,100
3,748
2,829
Fixed
rate
£m
–
46
–
2,602
2,648
400
3,048
Floating
rate
£m
872
–
228
–
1,100
(400)
700
2018
Total
£m
872
46
228
2,602
3,748
–
Fixed
rate
£m
18
20
117
2,674
2,829
–
3,748
2,829
Floating
rate
£m
58
261
94
28
441
Floating
rate
£m
386
–
55
–
441
–
441
2017
Total
£m
2,887
261
94
28
3,270
2017
Total
£m
404
20
172
2,674
3,270
–
3,270
Landsec Annual Report 2018
159
Financial statements
25. Financial risk management continued
The expected maturity profiles of the Group’s derivative instruments are as follows (based on notional values):
One year or less, or on demand
More than five years1
Foreign
exchange
swaps
£m
Foreign
exchange
forward
£m
878
–
878
45
–
45
2018
Interest-
rate
swaps
£m
–
400
400
Foreign
exchange
swaps
£m
389
–
389
2017
Interest-
rate
swaps
£m
–
400
400
1. Interest-rate swaps more than five years have a term commencing from October 2017.
Valuation hierarchy
Derivative financial instruments, available for sale financial instruments (other investments) and the redemption liability are the only financial
instruments which are carried at fair value. For financial instruments other than borrowings disclosed in note 21, 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:
Assets
Liabilities
Level 1
£m
Level 2
£m
–
–
7
(8)
Level 3
£m
12
(37)
2018
Total
£m
19
(45)
Level 1
£m
–
–
Level 2
£m
–
(7)
Level 3
£m
13
(36)
2017
Total
£m
13
(43)
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.
The fair value of the Group’s finance lease obligations, using a discount rate of 2.6% (2017: 4.2%), is £64m (2017: £42m).
The fair value of the redemption liability is determined as the present value of the amount the Group would be required to pay to settle the liability
(an exit price). The fair value is calculated by reference to the net assets of the underlying subsidiary. The valuation is not based on observable market
data and therefore the redemption liability is considered to fall within Level 3 of the fair value hierarchy.
The fair value of the other investments is calculated by reference to the net assets of the underlying entity. The valuation is not based on observable
market data and therefore the other investments are considered to fall within Level 3 of the fair value hierarchy.
160
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued Section 5 – Working capital
This section focuses on our working capital balances, including trade and other receivables, trade and other payables, and provisions.
26. Trade and other receivables
Accounting policy
Trade 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 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. If collection is expected in more than one year, the balance is presented within non-current assets.
Net trade receivables
Property sales receivables
Tenant lease incentives (note 14)
Prepayments and accrued income
Amounts due from joint ventures
Other receivables
Total current trade and other receivables
Non-current amounts due from joint ventures
Non-current property sales receivables
Total trade and other receivables
2018
£m
59
16
337
26
4
29
471
143
22
636
Group
2017
£m
53
18
311
25
2
9
418
107
16
541
Company
2017
£m
2018
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17
17
–
–
17
The accounting for lease incentives is set out in note 6. The value of the tenant lease incentive, included in current trade and other receivables, is spread
over the non-cancellable life of the lease.
The non-current amounts due from joint ventures have maturity dates ranging from April 2022 to the dissolution of the joint venture. Interest is charged
at rates ranging from 4% to 5% (2017: 5%).
Ageing of trade receivables
As at 31 March 2018
Not impaired
Impaired
Gross trade receivables
As at 31 March 2017
Not impaired
Impaired
Gross trade receivables
Not
past due
£m
Up to
30 days
past due
£m
Up to 6
months
past due
£m
Up to 12
months
past due
£m
More than
12 months
past due
£m
34
–
34
17
–
17
17
–
17
30
–
30
4
2
6
3
1
4
2
1
3
1
1
2
2
6
8
2
9
11
Group
Total
£m
59
9
68
53
11
64
A significant proportion of the Group’s trade receivables are considered past due as they relate to rents receivable from tenants which are payable in
advance. None of the Group’s other receivables are past due (2017: nil).
Landsec Annual Report 2018
161
Financial statements
26. Trade and other receivables continued
Movement in allowances for doubtful accounts
At the beginning of the year
Increase to provision
Decrease to provision
Utilised in the year
At 31 March
Movement in tenant lease incentives
At the beginning of the year
Net revenue recognised
Capital incentives granted
Provision for doubtful receivables
Disposal of properties
At 31 March
27. Trade and other payables
Trade payables
Capital accruals
Other payables
Accruals
Deferred income
Amounts owed to joint ventures
Loans from Group undertakings
Total current trade and other payables
Non-current trading property deposits
Total trade and other payables
2018
£m
11
4
(2)
(4)
9
2018
£m
311
29
1
(1)
(3)
337
2017
£m
16
6
(5)
(6)
11
2017
£m
268
44
1
–
(2)
311
2018
£m
5
28
28
87
143
3
–
294
–
294
Group
Company
2017
£m
11
34
39
80
132
6
–
302
25
327
2018
£m
–
–
–
13
–
–
2,245
2,258
–
2,258
2017
£m
–
–
–
14
–
–
1,380
1,394
–
1,394
Capital 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.
The Loans from Group undertakings are repayable on demand with no fixed repayment date. Interest is charged at 4.3% per annum (2017: 4.5%).
162
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued Section 6 – Other required disclosures
This section gives further disclosure in respect of other areas of the financial statements, together with mandatory disclosures required in accordance
with IFRS.
28. Investments in subsidiary undertakings
Accounting policy
Investments 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.
At the beginning of the year
Capital contributions relating to share-based payments (note 33)
At 31 March
A full list of subsidiary undertakings at 31 March 2018 is included on pages 192 to 194.
29. Other non-current assets
Other property, plant and equipment
Other investments
Net pension surplus (note 32)
Derivative financial instruments
Total other non-current assets
30. Other current liabilities
Provisions
Derivative financial instruments
Total other current liabilities
31. Other non-current liabilities
Derivative financial instruments
Deferred tax liability
Total other non-current liabilities
2018
£m
6,205
6
6,211
2017
£m
6,200
5
6,205
2018
£m
19
12
12
6
49
2018
£m
6
8
14
2018
£m
–
8
8
2017
£m
24
13
14
–
51
2017
£m
2
5
7
2017
£m
2
7
9
Landsec Annual Report 2018
163
Financial statements
32. Net pension surplus
Accounting policy
Contributions to defined contribution schemes are charged to the income statement as incurred.
The pension obligations arising under the Group’s defined benefit pension scheme are measured at discounted present value. The scheme assets are
measured at fair value, except annuities which are valued to match the liability or benefit value. The operating and financing costs of the scheme
are recognised separately in the income statement. Service costs are spread using the projected unit credit method. Net financing costs are recognised
in the period in which they arise, calculated with reference to the discount rate, and are included in finance 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 schemes
The charge to operating profit for the year in respect of the defined contribution scheme was £3m (2017: £3m).
Defined benefit scheme
The 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 Scheme was undertaken on 30 June 2015 by the independent actuaries, Hymans Robertson LLP. This valuation was updated to 31 March 2018
using, where required, assumptions prescribed by IAS 19, ‘Employee Benefits’. The next full actuarial valuation will be performed as at 30 June 2018.
As a result of the 30 June 2015 valuation, the employer contribution rate increased from 1 April 2016 to 43.1% (from 36.1%) of pensionable salary to
cover the costs of accruing benefits. It was agreed that no further deficit contributions were required from the Group. Employee contributions are paid
by salary sacrifice, and therefore appear as Group contributions. In the year ended 31 March 2018, employee contributions were 8.0% (2017: 8.0%) of
monthly pensionable salary. The Group expects to make total employee and employer contributions of around £1m (2017: £1m) to the Scheme in the
year to 31 March 2019.
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 statement
Analysis of the amount charged to operating profit
Current service cost
Charge to operating profit
Analysis of amount credited to net finance expense
Interest income on plan assets
Interest expense on defined benefit scheme liabilities
Net credit to finance income
Analysis of the amounts recognised in Other comprehensive income
Analysis of gains and losses
Net re-measurement (losses)/gains on scheme assets
Net re-measurement gains/(losses) on scheme liabilities
Net re-measurement loss
Cumulative net re-measurement loss recognised in Other comprehensive income
164
Landsec Annual Report 2018
2018
£m
2017
£m
1
1
(6)
6
–
2018
£m
(4)
2
(2)
(41)
1
1
(8)
7
(1)
2017
£m
29
(41)
(12)
(39)
Notes to the financial statementsfor the year ended 31 March 2018 continued The net surplus recognised in respect of the defined benefit scheme can be analysed as follows:
Equities
Bonds – Government
Bonds – Corporate
Insurance contracts
Cash and cash equivalents
Fair value of scheme assets
Fair value of scheme liabilities
Net pension surplus
2018
%
21
24
7
47
1
100
2018
£m
50
58
17
113
3
241
(229)
12
2017
%
20
24
7
49
–
100
2017
£m
49
59
17
120
1
246
(232)
14
In the year ended 31 March 2018, £8m (2017: £9m) of benefits were paid to members.
During the prior year, the Scheme sold some corporate bonds and gilts to purchase a buy-in policy with Just Retirement for £111m. This insurance
contract is valued as an asset using the same IAS 19 assumptions. Insurance 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 £nil (2017: £nil).
The defined benefit scheme liabilities are split 11% (2017: 11%) in respect of active scheme participants, 25% (2017: 25%) in respect of deferred scheme
participants, and 64% (2017: 64%) in respect of retirees. The weighted average duration of the defined benefit scheme liabilities at 31 March 2018 is
17.4 years (2017: 17.3 years).
The assumptions agreed with the Trustees of the Scheme for the triennial valuation at 30 June 2015 have been restated to the assumptions described
by IAS 19, ‘Employee Benefits’. The major assumptions used in the valuation were (in nominal terms):
Rate of increase in pensionable salaries
Rate of increase in pensions with no cap
Rate of increase in pensions with 5% cap
Discount rate
Inflation – Retail Price Index
– Consumer Price Index
The mortality assumptions used in this valuation were:
Life expectancy at age 60 for current pensioners – Men
– Women
Life expectancy at age 60 for future pensioners (current age 40) – Men
– Women
2018
%
3.40
3.35
3.25
2.65
3.35
2.55
2018
years
31.0
31.3
34.0
33.8
2017
%
3.40
3.40
3.30
2.55
3.40
2.60
2017
years
30.8
31.2
33.8
33.7
The 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 liabilities.
Assumption
Discount rate
Rate of mortality
Rate of inflation
Change in assumption
Decrease by 0.5%
Increase by 1 year
Increase by 0.5%
Impact on scheme liabilities
Increase by £21m
Increase by £9m
Increase by £17m
As the above table demonstrates, changes in assumptions can have a significant impact on the Scheme liabilities. The assumptions agreed with the
Trustees of the Scheme for the triennial valuation and subsequent interim updates differ from those prescribed by IAS 19, ‘Employee Benefits’. Using the
assumptions agreed with the Trustees would result in a balance sheet deficit for the Scheme of £8m at 31 March 2018, as opposed to a surplus of £12m.
In order to reduce risk within the Scheme, 47% (2017: 48%) of the Scheme assets are invested in annuities that match the liabilities of some pensioners.
The assets that the Scheme holds are designed to match a significant proportion of the Scheme liabilities and the Scheme has hedged over 72%
(2017: 72%) of the interest rate risk and 79% (2017: 72%) of the inflation risk (when measured on a gilts flat discount rate) to which it is exposed.
The Company did not operate any defined contribution schemes or defined benefit schemes during the financial year ended 31 March 2018 or in the
previous financial year.
Landsec Annual Report 2018
165
Financial statements
33. Share-based payments
Accounting policy
The cost of granting shares, options over shares and other share-based remuneration to employees and Executive Directors is recognised through
the income statement. All awards are equity settled and therefore the fair value is measured at the grant date. Where the awards have non-market
related performance criteria, the Group uses the Black-Scholes option valuation model to establish the relevant fair values. Where the awards have
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 awards. 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 following table analyses the total cost recognised in the income statement for the year between each plan, together with number of options
outstanding.
Long-Term Incentive Plan
Deferred bonus share plan
Share award plan
Executive share option scheme
2018
Charge
£m
2018
Number
(million)
2017
Charge
£m
2017
Number
(million)
5
1
–
–
6
2
–
–
2
4
2
1
1
1
5
2
–
–
2
4
A summary of the main features of each type of plan is given below. The plans have been split into two categories: Executive plans and other plans.
For further details on the Executive plans, see the Directors’ Remuneration Report on pages 86 to 111.
Executive plans:
Long-Term Incentive Plan (LTIP)
The LTIP is open to Executive Directors and Senior Management, with awards made at the discretion of the Remuneration Committee. In addition,
other than for Executive Directors, an award of ‘matching shares’ can be made where the individual acquires shares in Land Securities Group PLC
and pledges to hold them for a period of three years. Awards of LTIP shares and matching shares are subject to the same performance criteria and
normally vest after three years. Awards may be satisfied by the issue of new shares, the transfer of treasury shares, other shares or nil cost options.
The awards will be issued at nil consideration, subject to performance and vesting conditions being met. The weighted average share price at the date
of vesting during the year was 974p (2017: 1,006p). The estimated fair value of awards granted during the year under the scheme was £3m (2017: £4m).
Deferred bonus share plan
The 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 or two years and are not subject to additional performance criteria. Awards are satisfied by the transfer of existing shares held by the Employee
Benefit Trust (EBT) at nil consideration, or by nil cost options. The weighted average share price at the date of vesting during the year was 941p
(2017: 887p). The estimated fair value of awards granted during the year under the scheme was £0.5m (2017: £0.8m).
Other plans:
Executive share option scheme (ESOS)
The 2005 ESOS is open to managers not eligible to participate in the LTIP. Awards are discretionary and are granted over ordinary shares of the Company
at the middle market price on the three dealing days immediately preceding the date of grant. Awards normally vest after three years and are not
subject to performance conditions. Awards are satisfied by the transfer of shares from the EBT and lapse ten years after the date of grant. The weighted
average share price at the date of exercise for awards exercised during the year was 1,051p (2017: 1,053p). The estimated fair value of awards granted
during the year under the scheme was £0.3m (2017: £0.3m).
Savings related share option plan
Under the savings related share option plan, Executive Directors and other eligible employees are invited to make regular monthly contributions into
a Sharesave plan operated by Equiniti. On completion of the three- or five-year contract period, ordinary shares in the Company may be purchased
at a price based upon the market price at date of invitation less 20% discount. The weighted average share price at the date of exercise for awards
exercised during the year was 1,032p (2017: 1,046p). The estimated fair value of awards granted during the year under the scheme was £0.3m
(2017: £0.2m).
166
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued The aggregate number of awards outstanding, and the weighted average exercise price, are shown below:
At the beginning of the year
Granted
Exercised
Lapsed
At 31 March
Exercisable at the end of the year
Weighted average remaining contractual life
1. Executive plans are granted at nil consideration.
Executive plans1
Number of awards
Number of awards
2018
Number
(million)
2017
Number
(million)
2018
Number
(million)
2017
Number
(million)
2
1
(1)
–
2
–
3
1
(1)
(1)
2
–
2
1
–
(1)
2
1
2
1
(1)
–
2
1
Years
1
Years
1
Years
6
Years
6
Other plans
Weighted average
exercise price
2018
Pence
1,068
970
–
1,142
947
926
2017
Pence
983
993
805
–
1,068
929
The number of share awards outstanding for the Group by range of exercise prices is shown below:
Exercise price – range
Pence
Nil1
400 – 599
600 – 799
800 – 999
1,000 – 1,199
1,200 – 1,399
Outstanding at 31 March 2018
Outstanding at 31 March 2017
Weighted
average
remaining
contractual
life
Weighted
average
exercise
price
Years
Pence
Number
of awards
Number
(million)
Weighted
average
remaining
contractual
life
Years
Number of
awards
Number
(million)
2
–
–
1
1
–
1
2
4
3
7
7
–
535
775
886
1,044
1,328
2
–
–
1
1
–
1
2
5
4
7
8
Weighted
average
exercise
price
Pence
–
528
775
885
1,036
1,328
1. Executive plans are granted at nil consideration.
Fair value inputs for awards with non-market performance conditions
Fair values are calculated using the Black-Scholes option pricing model for awards with non-market performance conditions. The weighted average
inputs into this model for the grants under each plan in the financial year are as follows:
Long-Term Incentive Plan
Deferred bonus share plan
2005 ESOS
Year ended 31 March
Share price at grant date
Exercise price
Expected volatility
Expected life
Risk-free rate
2018
1,032p
n/a
20%
2017
1,005p
n/a
18%
3 years
3 years
2018
1,029p
n/a
20%
1 year
0.27%
0.21%
0.25%
2017
1,005p
n/a
18%
1 to 2
years
0.15%
to 0.21%
2018
1,029p
1,029p
20%
3 years
2017
1,005p
1,005p
18%
3 years
0.27%
0.21%
0.27%
to 0.50%
0.35%
to 0.57%
Savings related share
option plan
2018
1,074p
859p
20%
3 to 5
years
2017
1,191p
953p
18%
3 to 5
years
Expected dividend yield
3.74%
3.48%
nil
nil
3.75%
3.48%
3.59%
2.94%
Expected volatility is determined by calculating the historical 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 conditions
Fair 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 weighted average inputs into
this model for the scheme are as follows:
Share price at date of grant
Exercise price
Expected volatility –
Group
Expected volatility – index
of comparator companies
Correlation –
Group vs. index
Year ended 31 March
2018
Long-Term Incentive Plan
1,032p
2017
1,005p
2018
n/a
2017
n/a
2018
20%
2017
20%
2018
20%
2017
20%
2018
85%
2017
85%
Landsec Annual Report 2018
167
Financial statements
34. Ordinary share capital
Accounting policy
Ordinary 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 sold. 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.
Ordinary shares of 102/3p (2017: 10p) each (see note 36)
At the beginning of the year
Issued on the exercise of options
Share consolidation (see note 36)
Cancellation of treasury shares
At 31 March
Group and Company
Allotted and fully paid
2018
£m
80
2017
£m
80
Group and Company
Number of shares
2017
801,164,497
80,131
–
–
2018
801,244,628
139,446
(50,085,104)
(6)
751,298,964
801,244,628
The number of options over ordinary shares from Executive plans that were outstanding at 31 March 2018 was 2,105,086 (2017: 2,281,006). If all the
options were exercised at that date then 2,105,086 (2017: 2,281,006) shares would be required to be transferred from the EBT. The number of options
over ordinary shares from Other plans that were outstanding at 31 March 2018 was 1,868,186 (2017: 1,859,031). If all the options were exercised at
that date then 304,582 new ordinary shares (2017: 354,783) would be issued and 1,563,604 shares would be required to be transferred from the EBT
(2017: 1,504,248).
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 years ended 31 March 2017 and 2018, there were no ordinary shares acquired to be held as treasury
shares. At 31 March 2018 the Group held 9,839,179 ordinary shares (2017: 10,495,131) with a market value of £92m (2017: £111m) in treasury. The
reduction in the number of shares held in treasury as a result of the share consolidation in the year is explained in note 36.
35. Own shares
At the beginning of the year
Acquisition of ordinary shares
Transfer of shares to employees on exercise of share options
At 31 March
2018
£m
9
10
(6)
13
Group
2017
£m
14
6
(11)
9
Own 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 33).
The number of shares held by the EBT at 31 March 2018 was 1,178,179 (2017: 792,556). The market value of these shares at 31 March 2018 was £11m
(2017: £8m).
168
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued 36. Capital distribution
On 27 September 2017, the Group’s shareholders approved a return of capital to shareholders of £475m through the issue of new B shares, which the
Group then redeemed in order to return 60p per ordinary share to shareholders, reducing the Group’s share premium account. The capital distribution
was paid on 13 October 2017.
Following the redemption of the B shares, there was a share consolidation in the ratio of 15 ordinary shares for every 16 existing shares. The share
consolidation did not result in a change in the carrying value of the Group’s share capital, but reduced the number of ordinary shares in issue by
50,085,104 of which 655,946 were held in Treasury.
37. Contingencies
The 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.
38. Related party transactions
Subsidiaries
During the year, the Company entered into transactions, in the normal course of business, with related parties as follows:
Transactions with subsidiary undertakings:
Recharge of costs
Interest paid
Company
2017
£m
(294)
(55)
2018
£m
(786)
(79)
Joint arrangements
As 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 as follows:
20 Fenchurch Street Limited Partnership
Nova, Victoria
Southside Limited Partnership
St. David’s Limited Partnership
Westgate Oxford Alliance Limited Partnership
The Oriana Limited Partnership
Harvest
The Ebbsfleet Limited Partnership
Millshaw Property Co. Limited
West India Quay Unit Trust
Year ended and as at 31 March 2018
Year ended and as at 31 March 2017
Group
Net
investments
into joint
ventures
£m
Amounts
owed by
joint
ventures
£m
Amounts
owed to
joint
ventures
£m
Income
£m
Net
investments
into joint
ventures
£m
Amounts
owed by
joint
ventures
£m
Income
£m
5
19
3
1
11
–
1
–
–
–
(531)
(50)
(29)
(15)
67
(63)
12
–
–
(1)
–
72
72
1
1
–
–
–
–
–
40
(610)
146
–
–
–
(1)
–
–
–
–
–
(2)
(3)
12
19
–
1
9
–
–
–
–
–
41
8
–
(4)
(16)
67
(37)
(2)
(1)
(12)
(1)
2
43
56
–
–
10
–
–
–
–
–
109
Amounts
owed to
joint
ventures
£m
(1)
(3)
–
–
–
–
–
–
–
(2)
(6)
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the applicable
categories 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 86 to 111.
Short-term employee benefits
Share-based payments
2018
£m
6
3
9
2017
£m
5
3
8
Landsec Annual Report 2018
169
Financial statements
39. Operating lease arrangements
Accounting policy
The 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:
Not later than one year
Later than one year but not more than five years
More than five years
The total of contingent rents recognised as income during the year was £40m (2017: £45m).
40. Events after the reporting period
There were no significant events occurring after the reporting period, but before the publication of this report.
2018
£m
533
1,945
3,878
6,356
2017
£m
496
1,962
3,444
5,902
170
Landsec Annual Report 2018
Notes to the financial statementsfor the year ended 31 March 2018 continued Additional
information
Contents
Further analysis of our business and practical
information for shareholders.
172
177
178
179
184
186
186
187
188
188
190
191
192
195
198
199
IBC
Business analysis – Group
Business analysis – London
Business analysis – Retail
Sustainability performance
Combined Portfolio analysis
Lease lengths
Development pipeline
Development pipeline and trading
property development schemes
Alternative performance measures
Five year summary
Acquisitions, disposals and capital
expenditure
Analysis of capital expenditure
Subsidiaries, joint ventures and associates
Shareholder information
Key contacts and advisers
Glossary
Cautionary statement
Landsec Annual Report 2018
171
Additional information
Business analysis – Group
Combined Portfolio performance relative to IPD
Total property returns – year ended 31 March 2018
Retail – Shopping centres
– Retail parks
Central London shops
Central London offices
Total
1. IPD Quarterly Universe.
2. IPD Retail Warehouses Quarterly Universe.
3. Includes leisure, hotel portfolio and other.
Combined Portfolio value by location at 31 March 20181
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
1. % figures calculated by reference to the Combined Portfolio value of £14.1bn.
For a full list of the Group’s properties please refer to the website landsec.com.
Total shareholder returns1
Land Securities Group PLC
FTSE 100
FTSE 350 Real Estate Index
Landsec
%
1.9
7.0
3.4
5.3
4.33
Shopping
centres
and shops
%
14.5
11.5
–
3.4
7.8
2.7
39.9
Retail
parks
%
0.2
3.5
0.8
0.5
0.5
0.2
5.7
Hotels,
leisure,
residential
& other
%
3.2
2.9
0.5
0.6
1.7
0.7
9.6
Offices
%
44.7
–
–
–
0.1
–
44.8
Table 65
IPD1
%
1.5
6.82
11.5
8.0
10.1
Table 66
Total
%
62.6
17.9
1.3
4.5
10.1
3.6
100.0
Table 67
Period to 31 March 2018
5 years
£
131.9
133.1
154.1
3 years
£
81.7
115.8
98.7
1 year
£
92.0
100.2
107.2
1. Historical TSR performance for a hypothetical investment of £100 – source: Thomson Reuters.
Voids and units in administration – like-for-like (%)
Chart 68 Analysis of performance relative
Chart 69
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
4.0
3.6
3.3
2.9
2.4
to IPD (%)
(0.4)
(5.4)
0.3
(0.1)
0.3
(5.3)
(4.0)
3.8
2.0
s
e
c
ffi
o
n
o
d
n
o
L
2.2
1.7
0.0 0.0
s
p
o
h
s
l
a
r
t
n
e
C
n
o
d
n
o
L
l
i
a
t
e
R
s
k
r
a
p
0.8 0.8
e
r
u
s
i
e
L
s
l
e
t
o
h
d
n
a
l
l
A
y
t
r
e
p
o
r
p
0.0 0.0
s
e
c
ffi
o
n
o
d
n
o
L
s
e
r
t
n
e
c
i
g
n
p
p
o
h
S
s
p
o
h
s
d
n
a
0.5
0.5 0.5
0.4
0.5
0.2
0.1 0.1
0.0
s
e
r
t
n
e
c
i
g
n
p
p
o
h
S
s
p
o
h
s
d
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Attribution analysis, ungeared total return, 12 months to 31 to March 2018,
relative to IPD Quarterly Universe – source: IPD.
31 March 2018
31 March 2017
Voids
In administration
172
Landsec Annual Report 2018
Reconciliation of segmental information note to statutory reporting
The table below reconciles the Group’s income statement to the segmental information note (note 4 to the financial statements). 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. In contrast, the segmental information 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.
Rental income
Finance lease interest
Gross rental income (before rents payable)
Rents payable
Gross rental income (after rents payable)
Service charge income
Service charge expense
Net service charge expense
Other property related income
Direct property expenditure
Net rental income
Indirect property expenditure
Other income
Profit on disposal of investment properties
Profit on disposal of investment in joint venture
Net (deficit)/surplus on revaluation of investment properties
Movement in impairment of trading properties
Profit on disposal of trading properties
Other
Operating profit
Finance income
Finance expense
Share of post-tax profit from joint ventures
(Loss)/profit before tax
Taxation
(Loss)/profit attributable to shareholders
Group income
statement
£m
Joint
ventures1
£m
Proportionate
share of
earnings2
£m
612
10
622
(11)
611
96
(105)
(9)
36
(65)
573
(81)
2
494
1
66
(98)
–
17
(2)
478
39
(795)
27
(251)
(1)
(252)
53
–
53
(1)
52
10
(12)
(2)
2
(12)
40
(3)
–
37
2
–
7
(4)
13
–
55
–
(28)
(27)
–
–
–
(2)
–
(2)
–
(2)
(1)
1
–
–
–
(2)
–
–
(2)
–
–
–
–
–
2
–
–
–
–
–
–
–
Table 70
Year ended 31 March 2018
Revenue
profit
£m
Capital
and other
items
£m
663
10
673
(12)
661
105
(116)
(11)
38
(77)
611
(84)
2
529
–
–
–
–
–
–
529
31
(154)
–
406
–
406
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
66
(91)
(4)
30
–
4
8
(669)
–
(657)
(1)
(658)
Total
£m
663
10
673
(12)
661
105
(116)
(11)
38
(77)
611
(84)
2
529
3
66
(91)
(4)
30
–
533
39
(823)
–
(251)
(1)
(252)
1. Reallocation of the share of post-tax profit from joint ventures reported in the Group income statement to the individual line items reported in the segmental information 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 segmental information note.
REIT balance of business
To retain the Group’s REIT status it must meet conditions from the REIT legislation. At least 75% of the Group’s assets and 75% of the Group’s income
must relate to qualifying activities. The results of these tests at the balance sheet date are below:
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.
Table 71
For the year ended 31 March 2018
For the year ended 31 March 2017
Tax-exempt
business
Residual
business
Adjusted
results
Tax-exempt
business
Residual
business
335
91.6%
13,899
95.0%
30
8.4%
726
5.0%
365
14,625
185
78.7%
14,088
93.4%
50
21.3%
991
6.6%
Adjusted
results
235
15,079
Landsec Annual Report 2018
173
Additional information
Business analysis – Group
continued
Cost analysis
Table 72
Year ended 31 March 2018
Year ended 31 March 2017
Total
£m
Cost ratio
%1
Total
£m
Cost ratio
%1
Gross rental income
(before rents payable)
Costs recovered through
rents but not separately
invoiced
Adjusted gross rental
income
Rents payable
EPRA gross rental income
Managed operations
Tenant default
Void related costs
Other direct property costs
673
(9)
664
(12)
652
9
5
20
14
1.4
0.8
3.0
2.1
Development expenditure
14
2.1
Asset management,
administration and
compliance
Total (incl. direct
vacancy costs)
Costs recovered through
rents
70
132
(9)
123
–
123
(20)
10.5
19.9
18.5
18.9
648
(2)
646
(11)
635
8
2
13
12
16
65
116
(2)
114
(1)
113
(13)
1.2
0.3
2.0
1.9
2.5
10.1
18.0
17.6
17.8
103
15.8
100
15.7
Gross rental income (before rents payable)
Rents payable
Gross rental income (after rents payable)
Net service charge expense
Net direct property expenditure
Net rental income
Indirect costs
Segment profit before finance expense
Net unallocated expenses
Net finance expense – Group
Net finance expense – joint ventures
Revenue profit
£m
673
(12)
661
(11)
(39)
611
(39)
572
(43)
(95)
(28)
406
Direct
property
costs
£50m
Indirect
expenses2
£82m
Total cost ratio1
18.5%
Adjusted total costs
Head office relocation
EPRA costs (incl. direct
vacancy costs)
Less: Direct vacancy costs
EPRA (excl. direct
vacancy costs)
1. Percentages represent costs divided by Adjusted gross rental income, except for EPRA measures which represent costs divided by EPRA gross rental income.
2. Indirect expenses amounting to £1m (2017: £1m) have been capitalised as development costs and are excluded from table 72.
174
Landsec Annual Report 2018
EPRA performance measures
Definition for EPRA measure
Notes
Adjusted earnings
Recurring earnings from core operational activity1
Adjusted earnings per share
Adjusted earnings per weighted number of ordinary shares1
Adjusted diluted earnings per share
Adjusted diluted earnings per weighted number of ordinary shares1
Adjusted net assets
Net assets adjusted to exclude fair value movements on interest-rate swaps2
Adjusted diluted net assets per share
Adjusted diluted net assets per share2
Triple net assets
Adjusted net assets amended to include the fair value of financial instruments
and debt
Diluted triple net assets per share
Diluted triple net assets per share
5
5
5
5
5
5
5
Net initial yield (NIY)
Topped-up NIY
Voids/vacancy rate
Cost ratio
Annualised rental income less non-recoverable costs as a percentage of market
value plus assumed purchasers’ costs3
NIY adjusted for rent free periods3
ERV of vacant space as a percentage 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
Table 73
31 March 2018
EPRA
measure
£387m
50.6p
50.6p
Landsec
measure
£406m
53.1p
53.1p
£10,380m
£10,486m
1,403p
1,417p
£10,165m
£10,165m
1,374p
1,374p
4.0%
4.5%
2.4%
18.5%
n/a
4.4%
4.6%
2.3%
18.9%
15.8%
1. EPRA adjusted earnings and EPRA adjusted earnings per share include the amortisation of bond exchange de-recognition adjustment of £19m.
2. EPRA adjusted net assets and adjusted diluted net assets per share include the bond exchange de-recognition adjustment of £106m.
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 valuer. EPRA NIY and EPRA Topped-up NIY calculations are consistent with ours, but exclude all developments. Topped-up NIY reflects an adjustment of £61m and £59m for rent
free periods and other incentives for the Landsec measure and EPRA measure, respectively.
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 and excluding costs recovered through rents but not separately invoiced, whereas our measure is based
on gross rental income before rents payable and excluding costs recovered through rents but not separately invoiced. We do not calculate a cost ratio excluding direct vacancy costs as we
do not consider this to be helpful.
Landsec Annual Report 2018
175
Additional information
Business analysis – Group
continued
Top 12 occupiers at 31 March 2018
Table 74
Annual net rent breakdown by occupier business sector (%)
Chart 76
Central Government
Deloitte
Accor
Mizuho Bank
Boots
Next
Sainsbury’s
Cineworld
Taylor Wessing
H&M
M&S
K&L Gates
1. On a proportionate basis.
PID Table
% of Group
rent1
5.0
5.0
4.2
1.7
1.5
1.2
1.2
1.2
1.1
1.1
1.1
1.1
25.4
Table 75
Year ended
Year ended
31 March 2018
£m
31 March 2017
£m
■ Retail trade
34.2%
■ Services
26.5%
■ Financial services
15.6%
■ Public administration
6.0%
■ Manufacturing
2.9%
■ Wholesale trade
2.9%
■ Transport, communications 2.4%
■ Other
9.0%
Floor space (million sq ft)1
Chart 77
■ London Portfolio
■ Retail Portfolio
Total
6.4
17.6
24.0
(Loss)/profit before tax per accounts
(251)
112
1. Joint ventures are reflected at 100% values, not Landsec share.
Adjustments to exclude
Valuation and profits on disposals
Interest income
Amortisation of bond exchange de-recognition
adjustment
Premium payable on redemption of medium term
notes
Fair value movement on interest-rate swaps
Revaluation of redemption liabilities
Impairment of goodwill
Amortisation of intangible asset
Tax adjustments
Capital allowances
Capitalised interest
Cumulative tax adjustments and removal of net
residual tax result
Estimated tax exempt income for year
PID thereon (90%)
PID dividends paid in the year
(4)
(31)
19
579
(8)
2
–
2
68
(37)
24
170
8
3
1
2
308
351
(66)
(5)
40
277
250
227
(56)
(20)
2
277
250
218
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.
% portfolio by value and number of
property holdings at 31 March 2018
£m
0-10
10-25
25-50
50-100
100-150
150-200
200+
Total
Table 78
Value
%
Number of
properties
0.5
3.0
3.1
12.3
9.6
9.8
61.7
23
26
13
25
11
8
19
100.0
125
Committed development – estimated future spend (£m)
Chart 79
149
131
89
101
150
120
90
60
30
0
2019
2020
2021
2022+
Estimated future spend includes the cost of residential space but
excludes interest.
176
Landsec Annual Report 2018
Business analysis – London
London Portfolio (%)
Chart 80
London Portfolio floor space (6.4 million sq ft)
Chart 82
■ West End
■ Mid-town
■ City
■ Inner London
■ Central London shops
■ Other
41.4%
17.2%
17.8%
4.1%
18.9%
0.6%
£7.8bn
■ West End offices
■ City offices
■ Mid-town offices
■ Inner London offices
■ Central London shops
■ Other
Total
2.8
1.0
1.2
0.5
0.8
0.1
6.4
6.4m
sq ft
West End
Our £3.2bn West End office portfolio is dominated by our Victoria assets
which include Cardinal Place, Queen Anne’s Gate, 62 Buckingham Gate,
and the recently completed schemes at The Zig Zag Building and Nova,
all 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 £1.4bn City office portfolio includes 1 & 2 New Ludgate, EC4,
One New Change, EC4 and the development at 21 Moorfields, EC2.
Inner London
Includes our assets at Docklands, E14 and Southwark, SE1.
Central London shops
This segment comprises the retail space in our London Portfolio assets.
The largest elements are Piccadilly Lights, W1 and the retail space at
One New Change, EC4 and Cardinal Place, SW1.
Voids and units in administration –
Like-for-like London Portfolio (%)
Chart 81
4
3
2
1
0
3.4
3.3
3.4
3.1
2.7
2.6
2.2
2.0
2.1
Mar
17
Mar
18
Sep
17
London
offices
Sep
Mar
Mar
17
17
18
Central London
shops
Mar
18
Mar
17
Sep
17
London
Portfolio
Voids
In administration
Top 10 office customers
Central Government
Deloitte
Mizuho Bank
Taylor Wessing
K&L Gates
Equinix
Deutsche Bank
Bain & Co
City of Westminster
Schlumberger Oilfield UK
Office other
Total
Table 83
% of Group rent
5.0
5.0
1.7
1.1
1.1
1.1
1.0
0.9
0.7
0.7
18.3
28.1
46.4
London like-for-like – rental and capital
value trends % year ended 31 March 2018
Table 84
West End
City
Mid-town
Inner London
Central London shops
Total London like-for-like portfolio
Rental value
change1
%
Valuation
change
%
(2.3)
(1.2)
(0.8)
(0.6)
1.5
(1.1)
(2.4)
(0.8)
(0.1)
0.3
0.9
(1.0)
1. Rental value change excludes units materially altered during the year and other non
like-for-like movements.
Landsec Annual Report 2018
177
Additional information
Business analysis – Retail
Retail Portfolio (%)
Chart 85
Retail Portfolio floor space (million sq ft)
Chart 87
■ Shopping centres and shops 66.1%
■ Retail parks
12.9%
■ Leisure and hotels
20.8%
■ Other
0.2%
£6.3bn
■ Shopping centres and shops
■ Retail parks
■ Leisure and hotels
■ Other
Total
9.5
2.5
5.4
0.2
17.6
17.6m
sq ft
Top 10 Retail customers
Table 88
% of Group rent
Shopping centres and shops
Comprises our portfolio of 15 shopping and outlet destinations in major
retail locations across the UK including Bluewater, Kent, Trinity Leeds,
Gunwharf Quays, Portsmouth and Westgate Oxford.
Retail parks
Our 12 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, Lakeside Retail Park and Bexhill
Retail Park.
Leisure and hotels
We own five stand-alone leisure assets and a 95% share of the X-Leisure
Fund which comprises 15 schemes of prime leisure and entertainment space.
We also own 21 Accor hotels in the UK. They are leased to Accor for
74 years with a break clause in 2031 and 12 yearly thereafter.
Boots
Cineworld
Next
Sainsbury’s
M&S
H&M
Arcadia Group
Vue
Tesco
Primark
Retail other (excluding Accor)
Voids and units in administration –
like-for-like Retail Portfolio (%)
Chart 86
Total
1.5
1.3
1.2
1.2
1.1
1.1
0.9
0.8
0.7
0.6
10.4
39.0
49.4
5
4
3
2
1
0
4.5
4.1
4.0
3.8
0.0
0.0
Retail like-for-like – rental and capital value
trends % year ended 31 March 2018
Table 89
3.5
3.3
3.0
Shopping centres and shops
Retail parks
Leisure and hotels
Total Retail like-for-like portfolio
Rental value
change1
%
Valuation
change
%
0.8
(1.0)
1.0
0.6
(3.0)
(1.1)
0.7
(2.0)
0.9
0.9
0.9
like-for-like movements.
1. Rental value change excludes units materially altered during the year and other non-
Mar
18
Mar
17
Sep
17
Shopping centres
and shops
Mar
17
Sep
17
Retail parks
Mar
18
Mar
17
Sep
17
Leisure and hotels
Mar
18
Sep
Mar
Mar
17
17
18
Retail Portfolio
Voids
In administration
178
Landsec Annual Report 2018
Sustainability performance
For us, sustainability is about creating a lasting positive impact. We work
hard to embed sustainability in everything we do. And we keep looking
for new ways to make a positive impact – using our experience to create
great experiences and benefits for others.
To deliver this we have set twelve long-term sustainability commitments,
covering each of our priority areas of creating jobs and opportunities,
efficient use of natural resources and sustainable design and innovation.
This section includes a summary of our performance against those
commitments and our key disclosures.
For more information please visit www.landsec.com/sustainability.
Creating jobs and opportunities
Commitment
Community employment: Help a total of 1,200 disadvantaged people
to secure jobs by 2020.
Performance
Since 2011, we have secured employment for 1,149 people from disadvantaged
backgrounds through our Community Employment Programme. In 2017/18
187 jobs have been secured, with 101 in London and 86 in Retail.
Cumulative total number of jobs secured
Chart 90
Commitment
Health, Safety and Security: Maintain an exceptional standard of
health, safety and security in all the working environments we control.
Performance
This year we continued our work with the Health in Construction
Leadership Group and played a key role in industry health, safety and
security initiatives. We have taken part in a number of cross-industry
forums to share best practice and learn from others so that the business
can anticipate and respond to incidents.
Efficient use of natural resources
Commitment
Renewables: Continue to procure 100% renewable electricity across our
portfolio and achieve 3 MW of renewable electricity capacity by 2030.
Performance
We continue to procure electricity derived from 100% renewable sources
via our portfolio-wide contract with SmartestEnergy. As of 1 April 2017,
at least 15% of our total gas volume is classified as green gas through
our corporate contract with Corona Energy, further demonstrating our
commitment to renewable and low carbon sources of energy.
Following the solar PV installations at Trinity Leeds and White Rose,
our installed renewable electricity capacity has increased to 1.4 MW.
Further solar feasibility studies are currently underway at Bluewater
and other retail assets.
1,200
1,000
800
600
400
200
0
1,149
962
779
Commitment
Waste: Send zero waste to landfill with at least 75% recycled across all
our operational and construction activities by 2020.
583
426
206
105
2012
2013
2014
2015
2016
2017
2018
Jobs
Target
Commitment
Fairness: Ensure the working environments we control are fair and ensure
that everyone who is working on our behalf – within an environment we
control – is paid at least the Foundation Living Wage by 2020.
Performance
We continue to be an accredited Living Wage employer, both for our
employees and those working on our behalf on our sites. We participate
in the Living Wage Employers Group, looking at how companies can
encourage others within their supply chain to adopt the Living Wage
Foundation rates. In March 2018 we launched our Sustainability Charter
for partners which reinforces our Living Wage commitment and is being
used as a tool to facilitate discussions with our supply partners, driving
up minimum standards and increasing collaboration.
Commitment
Diversity: Make measurable improvements to the profile – in terms of
gender, ethnicity and disability – of our employee mix.
Performance
With 41% of our Senior Management being female, we now significantly
exceed the Hampton-Alexander recommendations for females on
our Board, Executive Committee and their direct reports – a combined
target of 33%. We are also delighted that the engagement scores for
our colleagues who identify as Black and Asian are now as positive as
for other ethnic groups.
Performance
We are now diverting 100% from landfill and are recycling 74.9% of waste.
This is an improvement in the amount of waste diverted from landfill in
2016/17 (99.96%) and an increase in the amount recycled (70.8%) when
compared with last year.
— London continues to divert 100% from landfill with 77.5% of waste
recycled.
— Shopping Centres divert 100% from landfill with 79.7% of waste recycled.
— Leisure and Retail Parks (managed by Savills) divert 100% from landfill
with 55.4% of waste recycled.
Landsec monthly portfolio recycling rates 2014-18
Chart 91
90%
80%
70%
60%
50%
40%
30%
Mar-14
Sept-14
Mar-15
Sept-15
Mar-16
Sept-16
Mar-17
Sept-17
Feb-18
London
Retail
Landsec
Commitment
Landsec Annual Report 2018
179
Additional information
Sustainability performance
continued
Commitment
Carbon: Reduce carbon intensity (kgCO2e/m2) by 40% by 2030 compared
with a 2013/14 baseline, for property under our management for at least
two years.
Performance
We have reduced carbon intensity by 28.6% compared with our 2013/14
baseline. This is an improvement compared with the 2016/17 reduction
of 16.3%1. These reductions were achieved through a combination of
energy efficiency projects, changes in our portfolio, and changes in
emissions factors.
Landsec carbon emissions intensity pathway
Chart 92
2
m
/
e
2
O
C
g
K
90
80
70
60
50
40
30
20
10
0
2014
2019
2024
2029
2034
2039
2044
2050
Landsec pathway – target
Sector pathway
Landsec pathway – actual
Landsec pathway – projected
The figure above indicates our performance against the required science-
based decarbonisation pathways of our portfolio and the wider sector.
We are currently outperforming our target pathway and are on track for
our 2030 commitment.
Commitment
Energy: Reduce energy intensity (kWh/m2) by 40% by 2030 compared
with a 2013/14 baseline, for property under our management for at least
two years.
Performance
We have reduced portfolio energy intensity by 14.3% compared with our
2013/14 baseline. This is an improvement compared with the 2016/17
reduction of 13.2%. This year we implemented 60 energy reduction
projects across both London and Retail portfolios, with further measures
identified and agreed for the majority of our highest consuming assets.
These will drive further energy reductions in support of our energy and
science-based carbon targets.
Landsec energy intensity progress
Chart 93
250
247
214
200
150
100
2
m
/
h
W
k
50
0
129
111
77
64
62
The figure above shows the energy intensity improvements we have
made in our London and Retail portfolios and Landsec as a whole.
Office buildings in London naturally have a much higher energy intensity
than Retail assets and we have reduced portfolio intensity by 13.5% since
2013/14. Our Retail portfolio intensity has reduced by 4.1%. Overall, we
have reduced our portfolio intensity by 14.3% and are on track to meet
our 2030 commitment.
Sustainable design and innovation
Commitment
Resilience: Assess and mitigate physical and financial climate change
adaptation risks that are material across our portfolio.
Performance
We partnered with Willis Towers Watson to research the possible effects
of different climate change scenarios on our business and our assets.
Using the findings from the research, we’re improving our approach to
investment, developments and operations, which reduces our exposure
to climate related risks. For the first time this year we’re disclosing our
strategy and data on climate risk, in response to the Task Force for
Climate-related Financial Disclosures (TCFD). You can see full details
in our Sustainability Data Performance Report at landsec.com.
Commitment
Materials: Source core construction products and materials from ethical
and sustainable sources.
Performance
This is a new commitment for 2018, and we are building on existing work
undertaken in the design of our developments. In Retail, we delivered 86%
responsibly sourced materials at Westgate, and we’re on track to deliver
40% at Selly Oak. In London, we’re focusing on early stages design,
setting our responsible sourcing strategy using our Sustainability Brief,
as well as the BREEAM and LEED methodologies.
Commitment
Biodiversity: Maximise the biodiversity potential of all our development
and operational sites and achieve a 25% biodiversity net gain across our
five sites currently offering the greatest potential, by 2030.
Performance
In total, 63 measures across the portfolio have been identified to support
our net gain commitment which are planned for installation in the next
3-5 years. A total of ten measures have been installed since 2016/17.
Commitment
Wellbeing: Ensure our buildings are designed and managed to maximise
wellbeing and productivity.
Performance
We’re making progress in both London and Retail, using the BREEAM
health and wellbeing frameworks to deliver a consistent level of design
quality in acoustics, indoor air quality and natural light. Building on these
core design factors in London, we are creating best in class cycle facilities
and amenity spaces, giving building occupants the opportunity to lead a
healthy lifestyle at work. In Retail, we worked with over 75% of our brand
partners at Westgate, using green lease clauses to support the use of
healthy materials in their fit-outs.
2013/
2014
Baseline
2017/
2018
2013/
2014
Baseline
2017/
2018
2013/
2014
Baseline
2017/
2018
London
Retail
Landsec
2030 target
180
Landsec Annual Report 2018
1. This year, we have re-baselined our carbon emissions and intensity to further align with the
SBTi reporting methodology. Specifically, we have removed emissions from the delivery of
energy to our tenants. This has lowered our 2016/17 carbon intensity reduction against the
baseline from 18.5% to 16.3%.
Benchmarking and awards
Taking part in rigorous external benchmarking of our performance helps us to track and assess our progress. It also provides stakeholders with
confidence that we’re turning our commitments and targets into action. And it underlines our ambition to be a sustainability leader in our industry.
This year we received high scores from our key benchmarking schemes, including reaching the CDP A-list for the first time and being the highest
scoring UK real estate company in the Dow Jones Sustainability Index.
Benchmarking Scores
Activity
CDP
Global Real Estate Sustainability Benchmark (GRESB)
Dow Jones Sustainability Index (DJSI)
FTSE4Good
EPRA
Workforce Disclosure Initiative (WDI)
Community investment data 2017/18
Value of resources given
Table 94
Performance
2017: A (Leadership)
2016: A- (Leadership)
2015: disclosure 99/score B
2014: disclosure 96/ score A-
2013: disclosure 88/score B
2017: score 78%
2016: score 77%
2015: score 77%
2014: score 78%
2013: score 67%
2017: score 75/percentile ranking 92
2016: score 76/percentile ranking 92
2015: score 72/percentile ranking 89
2014: score 70/percentile ranking 87
2013: score 72/percentile ranking 87
We continue to retain our established position in the FTSE4Good Index
Received a Gold Award from EPRA for best practice sustainability reporting
Highlighted as an example of good practice in the pilot first year of the Workforce
Disclosure Initiative
£1.9m equivalent of time, promotion and cash investment. 2,399 hours spent by
employees volunteering
National Charity Partnership
Over £100,000 raised for partner Barnardo’s in our first year of partnership
Recent recognition
Award name
Dartford Business Awards
BCO National Award
Green Global Awards
CIBSE Building Performance Awards
Better Society Awards
BusinessGreen Leaders Awards
BusinessGreen Leaders Awards
Green building certifications
BREEAM rated space
Table 95
Category
Winner: Best Community Project
Winner: National winner refurbished/recycled Awards –
20 Eastbourne Terrace
Winner: Global Silver Award Environmental Improvement
in Waste Management - Gunwharf Quays
Winner: Learning and Development Award –
for our Sustainability Matters training programme
Shortlisted: Environment Award
Shortlisted: Sustainability Team of the Year
Shortlisted: Renewable Energy Project of the Year
Date
September 2017
October 2017
December 2017
February 2018
March 2018
April 2018
April 2018
Impact area
EPRA Sustainability Performance Measures
EPRA codes
Units of measure
Indicator
Percentage of portfolio which is BREEAM rated
Outstanding
Certification
Cert-Tot
% of total floor area (m2)
Excellent
Very Good
Good/Pass
Table 96
2016/171
2017/18
% change
33.1%
0.23%
17.32%
8.64%
6.92%
34.9%
0.22%
17.41%
10.18%
7.09%
5.4%
-2.6%
0.5%
17.8%
2.5%
1. 2016/17 figures have been restated due to improved accuracy in the quality of data concerning BREEAM rated areas. The table above outlines the percentage of our portfolio rated by BREEAM,
and the breakdown of these ratings. BREEAM is an established assessment method and rating system for buildings, and continues to be a valuable benchmark for sustainable design.
Also in the year, our Victoria Street workplace became the UK’s largest WELL Silver CertifiedTM space, and is the first workplace in the world to achieve
both WELL Silver and BREEAM Outstanding, setting a global benchmark for healthy and sustainable space.
Landsec Annual Report 2018
181
Additional information
Sustainability performance
continued
Greenhouse gas reporting
Greenhouse gas emission reporting
CO2e conversion factors – location based1
Electricity (kWh)
Natural gas (kWh)
2016/17
0.51680
0.20899
2017/18
0.44572
0.21201
Table 98
% Change
-13.8%
1.4%
1. Combined conversion factor including well-to-tank and transmission and distribution
factors.
The above table outlines the location-based emission factors used for the
2017/18 year and how they compare to the previous year.
Landsec – Scope 1 and 2 emissions 2016-18
Chart 99
70,000
55,688
47,066
36,620
34,259
60,000
50,000
40,000
30,000
20,000
e
2
O
C
t
10,000
13,648
16,477
14,755
13,648
0
3,862
16,477
2,200
12,550
2016
2017
Location based emission factors
2018
2016
2017
Market based emission factors
2018
Scope 1 tCO2e
Scope 2 tCO2e
Total scope 1 and 2 GHG emissions using location-based emission factors
have dropped by 19% since the previous year. This has been driven by a
reduction in electricity consumption and the drop in national emission
factors due a cleaner energy mix. Additionally, with more accurate
sub-metering of tenant energy consumption, we’ve been able to more
accurately allocate scope 3 emissions associated with energy consumption
to tenants and taken it out of our scope 1 and 2 emissions. In terms of
market-based emissions we have seen a significant reduction of 27%.
This has been due to increasing the number of sites supplied with 100%
renewable electricity and by procuring at least 15% of our total gas
purchase from green sources.
Every year we report our full carbon footprint. Table 100 on page 183
provides a breakdown of our entire emission inventory including scope 3.
We report our full greenhouse gas (GHG) emissions annually in
accordance to the World Resources Institute’s Greenhouse Gas Protocol.
Landsec is also committed to EPRA Best Practice Recommendations
for Sustainability reporting, for which we have won a Gold award for
four years running. We believe that such reporting improves transparency
and performance. We report our data using an operational control
approach to define our organisational boundary. A detailed description
of our reporting methodology and data, including our EPRA figures, can
be found at www.landsec.com/sustainability.
GHG emissions are broken down into three scopes, scope 1, 2 and 3.
Emissions are reported as tonnes of carbon dioxide equivalent (tCO2e).
Scope 1 emissions are direct emissions from activities controlled by us
that release emissions into the atmosphere. This is comprised of emissions
from natural gas, refrigerant gases and company owned vehicles.
Scope 2 emissions are indirect emissions associated with our consumption
of purchased energy. This includes electricity, heating and cooling
purchased for common areas and shared services.
All material sources for both scope 1 and 2 emissions are reported. As the
remaining sources, such as diesel used in generator testing, represent
such a small proportion of total emissions, we do not report them.
Both scope 1 and scope 2 emissions are reported using both the “location-
based” and “market-based” accounting methods. Location-based
emissions are reported using UK Government greenhouse gas reporting –
conversion factors 2017. Since 1 April 2017, at least 15% of our gas purchases
are from green sources (biogas). In line with the WRI Greenhouse Gas
Protocol guidance, our market-based emissions from biogas are not
reported as scope 1; the CH4 or N2O emissions from biogas are reported
as scope 2, and the CO2 portion of the biogas is reported outside of the
scopes, as a memo line. Therefore, our scope 1 market-based emissions
are based on the emissions from the remainder of our gas purchases.
Scope 2 market-based emissions are reported using the conversion
factor associated with each individual electricity, heating and cooling
supply, as well as the CH4 or N2O emissions related to biogas.
Scope 3 emissions are those that are a consequence of our actions,
but which occur at sources we do not own or control and which are not
classed as scope 2 emissions. The GHG Protocol identifies 15 categories
of which eight are directly relevant for Landsec.
Landsec – Scope 1 and 2 emissions 2016-18
Table 97
Scope 1 and 2 mandatory reporting
Location based emission factors
Emissions
Scope 1 tCO2e
Scope 2 tCO2e
Scope 1 and 2 tCO2e
2016
13,648
55,688
69,336
2017
16,477
47,066
63,543
2018
14,755
36,620
51,374
Scope 1 and 2 mandatory reporting
Market based emission factors
Emissions
Scope 1 tCO2e
Scope 2 tCO2e
Scope 1 and 2 tCO2e
2016
13,648
34,259
47,907
2017
16,477
3,862
20,338
2018
12,550
2,200
14,749
Scope 1 and 2 mandatory reporting
Location based emission factors
Intensity
Scope 1 and 2 tCO2e/m2
0.041
0.038
0.028
Scope 1 and 2 mandatory reporting
Market based emission factors
Intensity
Scope 1 and 2 tCO2e/m2
0.026
0.012
0.008
182
Landsec Annual Report 2018
Landsec – Scope 3 emissions
GHG Scope
Scope 1
Scope 2
Scope 3
Category
Scope 1
Scope 2
1. Purchased goods and services (PG&S)
2. Capital goods
3. Fuel- and energy-related activities
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation and distribution
10. Processing of sold products
11. Use of sold products
12. End-of-life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments
2016/17
Table 100
2017/18
Emissions
(tCO2e)
% of total
emissions
Emissions
(tCO2e)
% of total
emissions
16,477
47,066
61,647
283,570
13,982
Grouped
under PG&S
740
360
182
n/a
n/a
n/a
n/a
n/a
258,428
n/a
n/a
2%
7%
9%
41%
2%
0%
0%
0%
0%
0%
0%
0%
0%
0%
38%
0%
0%
14,755
36,620
59,936
128,551
11,699
Grouped
under PG&S
769
366
182
n/a
n/a
n/a
n/a
n/a
151,596
n/a
n/a
4%
9%
15%
32%
3%
0%
0%
0%
0%
0%
0%
0%
0%
0%
37%
0%
0%
The GHG Protocol splits scope 3 emissions into 15 categories. We assessed
each one individually and decided which ones were applicable to our
business. For the categories that are applicable we have obvious hot spots
which are highlighted below:
Landsec – Scope 3 GHG emissions 2017/18 (%)
Chart 101
■ Downstream leased assets
■ Capital goods
■ Purchased goods and services (PG&S)
■ Fuel- and energy-related activities
■ Others
42.9%
36.4%
17.0%
3.3%
0.4%
The two largest contributing categories are Capital goods and
Downstream leased assets, making up 69% of our total emissions.
Capital goods include the emissions associated with the manufacture
and transport of materials used within our development activity and
Downstream leased assets are those associated with our customers
within our assets. In addition to working closely with our supply partners
and customers to reduce these emissions, there are additional reasons
for the year on year reductions in both categories. For Capital goods,
we have finished a number of buildings in development, and not brought
new projects online at this stage. For Downstream leased assets, we
have updated the energy Benchmark from the non-domestic National
Energy Data-framework 2011 to those in the 2017 Real Estate
Environmental Benchmarks.
Assurance
Landsec’s auditor, EY, has once again conducted the sustainability
assurance. This is part of our journey to embed sustainability across
the business and enhance the integrity, quality and usefulness of the
information we provide. EY performed a limited assurance engagement
on selected performance data and qualitative statements in the
Physical and Social sections of the Strategic Report (pages 42-51);
the sustainability content in the ‘Additional Information’ section
of the Landsec 2018 Annual Report (pages 179-183); and the online
Landsec Performance Data Report 2018, which can be found at
landsec.com/sustainability/reports-benchmarking. The full assurance
statement is available at landsec.com/sustainability/governance-policies.
Landsec Annual Report 2018
183
Additional information
Combined Portfolio analysis
Like-for-like segmental analysis
Market value1
Valuation movement1
Rental income1
Annualised
rental
income2
Annualised net rent3
Net estimated
rental value4
31 March
2018
£m
31 March
2017
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
31 March
2018
£m
31 March
2017
£m
31 March
2018
£m
31 March
2018
£m
31 March
2017
£m
31 March
2018
£m
31 March
2017
£m
Retail Portfolio
Shopping centres and shops
Retail parks
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 portfolio8
Proposed developments1
Development programme9
Completed developments1
Acquisitions10
Sales11
Combined Portfolio
3,558
786
1,304
16
5,664
2,388
718
1,010
324
4,440
1,357
39
5,836
11,500
–
447
1,816
340
–
14,103
3,635
791
1,288
19
5,733
2,439
726
1,013
323
4,501
1,336
41
5,878
11,611
–
262
1,749
4
813
(110)
(9)
8
(2)
(113)
(57)
(6)
(1)
1
(63)
12
(5)
(56)
(169)
–
68
17
(7)
–
(3.0%)
(1.1%)
0.7%
(11.6%)
(2.0%)
(2.4%)
(0.8%)
(0.1%)
0.3%
(1.5%)
0.9%
(11.0%)
(1.0%)
(1.5%)
–
18.3%
1.0%
(1.9%)
–
14,439
(91)
(0.7%)
Properties treated as finance leases
Combined Portfolio
14,103
14,439
(91)
(0.7%)
196
48
77
1
322
106
30
41
14
191
48
2
241
563
–
7
65
25
13
673
(10)
663
193
48
78
1
320
105
29
40
14
188
47
2
237
557
–
–
49
–
42
648
(10)
638
186
47
77
1
311
107
30
41
14
192
49
1
242
553
–
11
67
24
–
655
180
47
75
1
303
108
32
45
15
200
48
1
249
552
–
6
41
24
–
623
179
47
76
1
303
106
32
42
15
195
37
1
233
536
–
(2)
5
–
31
570
196
47
78
2
323
117
40
49
16
222
60
1
283
606
–
52
84
24
–
766
194
47
78
2
321
117
40
49
17
223
60
1
284
605
–
14
85
–
39
743
Total portfolio analysis
Total portfolio analysis continued
Market value1
Valuation movement1
Rental income1
Annualised
rental
income2
Annualised net rent3
Net estimated
rental value4
31 March
2018
£m
31 March
2017
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
31 March
2018
£m
31 March
2017
£m
31 March
2018
£m
31 March
2018
£m
31 March
2017
£m
31 March
2018
£m
31 March
2017
£m
4,152
809
1,309
16
6,286
3,235
1,388
1,347
324
6,294
1,480
43
7,817
14,103
3,860
861
1,384
20
6,125
3,247
1,853
1,336
323
6,759
1,514
41
8,314
14,439
(105)
(2)
8
(2)
(101)
(2.5%)
(0.2%)
0.6%
(11.5%)
(1.7%)
(42)
48
–
1
7
8
(5)
10
(91)
(1.3%)
3.7%
–
0.4%
0.1%
0.6%
(9.9%)
0.1%
(0.7%)
14,103
14,439
(91)
(0.7%)
12,848
1,255
14,103
12,628
1,811
14,439
(98)
7
(91)
(0.8%)
0.6%
(0.7%)
228
51
80
1
360
132
57
55
14
258
53
2
313
673
(10)
663
610
53
663
195
52
94
2
343
123
66
48
14
251
52
2
305
648
(10)
638
585
53
638
221
47
77
1
346
135
49
56
14
254
54
1
309
655
606
49
655
210
47
75
1
333
124
52
45
15
236
53
1
290
623
587
36
623
180
51
80
1
312
107
53
42
15
217
40
1
258
570
523
47
570
233
48
79
2
362
155
99
66
17
337
66
1
404
766
701
65
766
210
51
83
2
346
157
87
67
17
328
68
1
397
743
650
93
743
Retail Portfolio
Shopping centres and shops
Retail parks
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
Properties treated as finance leases
Combined Portfolio
Represented by:
Investment portfolio
Share of joint ventures
Combined Portfolio
184
Landsec Annual Report 2018
Retail Portfolio
Shopping centres and shops
Retail parks
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
Represented by:
Investment portfolio
Share of joint ventures
Combined Portfolio
Gross estimated
rental value5
Net initial yield6
31 March
31 March
31 March
31 March
2018
£m
243
49
79
2
373
154
101
68
17
340
66
1
407
780
714
66
780
2017
£m
219
52
83
2
356
156
89
68
17
330
69
1
400
756
661
95
756
2018
%
4.3%
5.1%
5.1%
1.3%
4.6%
3.6%
3.6%
3.3%
4.2%
3.6%
3.1%
1.3%
3.5%
4.0%
2017
%
4.1%
5.4%
5.2%
3.8%
4.5%
3.0%
2.7%
3.0%
4.2%
3.0%
2.4%
0.9%
2.9%
3.6%
4.1%
2.3%
4.0%
3.7%
2.4%
3.6%
Notes:
1. Refer to glossary for definition.
2. 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.
3. Annualised net rent is annual cash rent, after the
deduction of rent payable, as at the balance sheet date.
It is calculated with the same methodology as annualised
rental income but is stated net of rent payable and before
SIC 15 adjustments.
4. Net estimated rental value is gross estimated rental value,
as defined in the glossary, after deducting expected rent
payable.
5. 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.
6. Net initial yield – refer to glossary for definition. This
calculation includes all properties including those sites
with no income.
7. Equivalent yield – refer to glossary for definition. Proposed
developments are excluded from the calculation of
equivalent yield on the Combined Portfolio.
8. 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.
9. 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.
10. Includes all properties acquired since 1 April 2016.
11. Includes all properties sold since 1 April 2016.
Like-for-like segmental analysis
Like-for-like segmental analysis continued
Table 102
Market value1
Valuation movement1
Rental income1
Annualised net rent3
Annualised
rental
income2
Net estimated
rental value4
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
2018
£m
2017
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
Retail Portfolio
Shopping centres and shops
Retail parks
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 portfolio8
Proposed developments1
Development programme9
Completed developments1
Acquisitions10
Sales11
5,664
5,733
(113)
(2.0%)
3,558
786
1,304
16
2,388
718
1,010
324
4,440
1,357
39
5,836
11,500
447
1,816
340
–
–
3,635
791
1,288
19
2,439
726
1,013
323
4,501
1,336
41
5,878
11,611
–
262
1,749
4
813
(110)
(3.0%)
(9)
8
(1.1%)
0.7%
(2)
(11.6%)
(57)
(2.4%)
(6)
(1)
1
(0.8%)
(0.1%)
0.3%
(63)
(1.5%)
12
0.9%
(5)
(11.0%)
(56)
(169)
(1.0%)
(1.5%)
–
68
17
(7)
–
18.3%
1.0%
(1.9%)
–
–
Total portfolio analysis
Retail Portfolio
Retail parks
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
Represented by:
Investment portfolio
Share of joint ventures
Combined Portfolio
4,152
809
1,309
16
6,286
3,235
1,388
1,347
324
6,294
1,480
43
7,817
3,860
861
1,384
20
6,125
3,247
1,853
1,336
323
6,759
1,514
41
8,314
(2)
(0.2%)
8
0.6%
(2)
(11.5%)
(101)
(1.7%)
360
(42)
(1.3%)
48
3.7%
–
1
7
8
–
0.4%
0.1%
0.6%
(5)
10
(9.9%)
0.1%
12,848
12,628
(98)
(0.8%)
1,255
14,103
1,811
14,439
7
0.6%
(91)
(0.7%)
Properties treated as finance leases
Combined Portfolio
14,103
14,439
(91)
(0.7%)
14,103
14,439
(91)
(0.7%)
2018
£m
196
48
77
1
322
106
30
41
14
191
48
2
241
563
–
7
65
25
13
673
(10)
663
2018
£m
51
80
1
132
57
55
14
258
53
2
313
673
(10)
663
610
53
663
2017
£m
193
48
78
1
320
105
29
40
14
188
47
2
237
557
–
–
–
49
42
648
(10)
638
2017
£m
195
52
94
2
343
123
66
48
14
251
52
2
305
648
(10)
638
585
53
638
2018
£m
186
47
77
1
311
107
30
41
14
192
49
1
242
553
–
11
67
24
–
2018
£m
221
47
77
1
346
135
49
56
14
254
54
1
309
655
606
49
655
2018
£m
180
47
75
1
303
108
32
45
15
200
48
1
249
552
–
6
41
24
–
2018
£m
210
47
75
1
333
124
52
45
15
236
53
1
290
623
587
36
623
2017
£m
179
47
76
1
303
106
32
42
15
195
37
1
233
536
–
(2)
5
–
31
2017
£m
180
51
80
1
312
107
53
42
15
217
40
1
258
570
523
47
570
2018
£m
196
47
78
2
323
117
40
49
16
222
60
1
283
606
–
52
84
24
–
2018
£m
233
48
79
2
362
155
99
66
17
337
66
1
404
766
701
65
766
2017
£m
194
47
78
2
321
117
40
49
17
223
60
1
284
605
14
85
–
–
39
743
2017
£m
210
51
83
2
346
157
87
67
17
328
68
1
397
743
650
93
743
Combined Portfolio
14,103
14,439
(91)
(0.7%)
655
623
570
766
Properties treated as finance leases
Combined Portfolio
14,103
14,439
(91)
(0.7%)
Market value1
Valuation movement1
Rental income1
Annualised net rent3
Annualised
rental
income2
Net estimated
rental value4
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
2018
£m
2017
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
Shopping centres and shops
(105)
(2.5%)
228
Retail Portfolio
Shopping centres and shops
Retail parks
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 portfolio8
Proposed developments1
Development programme9
Completed developments1
Acquisitions10
Sales11
Combined Portfolio
Total portfolio analysis continued
Retail Portfolio
Shopping centres and shops
Retail parks
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
Represented by:
Investment portfolio
Share of joint ventures
Combined Portfolio
Gross estimated
rental value5
Net initial yield6
Equivalent yield7
Voids (by ERV)1
31 March
2018
£m
31 March
2017
£m
31 March
2018
%
31 March
2017
%
31 March
2018
%
31 March
2017
%
31 March
2018
%
31 March
2017
%
203
48
79
2
332
117
41
50
17
225
60
1
286
618
–
54
84
24
–
780
201
48
78
2
329
117
41
50
17
225
61
1
287
616
–
15
86
–
39
756
4.4%
5.4%
5.1%
1.3%
4.7%
4.3%
4.3%
4.4%
4.2%
4.3%
3.1%
1.2%
4.0%
4.4%
–
0.7%
2.1%
5.7%
–
4.0%
4.3%
5.5%
5.2%
3.8%
4.7%
4.0%
4.2%
4.0%
4.2%
4.0%
2.5%
0.9%
3.7%
4.2%
–
–
0.2%
5.5%
3.5%
3.6%
4.9%
5.6%
5.4%
8.3%
5.1%
4.5%
4.8%
4.5%
4.9%
4.6%
4.1%
1.4%
4.4%
4.8%
n/a
4.5%
4.2%
5.9%
n/a
4.7%
4.8%
5.6%
5.5%
8.3%
5.0%
4.6%
4.8%
4.5%
5.0%
4.6%
4.0%
1.3%
4.5%
4.7%
n/a
4.6%
4.3%
n/a
n/a
n/a
3.6%
–
0.8%
40.9%
2.7%
3.4%
–
0.6%
0.6%
2.0%
2.2%
20.0%
2.0%
2.4%
n/a
n/a
n/a
n/a
n/a
n/a
4.0%
–
0.8%
34.8%
2.9%
6.4%
–
–
–
3.3%
1.7%
33.3%
3.0%
2.9%
n/a
n/a
n/a
n/a
n/a
n/a
Gross estimated
rental value5
Net initial yield6
31 March
2018
£m
31 March
2017
£m
31 March
2018
%
31 March
2017
%
243
49
79
2
373
154
101
68
17
340
66
1
407
780
714
66
780
219
52
83
2
356
156
89
68
17
330
69
1
400
756
661
95
756
4.3%
5.1%
5.1%
1.3%
4.6%
3.6%
3.6%
3.3%
4.2%
3.6%
3.1%
1.3%
3.5%
4.0%
4.1%
5.4%
5.2%
3.8%
4.5%
3.0%
2.7%
3.0%
4.2%
3.0%
2.4%
0.9%
2.9%
3.6%
4.1%
2.3%
4.0%
3.7%
2.4%
3.6%
Notes:
1. Refer to glossary for definition.
2. 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.
3. Annualised net rent is annual cash rent, after the
deduction of rent payable, as at the balance sheet date.
It is calculated with the same methodology as annualised
rental income but is stated net of rent payable and before
SIC 15 adjustments.
4. Net estimated rental value is gross estimated rental value,
as defined in the glossary, after deducting expected rent
payable.
5. 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.
6. Net initial yield – refer to glossary for definition. This
calculation includes all properties including those sites
with no income.
7. Equivalent yield – refer to glossary for definition. Proposed
developments are excluded from the calculation of
equivalent yield on the Combined Portfolio.
8. 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.
9. 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.
10. Includes all properties acquired since 1 April 2016.
11. Includes all properties sold since 1 April 2016.
Landsec Annual Report 2018
185
Additional information
Lease lengths
Lease lengths
Retail Portfolio
Shopping centres and shops
Retail parks
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 2018
Like-for-like portfolio
Mean1
Years
Like-for-like portfolio,
completed developments
and acquisitions
Mean1
Years
6.2
6.8
12.5
3.1
7.9
7.6
5.1
8.5
14.8
7.9
6.3
5.7
7.6
7.8
5.8
6.8
12.5
3.1
7.5
8.8
8.7
11.2
14.8
9.6
6.9
5.7
9.2
8.4
Table 104
Valuation
surplus for
the year
ended
31 March
20182
£m
–
–
13
13
11
6
51
68
–
–
–
–
1. Mean is the rent weighted average of the unexpired lease term across all leases (excluding short-term leases). Term is defined as the earlier of tenant break or expiry.
Development pipeline
Financial summary
Cumulative movements on the development programme to 31 March 2018
Total scheme details1
Market
value at
start of
scheme
£m
Capital
expenditure
incurred
to date
£m
Capitalised
interest
to date
£m
Valuation
surplus/
(deficit)
to date2
£m
Disposals,
SIC 15 rent
and other
adjustments
£m
Market
value at
31 March
2018
£m
Estimated
total capital
expenditure
£m
Estimated
total
capitalised
interest
£m
Estimated
total
development
cost3
£m
Net Income/
ERV4
£m
–
–
195
195
30
6
73
109
–
–
381
381
170
10
39
219
–
–
44
44
11
–
3
14
–
–
387
387
42
6
51
99
–
–
(62)
(62)
6
–
–
6
–
–
945
945
259
22
166
447
–
–
272
272
177
28
469
674
–
–
44
44
11
–
41
52
–
–
511
511
218
34
583
835
Movement on proposed developments for the year ended 31 March 2018
Total scheme details1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
43
43
14
3
38
55
–
–
–
–
Developments let and
transferred or sold
Shopping centres and shops
Retail parks
London Portfolio
Developments after
practical completion,
approved or in progress
Shopping centres and shops
Retail parks
London Portfolio
Proposed developments
Shopping centres and shops
Retail parks
London Portfolio
1. Total scheme details exclude properties sold in the year.
2. Includes profit realised on the disposal of investment properties and any surplus or deficit on investment properties transferred to trading.
3. 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.
4. Net headline annual rent on let units plus net ERV at 31 March 2018 on unlet units.
186
Landsec Annual Report 2018
Development pipeline and trading property development schemes
at 31 March 2108
Development pipeline
Property
Developments after practical
completion
Description
of use
Ownership
interest
%
Size
sq ft
Letting
status
%
Market
value
£m
Net
income/
ERV
£m
Actual/
estimated
completion
date
Total
development
costs to date
£m
Forecast total
development
cost
£m
Table 105
Westgate Oxford
Retail
50
800,000
90
259
14
Oct 2017
206
218
Developments approved or
in progress
Selly Oak, Birmingham
21 Moorfields, EC2
Developments let and transferred
or sold
The Zig Zag Building, SW12
Nova, SW1
20 Eastbourne Terrace, W2
Oriana, W1 – Phase II3
Retail
Office
50
100
190,000
564,000
Office
Retail
Office
Retail
Office
Retail
100
50
100
50
192,700
38,700
481,400
79,200
92,800
30,700
91
831
94
100
98
89
100
100
22
166
n/a4
n/a4
n/a4
n/a4
3
38
Sep 2018
Nov 2021
17
Nov 2015
20
Apr 2017
6
n/a
May 2017
n/a
16
115
181
263
67
n/a
34
583
181
263
67
n/a
1. We have entered into a conditional agreement for lease with Deutsche Bank for between 469,000 and 564,000 sq ft at 21 Moorfields, EC2. The letting status of 83% represents a letting
of 469,000 sq ft.
2. Includes retail within Kings Gate, SW1.
3. This represents the disposal of 28-32 Oxford Street, W1.
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 percentage is measured by ERV and shows letting status at 31 March 2018. 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 2018, the only properties on which interest was capitalised
on the land cost were Westgate Oxford and 21 Moorfields, EC2.
Net income/ERV
Net income/ERV represents headline annual rent on let units plus ERV at 31 March 2018 on unlet units, both after rents payable.
Trading property development schemes
Property
Kings Gate, SW1
Nova, SW1
Oriana, W1 – Phase II
Westgate Oxford
Description
of use
Residential
Residential
Residential
Residential
Ownership
interest
%
100
50
50
50
Size
sq ft
108,600
166,800
20,200
36,700
Sales
exchanged
by unit
%
99
93
89
90
Completion
date
Oct 2015
Apr 2017
Oct 2017
Dec 2017
Number
of units
100
170
18
59
Table 106
Total
development
costs
to date
£m
Forecast
total
development
cost
£m
161
147
16
11
161
147
16
11
A
d
d
i
t
i
o
n
a
l
i
n
f
o
r
m
a
t
i
o
n
Landsec Annual Report 2018
187
Alternative performance measures
The Group has applied the European Securities and Markets Authority (ESMA) ‘Guidelines on Alternative Performance Measures’ in these results.
In the context of these results, an alternative performance measure (APM) is a financial measure of historical or future financial performance, position
or cash flows of the Group which is not a measure defined or specified in IFRS.
The table below summarises the APMs included in these results, where the definitions and reconciliations of these measures can be found, as well as
where further discussion is included. The definitions of all APMs are included in the Glossary and further discussion of these measures can be found
in the Financial review.
Nearest IFRS measure
Reconciliation
Table 107
Profit before tax
Profit attributable to shareholders
Basic earnings per share
Diluted earnings per share
Net assets attributable to shareholders
Net assets attributable to shareholders
Net assets attributable to shareholders
n/a
Investment properties
Borrowings
n/a
Note 4
Note 5
Note 5
Note 5
Note 5
Note 5
Note 5
Note 5
Note 14
Note 20
Note 20
Table 108
Year ended 31 March
2018
£m
852
(343)
509
1
66
–
(98)
478
(756)
–
27
(251)
(1)
(252)
(98)
7
(91)
2017
£m
787
(266)
521
19
(2)
13
(186)
365
(322)
–
69
112
1
113
(187)
40
(147)
406
382
2016
£m
942
(410)
532
75
–
–
739
1,346
(209)
–
199
1,336
2
1,338
736
171
907
362
2015
£m
770
(334)
436
107
3
–
1,771
2,317
(228)
2
326
2,417
–
2,417
1,768
269
2,037
329
2014
£m
717
(249)
468
16
2
–
607
1,093
(185)
5
196
1,109
8
1,117
609
155
764
320
Revenue profit
Adjusted earnings
Adjusted earnings per share
Adjusted diluted earnings per share
Adjusted net assets
Adjusted net assets per share
Adjusted diluted net assets per share
Total business return
Combined Portfolio
Adjusted net debt
Group LTV
Five year summary
Income statement
Revenue
Costs
Profit on disposal of investment properties
Profit/(loss) on disposal of investments in joint ventures
Profit on disposal of other investment
Net (deficit)/surplus on revaluation of investment properties
Operating profit
Net finance expense
Net gain on business combination
Share of post-tax profit from joint ventures
(Loss)/profit before tax
Taxation
(Loss)/profit attributable to shareholders
Net (deficit)/surplus on revaluation of investment properties:
Group1
Joint ventures1
Total1
Revenue profit
1. Includes our non-wholly owned subsidiaries on a proportionate basis.
188
Landsec Annual Report 2018
Five year summary
continued
Balance sheet
Investment properties
Intangible assets
Net investment in finance leases
Loan investments
Investment in joint ventures
Trade and other receivables
Other non-current assets
Total non-current assets
Trading properties and long-term development contracts
Trade and other receivables
Monies held in restricted accounts and deposits
Cash and cash equivalents
Total current assets
Non-current assets held for sale
Borrowings
Trade and other payables
Other current liabilities
Total current liabilities
Borrowings
Trade and other payables
Other non-current liabilities
Redemption liability
Total non-current liabilities
Net assets
Net debt
Market value of the Combined Portfolio
Adjusted net debt
Results per share
Total dividend payable in respect of the financial year
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Adjusted earnings per share
Adjusted diluted earnings per share
Net assets per share
Diluted net assets per share
Adjusted net assets per share
Adjusted diluted net assets per share
Table 109
Year ended and as at 31 March
2014
£m
9,848
–
187
50
2018
£m
2017
£m
2016
£m
2015
£m
12,336
12,144
12,358
12,158
34
162
–
1,151
165
49
36
165
–
1,734
123
51
38
183
–
35
185
50
1,668
1,434
1,443
86
44
53
29
35
14
13,897
14,253
14,377
13,944
11,577
24
471
15
62
572
–
(872)
(294)
(14)
(1,180)
122
418
21
30
591
–
(404)
(302)
(7)
(713)
124
445
19
25
613
–
(19)
(289)
(19)
(327)
222
404
10
14
650
283
(191)
(367)
(10)
(568)
193
366
15
21
595
–
(513)
(320)
(12)
(845)
(2,752)
(2,545)
(2,854)
(3,593)
(2,849)
–
(8)
(37)
(25)
(9)
(36)
(28)
(47)
(35)
(30)
(45)
(35)
(23)
(4)
(33)
(2,797)
(2,615)
(2,964)
(3,703)
(2,909)
10,492
(3,548)
11,516
(2,905)
11,699
(2,861)
10,606
(3,801)
8,418
(3,331)
14,103
(3,652)
14,439
(3,261)
14,471
(3,239)
14,031
(4,172)
11,859
(3,948)
44.2p
(32.9)p
(32.9)p
53.1p
53.1p
1,418p
1,418p
1,403p
1,403p
38.55p
14.3p
14.3p
48.4p
48.3p
1,458p
1,456p
1,418p
1,417p
35.0p
169.4p
168.8p
45.9p
45.7p
1,482p
1,476p
1,439p
1,434p
31.85p
306.1p
304.7p
41.7p
41.5p
1,343p
1,337p
1,299p
1,293p
30.7p
142.3p
141.8p
40.7p
40.5p
1,069p
1,065p
1,017p
1,013p
Landsec Annual Report 2018
189
Additional information
Acquisitions, disposals and capital expenditure
Investment properties
Net book value at the beginning of the year
Acquisitions
Transfer from/(to) trading properties
Capital expenditure
Capitalised interest
Disposals
Net movement in finance leases
Net (deficit)/surplus on revaluation of investment properties
Net book value at the end of the year
Year ended 31 March 2018
Table 110
Year ended
31 March
2017
Group
(excl. joint
ventures)
£m
Adjustment
for
proportionate
share1
£m
Joint
ventures
£m
Combined
Portfolio
£m
Combined
Portfolio
£m
12,144
351
1
92
3
(157)
–
(98)
12,336
1,763
–
1
73
3
(612)
–
7
1,235
(34)
–
–
(1)
–
–
–
–
(35)
13,873
351
2
164
6
(769)
–
(91)
13,536
13,954
15
(5)
240
18
(244)
42
(147)
13,873
Profit on disposal of investment properties
1
2
122
15
–
(112)
(1)
–
24
17
66
–
124
4
–
(73)
(1)
(4)
50
13
–
–
Trading properties
Net book value at the beginning of the year
Capital expenditure
Capitalised interest
Disposals
Transfer (to)/from investment properties
Movement in impairment
Net book value at the end of the year
Profit on disposal of trading properties
Investment in joint ventures
Profit/(loss) on disposal of investment in joint venture
Other investments
Profit on disposal of other investment
Acquisitions, development and refurbishment expenditure
Acquisitions of investment properties
Capital expenditure – investment properties
Development capital expenditure – investment properties
Capital expenditure – trading properties
Development capital expenditure – trading properties
Acquisitions, development and refurbishment expenditure
Disposals
Net book value – investment property disposals
Net book value – trading property disposals
Net book value – other net liabilities of trading property disposals
Net book value – other net assets of joint venture disposals
Profit on disposal – investment properties
Profit on disposal – trading properties
Profit/(loss) on disposal – investment in joint venture
Profit on disposal – other investment
Other
Total disposal proceeds
1. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.
190
Landsec Annual Report 2018
–
–
–
–
–
–
–
–
–
–
–
3
20
246
19
–
(185)
(2)
(4)
74
30
66
–
£m
351
58
106
16
3
534
£m
769
185
(34)
46
3
30
66
–
2
281
46
5
(101)
5
12
248
36
(2)
13
£m
15
81
159
19
27
301
£m
244
101
–
–
20
36
(2)
13
1
1,067
413
Analysis of capital expenditure
Analysis of capital expenditure
Table 111
Year ended 31 March 2018
Acquisitions
– investment
properties
£m
Development
capital
expenditure
– investment
properties
£m
Capital expenditure – investment properties
Incremental
lettable
space
£m
No
incremental
lettable
space
£m
Agent
fees
£m
Tenant
improvements
£m
Total
£m
Capitalised
interest
£m
Total capital
expenditure
£m
Retail Portfolio
Shopping centres and shops
Retail parks
Leisure and hotels
Other
Total Retail Portfolio
London Portfolio
West End
City
Mid-town
Inner London
Central London shops
Total London Portfolio
344
–
6
1
351
–
–
–
–
–
–
56
11
–
–
67
–
39
–
–
–
39
15
–
2
–
17
–
–
–
–
–
–
Combined Portfolio1
351
106
17
1. On a cash basis, total capital expenditure was £522m, with £440m relating to the Group.
9
4
2
2
17
10
(2)
(1)
–
11
18
35
–
–
–
–
–
2
–
–
–
1
3
3
3
(1)
1
–
3
–
–
–
–
–
–
3
27
3
5
2
37
12
(2)
(1)
–
12
21
58
3
–
–
–
3
–
3
–
–
–
3
6
430
14
11
3
458
12
40
(1)
–
12
63
521
Landsec Annual Report 2018
191
Additional information
Subsidiaries, joint ventures and associates
As at 31 March 2018, the Company had a 100%
interest, direct or indirect, in the ordinary share
capital of the following subsidiaries, all of which
are registered in the UK at 100 Victoria Street,
London, SW1E 5JL.
192
Landsec Annual Report 2018
Name
Name
Name
Name
Name
Alan House (Nottingham) (No.1) Limited
Land Securities Trinity Limited
Alan House (Nottingham) (No.2) Limited
Landsec Limited
Arundel Great Court Development
Management Limited
Blueco Limited
Bluewater Ground Lease Limited
Bluewater Outer Area Limited
Cedric (New Fetter Lane) (No.1) Limited
Cedric (New Fetter Lane) (No.2) Limited
City & Central Shops Limited
City Centre Properties Limited
Clock Tower (Canterbury) (No.1) Limited
Clock Tower (Canterbury) (No.2) Limited
Crossways 2000 Limited
Crossways 3065 Limited
Crossways 7055 Limited
Dashwood House Limited
Eron Investments Limited
Freeport (Nominee 1) Limited
Freeport (Nominee 2) Limited
Gunwharf Quays Limited
Knollys House (No.1) Limited
Knollys House Limited
L & P Estates Limited
Land Securities (BH) Limited
Land Securities (Finance) Limited
Land Securities (Hotels) Limited
Land Securities (Insurance Services) Limited
Land Securities (Media Services) BH Limited
Land Securities (Media Services) PQ Limited
Land Securities Buchanan Street
Developments Limited
LC25 Limited
LS (Bracknell) Limited
LS (Bridgewater Management) Limited
LS (Finchley Road) Limited
LS (Jaguar) GP Investments Limited
LS (Victoria) Nominee No.1 Limited
LS (Victoria) Nominee No.2 Limited
LS (Winchester) Limited
LS (Workington) Nominee 1 Limited
LS (Workington) Nominee 2 Limited
LS 1 New Street Square Developer Limited
LS 1 New Street Square Limited
LS 1 Sherwood Street Devco Limited
LS 1 Sherwood Street Limited
LS 120 Cheapside Limited
LS 130 Wood ST Limited
LS 20 Fenchurch Street (GP)
Investments Limited
LS 21 Moorfields Development
Management Limited
LS 21 Moorfields Limited
LS Aldersgate Limited
LS Arundel Nominee Limited
LS Arundel Nominee No.1 Limited
LS Ashdown Limited
LS Banbridge Limited
LS Banbridge Management Limited
LS Banbridge Phase Two Limited
LS Bankside Development Limited
LS Bankside Limited
Land Securities Business Services Limited
LS Bexhill Limited
Land Securities Capital Markets PLC
LS Birmingham Limited
Land Securities Consulting Limited
LS Braintree and Castleford GP Limited
Land Securities Development Limited
LS Braintree Limited
Land Securities Ebbsfleet (No.2) Limited
LS Buchanan (GP) Investments Limited
Land Securities Ebbsfleet (No.3) Limited
LS Buchanan Limited
Land Securities Ebbsfleet Limited
LS Canterbury Limited
Land Securities Intermediate Limited
LS Cardiff (GP) Investments Limited
Land Securities Investment Trust Limited
LS Cardiff (Holdings) Limited
Land Securities Lakeside Limited
Land Securities Management Limited
LS Cardiff Limited
LS Cardinal Limited
Land Securities Management Services Limited
LS Castleford Limited
Land Securities Partnerships Limited
LS Chattenden Marketing Limited
Land Securities PLC
LS Chesterfield Limited
Land Securities Portfolio Management Limited
LS City & West End Limited
Land Securities Properties Limited
LS City Gate House Limited
Land Securities Property Holdings Limited
LS Clayton Square Limited
Land Securities Reserve B Limited
LS Company Secretaries Limited
Land Securities SPV’S Limited
Land Securities Trading Limited
LS Cornerhouse Limited
LS Director Limited
Name
Name
Name
LS Eastbourne Terrace Limited
Name
LS QAM Limited
LS Easton Park Investments Limited
LS Red Lion Court Limited
LS Empress State Limited
LS Fenchurch Development
Management Limited
LS Galleria Limited
LS Greenwich Investments Limited
LS Greenwich Limited
LS Gunwharf Limited
LS Harbour Exchange Option Limited
LS Harrogate Limited
LS Harrow Properties Limited
LS Harvest (GP) Investments Limited
LS Harvest 2 Limited
LS Harvest Limited
LS Hill House Limited
LS Holborn Gate Limited
LS Retail Warehouses Limited
LS Rose Lane Limited
LS Selborne House Limited
LS Soho Square Limited
LS Street GP Limited
LS Street Limited
LS Taplow Limited
LS Taplow No.2 Limited
LS Thanet Limited
LS Times Square GP Limited
LS Times Square Limited
LS Tottenham Court Road Limited
LS Victoria Circle Development
Management Limited
Name
Stag Place (GP) Limited
Stag Place (LP) Limited
Stag Place Limited Partnership
The City of London Real Property
Company Limited
The Imperial Hotel Hull Limited
The Westminster Trust Limited
Tops Estates Limited
Tops Shop Centres Limited
Tops Shop Estates Limited
Trinity Quarter Developments Limited
Wallace City Limited
Watchmaker Finance Limited
Whitecliff Developments Limited
Willett Developments Limited
X-Leisure (Brighton Cinema II) Limited
LS Victoria Circle GP Investments Limited
X-Leisure (Brighton Cinema) Limited
LS Howard Centre Welwyn Limited
LS Hungate Limited
LS Juliet Limited
LS Victoria Circle LP1 Limited
LS Victoria Circle LP2 Limited
LS Victoria Properties Limited
LS Kings Gate Residential Limited
LS Voyager Limited
LS Kings Gate Residential No.2 Limited
LS Wellington Limited
X-Leisure (Edinburgh) Limited
X-Leisure Limited
LS Kingsmead Limited
LS Leisure Limited
LS Lewisham Limited
LS London Holdings One Limited
LS London Holdings Three Limited
LS Ludgate (No.1) Limited
LS Ludgate (No.2) Limited
LS Ludgate (No.3) Limited
LS Ludgate Development Limited
LS Maidstone Limited
LS Mark Lane Limited
LS Millshaw Limited
LS Mirage Limited
LS Moorgate Limited
LS Westminster Limited
LS Westminster No.2 Limited
LS White Rose Limited
LS Whitefriars Limited
LS Wilton Plaza Limited
LS Wood Lane Limited
LS Zig Zag Limited
LSIT (Management) Limited
Micadant (2001) Limited
O2 Retail & Leisure UK Partnership No.1 LLP
Oriana LP Limited
Oxford Castle Apartments Limited
QAM (2026) Limited
QAM (GP) Limited
LS New Street Square Investments Limited
QAM (Holdings) Limited
LS Nominees Holdings Limited
QAM (LP) Limited
LS Occupier Limited
LS ONC Holdings Limited
QAM Funding Limited Partnership
QAM Nominee No 1 Limited
LS One New Change Developments Limited
QAM Nominee No 2 Limited
LS One New Change Limited
LS Outlets No 1 GP Limited
LS Outlets No 2 GP Limited
LS Oxygen Limited
LS Park House Development
Management Limited
LS Poole Retail Limited
LS Portfolio Investments Limited
LS Portland House Developer Limited
LS Property Finance Company Limited
LS Property Solutions Limited
QAM Property Trustee No 1 Limited
QAM Property Trustee No 2 Limited
Ravenseft Properties Limited
Ravenside Investments Limited
Retail Property Holdings Trust Limited
Roebuck House (GP) Limited
Roebuck House (Nominee) Limited
Rosefarm Leisure Limited
Sevington Properties Limited
Shirec Limited
Landsec Annual Report 2018
193
Additional information
Subsidiaries, joint ventures and associates
continued
As at 31 March 2018, the Company had an interest (as shown), direct or indirect, in the ordinary share capital of the following subsidiaries, joint ventures
and associates, each of which is registered in the country indicated. The address for all entities included below is 100 Victoria Street, London, SW1E 5JL,
except for entities with a footnote.
Name
Castleford (UK) Limited
Ebbsfleet Investment (GP) Limited
Ebbsfleet Nominee No.1 Limited
Greenhithe Holdings Limited
Greenhithe Investments Limited
Harbour Exchange Management Company Limited
Harvest 2 GP Limited
Harvest 2 Limited Partnership
Harvest 2 Selly Oak Limited
Harvest Development Management Limited
Harvest GP Limited
Harvest Nominee No.1 Limited
Harvest Nominee No.2 Limited
Hermes Factory Outlets No2 Unit Trust
Hermes Factory Outlets Unit Trust
HFO Street No.1 Limited
HFO Street No.2 Limited
Kent Retail Investments Limited
Land Securities Insurance Limited
Leisure II (North Finchley Two) Limited
Leisure II (North Finchley) Limited
Leisure II (O2 LP) Shareholder Limited
Leisure II (O2 Manager) Shareholder Limited
Leisure II (West India Quay LP) Shareholder Limited
Leisure II (West India Quay Two) Limited
Leisure II (West India Quay) Limited
Leisure Parks I Limited
Leisure Parks II Limited
LS (Eureka Two) Limited
LS (Eureka) Limited
LS (Fountain Park Two) Limited
LS (Fountain Park) Limited
LS (Parrswood Two) Limited
LS (Parrswood) Limited
LS (Riverside Two) Limited
LS (Riverside) Limited
LS Fort Limited
Metro Shopping Fund GP Limited
Metro Shopping Fund Management Limited
NOVA Residential (GP) Limited
NOVA Residential Intermediate Limited
NOVA Residential Limited Partnership
O2 (General Partner) Limited
Oriana GP Limited
Oriana Nominee No.1 Limited
Oriana Nominee No.2 Limited
Oriana Residential Nominee No.1 Limited
Oriana Residential Nominee No.2 Limited
Oriana Residential Nominee No.3 Limited
Oriana Residential Nominee No.4 Limited
Queens Links Unit Trust
Southside General Partner Limited
Southside Limited Partnership
Southside Nominees No.1 Limited
Southside Nominees No.2 Limited
194
Landsec Annual Report 2018
Group share
%
Country of
registration
Name
Group share
%
Country of
registration
UK
95.04%
UK
50.00%
UK
50.00%
Jersey1
100.00%
Jersey1
100.00%
UK2
25.73%
UK
50.00%
UK
50.00%
UK
50.00%
UK
50.00%
UK
50.00%
UK
50.00%
UK
50.00%
Jersey3
100.00%
Jersey3
100.00%
Jersey3
100.00%
Jersey3
100.00%
Jersey3
100.00%
100.00% Guernsey4
Jersey3
95.04%
Jersey3
95.04%
UK
95.04%
UK
95.04%
95.04%
UK
Jersey3
95.04%
Jersey3
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
95.04%
UK
Limited by
guarantee
50.00%
50.00%
50.00%
50.00%
50.00%
95.04%
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
95.04%
50.00%
50.00%
50.00%
50.00%
Jersey5
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Jersey3
UK
Jersey5
UK
UK
St David’s (Cardiff Residential) Limited
St David’s (General Partner) Limited
St David’s Dewi Sant Merchant’s Association Limited
St. David’s (No.1) Limited
St. David’s (No.2) Limited
St. David’s Limited Partnership
St. David’s Unit Trust
The Ebbsfleet Limited Partnership
The Oriana Limited Partnership
The X-Leisure (General Partner) Limited
The X-Leisure Limited Partnership
The X-Leisure Unit Trust
Victoria Circle Business Manager Limited
Victoria Circle Developer Limited
Victoria Circle GP Limited
Victoria Circle Limited Partnership
Victoria Circle Nominee 1 Limited
Victoria Circle Nominee 2 Limited
West India Quay Limited
West India Quay Management Company Limited
West India Quay Unit Trust
Westgate Oxford Alliance GP Limited
Westgate Oxford Alliance Limited Partnership
Westgate Oxford Alliance Nominee No.1 Limited
Westgate Oxford Alliance Nominee No.2 Limited
Wood Lane Nominee No.1 Limited
Wood Lane Nominee No.2 Limited
X-Leisure (Bentley Bridge) Limited
X-Leisure (Boldon) Limited
X-Leisure (Brighton I) Limited
X-Leisure (Brighton II) Limited
X-Leisure (Cambridge I) Limited
X-Leisure (Cambridge II) Limited
X-Leisure (Leeds I) Limited
X-Leisure (Leeds II) Limited
X-Leisure (Maidstone II) Limited
X-Leisure (Maidstone) Limited
X-Leisure (Poole) Limited
X-Leisure Management Limited
Xscape Castleford Limited
Xscape Castleford Limited Liability Partnership
Xscape Castleford No.2 Limited
Xscape Castleford Partnership
Xscape Castleford Property Unit Trust
Xscape Milton Keynes (Jersey) No.2 Limited
Xscape Milton Keynes Limited
Xscape Milton Keynes Limited Liability Partnership
Xscape Milton Keynes Partnership
Xscape Milton Keynes Property Unit Trust
50.00%
50.00%
Limited by
guarantee
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
95.04%
95.04%
95.04%
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
47.52%
29.93%
47.52%
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
95.04%
1. 44 Esplanade, St Helier, Jersey, JE4 9WG
2. Suite 1, 3rd Floor, 11-12 St. James’s Square, London, SW1Y 4LB
3. 13 Castle Street, St Helier, Jersey, JE4 5UT
4. PO Box 384, The Albany South Esplanade, St Peter Port, Guernsey, GY1 4NF
5. 13-14 Esplanade, St Helier, Jersey, JE1 1EE
6. 47 Esplanade, St Helier, Jersey, JE1 0BD
UK
UK
UK
UK
UK
UK
Jersey6
UK
UK
UK
UK
Jersey3
UK
UK
UK
UK
UK
UK
UK
UK
Jersey3
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Jersey3
UK
Jersey3
UK
Jersey3
Jersey3
Jersey3
UK
UK
Jersey3
Shareholder information
Financial calendar
2017/18 Final dividend1
Ex-dividend date
Record date
Last day for DRIP elections/receipt of DRIP application
Payment date
Annual General Meeting2
2018/19 First quarterly interim dividend3
Record date
Payment date
2018/19 Half-yearly results announcement
2018/19 Second quarterly interim dividend4
Record date
Payment date
2018/19 Third quarterly interim dividend4
Record date
Payment date
2017/18 Financial year end
2018/19 Annual results announcement4
Table 112
2018
21 June
22 June
6 July
27 July
12 July
7 September
5 October
13 November
30 November
2019
4 January
15 March
12 April
31 March
14 May
1. The Board has recommended a final dividend of 14.65p per ordinary share, payable wholly as a Property Income Distribution, subject to shareholders’ approval at the forthcoming Annual
General Meeting.
2. The Annual General Meeting will be held at 10.00 am on Thursday, 12 July 2018 at 80 Victoria Street, London SW1E 5JL. A separate circular, comprising a letter from the Chairman, Notice
of Meeting and explanatory notes in respect of the resolutions proposed, can be found on the Company’s website: landsec.com/investors.
3. The Board has declared a first quarterly dividend of 11.3p pence per ordinary share payable.
4. Provisional.
Share register analysis as at 31 March 2018
Holding range:
1–1,000
1,001–5,000
5,001–10,000
10,001–50,000
50,001–100,000
100,001–500,000
500,001–highest1
Total
Share register analysis as at 31 March 2018
Held by:
Private shareholders
Nominee and institutional investors1
Total
1. Including 9,839,179 shares held in Treasury by the Company.
Number of
holders
8,676
2,842
371
419
130
228
183
%
67.5
22.1
2.9
3.3
1.0
1.8
1.4
12,849
100.0
Number of
holders
9,870
2,979
%
76.8
23.2
12,849
100.0
Number of
ordinary shares
3,284,793
5,787,663
2,617,046
10,059,044
9,515,688
52,735,182
Table 113
%
0.4
0.8
0.4
1.3
1.3
7.0
667,299,548
751,298,964
88.8
100.0
Number of
ordinary shares
11,489,676
739,809,288
751,298,964
Table 114
%
1.5
98.5
100.0
Landsec Annual Report 2018
195
Additional information
Shareholder information
continued
Ordinary shares
The Company’s ordinary shares, each of nominal value 102/3p each
(following the September 2017 share consolidation), are traded on the
main market for listed securities on the London Stock Exchange
(LON:LAND).
Company website: landsec.com
The Company’s Annual Report, results announcements and presentations
are available to view and download from its website.
The website also includes information about the latest Landsec share
price and dividend information, news about the Company, its properties
and operations, and how to obtain further information.
Registrar: Equiniti
For assistance with queries about administration of shareholdings,
such as lost share certificates, change of address or personal details,
amalgamation of accounts and dividend payments, please contact
the Company’s Registrar:
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0371 384 21281
International dialing: +44 121 415 70491
www.shareview.co.uk
An online share management service is available which enables
shareholders to access details of their Land Securities Group PLC
shareholdings electronically. This is available on our website:
landsec.com/ investors or www.shareview.co.uk.
e-Communication
We encourage shareholders to consider receiving their communications
from the Company electronically as this will enable you to receive them
more quickly and securely. It also allows Landsec to communicate in
a more environmentally friendly and cost-effective manner. To register
for this service, you should go to our website: landsec.com/investors or
www.shareview.co.uk
UK Real Estate Investment Trust (REIT) taxation and status
on payment of dividends
As a UK REIT, Landsec does not pay corporation tax on Qualifying
Activities, which are rental profits and chargeable gains relating to its
property rental business.
A REIT may additionally pay ordinary dividends which will be
treated in the same way as dividends from non-REIT companies
(see www.gov.uk/tax-on-dividends).
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 actual
dividend payment date. If you would like your future dividends paid in this
way, you should contact the Registrar or complete a mandate instruction
available on our website: landsec.com/investors and return it to the
Registrar. Under this arrangement, dividend confirmations are still sent
to your registered address.
Payment of dividends to non-UK resident shareholders
Instead of waiting for a Sterling cheque to arrive by post, shareholders
can request that their dividends be paid directly to a personal bank
account overseas. It’s a service we can arrange in over 90 countries
worldwide and it normally costs less than paying in a Sterling cheque.
The dividend will be credited to your account automatically – normally
just a few days after the company’s dividend payment date. 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 the Registrar at the address given above.
Dividend Reinvestment Plan (DRIP)
The DRIP gives shareholders the opportunity to use cash dividends to
increase their shareholding in Land Securities Group PLC. 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 on our website: landsec.com/investors.
They are also available from:
Dividend Reinvestment Plans
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0371 384 22681
International dialling: +44 121 415 71731
At least 90% of income derived from Qualifying Activities must be
distributed as Property Income Distributions (PIDs). For most
shareholders, PIDs will be paid after deducting withholding tax at 20%.
However, certain categories of shareholder may be able to receive PIDs
gross (i.e. without deduction of withholding tax). These categories are
principally UK companies, charities, local authorities, UK pension schemes
and managers of ISAs, PEPs and Child Trust Funds.
Share dealing facilities
Equiniti provides both existing and prospective UK shareholders with an
easy to access and simple-to-use share dealing facility for buying and
selling shares in Land Securities Group PLC by telephone, online or post.
The telephone and online dealing service allows shareholders to trade
‘real-time’ at a known price that will be given to them at the time they
give their instruction.
Further information on UK REITs and the forms required to be completed
to apply for PIDs to be paid gross are available on the Landsec website or
from the Registrar.
UK individual shareholders will be taxed on PIDs received at their full
marginal tax rates. The gross amount, before the 20% withholding,
should be included in their tax return in ‘other taxable income’, with the
withholding tax recorded separately. (see HMRC’s Tax Return Guide,
page TRG8).
For telephone dealing, call 0345 603 7037 between 8.00am and 4.30pm,
Monday to Friday (excluding public holidays in England and Wales). Calls
are charged at the standard geographic rate and will vary by provider.
Calls outside the UK will be charged at the applicable international rate.
For online dealing, log on to www.shareview.co.uk/dealing. For postal
dealing, call 0371 384 22481 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.
196
Landsec Annual Report 2018
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 through ShareGift, a registered charity (No. 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.uk or by writing to:
Unsolicited mail
The Company is obliged by law to make its share register available
on request to other organisations and this may result in shareholders
receiving unsolicited mail. To limit the receipt of unsolicited mail,
shareholders may register with the Mailing Preference Service,
an independent organisation whose services are free, by visiting
www.mpsonline.org.uk.
Shareholder security
In the past, some of our shareholders have received unsolicited telephone
calls or correspondence concerning investment matters from
organisations or persons claiming or implying that they have some
connection with the Company. These are typically from purported
‘brokers’ who offer to buy shares at a price often far in excess of their
market value. These operations are commonly known as ‘boiler rooms’.
Shareholders are advised to be very wary of any offers of unsolicited
advice, discounted shares, premium prices for shares they own or free
reports into the Company. If you receive any such unsolicited calls,
correspondence or investment advice:
— ensure you get the correct name of the person and firm;
— check that the firm is on the Financial Conduct Authority (FCA)
Register to ensure they are authorised at www.register.fsa.org.uk;
— use the details on the FCA Register to contact the firm;
— call the FCA Consumer Helpline (0800 111 6768) if there are no contact
details in the Register or you are told they are out of date; and
— if you feel uncomfortable with the call or the calls persist,
simply hang up.
Additionally, feel free to report and/or discuss any shareholder security
matters with the Company. To do this, please call: +44 (0)20 7413 9000
and ask to be put through to a member of the Company Secretarial
department.
1. Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays.
Calls are charged at the standard geographic rate and will vary by provider. Calls from
outside the UK will be charged at the applicable international rate.
ShareGift
The Orr Mackintosh Foundation Limited
17 Carlton House Terrace
London SW1Y 5AH
Telephone: +44 (0)20 7930 3737
Corporate Individual Savings Account (ISA)
The Company has in place a Corporate ISA which is managed by:
Equiniti Financial Services Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0371 384 22441
Capital Gains Tax
In September 2017, Landsec returned 60p per share to shareholders via
the issue and redemption of B shares and undertook a share consolidation
issuing 15 shares for every 16 held. A worked example of the impact to the
tax base cost of shares is on our website: landsec.com/2017-return-capital.
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 and there were no fractional shares in the 2017 share consolidation,
the adjusted price, post consolidation, for Capital Gains Tax purposes
would be 229p per share.
General Data Protection Regulation (GDPR)
On 25 May 2018, the General Data Protection Regulation came into force
which gives individuals improved clarity and rights over personal data.
We have updated our Shareholder Privacy Notice to make it easier to
understand how Landsec uses and protects shareholder information.
A copy of the Shareholder Privacy Notice can be found on our website:
landsec.com/mydata.
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
Telephone: +44 (0)333 000 0182
email: uarenquiries@uk.experian.com
www.uar.co.uk
Landsec Annual Report 2018
197
Additional information
Key contacts and advisers
Registered office and principal UK address
Land Securities Group PLC
100 Victoria Street
London SW1E 5JL
Registered in England and Wales No. 4369054
Company Secretary
Tim Ashby
Group General Counsel and
Company Secretary
Investor Relations
Edward Thacker
Head of Investor Relations
Telephone: +44 (0)20 7413 9000
Email: investor.relations@landsec.com
www.landsec.com
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0371 384 2128
Textel: 0371 384 2255
International dialing: +44 121 415 7049
www.shareview.co.uk
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Telephone: +44 (0)20 7951 2000
www.ey.com
External advisers
Valuer: CBRE
Financial adviser: Citigroup
Solicitors: Slaughter and May
Joint brokers: JP Morgan Cazenove and UBS
198
Landsec Annual Report 2018
Glossary
Adjusted earnings per share (Adjusted EPS)
Earnings per share based on revenue profit after related tax.
Adjusted net assets per share
Net assets 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.
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 2016.
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
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
Profit after taxation attributable to owners divided by the
weighted average number of ordinary shares in issue during
the year.
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 valuer.
Equivalent yield
Calculated by the Group’s external valuer, 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 valuer. 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 20.
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.
IPD
Refers to the MSCI IPD Direct Property indexes which
measure the property level investment returns in the UK.
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 arrangement in which the Group holds an interest and
which is jointly controlled by the Group and one or more
partners under a contractual arrangement. Decisions on the
activities of the joint venture that significantly affect the
joint venture’s returns, including decisions on financial and
operating policies and the performance and financial
position of the operation, require the unanimous consent
of the partners sharing control.
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 portfolio
The like-for-like portfolio includes all properties which have
been in the portfolio since 1 April 2016, 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 valuer, 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 assets per share
Equity attributable to owners divided by the number of
ordinary shares in issue at the year end. Net assets per
share is also commonly known as net asset value per share
(NAV per share).
Net initial yield
Net initial yield is a calculation by the Group’s external valuer
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 rent payable 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
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. Net rental income is presented
on a proportionate basis.
Over-rented
Space where the passing rent is above the ERV.
Passing 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 rent may be more or less
than the ERV (see over-rented, reversionary and ERV).
Passing 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
rent. Although temporary lets of less than 12 months are
treated as void, income from temporary lets is included in
passing rents.
Passing cash rent
Passing cash rent is passing rent excluding units that are in
a rent free period at the reporting date.
Planning permission
There are two common types of planning permission: full
planning permission and outline planning permission. A full
planning permission results in a decision on the detailed
proposals on how the site can be developed. The grant of
a full planning permission will, subject to satisfaction of any
conditions, mean no further engagement with the local
planning authority will be required to build the consented
development. An outline planning permission approves
general principles of how a site can be developed. Outline
planning permission is granted subject to conditions known
as ‘reserved matters’. Consent must be sought and achieved
for discharge of all reserved matters within a specified
time-limit, normally three years from the date outline
planning permission was granted, before building can begin.
In both the case of full and outline planning permission,
the local planning authority will ‘resolve to grant permission’.
At this stage, the planning permission is granted subject to
agreement of legal documents, in particular the s106
agreement. On execution of the s106 agreement, the
planning permission will be issued. Work can begin on
satisfaction of any ‘pre-commencement’ planning
conditions.
Pre-let
A lease signed with an occupier prior to completion of
a development.
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.
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.
Landsec Annual Report 2018
199
Additional information
Total property return
The change in market value, adjusted for net investment,
plus the net rental income of our investment properties
expressed as a percentage of opening market value plus the
time weighted capital expenditure incurred during the year.
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.
Valuation surplus/deficit
The valuation surplus/deficit represents the increase or
decrease in the market value of the Combined Portfolio,
adjusted for net investment and the effect of SIC 15 under
IFRS. The market value of the Combined Portfolio is
determined by the Group’s external valuer.
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. The screen at Piccadilly Lights,
W1 is excluded from the void calculation as it will always
carry advertising although the number and duration of our
agreements with advertisers will vary. Commercialisation
lettings are also excluded from the void calculation.
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.
Glossary
continued
Real Estate Investment Trust (REIT)
A REIT must be a publicly quoted company with at least
three-quarters of its profits and assets derived from a
qualifying property rental business. Income and capital gains
from the property rental business are exempt from tax but
the REIT is required to distribute at least 90% of those profits
to shareholders. Corporation tax is payable on non-
qualifying activities in the normal way.
Rental value change
Increase or decrease in the current rental value, as
determined by the Group’s external valuer, over the reporting
period on a like-for-like basis.
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.
Return on average capital employed
Group profit before net finance expense, plus joint venture
profit before net finance expense, 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 finance
expense resulting from the amortisation of the bond
exchange de-recognition adjustment, debt restructuring
charges, and any other items of an exceptional 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.
Security Group
Security Group is the principal funding vehicle for the Group
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 valuer. 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 in the year plus the change in
adjusted diluted net assets per share, divided by adjusted
diluted net assets 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 adjusted for costs recovered through rents
but not separately invoiced.
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.
200
Landsec Annual Report 2018
Cautionary statement
This Annual Report and Landsec’s website may contain
certain ‘forward-looking statements’ with respect to Land
Securities Group PLC (‘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 political
conditions, economies and markets in which the Group
operates (including the outcome of the negotiations to leave
the EU); 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 Landsec’s website, or made subsequently, which are
attributable to the Company 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 Landsec’s website should
be construed as a profit forecast or an invitation to deal in
the securities of the Company.
Land Securities Group PLC
Copyright and trade mark notices.
All rights reserved.
© Copyright 2018 Land Securities
Group PLC
Landsec, Land Securities, the
Cornerstone logo, the “L” Logo and
‘Everything is experience’ are trade
marks of the Land Securities Group
of companies.
Landsec is the trading name of Land
Securities Group PLC.
All other trade marks and registered
trade marks are the property of their
respective owners.
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Land Securities Group PLC
100 Victoria Street London SW1E 5JL
+44 (0)20 7413 9000
www.landsec.com
www.landsec.com