Gladstone Land Corporation Annual Report 2019

FY2019 Annual Report · Gladstone Land Corporation

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Experience
matters

Annual Report 2019

Welcome to Landsec.

We apply our expertise to create
positive experiences for those we
rely on, from our customers and
communities to our partners and
employees. By getting that right, we
create long-term, sustainable value
for our shareholders and physical and
social value for our communities.

2019 in numbers
45.55p

Dividend up 3.1%

59.7p

£(123)m

Loss before tax (2018: £(43)m)¹

0.4%

Adjusted diluted earnings per share
up 12.4% (2018: 53.1p)

Ungeared total property return
(2018: 4.3%)

1,339p

£3.2m

EPRA net assets per share down
4.6% (2018: 1,403p)¹

Social value created during
the year

-1.2%

Total business return (2018: 1.8%)

£11.8bn

£442m

Revenue profit up 8.9%
(2018: £406m)

39.8%

Total contribution to the UK
economy each year from people
based at our assets

Carbon intensity (kgCO2e/m2)
reduction compared to 2013/14
baseline

1. Restated as a result of changes in accounting policies.

Our diverse asset mix

Chart 1

1. City of London

2. Mid-town

3. West End

4. Inner London

5. Central London retail

6. London shopping centres

7. Regional shopping centres

8. Retail parks

9. Outlets

10. Leisure

11. Hotels

11%

10%

24%

10%

17%

Combined
Portfolio

Our purpose is to provide the right space for our
customers and communities so that businesses and
people can thrive. We do this to create long-term
financial, physical and social value. Together, these
create sustainable value for our shareholders.

Our vision is to be the best property company
in the UK in the eyes of our stakeholders – our
customers, communities, partners, employees
and investors.

Our focus is to provide a diverse mix of high-quality
work, shopping, dining, leisure, social and residential
space at destinations in London and across the UK.

Our core activities are buying, developing,
managing and selling real estate.

Our values are customer service, innovation,
excellence, accountability, respect and integrity.
To read more, go to page 49.

Our performance is shaped by big impacts and
trends that generate opportunities and challenges
for us. These drive our actions. Our clear strategy
has put the business in a strong position at a time
of uncertainty in our markets – see our performance
measures left and pages 20-21 for more.

Our reporting covers the short- and long-term
effects of our actions. In this report, we’ve further
integrated content on our broader social and
physical impacts, but only included what’s material
to our business.

This year, drawing on our capabilities we have:
[ Delivered robust operational results
[ Grown our development pipeline
[ Deployed innovative ideas to reduce
construction time, cost and waste
[ Created social value and reduced our

environmental impact

Over the following pages we show how we’re
turning our skills and knowledge into results
for our many stakeholders.

Our performance, together with our ability
to address exciting new opportunities,
demonstrates that experience matters.

Highlights

Chief Executive’s
statement

Pages 8–9

Our strategy

Pages 16–19

Our portfolio

Pages 24–31

On the cover
Our transformation of
Victoria has created
vibrant spaces like Nova.
Now we’re developing
the asset further to
meet demand, using our
experience to create the
contemporary space
customers need to thrive.

Visit our website: landsec.com

Strategic report
08 Chief Executive’s statement
10 Our market
12 Our business model
16 Our strategy
20 Key performance indicators
22 Our stakeholders
24 Portfolio review
32 Financial review
40 Physical review
45 Social review
54 Managing risk
56 Our principal risks and uncertainties
60 Going concern
60 Viability statement

Governance
62 Letter from the Chairman
64 Board of Directors
67 Executive Committee
68 Leadership
72 Our stakeholders and our Board
74 Letter from the Chairman of the

Nomination Committee

76 Effectiveness
81

Letter from the Chairman of the
Audit Committee

Investor relations

84 Accountability
89
91 Directors’ Remuneration Report –
Chairman’s Annual Statement

94 Remuneration at a glance
96 Annual Report on Remuneration
108 Summary of Directors’ Remuneration

Policy

111 Remuneration Policy
118 Directors’ Report

Independent Auditor’s Report
Income statement

Financial statements
122 Statement of Directors’ Responsibilities
123
129
129 Statement of comprehensive income
130 Balance sheets
131 Statements of changes in equity
132 Statement of cash flows
133 Notes to the financial statements

Additional information
182 Business analysis – Group
188 Business analysis – London
189 Business analysis – Retail
190 Sustainability performance
196 Combined Portfolio analysis
198 Lease lengths
199 Development pipeline
199 Alternative performance measures
200 Ten year summary
202 Acquisitions, disposals and capital

expenditure

203 Analysis of capital expenditure
204 Subsidiaries, joint ventures and associates
207 Shareholder information
210 Key contacts and advisers
211 Glossary
IBC Cautionary statement

Landsec Annual Report 2019

Strategic Report
2,400
Tonnes of CO2 to be
saved using recycled
aggregates and
cement replacement
at 21 Moorfields

Decades of experience developing
in the capital have shown us the
value of securing opportunities
early while timing construction
carefully, in line with the
conditions we see ahead. That’s
the approach we’re taking now,
adding substantial development
options to our portfolio.

This year we progressed:
our landmark scheme at
21 Moorfields, creating a new
HQ for Deutsche Bank; our
proposed scheme at Nova East;
One Sherwood Street, a mixed use
scheme behind Piccadilly Lights;
and innovative proposals and
tactical acquisitions around
Southbank. We’re also considering
options for Portland House. Add
in our residential plans – blended
with retail and leisure – at well-
connected London suburban sites,
and we have a potential £3bn
pipeline in London.

Spotting
possibilities
that can
become
opportunities

Landsec Annual Report 2019

£140m
Potential annual rental
value of our London
office pipeline

+29%
Growth in UK
leisure spend
2013-2018

(GlobalData; March 2019)

S
t
r
a
t
e
g
i
c
R
e
p
o
r
t

Broadening
from
retail to
experience

Secondary retail locations and
retail parks outside London are
under pressure and the sector as a
whole faces challenges. But people
continue to spend time and money
in destinations that provide a
great experience. Great brands
compete to be in those locations.

This is why we’ve decisively
repositioned our consumer
portfolio over recent years,
creating a diverse mix of high-
quality, experience-led assets.
Our collection of vibrant brands –
including a growing proportion of
leisure, food and hotel operators –
gives us a diverse income base.

23%
Percentage of our
regional retail
portfolio let to
leisure tenants*

Landsec Annual Report 2019

*By rental value

Creating an
ecosystem for
fast-growth
businesses

45%
Percentage of
occupiers who
will make use of
flexible space in
next three years.

(Source: CBRE EMEA Occupier Survey 2019)

38,290
Number of businesses
with 10-99 employees
in London

(Source: gov.co.uk)

Landsec Annual Report 2019

We’re seeing strong demand from
high-growth businesses for a new
type of flexible workspace offering –
hassle-free, superbly managed,
brilliantly designed space that can
be customised and expanded to
meet changing needs.

Building on our office experience,
this year we expanded our flexible
offer with the launch of Myo.
Targeting businesses of 10–100
people, we started at 123 Victoria
Street and will expand Myo into our
workspace destinations. Myo means
we can offer a new generation of
customers an entry point to our
portfolio, then support them with
an ecosystem of space and services
as they grow.

1/3
of employment
opportunities we've
created were for
ex-offenders*

From construction to customer
service, many of our customers
and partners face skills shortages.
At the same time, we’re seeing
social barriers that prevent those
furthest from the jobs market
from getting into work.

£1.2m
Social value
created through our
Community Employment
Programme in 2018

This year we used our community
employment experience to help
the 1,200th person secure a job,
meeting our 2020 target early.
We’re transforming lives through
prison projects like our aerial
cleaning academy at HMP Isis.
This is enabling inmates to develop
skills and confidence ahead of
release, while helping our industry
address its skills shortage. Looking
ahead, our new target is to create
£25m of social value through
community programmes by 2025.

Turning
a skills
gap into an
opportunity

Landsec Annual Report 2019

*Since 2015

Strategic Report
Visitors to retail destinations want
a blend of established brands and
new players. Emerging consumer
brands can be cautious about long
leases – and space providers like
us want optionality – so there’s
an opportunity to develop simpler
space options that work for both
sides and keep the retail mix fresh.

In response, we’ve teamed up with
the British Fashion Council and
designers Black Box Revolution
at Trinity Leeds, introducing units
for emerging brands new to physical
space. We’re supporting those
brands with innovative consumer
tech to help drive sales. This also
enables us to see which brands
perform well and quickly remix
the offer as required.

23%
Percentage of UK
consumers who
visited a pop-up
shop last year*

Curating
brands to
keep our
offer fresh

Landsec Annual Report 2019

975
Number of different
consumer brands in
our portfolio

* Barclaycard, OMD Survey, 2000 adults,
July 2018

25%
By 2020 only a quarter
of 30-year-olds will
own their own home*

Transforming
locations into
destinations

From Finchley Road to Shepherd’s
Bush and Lewisham, we own sites
in vibrant suburban locations in
London with great potential to
grow. These well-connected places
are already popular, but – given the
right market conditions – we could
create more value from each site,
for us and the local community.

We’re working on our resident-
centred plans now. In total, they
could create 4,000 new homes,
all supported by shops, community
services and public realm. Approval
for the three schemes would give
us scale without having to purchase
any land. This a great opportunity
to apply our experience, resources
and reputation to a sector with
huge potential.

4.5m
Number of households
in the private rented
sector has doubled
since 2000

*Estimate by The Council of Mortgage Lenders

Landsec Annual Report 2019

Strategic Report
We entered the year
ready to respond to both
market opportunity and
challenge, focusing on
the activities that create
value for shareholders.

Our priorities were to maintain high occupancy
levels, launch new products and, looking
through current uncertainty, grow our ambitions
in London.

In addressing our priorities, the team has
performed with skill and determination.
We maintained a high occupancy rate across
the portfolio and we launched a number of
new products and services, including our Myo
flexible offer. We also added to our pipeline
of development opportunities, with £3.0bn of
schemes in London now on site, being prepared
or in feasibility.

We are driven by a clear purpose: to create
sustained financial, social and physical value
by providing the right space for our customers
and communities so that people and businesses
can thrive. A growing and ageing population,
changing social aspirations, increased demand
for digital and physical connectivity and the
need to transition to a low carbon economy are
reshaping the property market. Landsec has a
vital role to play in this changing world and is
well-positioned to do so.

To do this profitably and sustainably, we apply
our industry-leading capabilities and relationships
and act to keep costs competitive, working with
imagination, skill and care. By getting this right,
we build long-term shareholder value through
the property cycles while making an important
contribution to our communities. In a year marked
by turbulent politics and a very challenging
retail environment, our clear strategic focus
has driven our performance and will direct our
future actions.

Our financial results
We’ve delivered a robust financial performance.
Revenue profit is up 8.9% at £442m, reflecting
the benefit of income from completed
developments, high occupancy, uplifts at rent
review and the effect of refinancing some bonds
in the previous financial year. Adjusted diluted
earnings per share are up 12.4% to 59.7p.

Our assets declined in value by 4.1% in aggregate
over the year reflecting the well-publicised
difficulties in certain segments of the consumer
market. This led to a 4.6% reduction in our
EPRA net asset value per share to 1,339p. With
our Combined Portfolio valued at £13.8bn and
adjusted net debt at £3.7bn, our loan-to-value
is 27.1%.

We have raised the dividend 39% over the
previous three years. From this re-based level,
we are recommending a final dividend of 11.65p
giving a total dividend for the year of 45.55p per
share, an increase of 3.1% as we build dividend
cover to maintain operational flexibility.

Robert Noel
Chief Executive

Chief
Executive’s
statement

Our results
0.4%

Ungeared total property return

-4.6%

Decrease in EPRA net assets per share

12.4%

Increase in adjusted diluted earnings per share

-1.2%

Total business return

Our activity
[ £23m of investment lettings

[ £9m of development lettings

[ 1.6 acre site at 25 Lavington
Street, SE1 acquired during
the year

[ London development

opportunities increased to
3.6 million sq ft with an
estimated total development
cost of £3.0bn

Landsec Annual Report 2019

Our portfolio
By value, 65% of our assets are in London, one
of the most celebrated and best connected
cities in the world, energised by long-term
positive economic and social trends and
a comprehensive public transport system.
Most market segments in the capital held up
well over a year in which the UK faced, and
continues to face, uncertainty, and this speaks
volumes for London’s attractiveness and
resilience as a place to live, work, visit and
invest. We’ve continued to see a flight to quality
and flexibility amongst customers and our
buildings and developments match these
expectations and aspirations.

Workspaces and living spaces are evolving
quickly, driven by growing demand for more
flexibility, collaboration and connectivity.
Retail, leisure and amenity spaces must now
be included in the mix. To ensure we meet
our customers’ changing requirements,
we’re providing new services to enhance their
experience and convenience. This year we
progressed plans to roll out our popular Landsec
Lounge concept across the portfolio. We also
created new entry points to our portfolio through
our Myo flexible offer, and we introduced a
turnkey solution for customers too. Our aim
is to offer great space to a business across its
entire life-cycle, from a start-up environment
to landmark corporate headquarters.

Led by 21 Moorfields, we are moving forward
with new schemes and have 3.6 million sq ft
of space in development, planning or feasibility.
With low levels of Grade A vacancy in London
and occupiers increasingly looking to pre-let,
we will be starting 0.5 million sq ft of speculative
development this year. In partnership with
our suppliers, we’ve introduced innovations
across design and construction to enhance the
speed, efficiency, quality and environmental
performance at 21 Moorfields and are applying
what we learn to other schemes.

The remaining 35% of our portfolio by value is
predominantly focused on consumer markets
outside London. These are challenging times
for retailers. The rise of online retail and cost
challenges for the industry have brought store
closures and lease restructures, often under
company voluntary arrangements (CVAs).
We are not immune from market challenges
but the impact has been softened by having
repositioned our portfolio in recent years
towards destinations which provide a great
experience and away from the high street,
secondary shopping centres and retail parks.
Our destinations play a core role in retailers’
multi-channel strategies, drawing visitors with
a mix of brand experience, product, food, drink
and cinema.

Our outlets and leisure parks held up well in
this difficult environment while shopping centres
and retail parks were affected by downward
pressure on rental values and poor investor
sentiment. Operationally, I am pleased with
our performance as we continue to attract
new brands and upsize existing customers.

Our stakeholders
We aim to be a force for good in society
because we know it makes us stronger and
more sustainable as a business. This year
we hit our long-term target of getting 1,200
disadvantaged people into employment
by 2020. Our award-winning approach to
community employment is helping to address
significant skills gaps in the construction and
building maintenance sectors, and enabling
ex-offenders to gain training and employment
in scaffolding and window cleaning at heights.
This year we’ve set a stretching new target to
generate £25m of social value by 2025.

Given the increasingly stark warnings
emanating from the Intergovernmental Panel
on Climate Change, it’s essential we continue
to help lead by example in critical areas such as
energy, carbon, waste and biodiversity. This is
why we’ve set rigorous science-based carbon
reduction targets for the business. Effective
collaboration is vital if we are to make progress
as a company and an industry. Across the
portfolio, we’re working with customers and
partners to drive energy efficiency, reaching
an 18.2% reduction this year against our
2014 baseline.

We were recognised for our actions on
sustainability in this year’s edie awards,
which named Landsec the leader in the built
environment sector. We also retained our CDP
A-list ranking and were sector leaders in the
Global Real Estate Sustainability Benchmark
and Dow Jones Sustainability Index.

In a year marked by turbulent
politics and a very challenging retail
environment, our clear strategic
focus has driven our performance
and will direct our future actions.”

Our outlook
We expect London to remain a successful
global city with enduring appeal for businesses,
talent, visitors and investors. Occupational
and investment demand in London have
remained stable over the last two years despite
uncertainties created by the UK’s decision to
leave the EU.

We have seen a noticeable shift to quality
space by occupiers in the capital and the
vacancy rate has fallen. Development starts
have increased during the year but a good
proportion of all new supply is already pre-let.
We see positive market conditions for our
quality product and have a growing pipeline of
development opportunities. The demonstrable
quality of our placemaking, spaces and
services and our heightened approach to
customer experience is central to our ambition
and future success.

Areas of focus
for 2019/20

[ Developments in London –

both on-site and in our pipeline

[ Further innovation in construction

and active evolution of the
products and services we offer

[ Improving our retail destinations

[ Continued leadership on social

and environmental sustainability

We see no near-term improvement in retail
market conditions, with CVA activity set to
continue. Rental values are likely to decline
further in shopping centres and retail parks,
though we expect continued rental growth
in outlets and select leisure destinations.
Consumers will continue to be attracted to
destinations that provide a broad range of
brands and experiences.

Our activities in London as a percentage of
our portfolio will increase in the coming years.
Much of our portfolio by value and our entire
development pipeline is already in the capital
and we are alert to further opportunities. Over
time, capital allocated to assets outside London
will reduce, but we will maintain our focus on
experience-led destinations.

We are clear on what we have to do in the
year ahead and beyond. Our targets focus on
developments in London – both on-site and in
the pipeline – together with further innovation
in construction and active evolution of the
products and services we offer; improving our
retail destinations; and continued leadership
on social and environmental sustainability.

This is an exciting time for real estate
companies with the insight, capabilities and
financial capacity needed to create the spaces
for tomorrow’s businesses and communities.
Ultimately, it is the deep expertise of our
employees and partners that will deliver our
strategy and create sustainable value for
shareholders. This is why experience matters.

Robert Noel
Chief Executive

Landsec Annual Report 2019

Strategic Report
Our
market

We are active across a
diverse mix of sectors
within the UK commercial
property market.

Our markets
We have a broad base of premium assets
across central London offices, London shopping
centres, regional shopping centres, retail parks,
retail outlets, leisure space and hotels. We’re
also in the early phases of developing plans for
significant residential-led, mixed use schemes
at sites we own. The dynamics in each of
these market sectors vary, and there are also
variations between specific locations and assets.
You can read our commentary on the market
dynamics this year on the following page.

Macro-economic context
2018/19 saw positive economic growth but
continued uncertainty over the nature of the
UK’s departure terms and future relationship
with the EU. Businesses and consumers have
continued to spend and progress plans, but
both groups appear to be deferring some
decisions. For example, surveys show reduced
corporate risk appetite and lower business
activity.

In real terms, consumer spending and disposable
income both grew by c. 2% but total retail sales
grew by only 0.9%. Excluding food spend, retail
sales were flat. Spend continued to shift online
with retail footfall declining 2.8% and online
share of retail sales rising to 19% by March 2019
(an increase of 1.1 percentage points versus
March 2018).

Big drivers shaping our markets

1. Changing ways of working
Workspace is evolving at speed – a reflection
of a competitive and fast-moving business
environment, shifting demographics and the
impact of technology. Teams and individuals
are adopting new ways of collaborating
with colleagues and external partners. And
new generations of employees are bringing
fresh expectations and aspirations to the
workplace. In response, occupiers are placing
growing importance on flexibility of layout,
capacity, leases and payment terms, together
with enhanced service levels from space
providers. Customers want efficient, superbly
designed environments that express their
brand and promote collaboration, productivity,
wellbeing and a dynamic culture.

2. Changing ways of shopping
Online – further powered by the rise of
mobile – continues to win an ever-higher
share of retail spend. More and more
consumers expect to engage with retailers
seamlessly across channels. Experience and
convenience remain critical drivers of brand
preference. Many retailers are grappling
with the new retail models, systems and
approaches required to succeed, including
adopting an omni-channel model where
physical stores play a role beyond selling.
For example, stores can provide a powerful
platform for customer engagement,
presenting new products, enhancing
customer service and expressing the brand.

3. Changing ways of living
The proportion of people renting their home
has doubled since the turn of the century. An
undersupply of new homes has contributed
to house price growth exceeding earnings
growth over a sustained period, particularly
impacting the young and leading to an entire
segment of society becoming known as
‘Generation Rent’. The UK is a fast-moving

society, and an increase in flexible working,
shopping online and how people use
technology to interact is impacting behaviour
and changing how we think about designing
the places people will live in the future.
The rental model and allure of city centre
living is not restricted to younger generations.
The opportunity to access well located,
amenity-rich city centre living is starting
to attract the down-sizer market too.

4. Changing ways of building
Driven by competition, technology and
economic necessity, new and potentially
transformative ways are being found to
design, develop and build at scale. For
example, there are opportunities for design
to move from traditional architectural
drawings to sophisticated digital models and
digital simulations of operational buildings.
Advances like these enable space providers to
reduce cost, time and risk at the construction
stage, and to test and optimise buildings
for long-term operational performance.
More efficient methods of standardised
construction are also emerging, including
offsite modular construction.

5. Changing expectations
around sustainability

Businesses, government and the public now
recognise the need for long-term thinking
on social and environmental issues. We are
seeing the impact of climate change and
social inequality. And there is growing
scrutiny of the ways in which companies
treat their partners and 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
relationships and resources companies rely
on to prosper and grow and transition into
a low carbon economy.

Myo – our flexible
office offering

Landsec Annual Report 2019

— Potential impact of Brexit on skills and

capacity in construction

— Impact of immigration limits on economic

growth

— Pressure on 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.

We continue to see lack of housing at affordable
or attractive prices as a challenge, but the
potential for residential-led densification means
this also represents an opportunity for us.

In general, it was a challenging year for retailers
and the retail property market. Dominant
destinations that provide an experience remain
successful and vibrant, but there are structural
and cyclical challenges. In shopping centres
and retail parks, capital values have fallen
significantly, with the market in a pronounced
down-cycle. The continued growth of online
retail and cost pressures are leading to store
closures and lease restructures. This process
is not yet at an end.

The challenging nature of retail has been
reflected in the level of administrations and
company voluntary arrangements (CVAs)
in the market. Since the start of 2018, more
than 80 retail and food & beverage chains
have gone into administration or CVA.

The unequal tax burden on physical retailers
compared with online retailers is contributing
to the decline of high streets and impacted
retail parks and shopping centres. Changes
to planning may be required to support more
dynamic and valuable use of buildings and land.

Market at a glance
13.6m sq ft

Take-up of office space in
central London (2018: 13.6 million sq ft)

4.3%

Vacancy rate in central London offices
(March 2018: 4.8%)

+2.4%

Rise in prime headline office rents
in the West End (2018: -4.5%)

+3.6%

Rise in prime headline office rents
in the City (2018: -2.1%)

-2.1%

BRC physical retail store sales
(2018: -2.2%)

0.0%

BRC non-food retail sales (including online)
(2018: -0.1%)

-2.8%

UK footfall1 (2018: -2.5%)

1. Source: ShopperTrak UK national footfall benchmark.

Market dynamics
In our biggest sector, central London offices
(48% of portfolio by value), occupational and
investor demand remained healthy during the
year. The vacancy rate fell contributing to a
modest increase in rental values, reversing the
decline seen last year. As a result, capital values
have risen slightly. Forecasters expect the
market to enter a modest down-cycle through
to 2020, then return to long-term growth. The
retail market in central London has not been
immune to challenging conditions for occupiers
but it continued to benefit from stronger
fundamentals, including tourism, wealthy
catchments and flagship locations.

London has retained enduring appeal for
investors and occupiers. It offers:

— Attractive mix of offices, retail and leisure,

which appeals to employees

— A growing population

— Capabilities and opportunities of a global

financial centre

— Deep, 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, varied
mix of property investors, many from overseas.
This helps us when selling assets but increases
competition when buying. We see excellent
market opportunities in London but also
challenges, including:

— Uncertainty over the outcome of Brexit

negotiations

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

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

Commercial property markets are generally
cyclical, with property values mainly driven
by the supply and demand of space,
together with market participants’ cost
of capital.

The larger UK property sectors have many
participants and a deep pool of investors.
This creates a liquid market for individual
properties.

We aim to maintain a robust position
through the cycle, varying the scale of our
activity at different points to grow potential
opportunities and mitigate risk.

Landsec Annual Report 2019

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 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 and 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.

Inputs

Core activities

Outputs

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.

12
12

Landsec Annual Report 2019
Landsec Annual Report 2019

APITAL REIN V E S T M

Sell

Buy

Manage

Develop

P IT A L R EIN VESTMENT

Financial

Long-term growth in income and

asset values, creating capacity

for us to increase dividends for

our shareholders.

To read our Financial review

go to pages 32-39

Physical

Space that creates value for us by

meeting the changing requirements

of our customers and communities

and a healthy environment for all.

To read our Physical review

go to pages 40-44

Social

Our ability to help businesses

and people to thrive – including

our own employees.

To read our Social review

go to pages 45-53

Inputs

Core activities

Outputs

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.

APITAL REIN V E S T M

Sell

Buy

Manage

Develop

P IT A L R EIN VESTMENT

Financial
Long-term growth in income and
asset values, creating capacity
for us to increase dividends for
our shareholders.

To read our Financial review
go to pages 32-39

Physical
Space that creates value for us by
meeting the changing requirements
of our customers and communities
and a healthy environment for all.

To read our Physical review
go to pages 40-44

Social
Our ability to help businesses
and people to thrive – including
our own employees.

To read our Social review
go to pages 45-53

S
t
r
a
t
e
g
i
c
R
e
p
o
r
t

Landsec Annual Report 2019

Our business model –
creating sustainable
long-term value

The way we manage the business –
through the life-cycle of our assets –
reflects our financial, physical and
social approach and priorities.

To read our Financial review
go to pages 32-39

Financial approach and track record

Profit
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.

Asset value
Our asset valuations reflect the
value we have created but also
the investment 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. At times we’ll want to
increase debt to multiply the
impact of rising asset values, fund
buying and development activity.
At other times, we’ll fund activity
by selling assets. Our adjusted
diluted net assets per share
measure enables shareholders
to compare the book value per
share value 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.

Revenue profit1
(£m)

Chart 2

Adjusted EPRA
net assets2 (£bn)

Chart 3

Adjusted net debt1 and Chart 4
loan-to-value ratio1

Adjusted diluted earnings1 Chart 5
(pence per share)

11.4

11.2

10.3

10.4

9.9

442

406

382

362

329

500

400

300

200

100

4,172

3,239

3,261

3,652

3,737

£000s

5,000

4,000

3,000

2,000

1,000

59.7

53.1

48.3

45.7

41.5

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

■ Adjusted net debt
Group LTV (RHS)

1. Includes proportionate share of joint

ventures and subsidiaries as explained
in the notes to the financial statements.

2. EPRA measure from 2018 onwards.
3. The surplus/(deficit) represents the
increase/decrease in value of the
Combined Portfolio over the year,
adjusted for net investment.

Valuation surplus/
(deficit)1, 3 (£m)

Chart 6

Adjusted EPRA NAV2
(pence per share)

Chart 7

Dividend
(pence per share)

Chart 8

2,037

907

2,500

2,000

1,500

1,000

500

-500

1,434

1,417

1,403

1,339

1,293

1,600

1,400

1,200

1,000

800

600

45.55

44.20

38.55

35.00

31.85

(147)

(91)

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

(557)

Landsec Annual Report 2019

To read our Physical review
go to pages 40-44

To read our Social review
go to pages 45-53

Physical approach

Social approach

Portfolio quality
We constantly look to
strengthen our portfolio to
ensure it meets the changing
needs of our customers and
communities. We always
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.

Natural resources
When we buy, use and re-use
resources efficiently we reduce
costs for our customers, our
partners and us, helping to
minimise our impact on the
environment and enhance our
resilience to our warming planet.

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 design with
long-term value in mind.

Customers
We design our buildings
to support wellbeing and
productivity. From office
occupiers to brands and
shoppers, we aim to provide
our customers with a fabulous
experience – creating value
for our shareholders.

Employees
We invest to attract and
develop great people who add
value to our business. We take
engagement, wellbeing,
diversity and reward seriously
and conduct regular surveys.

Communities and
partners
We help those furthest from
the jobs market access
opportunities in our industry.
We believe that everyone who
works on our behalf must be
treated and paid fairly and our
business should reflect and
support our diverse communities.
We work to maintain an
exceptional standard of health,
safety and security in all the
working environments we
control and partner to help raise
standards in our industry.

Investing through the life-cycle

Invest capital

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. We may acquire
a poorly performing asset if we
see an opportunity to improve
performance through investment
and better management.

Develop
We develop to create space that
will appeal to customers, enhance
the area and create financial value
for us. This activity creates job
opportunities during construction
and operation.

We design for safety, wellbeing,
efficiency and productivity. We look
to improve public realm, connectivity
and wider infrastructure. And we
embed our sustainability principles
in the design and delivery process.

Manage
We work with customers,
communities and partners to
ensure our buildings operate
efficiently and to help increase
local prosperity.

We redesign and refurbish space to
make it more attractive, useful and
valued. And we work with occupiers
to manage energy, waste and
water. Thinking about sustainability
helps protect buildings from
external risks such as price volatility,
changing regulation, supply issues
and premature obsolescence.

Sell
We sell an asset when we see an
opportunity to deploy 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,
physically and socially. This should
make it more valuable. We always
aim to build a positive legacy,
leaving a place in a better state
than when we arrived.

To see our Stakeholder Engagement Policy, Responsible Property
Investment Policy and Sustainability Brief go to landsec.com

Landsec Annual Report 2019

Strategic Report

Our
strategy

We create shareholder
and social value by
providing the right space
for our customers and
communities so that
people and businesses
can thrive.

Creating
sustainable
shareholder value
We make choices at asset, sector and portfolio
level to optimise short- and long-term value
creation and position ourselves to achieve
attractive total shareholder returns over the long
term. We aim to generate earnings per share
growth to enable us to pay a progressive dividend.

See Our business model on pages 12-15
for more on how we create value

Our strategic approach

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,
motivate and retain
high performance
individuals

Be a best-in-class
counterparty
to our partners
and suppliers

Continually improve
sustainability
performance

Capital
allocation
and risk taking

Our goal
Creating sustainable
shareholder value

Our
approach

Customer-led provision
of space where people
and businesses thrive

Competitive costs

Our
enablers

Industry-leading capabilities and relationships

Sustainability leader

Landsec Annual Report 2019

Capital
allocation and
risk taking
We regularly review the outlook and
opportunities for our portfolio of assets and
our markets. We use a consistent framework
to formulate asset and market sector specific
plans. These drive our core activities in an
asset’s life-cycle – buy, develop, manage, sell.

Our sector planning
framework has four
elements
[ Portfolio characteristics and

return drivers

[ Risk and return outlook

[ Market dynamics

[ Our long-term approach to

the market sector

Portfolio today

London Portfolio

% of total portfolio

Retail Portfolio

4% 3% 6%

17%

58%

Retail

Offices

100%

80%

60%

40%

20%

Central London

London (within M25) 65%
35%
Rest of UK

London
shopping
centres

Leisure

Retail
parks

Regional
shopping
centres

Outlets

Hotels

Approach to capital allocation

Optimise performance

Maximise opportunity

Retail
parks

Leisure

Hotels

Outlets

Regional
shopping
centres

London
(excluding development sites)

London
shopping
centres

London

Market sectors
65% of our assets by value are located in
London and we have for several years managed
our business through two business units –
London Portfolio and Retail Portfolio. Our
London Portfolio comprised 58% by value of the
Group’s assets at 31 March 2019. This portfolio
is predominantly made up of workspace, with
supporting retail and leisure space in central
London. The Retail Portfolio comprises 42%
of the Group portfolio at 31 March 2019 with
multiple sector holdings – 22% is regional
shopping centres and retail parks, and 20% is
outlets, hotels, leisure and our London shopping
centres. In future, we will view our assets and
operations as one integrated portfolio.

Opportunities and plans are specific to each
asset. In the prevailing market conditions, our
London Portfolio provides a mix of attractive
income and long-term value creation potential.

Our Retail Portfolio predominantly comprises
destination retail assets that provide higher
income. In outlets and hotels, we see an
opportunity for long-term value creation and
further deployment of capital, but we believe
there’s less opportunity in regional shopping
centres and retail parks. In contrast, our London
shopping centres present significant
development opportunities.

Locations
We 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. Increasingly our business is focused
on London and other major urban centres
supported by long-term trends.

Development exposure
We use our capital and market-leading
development capabilities to create adaptable,
sustainable, customer-centred spaces. We do
this to generate returns and portfolio income
growth above those available from standing
investments alone. Our current pipeline of
development opportunities (shown in table 9)
includes 3.6 million1 sq ft of office and residential-
led development opportunities in London.

D
e
v
e
o
p
m
e
n
t

s
i
t
e
s

Timing
We will develop on a pre-let basis at any time
in the property cycle. However, we only commit
to developing speculatively when we believe we
will be completing and leasing the development
into a market with strong demand.

Unlock future value

1. This excludes our longer-term opportunities

including Lewisham, SE13.

Limited

Long-term value creation potential

Significant

London (within M25) 65%
35%
Rest of UK

Landsec Annual Report 2019

h
g
H

s
l
e
v
e

e
m
o
c
n

w
o
L

Strategic Report

Our strategy
continued

Risk
We believe that the best way to mitigate
the risks inherent in owning and operating
a commercial property portfolio is to:

— Seek assets in structurally supported

markets with strong and enduring appeal
to customers and consumers

— Manage spaces and places actively and

responsibly

— Take early action to mitigate risks related

to changes in climate, legislation, resource
availability and the changing needs of our
customers.

Development is riskier than owning and
managing existing assets but offers the
potential for greater returns. We seek to
manage development risk through strong
operational capabilities and processes, ensuring
that speculative development is done at the
right time in the cycle. We set carefully
calculated limits on the amount of development
we undertake at any given time in order to
manage the risk in our portfolio.

Customer-led
provision of space
where people and
businesses thrive
We aspire to be the market leader in providing
space for our customers and communities. We
do this by seeking to understand the needs and
aspirations of our customers and communities
and creating the best experiences for them.
We use data and innovative digital technologies
to support this work. Our developments are
integrating a range of uses as ways of working,
living, shopping and spending leisure time
evolve. We expect this mixed use trend towards
spaces to continue.

In workspaces, where occupiers are increasingly
taking a ‘core’ and ‘flex’ model to their space
requirements, we’re helping customers to
create more flexible, adaptable environments
that support digitally-enabled ways of working
and collaborating. In retail, we seek to own
popular, experience-led destinations that
are dominant in their catchment or part of
a dynamic mixed use destination. In a fast-
moving consumer market, we’re also working
closely with our retail and leisure customers
to support them as they evolve their business
models and use of physical space.

See the Portfolio review on pages 24-31 and
Physical review on pages 40-44 for more on
our assets and pipeline activities

Competitive costs;
industry-leading
capabilities and
relationships;
sustainability leader
We strive to secure capital and construction
costs at competitive rates. This enables us
to access and address development and
investment opportunities in competitive
property markets. Furthermore, maintaining a
disciplined approach to ongoing operating costs
optimises value to occupiers and the net income
generated from market-determined gross rents.

We use debt to enhance equity returns and
lower our cost of capital. The scale and security
of our portfolio, and conservative balance sheet
management, allow us to access debt capital
at attractive rates – our weighted average cost
of debt is currently 2.7%. This scale also helps us
to be more efficient by spreading our overheads
and the investments we make in capabilities,
systems and relationships across a broad
portfolio of assets.

Our capabilities, reputation and relationships
with customers, communities, employees and
partners are critical to the successful execution
of our strategy. We seek to attract, develop and
retain the best talent in the UK property sector
and be a partner of choice to our supply chain.

Our development opportunities

Development
programme

21 Moorfields
EC2

Proposed
developments

Nova East
SW1

Asset

One Sherwood Street
W1

105 Sumner Street
SE1

Portland House
SW1

Red Lion Court

Lavington Street

Finchley Road

Shepherd’s Bush

SE1

NW3

W12

Planning/feasibility
Office-led

Planning/feasibility

Residential-led

Table 9

Type

Development

Refurbishment

Predominant use

Office

Office-led

Status

On site

Cleared site

In demolition

Consented

Office-led

In planning

Development

Office-led

Feasibility

Development/

refurbishment

Office-led

Feasibility

Development

Residential & retail

3.6 million sq ft

Feasibility

Total floor space2

Speculative/pre-let

Pre-let

Speculative

Earliest start on site

n/a

Indicative total
development cost required1 £0.6bn

Size (sq ft ’000)1

564

n/a

£0.2bn

167

n/a

£0.2bn

144

October 2019

April 2020

July 2020

October 2021

£0.1bn

131

£0.5bn

401

£0.3bn

324

£0.4bn

370

£0.4bn

~750

£0.5bn

~610

~£3bn

Total development cost

1. Indicative total development cost required and size are our latest estimates for schemes at the feasibility stage and should be regarded as indicative only.
2. Including Castle Lane, SW1, Nova Place, SW1 and Wardour Street, W1.

Landsec Annual Report 2019

Strategy execution – areas of focus in 2019/20
[ Progress plans for the future
[ Maintaining like-for-like net

rental income

[ Providing property as a service,

harnessing data and technology,
to improve customer experiences

[ Researching and trialling ways to
build better, faster and for less

[ Expanding customer offerings for
Myo, Landsec Fitted and Landsec
Lounges

[ Progress on time and on budget at
21 Moorfields, EC2, One Sherwood
Street, W1, Nova East, SW1 and
105 Sumner Street, SE1

development pipeline of 2.6 million
sq ft in the existing portfolio and
seek to grow the pipeline through
acquisitions and partnerships

[ Delivery of key strategic MSUs at

our major shopping centres

[ Generating £4m of social value

across our community programmes,
in support of £25m corporate target
by 2025

[ Improving energy management in

support of 2030 energy management
corporate commitments

We listen to, understand and work constructively
with our key stakeholders. Experience tells us
this is the best way to secure the long-term,
sustainable success of our business. We do this
by supporting people into work, boosting the
resilience of our supply chain. We reduce
operational costs for customers through energy
efficiency projects. And our approach to
sustainable design creates more desirable
assets, attracting customers and consumers,
giving them a reason to choose our destinations.

We have prioritised four capability areas for
investment:

— Building better, faster and at lower cost

with less waste, including using digital tools
technology and approaches such as
‘design for manufacture and assembly’

— Improving our processes and abilities to
design, monitor and improve customer
experiences

— Bolstering our capacity and capability
to develop and operate mixed use sites

— Driving competitive advantage from
sustainability through resilient supply
chains, lower operational costs and more
attractive assets.

See the Physical and Social reviews on
pages 40-53 for more on our customers,
communities, partners and employees

Our development opportunities

Development

programme

21 Moorfields

EC2

Proposed

developments

Nova East

SW1

Asset

One Sherwood Street

105 Sumner Street

Portland House

SE1

SW1

Red Lion Court
SE1

Lavington Street
SE1

Finchley Road
NW3

Shepherd’s Bush
W12

Planning/feasibility

Office-led

Planning/feasibility
Residential-led

Table 9

Type

Development

Refurbishment

Predominant use

Office

Office-led

Status

On site

Cleared site

In demolition

Consented

Office-led

In planning

Development

Office-led

Feasibility

Development/
refurbishment

Office-led

Feasibility

Development

Residential & retail

3.6 million sq ft

Feasibility

Total floor space2

Speculative/pre-let

Pre-let

Speculative

Earliest start on site

n/a

Indicative total

development cost required1 £0.6bn

Size (sq ft ’000)1

564

n/a

£0.2bn

167

n/a

£0.2bn

144

October 2019

April 2020

July 2020

October 2021

£0.1bn

131

£0.5bn

401

£0.3bn

324

£0.4bn

370

£0.4bn

~750

£0.5bn

~610

~£3bn

Total development cost

1. Indicative total development cost required and size are our latest estimates for schemes at the feasibility stage and should be regarded as indicative only.

2. Including Castle Lane, SW1, Nova Place, SW1 and Wardour Street, W1.

Landsec Annual Report 2019

Strategic Report
Key performance
indicators

Strategic objectives

We work to turn our strategic objectives into
tangible performance, using individual key
performance indicators to measure our progress.

Deliver sustainable
long-term
shareholder value

Ensure high levels
of customer
satisfaction

Maximise the
returns from the
investment portfolio

Attract, develop,
retain and motivate
high performance
individuals

Maximise
development
performance

Be a best-in-class
counterparty to our
partners and
suppliers

Continually
improve
sustainability
performance

Three-year Total Shareholder Return (TSR) (%)

Three-year total property return (TPR) (%)

11.8

3.7

9.7

■ Landsec
■ Comparator group

1.9 2.2

2017

(4.0)

2019

(2.8)

3 years

(8.0)

2018

Chart 10

9.7

4.4

3.9

6.3

4.8

2.9

0.4

2017

2018

2019

3 years

Chart 11

■ Landsec
■ MSCI all March valued properties

excluding Landsec

■ MSCI all March valued properties
excluding Landsec (estimate)

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
MSCI (excluding Landsec)

Our progress in 2019

Not achieved

Our progress in 2019

Not achieved

TSR of -2.8% for the three-year period from April 2016 did not exceed our
comparator group at 9.7%

TPR of 2.9% per annum for the three-year period from April 2016 was below
the estimated MSCI benchmark at 6.3% per annum

Linked to remuneration
To read more, turn to page 100

One-year total property return (TPR) (%)

Revenue profit (£m)

4.8

3.5

4.8

0.4

(3.4)

London
Portfolio

(6.8)

Retail
Portfolio

Total
portfolio

Chart 12

■ Landsec
■ MSCI Relevant sector
■ MSCI all March valued properties
excluding Landsec (estimate)

382

406

325

324

442

400

Chart 13

■ Reported
■ Threshold

2017

2018

2019

How we measure it
One-year TPR compared to all March valued properties within MSCI
(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 2019

Not achieved

Our progress in 2019
Achieved

One-year TPR of 0.4% was below the estimated MSCI benchmark of 4.8%

Revenue profit, adjusted to remove the refinancing benefit, was above the
internal threshold for 2018/19, amended for the debt refinancing in March 2018

Linked to remuneration
To read more, turn to page 98

Landsec Annual Report 2019

Investment portfolio

Development activity

Customers

How we measure it
Execution of improvement
programmes for the three outlets
acquired in 2017

Our progress in 2019
Achieved

Planning submitted and approved
at all three outlets

How we measure it
Development of 21 Moorfields, EC2
to be on programme and on budget

How we measure it
Feasibility work progressed on
two suburban London shopping
centres – O2 Finchley Road and W12

How we measure it
Embedding of a truly customer-
centric culture and the Landsec
brand

Our progress in 2019

Partially achieved

21 Moorfields is progressing on time
and to budget but the building
contract was signed behind schedule

The feasibility on Finchley Road,
NW3 and Shepherd’s Bush, W12
has been completed. Planning
applications have not yet been
submitted for either scheme

Our progress in 2019
Achieved

A brand research audit was
undertaken and completed during
the year. Results showed a
significant improvement over the
results of the last audit in 2015

Linked to remuneration
To read more, turn to page 98

Innovation

Employees

Jobs and opportunities

Natural resources

187

People furthest from the jobs
market supported into work

18.2%

reduction in energy intensity
versus 2013/14 baseline, for
property under our management
for at least two years

How we measure it
Progress of innovation workstreams

How we measure it
Diversity – making measurable
progress on our stated 2020 targets

How we measure it
Make further progress on our 2020
target to support 1,200 people
furthest from the jobs market
into employment through our
Community Employment
Programme

How we measure it
Drive energy reduction across the
London and Retail portfolios in
support of our 2030 corporate
commitments

Our progress in 2019

Partially achieved

Our progress in 2019
Achieved

Myo flexible office product launched.
Progress made in applying building
information modelling (BIM) and
modern methods of construction to
development activity. Some progress
in introducing innovation to retail
such as Black Box in Trinity Leeds

Have not reached our target of 30%
females at Leader level. Employee
reporting on diversity has improved

Supported 187 people furthest from
the jobs market in to work through
our Community Employment
Programme and achieved our 2020
target a year early

Approved 19 energy efficiency
projects, across 15 sites, to deliver
5.3m kWh of energy savings of
which ten projects have already
been completed

Linked to remuneration
To read more, turn to page 98

Linked to remuneration
To read more, turn to page 99

Landsec Annual Report 2019

Strategic Report

Our
stakeholders

Our vision is to be the
best property company
in the UK in the eyes
of our stakeholders.
We work hard to ensure
we understand exactly
who they are, and what
they need and expect
from Landsec. That helps
us to create and protect
value – for them and
for us.

You can find our Section 172 Statement,
detailing our Directors’ responsibility to
stakeholders, on pages 72-73

Landsec Annual Report 2019

Our customers

Our customers are those who occupy or visit
our buildings. That includes everyone from
the businesses in our office space – and their
employees and guests – to the retail and
leisure brands in our centres and outlets;
from shoppers and visitors on a day out
to people who live in one of our buildings.
Businesses want us to understand their
changing requirements and provide affordable
and sustainable space, and responsive services,
that help them compete, grow and develop.
Consumers, visitors and residents want us to
provide fabulous space and services that add
to their shopping, leisure and home experience.

More on

pages 48-51

Our partners

Our partners are those who have a direct
working or contractual relationship or share a
mutual interest with us. This includes our joint
venture partners, service providers and their
employees, suppliers and their employees, local
and central government, NGOs, trade bodies
and industry organisations. From procurement
to planning, partners want us to be a
trustworthy party that lives up to its promises.
We work to find mutually effective ways to
communicate and collaborate with each group,
with the highest standards of health, safety
and security underpinning everything we do.

More on

pages 53 and 89-90

Our customers

Our customers are those who occupy or visit

our buildings. That includes everyone from

the businesses in our office space – and their

employees and guests – to the retail and

leisure brands in our centres and outlets;

from shoppers and visitors on a day out

to people who live in one of our buildings.

Businesses want us to understand their

changing requirements and provide affordable

and sustainable space, and responsive services,

that help them compete, grow and develop.

Consumers, visitors and residents want us to

provide fabulous space and services that add

to their shopping, leisure and home experience.

More on

pages 45-46

Our partners

Our partners are those who have a direct

working or contractual relationship or share a

mutual interest with us. This includes our joint

venture partners, service providers and their

employees, suppliers and their employees, local

and central government, NGOs, trade bodies

and industry organisations. From procurement

to planning, partners want us to be a

trustworthy party that lives up to its promises.

We work to find mutually effective ways to

communicate and collaborate with each group,

with the highest standards of health, safety

and security underpinning everything we do.

More on

pages 51-53

Our employees

Our employees are those who are directly
employed by Landsec. Employees are looking
for a great career experience and a positive
environment in which they can thrive. We aim
to create a dynamic and diverse team, with
everyone brought together in world-class
workspace. We help our employees to learn
and grow, providing training at every stage
of their career. Inclusion, equal pay and good
communications are central to our offer,
and we provide a wide range of support for
employees’ physical and mental wellbeing.

More on
pages 53 and 89-90

When making key decisions we need
to consider the interests of every
one of our stakeholder groups and
how we can address their needs.”

Robert Noel
Chief Executive

Our stakeholder policy
Landsec will:

[ Engage with our stakeholder groups
to develop and maintain positive,
productive relationships

[ Ensure that all key stakeholders are
well informed and have access to
information about our business and
our activities

[ Involve our stakeholders in identifying

issues which are material to our
business

[ Implement initiatives and programmes

that contribute to sustainable
development and generate shared
value

[ Benchmark our stakeholder

engagement performance and
continuously identify areas for
improvement

Landsec Annual Report 2019

Strategic Report
Portfolio
review

We have a diverse
portfolio of assets
located in vibrant
locations across
London and the UK.
Here’s an update on
how we bought,
managed, developed
and sold this year.

Our top ten assets by value

Our diverse asset mix

1. City of London

2. Mid-town

3. West End

4. Inner London

5. Central London retail

6. London shopping centres

7. Regional shopping centres

8. Retail parks

9. Outlets

10. Leisure

11. Hotels

65%

11%

10%

24%

10%

17%

of our assets by value are located
in London

Our opportunity, approach
and capital allocation varies
by sub-sector

Chart 14

Combined
Portfolio

New Street Square, EC4
Contemporary offices, retail
and restaurant campus.
Annualised net rent £37.7m

Cardinal Place, SW1
Landmark site, part of our
Victoria cluster, home to blue-
chip businesses and retailers.
Annualised net rent £29.1m

One New Change, EC4
Office and leisure destination
in an iconic building.
Annualised net rent £29.9m

Bluewater, Kent
The dominant shopping
and leisure destination in
the south east of England.
Annualised net rent £28.6m
(Landsec share)

Gunwharf Quays,
Portsmouth
Outlet shopping, leisure and
entertainment destination
on a waterfront location.
Annualised net rent £29.0m

1&2 New Ludgate, EC4
Contemporary office,
restaurant and retail space.
Annualised net rent £22.3m

Queen Anne’s Gate,SW1
Landmark office building
comprehensively refurbished
in 2008. Annualised net rent
£33.2m

Trinity Leeds
Retail and leisure destination
forming the heart of Leeds
city centre. Annualised net
rent £26.5m

Nova, SW1
A stunning new mixed use
destination within our Victoria
cluster. Annualised net rent
£8.6m (Landsec share)

62 Buckingham Gate, SW1
Office and retail space with
a cinema in the basement.
Annualised net rent £23.1m

Landsec Annual Report 2019

Key 2019 figures

Actions and outcomes

Focus for 2018/19

Progress in 2018/19

Focus for 2019/20

— Like-for-like net rental income

— Maintaining like-for-like net

growth of £20m achieved

rental income

— Providing property as a

service, harnessing data and
technology, to improve
customer experiences

— Researching and trialling

ways to build better, faster
and for less

— Expanding customer offerings
of Myo, Landsec Fitted and
Landsec Lounges

— Progress on time and on
budget at 21 Moorfields,
One Sherwood Street, Nova
East and 105 Sumner Street

— Progress plans for the future
development pipeline of
2.6 million sq ft in the existing
portfolio and seek to grow the
pipeline through acquisitions
and partnerships

— Delivery of key strategic MSUs
at our major shopping centres

— Generating £4m of social

value across our community
programmes, in support of
our £25m corporate target
by 2025

— Improving energy management

in support of 2030 energy
management corporate
commitments

— Growing like-for-like net
rental income in the
London Portfolio

— Diversify income streams

through innovation in retail

— Progress on time and budget

at 21 Moorfields, EC2

— A number of new diversified
income streams developed,
including Black Box Revolution
at Trinity Leeds

— Deutsche Bank confirmed
they are taking the entire
564,000 sq ft building

— Completed piling six weeks
early, with main contractor
on site as of 1 April 2019

— On track to deliver on

programme and to budget

— Progress plans for all of the
development opportunities
in central London

— One Sherwood Street, W1,

Nova East, SW1 and 105 Sumner
Street, SE1 commencing in 2019

— Progress feasibility on

— Planning applications being

London shopping centres

— Seek to grow the pipeline
through acquisitions and
partnerships

— Progress planning

applications for physical
improvement plans at our
recently acquired outlets

— Understanding the changing
needs of our customers and
ensuring our portfolio
responds accordingly

prepared at Shepherd’s Bush,
W12 and Finchley Road, NW3
and master planning under
way at Lewisham

— Acquired 1.6 acre site at
Lavington Street, SE1

— Planning consent received

for improvement plans at all
three outlets

— Worked closely with our

customers, launching new
initiatives to better meet their
needs – Myo, Landsec Fitted
and Landsec Lounges

— Securing employment for

— Secured employment for

a further 160 candidates via
our Community Employment
Programme

187 candidates

— Improving energy

— 19 energy management

management in support of
2030 corporate commitments

initiatives approved, across
15 sites, of which ten projects
have already been completed

Portfolio

-4.1%1

Valuation deficit

£23m

of investment lettings

£9m

of development
lettings

London Portfolio

-0.5%1

Valuation deficit

£7m

of investment lettings

£8m

of development
lettings

1.7%

Like-for-like voids
(2018: 1.8%)

3.5%

Ungeared total
property return

4.8%

The portfolio
underperformed the
MSCI Quarterly
Universe

Retail Portfolio

-8.4%1

Valuation deficit

£16m

of investment lettings

-3.4%

Ungeared total
property return

£1m

of development
lettings

-6.8%

The portfolio
outperformed the
MSCI Quarterly
Universe

-2.4%

Footfall in our regional
shopping centres and
outlets (ShopperTrak
UK national benchmark
down 2.8%)

3.7%

Like-for-like voids
(2018: 2.7%)

0.8%

Units in administration
(2018: 0.7%)

1. On a proportionate basis.

-0.9%

Same centre sales,
taking into account
new lettings and
occupier changes
(BRC national
benchmark for
physical stores
down 2.1%; including
online, flat)

Landsec Annual Report 2019

Strategic Report
Portfolio review
continued

Our assets and operations continue to be
focused on maximising financial, physical
and social value by providing the right space
for businesses and people to thrive. As the
population grows and ages, and the boundaries
between work, living and leisure time become
more blurred, it is increasingly important to
provide a broader mix of products and services
to meet future demand.

In London, we have a portfolio of first-class
office-led assets with supporting retail, leisure
and amenity space, shopping centres with
excellent development potential and hotels
with longer term redevelopment opportunity.
Strategically, London will become a larger
proportion of our business and this year we’ve
grown and progressed our development
pipeline. We’ve also broadened our customer
offer, including launching a flexible office
product.

Outside London, we’re focused on shopping
and leisure destinations where people can
shop, eat and socialise. In what remains a very
challenging time for retailers, we’re constantly
enhancing the brand mix and reshaping space
to provide the best experience. We also have
a number of retail parks, a sector where
we’ve significantly reduced our exposure over
recent years.

Buy
We are actively tracking a high volume of both
development and investment opportunities
across London and are looking to buy in both
well-established and emerging locations. We
regard London as our core market. It is a huge,
increasingly polycentric city with a world class
public transport system. This year, in a market
which has remained very competitive, we were
pleased to grow our presence in SE1, with the
acquisition of a 1.6 acre site in Lavington Street.
We also acquired a small mixed use site on
Wardour Street, W1, in order to satisfy part of
the affordable housing requirements associated
with our development at One Sherwood Street,
W1. We didn’t see equivalent buying
opportunities in the retail and leisure sectors.

Develop
We have a 3.6 million sq ft near-term pipeline
of opportunities in the capital. This includes
2.2 million sq ft of office-led schemes and
1.4 million sq ft of residential-led mixed use
opportunities with further schemes being
explored.

Work at 21 Moorfields, EC2 is progressing on
time and to budget and Deutsche Bank has
confirmed they want to lease the entire
building. Work below ground has now
completed and installation of the steel frame
is under way. We’re procuring products and
services on this scheme in a different way. For
example, we worked with four sub-contractors
for 24 months to develop the design of the
building, using a more collaborative approach
to build an accurate forecast of costs earlier
in the build process. This is enhanced by our use
of building information modelling (BIM), which
creates a 3D model of the whole building down
to the very last detail. This means we’re more
likely to get construction and fit-out right first
time while avoiding potential delays. We’re
already seeing significant benefits from BIM at
21 Moorfields and are applying it on all projects.

At One Sherwood Street, W1, we started
demolition in April. Completion is scheduled for
June 2022. This 144,000 sq ft mixed use scheme
behind Piccadilly Lights will comprise offices,
retail units and a roof-top restaurant together
with a Landsec Lounge at this iconic location.

At Nova East, SW1, we’ve improved the
scheme by simplifying the design and structure,
increasing the consented floor area by 19%.
We’ve recently submitted a revised planning
application and gained possession of the
site back from TfL. Enabling works have
commenced and piling is expected to start
in July.

At Portland House, SW1, we’ve moved away
from a complete redevelopment and are
planning a 401,000 sq ft comprehensive
remodelling and extension of the existing
building. We’re applying every aspect of our
customer insight to ensure we maximise the
potential of this asset and will submit our
planning application in June, aiming to start
on site in April next year when the current
leases expire.

In Southwark, at 105 Sumner Street we have
consent for two buildings totalling 131,000 sq ft
and will start on site in October with completion
in early 2022. We will be implementing offsite
manufacturing and automated on site
assembly techniques here to reduce time, cost
and environmental impact. Meanwhile, we are
working up our plans for 324,000 sq ft of offices
and new public riverside space at Red Lion
Court. In addition, our recent acquisition on
Lavington Street provides us with redevelopment
and refurbishment opportunities for a range of
workspaces. This will grow our presence in this
increasingly popular part of London.

Outside central London, we’ve concluded a
feasibility exercise on the opportunity to create
residential-focused, mixed use developments
in two well-connected vibrant locations in
Shepherd’s Bush, W12 and Finchley Road, NW3
comprising around 1,700 new homes in total,
much of which we intend to retain as homes for
rent. We aim to submit planning applications
during the course of this financial year. In
Lewisham, we’ve started master planning our
town centre asset which extends to around
eight acres and provides the potential for a
new residential-led, mixed use destination.

Development expenditure
Estimated future spend

Chart 15

£m

600

500

400

300

200

100

2019/20

2020/21

2021/22

2022/23

2023/24

2024+

Development programme

Proposed developments
(Landsec share)

In feasibility – office-led
In feasibility – mixed use1

1. Comprises Finchley Road, NW3 and Shepherd’s Bush, W12.

Landsec Annual Report 2019

Progressing our drivers of growth

Total

3.6m
sq ft

Oct 2021
Shepherd’s Bush, W12

Oct 2021
Finchley Road, NW3

Jul 2020
Lavington Street, SE1

Jan 2023

Jul 2020
Red Lion Court, SE1

Dec 2023

Apr 2020
Portland House, SW1

Oct 2022

Including
Castle Lane, SW1

Oct 2019
105 Sumner Street, SE1

Jan 2022

On site
Nova East, SW1

Feb 2022

Jun 2022
Nova Place, SW1

On site
One Sherwood Street, W1

Jun 2022

Including
Wardour Street, W1

On site
21 Moorfields, EC2

Nov 2021

~£3bn

TDC

~610k sq ft

~750k sq ft

370k sq ft

324k sq ft

441k sq ft

131k sq ft

208k sq ft

153k sq ft

564k sq ft

2019

2020

2021

2022

2023

2024

2025

Note: Earliest start on site dates

21 Moorfields, EC2: Deutsche Bank will take
the whole building as its new London HQ

Landsec Annual Report 2019

Strategic Report
Portfolio review
continued

Manage
London Portfolio

The quality and popularity of our central London
office space is reflected in its 98% occupancy
rate and healthy average lease term of nine
years. During the year, we completed £15m
of lettings. We also completed £23m of rent
reviews at 17% above passing rent. Lettings
included completing the line up at Nova where
the blend of retail, restaurants and leisure has
created a destination for local residents,
occupiers and visitors.

With new ways of working and people’s
expectations of their work environment evolving
at speed, we’re continuing to enhance and
extend the services we provide to office
customers, their employees and visitors.
For example, our Landsec Lounge concept –
which provides communal touch-down meeting
spaces in a café-style environment – has proved
very popular at 80 Victoria Street, SW1 and

20 Eastbourne Terrace, W2. We are now
implementing our Lounge concept at
Dashwood House, EC2, and 62 Buckingham
Gate, SW1, with 6 New Street Square, EC4,
and One New Change, EC4 to follow.

Myo, our new flexible office brand, has opened
its doors to a new generation of growing
customers, as well as meeting larger customers’
core and flex requirements. Myo offers flexible
terms, customisable design options, seamless
IT and front-of-house support, which means our
customers can focus on their business. It adds
to the flexible space already provided at our
assets through third party operators.

We currently operate 36,000 sq ft as Myo
flexible space and plan to grow this significantly
through opportunities within our existing
portfolio and our development pipeline,
providing new and existing customers a
broad ecosystem of space from a few desks
to head offices.

We have also trialled Landsec Fitted this year, a
fully fitted out workspace, providing customers
with a faster and more convenient way into
occupation. This has proved very successful,
reducing leasing times and incentives and
attracting rents at a premium to unfitted space.

Retail Portfolio

18% of our Retail Portfolio by value is also
located in London. These assets comprise our
London shopping centres, which provide good
development opportunities in densely populated
catchments, and the majority of our hotels by
value. Many of the hotels are valued at less than
replacement cost and provide good development
opportunities in the longer term, with resilient
income streams in the meantime.

Outside London, our assets predominantly
comprise six shopping, five outlet and 17 leisure
destinations, increasingly focused on providing
a great day out. The retail market is particularly
challenging at the moment and our destinations
are not immune from this. However, the work
we did in recent years to shift investments away
from secondary shopping centres and retail parks
has limited our exposure to the retail sector most
impacted by retailer difficulties. Our portfolio
outperformed the national benchmarks for both
footfall and retailer sales during the year.

The challenging nature of retail has been
reflected in the level of company voluntary
arrangements (CVAs) and administrations in
the market. Since the start of 2018, more than
80 retail and food & beverage chains have gone
into CVA or administration across the UK
impacting more than 6,000 stores.

Myo, our new flexible office brand,
was launched during the year

Landsec Annual Report 2019

In this difficult market, the quality of our assets
has meant that where retailers have a choice,
as they do in a CVA, they are more likely to
remain in a Landsec destination with 93% of
our stores affected by CVA remaining open and
continuing to trade compared with 85% for the
market as a whole.

Shopping centres
Our strategy is to focus on dominant
destinations with enduring appeal in strong
and growing catchments, and core to the
multi-channel strategies of both traditional
and new retail brands.

Our partnerships with successful retailers are
key to successful placemaking. For example,
having upsized Primark at Trinity Leeds and
introduced them at Westgate Oxford with a
flagship unit, this year they came to Bluewater,
Kent. Their 60,000 sq ft unit opened for trade
in March, bringing a much requested retailer
to the destination and adding to a strong and
diverse mix of brands there. Also at Bluewater
this year, we introduced Polo Ralph Lauren,
BMW opened its first UK Urban Store and
Beaverbrooks, JD Sports and Rituals all upsized.

We worked closely with Inditex, creating a
new flagship for their Zara brand at Westgate
Oxford and introducing their Bershka brand
into St David’s, Cardiff, following the successful
opening of the Stradivarius brand at the end
of last year. Letting the remaining units at
Westgate has proved more difficult than we
anticipated due to current market conditions,
but we are pleased to have completed flagship
units for Urban Outfitters, Mango and Flannels.

We’re constantly working to refresh the retailer
mix and customer experience. This year, for
example, we introduced Black Box Revolution
at Trinity Leeds. This enables us to curate space
with constantly changing offers while providing
brands and retailers new to bricks and mortar
retail the ability to nimbly test the water and
connect with shoppers in new ways.

Outlets
Outlets provide a shopping experience which
is difficult to replicate online as well as being
destinations for a day out. Turnover-related
flexible leases enable us to capture income
growth annually and allow us to regularly
introduce new brands which reflect changing
consumer preferences.

Again customer relationships are key. For
example, during the year, we introduced Polo
Ralph Lauren at Braintree Village, key to our
plans for transforming the brand line-up. This
built on our work with the brand at Gunwharf
Quays, where we had created a new Polo Ralph
Lauren flagship store. Following the retailer’s
opening at Braintree Village, Polo Ralph Lauren
also opted to take a full unit at Bluewater.

Westgate Oxford - leisure and entertainment are
important elements of a successful shopping centre

In March, Primark opened their 60,000 sq ft
store at Bluewater, Kent

During the year, we secured planning consents
at the three retail outlets we acquired last year
in Braintree, Street and Castleford – each for
physical improvement schemes that enable us
to implement our business plans.

Leisure parks
Our leisure parks cater for the growing
experience segment of consumer spend,
providing family friendly cinema and sport
anchored experiences and vary from a full day
out at the award winning Xscape destinations
to accessible family offers in the more
traditional parks.

The leisure market remains relatively resilient
and we are at near full occupancy, with UK
leisure spend forecast to increase by 17% over
the next five years (GlobalData). Total cinema
admissions in 2018 were up 3.7% on 2017 and at
their highest level for 50 years. We’re constantly
engaging with cinema operators to ensure our
portfolio delivers the best movie experience
possible and completed two cinema lease
extensions and upgrades in the year.

Retail parks
This segment of the market is particularly
impacted by oversupply and poor investor
confidence. Having reduced the number of
retail parks in our portfolio by nearly two-thirds
over the last ten years to focus on parks that
offer convenience and are in locations which
are not oversupplied, we have retained good
occupancy at 95%.

Sell
Having used buoyant market conditions over
the last few years to sell many assets that did
not form part of our long-term plans, the only
significant disposals this year were retail parks
at Livingston and Selly Oak. We will continue to
reduce our allocation to this market segment
further over time.

Landsec Annual Report 2019

Strategic Report
Portfolio review
continued

Landsec Lounge provides communal touch-down
meeting spaces in a café-style environment

Net rental income
Net rental income from the Combined Portfolio
increased by £7m to £618m in the year ended
31 March 2019 as rental income growth from our
like-for-like portfolio, completed developments
and acquisitions was partly offset by the impact
of properties sold since 1 April 2017 and a decline
in non-property related income.

Net rental income from the London Portfolio
increased by £21m to £310m, with additional
income from the like-for-like portfolio and
developments more than offsetting lost income
following the disposal of 20 Fenchurch Street,
EC3. The £20m growth in net rental income
from the like-for-like portfolio is due to rent
reviews, new lettings and the full year effect of
the refurbished screen at Piccadilly Lights, W1
which was switched back on in October 2017.
Further lettings at our completed developments,
principally Nova SW1, added £10m of net rental
income. This was partly offset by £7m of
income lost as a result of the disposal of
20 Fenchurch Street.

Net rental income from the Retail Portfolio
has decreased by £14m to £308m. This is driven
by our like-for-like properties, disposals and
non-property related income, partly offset by
completed developments and acquisitions. The
£10m reduction in our like-for-like properties is
driven by higher bad debts, primarily provisions
against tenant incentive balances, and void and
re-letting costs. Asset disposals account for a
further £7m reduction in net rental income.
These include Ibis, Euston, Greyhound Retail
Park, Chester, both sold in the second half of
last year and Almondvale South Retail Park,
Livingston, sold earlier this year. These reductions
in net rental income were partly offset by the
completion and opening of Westgate Oxford in
October 2017, which contributed an additional
£4m of net rental income and the acquisition
of three outlets in May 2017 added £2m.

Net rental income1

Gunwharf Quays, Portsmouth – a vibrant
mix of retail and leisure and a great day out

London Portfolio

Retail Portfolio

Combined Portfolio

31 March

2019
£m

273

–

2018
£m

253

–

310

289

Change
£m

(1)

–

(7)

(2)

2019
£m

271

–

308

2018
£m

281

–

322

Change
£m

(10)

–

(7)

(3)

(14)

2019
£m

544

–

2018
£m

534

–

618

611

Like-for-like investment properties

Proposed developments

Development programme

Completed developments

Acquisitions since 1 April 2017

Sales since 1 April 2017

Non-property related income

Net rental income

1. On a proportionate basis.

Landsec Annual Report 2019

Table 16

Change
£m

(1)

–

(14)

(5)

Our growing presence in SE1

Progressing three
developments totalling

825,000
sq ft

14–22 Southwark Bridge Road

Red Lion Court

105 Sumner Street

24 Southwark Bridge Road

Lavington Street

1. 105 Sumner

Street

Opportunity to use offsite
manufacture techniques

[ Consent for

131,000 sq ft in
two buildings

[ Existing building

home to Landsec Lab

2. Red Lion Court
A riverside destination

[ Finalised feasibility
for a 324,000 sq ft
office building

[ Combining

best-in-class offices
with new public
realm by the river

3. Lavington Street
Our latest addition in SE1,
acquired in December

[ In feasibility for
a 370,000 sq ft
refurbishment and
redevelopment

[ Proposed start on site

July 2020

4. 24 Southwark
Bridge Road
Longer-term development
opportunity

5. 14–22 Southwark

Bridge Road

Longer-term development
opportunity

Landsec Annual Report 2019

Strategic Report
Financial
review

Highlights
£442m

Revenue profit1 (2018: £406m)

59.7p

Adjusted diluted earnings per share1 (2018: 53.1p)

45.55p

Dividend per share (2018: 44.2p)

£13.8bn

Combined Portfolio1 (2018: £14.1bn)

1,341p

Net assets per share (2018: 1,404p)2

1. Including our proportionate share of subsidiaries and joint ventures,
as explained in the Presentation of financial information opposite.

2. Restated as a result of changes in accounting policies.

See note 41 to the financial statements for details.

Martin Greenslade reports on our
financial performance in detail and
explains the movement in our key
financial measures.

Overview
Against a backdrop of political uncertainty and retailer difficulties, this
has been a challenging year for Landsec. In general, the values of our
London offices have held up well while retail assets have had a difficult
year. Retailers have faced margin pressure from a variety of rising
costs, weakening demand and a continuing shift to online. This has
led to administrations and company voluntary arrangements (CVAs),
the impact of which can be seen in our results. On page 34 , we explain
how CVAs work, how many of our units are affected and the rental
implications. The difficult retail environment has led to a fall in the values
of our shopping centres, retail parks and, to a lesser extent, our central
London shops. Our outlets, leisure and hotel assets have been more
resilient, demonstrating the benefit of a diverse revenue stream in our
Retail Portfolio.

Revenue profit for the year to 31 March 2019 was £442m, up 8.9% from
£406m. The increase in revenue profit was driven by higher net rental
income and reduced costs, in particular interest expense. Adjusted
diluted earnings per share were up 12.4% at 59.7p due to the increased
revenue profit and fewer shares in issue compared with last year following
the £475m return of capital and share consolidation in September 2017.
Over the year, our assets declined in value by 4.1% or £557m (including our
proportionate share of subsidiaries and joint ventures) compared with a
£91m decline last year. This decline in the value of our assets is behind the
reduction in our EPRA net assets per share in the year, down 4.6% to 1,339p.

Martin Greenslade,
Chief Financial Officer

Landsec Annual Report 2019

Nova, SW1

Presentation of financial information

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 bond repurchases, which we call Capital and other items.

We present two measures of earnings per share: the IFRS measure of basic
earnings per share, which is derived from the total profit for the year
attributable to shareholders, and adjusted diluted earnings per share, which
is based on tax-adjusted revenue profit, referred to as adjusted earnings.

Income statement

Revenue profit

Capital and other items

Loss before tax

Taxation

Loss attributable to shareholders

Table

Table 17

Year ended
31 March
2019
£m

Year ended
31 March
20181
£m

442

(565)

(123)

(119)

406

(449)

(43)

(1)

(44)

Basic loss per share

Adjusted diluted earnings per share

(16.1)p

59.7p

(5.8)p

53.1p

1. Restated as a result of changes in accounting policies. See note 41 to the financial

statements for details.

Our loss before tax was £123m, compared with a £43m loss in the prior
year, due to a greater fall in the value of our assets this year, particularly
in our Retail Portfolio as pressure on our retailers led to falling rental
values and higher vacancies. The valuation decline is due to the larger
loss from Capital and other items, whereas in the prior year we incurred
greater costs associated with the redemption of some of our bonds.
The increased loss this year resulted in a 16.1p loss per share, up 10.3p
from a 5.8p loss last year. Adjusted diluted earnings per share increased
by 12.4%, from 53.1p to 59.7p this year, as a result of the increase in
revenue profit from £406m to £442m and a reduction in the weighted
average number of shares in issue. There is no difference between our
adjusted diluted earnings per share and the EPRA measure.

The reasons behind the movements in revenue profit and Capital and
other items are discussed in more detail on page 34.

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 reviews 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 £13.8bn, 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 additional
information to stakeholders on 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.

As set out in the 2018 Annual Report, the Group amended its
accounting policy for debt refinancing with effect from 1 April 2018.
This change in accounting policy has resulted 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 previously reported is no longer required.
As a consequence of this change, the Group’s adjusted diluted net
assets per share measure is now aligned with the EPRA definition.
The Group therefore no longer separately reports any adjusted net
assets per share measures in its financial statements.

While there is also now no difference between our adjusted earnings
measure and the EPRA earnings definition, we have continued to
report adjusted earnings as there may be occasions in the future
when these diverge. The change in accounting policy has been
applied retrospectively and comparatives restated accordingly.
The revised policy and the impact of the change in accounting
policy on the financial statements is detailed in note 41 of the
financial statements. There has been no change to our previously
reported adjusted earnings and adjusted net assets per share as
a result of the restatement of comparative figures.

Measures presented on a proportionate basis are alternative
performance measures as they are not defined under IFRS.
Where appropriate, many of the measures we use are based
on best practice reporting recommendations published by EPRA.
For further details see table 83 in the Business analysis section.

Landsec Annual Report 2019

Strategic Report
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 the London and Retail portfolios, are presented in the table below.

Year ended 31 March 2019

Year ended 31 March 2018

Retail
Portfolio
£m

London
Portfolio
£m

Chart

350

(10)

(32)

308

(21)

287

326

(17)

310

(16)

294

Retail
Portfolio
£m

London
Portfolio
£m

351

(9)

(20)

322

(22)

300

310

(2)

(19)

289

(17)

272

Total
£m

676

(9)

(49)

618

(37)

581

(41)

(98)

442

Total
£m

661

(11)

(39)

611

(39)

572

(43)

(123)

406

Table 18

Change
£m

(10)

Revenue profit increased by £36m to £442m for the year ended 31 March
2019 (2018: £406m). This was the result of a £7m increase in net rental
income for the year as well as a £25m reduction in net finance expense
and £4m of lower net indirect expenses. The increase in net rental
income was driven by a £15m increase in gross rental income but this
was partly offset by £10m of higher net direct property expenditure,
principally provisions against a number of retail tenant incentive
balances. The movements are explained in more detail below.

Net rental income

Net rental income1 (£m)

611

(1)

–

(14)

650

600

550

500

Chart 19

(5)

618

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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 33.

Revenue profit

Gross rental income1

Net service charge (expense)/income

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.

Company voluntary arrangements

A company voluntary arrangement (CVA) is a procedure under
the Insolvency Act 1986 whereby a company concludes a binding
agreement with its creditors to compromise its debts or rearrange
its affairs. CVAs are often used to restructure leases of
underperforming units, most notably in the retail and leisure
sectors, and come into force when a company’s creditors approve
a proposal in respect of that company.

A company proposing a CVA will employ a property agent to assist
it in grouping the leases into different categories which form the
basis of the varying degrees of rental compromises across its
leasehold portfolio. The impact on individual stores can range
from no rental reduction (for the most profitable stores) to closure.

A CVA will typically last between three and five years – the
compromise period. Following the end of the compromise period,
those leases that have been subject to a rental reduction under
the terms of the CVA will have their annual rent reset to the higher
of the compromise rent or the market rent at that time.

Since 1 April 2017, 92 retail/leisure units in our Combined Portfolio
have been subject to a CVA and a further 65 units have gone
into administration. By 31 March 2019, annualised rental income
on these units had reduced by £6.4m through closure (44 units)
or rental compromise.

As at 31 March 2019, 113 retail/leisure units were in CVA or
administration and they represented 2.3% of Group rent (£15.4m).
We estimate that the future loss of annualised rental income from
these units will be £1.6m. We continue to monitor other retailers
who are at risk of CVA or administration.

Landsec Annual Report 2019

Net rental income increased by £7m in the year ended 31 March 2019
as rental income growth from our like-for-like portfolio, completed
developments and acquisitions was only partly offset by the impact
of properties sold since 1 April 2017 and a decline in non-property
related income. Like-for-like net rental income increased by £10m driven
by London where new lettings, rent reviews and higher income at
Piccadilly Lights, W1, which was under refurbishment for part of the
prior year, added £20m. This was partly offset by a £10m decline in net
rental income in Retail largely due to an increase in provisions against
unamortised tenant incentive balances. Our completed developments
generated £14m of additional net rental income following the completion
of Westgate Oxford and Nova, SW1 and further lettings at The Zig Zag
Building, SW1. Significant disposals included a retail park in Livingston,
sold in the current year, and 20 Fenchurch Street, EC3 and Ibis, Euston,
both sold in the prior year.

Further information on the net rental income performance of the
London and Retail portfolios is given in the Portfolio review.

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 £78m (2018: £82m). The £4m decrease is primarily
the result of lower share-based payment charges this year.

Net finance expense (included in revenue profit)

Net finance expense1 (£m)

Our net finance expense has decreased by £25m to £98m due to
interest savings following the refinancing of medium term notes and
the redemption of the £273m Queen Anne’s Gate (QAG) Bond in the
prior year.

Capital and other items

Capital and other items1

Valuation and profits on disposals

Valuation deficit

Table

(Loss)/profit on disposal of investment
properties

Profit on disposal of investment in joint
venture

Profit on disposal of trading properties

Fair value movement prior to acquisition
of non-owned element of a joint venture

Movement in impairment of trading
properties

Profit from long-term development
contracts

Table 21

Year ended
31 March
2019
£m

Year ended
31 March
20182
£m

(557)

(2)

–

(91)

–

(4)

–

Chart 20

Net finance expense

Exceptional items

Capital and other items

(4)

(14)

(453)

–

(565)

(449)

(26)

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Impact of

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1. Including our proportionate share of subsidiaries and joint ventures, as explained in the

Presentation of financial information on page 33.

2. Restated as a result of changes in accounting policies. See note 41 to the financial

statements for details.

An explanation of the main Capital and other items is given on
pages 36 and 37.

150

125

100

123

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1. Including our proportionate share of subsidiaries and joint ventures, as explained in the

Presentation of financial information on page 33.

Westgate Oxford

Landsec Annual Report 2019

Strategic Report

Financial review
continued

Valuation of investment properties
Our Combined Portfolio declined in value by 4.1% or £557m compared with a decrease last year of £91m. A breakdown of valuation movements by
category is shown in table 22.

Valuation analysis

Shopping centres

Outlets

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 2019
£m

Valuation
movement
%

Rental value
change1
%

Net initial
yield
%

Equivalent
yield
%

2,593

634

636

1,283

5,266

1,284

11,740

104

270

1,177

459

13,750

(11.7)

(1.4)

(15.5)

(1.8)

(0.1)

(3.6)

(13.6)

(4.6)

2.6

21.5

(5.0)

(0.4)

(4.1)

(5.7)

(1.1)

(4.9)

(0.5)

1.9

(0.5)

0.1

(1.3)

n/a

(1.9)

n/a

(1.3)

4.8

4.6

6.2

5.2

4.1

3.8

1.6

4.5

0.4

–

3.3

4.4

4.2

5.1

5.0

6.2

5.5

4.6

4.1

3.8

4.8

n/a

4.4

5.5

4.8

Table 22

Movement in
equivalent
yield
bps

n/a

1. Rental value change excludes units materially altered during the year.

Over the year, London office values were broadly unchanged while retail assets declined significantly as rents fell and investor appetite evaporated.
Overall, our Combined Portfolio fell in value by 4.1%. Within the like-for-like portfolio, shopping centres were down 11.7% as retailer failure led to rental
values falling by 5.7% in aggregate with equivalent yields moving out by 24 basis points. The difficult climate for retailers also impacted the value of our
retail parks, which reduced by 15.5% as a result of a 4.9% rental value decline and a 71 basis points outward movement in equivalent yields. In leisure
and hotels, our hotel values were virtually unchanged while our leisure assets reduced in value by 3.1% due to a small decline in rental values and an
8 basis points outward movement in equivalent yields. In London, our office values were down marginally, largely due to a small outward yield shift
in Victoria, SW1, partly offset by rental growth, particularly in Mid-town. Our central London shops declined in value by 3.6%, primarily due to Piccadilly
Lights, W1 where there was a reduction in the anticipated income from short-term lettings.

Outside the like-for-like portfolio, our only asset in the development programme is 21 Moorfields, EC2 which saw a 21.5% increase in value as construction
risk reduced and Deutsche Bank confirmed they would occupy the whole building. Completed developments were down 5.0% due to outward yield
movements at Westgate Oxford and The Zig Zag Building, SW1.

Piccadilly Lights, W1

Landsec Annual Report 2019

Loss on disposals
Loss on disposals in the year relates to the sale of investment properties.
We made a total net loss on disposals of £2m (2018: net profit of £99m),
largely due to the sale of Almondvale South Retail Park in Livingston.

Balance sheet

Fair value movement prior to acquisition of non-owned element
of a joint venture
The £9m fair value movement relates to a previously unrealised profit
being recognised upon our acquisition of the remaining 50% interest
in The Oriana Limited Partnership.

Net finance expense (included in Capital and other items)
In the year ended 31 March 2019, we incurred £4m of net finance expense
which is excluded from revenue profit.

Combined Portfolio

Adjusted net debt

Other net assets

EPRA net assets

Fair value of interest-rate swaps

Net assets

Net finance expense1

Table 23

Net assets per share

31 March
2019
£m

Table 24

31 March
20181
£m

13,750

14,103

(3,737)

(3,652)

(93)

(71)

9,920

10,380

–

9,920

10,386

1,341p

1,339p

1,404p

1,403p

Premium and fees on redemption of medium
term notes (MTNs)

Premium and fees on QAG Bond redemption

Fair value movement on interest-rate swaps

Other

Total

Year ended
31 March
2019
£m

Year ended
31 March
20182
£m

–

(4)

390

(8)

453

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the

Presentation of financial information on page 33.

2. Restated as a result of changes in accounting policies. See note 41 to the financial

statements for details.

The decrease over the prior year in this element of our net finance
expense is due to the much lower level of debt management activity.

Exceptional items
This year, we have incurred £14m of impairment charges which have
been classified as exceptional.

As a result of a decline in the value of Bluewater, Kent, we carried out
an impairment test of the intangible asset related to the management
rights for the centre. This has resulted in impairment charges this year
of £12m against the intangible asset we hold in the balance sheet and
£2m against the related goodwill. These charges have arisen primarily
from a change in the level of internal costs allocated to Bluewater
reducing our net income from the management contract.

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 sales of trading properties, are subject to corporation tax.

This year, there was a tax credit of £4m (2018: charge of £1m) being
current tax of £nil (2018: credit of £1m) and a deferred tax credit of
£4m (2018: charge of £2m). The deferred tax credit in the year relates
to movements in deferred tax on the Group’s intangible assets and
property, plant and equipment.

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 £158m (2018: £193m), of which £36m (2018: £46m)
was directly borne by the Group including environmental taxes, business
rates and stamp duty land tax.

EPRA net assets per share2

1. Restated as a result of changes in accounting policies. See note 41 to the financial

statements for details.

2. EPRA net assets per share is a diluted measure.

Our net assets principally comprise the Combined Portfolio less net debt.
Following the change in accounting policy outlined in note 41 to the
financial statements, the EPRA measure of net assets now aligns with
our calculation of an appropriate adjusted measure of net assets. It is
also much more closely aligned with the IFRS measure, which now no
longer includes the bond exchange de-recognition adjustment. The only
difference between the two is the fair value of interest-rate swaps which
is excluded from the calculation of EPRA net assets. Both IFRS net assets
and EPRA net assets declined over the year ended 31 March 2019 due to
the reduction in the value of our investment properties.

At 31 March 2019, our net assets per share were 1,341p, a decrease of 63p
or 4.5% from 31 March 2018. EPRA net assets per share were 1,339p, a
decrease of 64p or 4.6%.

Chart 25 summarises the key components of the £460m decrease in our
EPRA net assets over the year.

Movement in EPRA net assets1 (£m)

Chart 25

Year ended 31 March 2019

Diluted per share (pence)

11,000

10,000

9,000

1,403

10,380

s
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(76)

(557)

(47)

(2)

1,339

(349)

(14)

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1. Including our proportionate share of subsidiaries and joint ventures, as explained in the

Presentation of financial information on page 33.

2. Restated as a result of changes in accounting policies. See note 41 to the financial

statements for details.

Landsec Annual Report 2019

Strategic Report

Financing
At 31 March 2019, our committed revolving facilities totalled £2,715m
(31 March 2018: £2,090m). During the year, we took advantage of our
strong credit rating and supportive market conditions to make
improvements to our committed revolving facilities. We have entered into
two new facilities and upsized an existing facility. We have also extended
the maturity profile of all existing facilities. The pricing of our facilities
which fall due in more than one year range from LIBOR +65 basis points
to LIBOR +75 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 +22 basis points and are
unsecured. The total amount drawn under the syndicated bank debt and
commercial paper programme was £1,159m (31 March 2018: £1,100m).

In contrast to previous years, this year we did not conduct any significant
tender exercises for our bonds. We bought back £8m (nominal value)
of medium term notes (MTNs) for a premium of £2m following a reverse
enquiry by an investor. However, we benefited from the full year effect
of last year’s larger debt refinancing exercises, which resulted in a
reduction in interest costs of £26m in the year ended 31 March 2019.

The Group’s debt (on a proportionate basis) has a weighted average
maturity of 12.3 years (down from 13.1 years at 31 March 2018), a weighted
average cost of 2.7% (2.6% at 31 March 2018) and 81% is at fixed interest
rates (excluding finance leases). At 31 March 2019, we had £1.6bn of cash
and available facilities. This gives the business considerable flexibility to
deploy capital quickly when investment opportunities arise, as was the
case with our purchase of 25 Lavington Street, SE1.

Changes in accounting policy

The Group adopted IFRS 9 Financial Instruments on 1 April 2018.
While some accounting policies have been amended on adoption
of the standard, none have required the Group’s income statement
or balance sheet to be adjusted. The new accounting policies are
set out in the notes to the financial statements.

The Group has adopted IFRS 15 Revenue from Contracts with
Customers on 1 April 2018. As a result of adopting the standard,
service charge income and expense have been presented on a
net basis for those properties where the property management
activities are performed by a third party (see note 41 of the financial
statements for further details). The Group has elected to apply the
standard on a full retrospective basis as permitted by IFRS 15. The
service charge income and expense for the year ended 31 March
2018 have both reduced by £22m from that previously presented as
a result of adopting this standard. There has been no change in net
service charge, revenue profit, profit attributable to shareholders or
the Group’s balance sheet.

As detailed in the Presentation of financial information on page 33,
the Group amended its accounting policy for debt refinancing from
1 April 2018. The revised policy is set out in note 21 of the financial
statements and the impact of the change in accounting policy is
detailed in note 41 of the financial statements.

Financial review
continued

Net debt and gearing

Net debt

Adjusted net debt2

Group LTV2

Security Group LTV

Weighted average cost of debt2

Table 26

31 March
2019

31 March
20181

£3,747m £3,654m

£3,737m £3,652m

27.1%

28.6%

2.7%

25.8%

27.2%

2.6%

1. Restated as a result of changes in accounting policies. See note 41 to the financial

statements for details.

2. Including our proportionate share of subsidiaries and joint ventures, as explained in the

Presentation of financial information on page 33.

Over the year, our net debt increased by £93m to £3,747m. 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 £85m to £3,737m. For a reconciliation of net
debt to adjusted net debt, see note 20 to the financial statements.
Chart 27 sets out the main movements behind the increase in our
adjusted net debt.

Movement in adjusted net debt1 (£m)

Chart 27

Year ended 31 March 2019

3,652

(412)

338

127

140

(118)

3,737

4,000

3,000

2,000

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1. Including our proportionate share of subsidiaries and joint ventures, as explained in the

Presentation of financial information on page 33.

Net operating cash inflow was £412m, offset by dividend payments
of £338m. Capital expenditure was £127m (£122m on investment
properties and £5m on trading properties), largely spent on our
development programme, and cash outflow for acquisitions was £140m.
We spent £93m, including acquisition costs, on a development site in
Lavington Street, SE1 and £40m on two assets related to the provision
of residential accommodation in respect of our development at
One Sherwood Street, W1. Net cash flows from disposals totalled £118m;
£64m from the disposal of investment properties, principally two retail
parks, and £54m from the disposal of trading properties.

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 25.8% at 31 March 2018 to 27.1% at 31 March 2019,
largely due to the decline in the value of our assets. Our Security Group
LTV increased from 27.2% to 28.6% for the same reason.

Landsec Annual Report 2019

Dividend
We’re recommending a final dividend of 11.65p to be paid on 25 July 2019
entirely as a Property Income Distribution to shareholders registered at
the close of business on 21 June 2019. Taken together with the three
quarterly dividends of 11.3p per share already paid, our full year dividend
will be up 3.1% at 45.55p per share (2018: 44.2p) or £338m (2018: £332m).
The first quarterly dividend for 2019/20 will be 11.6p per share (2018: 11.3p).

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
generally be in the range of 1.2x to 1.3x, but may drop below the bottom
end of this range at times of earnings dilution from developments or
disposals. 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 3.1% compared with
underlying earnings growth of 12.4%, increasing our dividend cover to 1.3x.
As we look ahead, in the short term we see continued downward pressure
on retail rents and a loss of income from properties entering development.
This increased dividend cover provides the business with the flexibility to
navigate these earnings pressures and make disposals, if the opportunity
arises, while maintaining our progressive dividend policy.

At 31 March 2019, the Company had distributable reserves of £3.4bn
which compares with the dividend payable in respect of this year of
£338m. We don’t anticipate that the level of distributable reserves will
limit distributions for the foreseeable future.

Martin Greenslade
Chief Financial Officer

21 Moorfields, EC2

Landsec Annual Report 2019

Strategic Report
Physical
review

A review of the actions
we’ve taken this
year to enhance the
quality, efficiency and
long-term sustainable
performance of our
physical infrastructure.

Climate change
Context
During the year, two important reports
were released showing how climate change
is affecting the UK and what the projected
impacts are likely to be.

The UN Intergovernmental Panel on Climate
Change report of October 2018 showed how
the limiting of global warming to 1.5°C above
pre-industrial levels is unlikely to happen. The
current trajectory is towards 3°C of warming by
2100, which will cause unprecedented changes
to the world’s natural systems and to society.
Globally, average temperatures have already
risen by 1°C and the likelihood and severity of
extreme weather events is increasing every year.

Launched by the Environment Secretary,
Michael Gove, in November, UK Climate
Projections 2018 showed us what our climate
and weather might be like in future. By mid-
century, the likelihood of a summer as hot as
2018 will go from 10-20% to 50%, with extreme
summer temperatures rising as much as 5°C.
Rainfall will decrease by up to 47% in summer
and increase by 35% in winter. Hotter, drier
summers and warmer, wetter winters would
have physical impacts on property, logistics
and agriculture. Disruption from extreme
weather and heatwaves could have unforeseen
effects across society.

Although the UK has achieved significant
emissions reductions over the past decade,
it’s crucial that businesses continue to lead the
way. While the UK has world-leading legislation
and regulation on designing for low-carbon
and energy efficiency, it isn’t sufficient to drive
emissions down year on year. This is the

responsibility of business, and every tonne of
carbon and kWh of energy saved provides a
financial benefit. For the benefit of customers
and our investors, addressing carbon emissions
and increasing energy efficiency is the sensible
thing to do. Strong progress from business can
also give government confidence to set more
aspirational policies and regulations, which drive
improvement across every sector and business.
So, through our commitments and targets,
we’re supporting the transition to a low-carbon
world, creating benefits for our bottom line,
reducing our customers’ costs and bringing our
partners along with us.

Strategy
The Task Force for Climate-related Financial
Disclosures (TCFD), launched in 2017, encourages
businesses to build resilience to the possible
outcomes of climate change. We’re committed
to acting on the recommendations of TCFD. This
means analysing how our portfolio can become
more efficient, so we’re ready for a low-carbon
economy. It also means knowing how our assets
and customers could be affected by the impact
of shifting climatic conditions. By assessing
various scenarios and the possible impacts
on our portfolio and our stakeholders, we can
ensure our strategy is relevant and effective.

Transition
We continue to focus on portfolio quality.
Our assets should support the changing
needs of customers, which means investing
in low-carbon and energy efficient buildings
and technology. New assets must move
from dependence on gas towards all-electric
solutions like air source heat pumps. We’ve
begun this transition within our developments,
scaling back fossil fuel-dependent boilers in
favour of electric heating and cooling. This
means our assets will be powered by cleaner
energy as the volume of renewable energy
resources on the grid increases.

Resilience
Part of becoming more resilient is being aware
of the physical risks of climate change, like
flooding, sea level rise and overheating. As the
climate becomes hotter and wetter, we need to
be sure our assets still deliver the same quality
of experience to our customers. At present the
percentage of our portfolio at high risk of
extreme weather in the lead up to 2030 is 1.4%
when measured by value. As climate change
will gradually increase the level of risk over time,
it’s important we continually reassess the risks.

Energy transition

We’re making big progress on carbon and
energy. This year we’re almost half way to
our 2030 energy reduction target with over
£4m of avoided costs for our customers.

£4m

Costs avoided for
our customers
through our energy
efficiency projects

18.2%

Reduction in energy
intensity compared
to a 2013/14 baseline

Landsec Annual Report 2019

We mitigate climate risks through physical
measures, insurance and business continuity
planning. At present, the level of residual risk to
our assets is low up to 2030. In our development
pipeline, we’re designing and constructing
high-quality buildings and spaces capable
of delivering operational resilience over their
lifetime, taking into account how the UK’s
climate will change in the coming decades.
We’re confident our focus on energy transition
and mitigating physical risks means our
business will continue to be resilient to the
impact of climate change.

Advocacy
We need swift and deep decarbonisation of
the world’s economies. We are advocates for
climate action and this year we worked closely
with the World Business Council for Sustainable
Development to promote the adoption of
long-term, ambitious targets within the
buildings and construction sector. We’ve also
contributed to the UK Green Building Council’s
Advancing Net Zero programme, joining the
Steering Group to create a nationally agreed
definition of ‘zero carbon buildings’ – a definition
that may shape the industry for years to come.

See our full response to TCFD, and our
Resilience commitment, in our Sustainability
Performance and Data Report at landsec.com/
sustainability/reports-benchmarking

Efficient use of natural
resources
Carbon
In 2016 we became the first commercial real
estate company in the world to have its carbon
emission target approved by the Science Based
Targets Initiative, linking our carbon reduction
targets with the science of climate change.
This year we achieved significant progress
against those targets. We’ve reduced carbon
intensity in the portfolio by 39.8% since 2014
and have almost surpassed our goal of reducing
emissions by 40% by 2030. We’re now in pursuit
of our longer-term ambition of reducing carbon
intensity by 80% by 2050.

Energy
Using less energy is fundamental if we’re to
meet our long-term emission targets and keep
making our spaces affordable for customers.
Since 2013/14 we’ve reduced our energy intensity
by 18.2%. This equates to a total of £4m per year
of avoided costs for customers. To do this we’ve
continued to work with facilities management
partners to harness the vast amounts of data
our building systems produce. Doing this helps
us drive energy efficiency and proactive
maintenance, and optimise the customer
experience within our spaces.

Refill me

In 2018 we launched the ‘Refill Me’ campaign
to help tackle the issue of single-use plastics.
This enables visitors at our retail destinations
to request a free refill of water – in their own
bottles – from our customers, without an
obligation to make a purchase. Not only
does this encourage people to refill reusable
bottles, it also provides an opportunity for
brands to engage with people on sustainability.
100 customers are now signed up across 12
of our assets.

We’re working in close partnership with our
customers to deliver energy, carbon and
cost savings. At 7 Soho Square, for example,
we’ve partnered with the building’s largest
customer to install LED lighting on its floors.
We’ve forward funded over £234,000 for the
project and will recover this investment via the
savings delivered to the customer. The new
lighting reduces the building’s electricity usage
by 13% and saves 47 tonnes of CO2 per year,
while improving the look and feel of the offices.
At Bluewater shopping centre we replaced all
car park lamp posts with LEDs, delivering a
saving of 832.5 kWh and £101,000 in the first six
months. We’re looking for similar opportunities
across the portfolio.

7.7bn

Plastic bottles of water are
purchased each year in the UK

This year we joined with a group of pioneers
in an industry-wide initiative called Design
for Performance. This aims to ensure buildings
perform as well in operation as by design – a
challenge we face as an industry. The initiative
is led by the Better Buildings Partnership, a
collaboration between leading commercial
property owners who are working together
to improve the sustainability of commercial
building stock.

Design for Performance should help give
customers visibility of their potential energy
costs. This is a significant change from current
practice. This year we worked closely with our
building designers and contractors to better
model and test the energy performance of our
21 Moorfields development. This will benefit
both our customer, Deutsche Bank, and us by
ensuring the base building and customer spaces
work together efficiently.

Landsec Annual Report 2019

Strategic Report

Physical review
continued

Renewables
The UK electricity grid is becoming cleaner.
Since 2016 we’ve played our part in supporting
this decarbonisation by purchasing 100%
renewable electricity. We also continue to
procure 15% of our annual gas demand as
green gas, further reducing carbon emissions.
Our on site renewable energy installations
have performed well and we continue to look
for opportunities to add to our existing 1.5 MW
of solar PV capacity.

Landsec energy intensity

Chart 28

250

247

■ London
■ Retail
■ Landsec

204

129

106

200

150

100

m
/
h
W
k

2013/
2014
Baseline

2018/
2019

2013/
2014
Baseline

2018/
2019

2013/
2014
Baseline

2018/
2019

2030 target

Waste management
In 2018 public and government pressure to act
on single-use plastics and waste management
reached new heights. Although we’ve long-taken
waste management seriously, we understood
that more must be done. That’s why, last
summer, we launched our Refill Me campaign,
bringing together over 100 retailers to offer
shoppers free refills of water (see highlighted
story on previous page).

This year we also worked with charity Hubbub
at Trinity Leeds as part of the #LeedsByExample
recycling campaign. That’s seen us engage
visitors at Trinity Kitchen with our recycling
reward machine, which offers diners discounts
in exchange for them recycling their bottles
and cans. Through this initiative we’ve now
collected and recycled over 4,000 items.

100%

of waste diverted from landfill

74.7%

of waste is recycled or reused

Landsec Annual Report 2019

We’ve also been trialling coffee cup recycling
campaigns at Gunwharf Quays and Bluewater,
working with our customers and supply chain
partners to find a solution for this notoriously
hard-to-recycle product. We’ll be sharing what
we learn across all Landsec destinations and
the wider industry.

Fashion and textile waste is an emerging and
increasingly high-profile problem. We aim to
show that action can be taken to protect the
environment without placing retailers under
financial strain. In particular, we’re responding
to calls from the government to place a levy on
fashion items by mobilising an alternative plan
focused on collaboration rather than taxation.

For additional information on our
corporate commitments and the definition
of our corporate target boundaries see
our 2019 Performance and Data Report
at landsec.com/sustainability/reports-
benchmarking

Sustainable design
and innovation
Innovation in development
The design for our scheme at 21 Moorfields
supports the building from a bridge over an
Underground/Crossrail station, rather than
building up from foundations in a conventional
way. By applying our experience to develop new
construction processes and techniques, we’ve
responded to the technical challenges involved.
For example, we’ve been taking a fresh
approach to procurement and partnership.
Instead of appointing the main contractor and
then they contract with key partners, we first
spent a year working with specialist suppliers
in steel, cladding, lifting and mechanical and
electrical services. This gave us much deeper
insight into the design and cost of 70% of the
project. We then used this knowledge to shape
the main contractor tender.

Tackling textile waste

Our first response to the textiles issue was
a trial scheme, ‘spring clean, think green’,
launched in March 2019 at Westgate.
During that time, we invited guests to

drop-off used clothes and shoes for recycling,
gave them information on the possibilities
created by recycling and incentivised them
through competitions.

Landsec monthly portfolio recycling rates 2014-19

Chart 29

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

Sept-18

Feb-19

London

Retail

Landsec

Commitment

This approach has similarities to proven
manufacturing processes and we expect it
to reduce complexity, cost, unpredictability,
waste and time on site for us. We’re already
applying knowledge gained at 21 Moorfields
to our schemes at One Sherwood Street
and Nova East. And we’re looking at further
ways to apply new techniques – including
innovations in offsite construction and 3D
printing – to improve our developments.

Well-established technologies can also have
a big impact when applied in new ways. For
example, we’re now using building information
modelling to create a multi-dimensional model
of a building, accurate to every last detail inside
and out. We are progressing towards creating
a digital twin for each building, which enables
us and our supply partners to review any
component or system during construction and
operations. This capability will help our partners
get work right first time, reducing cost and
avoiding delays. It’s also set to enhance how

De-risking construction costs

Chart 30

Adopting an innovative
approach, we worked in
partnership with four
specialist suppliers to gain
greater insight into the
design features and
construction costs of
21 Moorfields – before
we engaged the main
contractor. This gave us
better understanding
and more control over
70% of the build.

Envelope
14%

Other
28%

Total
construction
cost

MEP
26%

Other
3%

i
t

ntractors to de-risk 70 % o f c o n s

Structure
29%

n c osts

c tio

we operate the asset. Repair, replacement and
upgrades to everything from lighting to lifting
can be improved. And with greater use of
sensors, scanners, data management and
artificial intelligence, we can now automate
even more maintenance activity – improving
the customer experience and reducing cost.

Wellbeing
We design and manage our assets to enhance
our customers’ physical and mental wellbeing,
and to support their productivity. This year
much of our work focused on 21 Moorfields.
The design of the building responds to
Deutsche Bank’s desire to create a modern
and sustainable workspace focused on the
wellbeing of its employees.

The development features an airy high-walk
away from London’s traffic, creating a focus for
human interaction. An atrium passing all the
way through the building will bring natural light
into the centre of the floors, while the building
will have seven west-facing roof terraces
providing greenery and afternoon sunlight.
Staircases with full height windows will bring in
daylight and encourage staff to use stairs rather
than lifts. Externally, over 50% of the open
space will be planted, benefiting occupants and
local communities, while also supporting wildlife
and biodiversity. A wellness centre and Zen
garden will be created, supporting staff and
acting as a foil to the busy city beyond.

21 Moorfields, EC2. For more information on
the 21 Moorfields development go to page 26

Central atrium brings
in natural light

Locally-sourced
stone and timber

Open space planted
with native species

Lightweight
steel frame

Lightweight piling
and floor slabs

Wellness centre and
Zen garden

Full-height windows
on staircases

High walkway
remote from traffic

Landsec Annual Report 2019

Strategic Report

Biodiversity
In support of our commitment to enhance
biodiversity across the five retail assets that
offer the greatest potential, this year we planned
and secured budget for enhancements which
will deliver a biodiversity net gain of between
5% and 25%. We’ve also recognised the need
to increase biodiversity in urban areas, so we’ve
extended our biodiversity commitment to our
assets in London and are developing a strategy
for all future developments to deliver net gain.

If we deliver more and better green spaces we’ll
also see other benefits. For example, having
more soft planting helps to maintain cooler
temperatures in public spaces, soak up rainwater
after a storm and enhance the atmosphere
within a building, enabling occupants to relax.
We believe this is good for nature, good for
business and good for our customers.

21 Moorfields shows how we can deliver net
gain in urban spaces. Previously a vacant site,
we will create a new green open space where
50% of the area is planted with native species.
More than 20% of the total site area – including
its elevated walkways and roof terraces – will
be biodiverse.

Physical review
continued

Materials
Work on 21 Moorfields has demonstrated our
well-considered and innovative approach to
materials. The selected material palette for key
spaces revolves around natural materials such
as stone and timber. The project team has set
out to source all materials from manufacturers
in the UK and Continental Europe, reducing
both emissions from transportation and the risk
of ethical issues in manufacture and extraction.
For example, Irish limestone has been chosen
for external stone paving instead of granite
typically extracted in China.

The building’s steel frame is designed to be as
light as possible, as it sits above a very busy
railway station. This means structural elements
such as concrete piling and floor slabs also
need to be lightweight, so we’ve used recycled
aggregates and cement replacement. These
materials have lower impact compared to
traditional steel and concrete solutions, saving
2,400 tonnes of CO2. A timber finish has been
designed-in for internal areas, including lift
lobbies. This is an important feature, not only
as natural materials support wellbeing but
also for the sustainability credentials of timber,
which naturally sequesters carbon.

We collaborate with our service partners
to optimise the efficiency of our buildings

2019 Sustainability
Performance and Data Report

For a full update on our progress against
our sustainability targets, see our
Sustainability Performance and Data
Report at landsec.com/sustainability

Landsec Annual Report 2019

Sustainable
Development
Goals

In September 2015, the United Nations
General Assembly adopted 17 Sustainable
Development Goals (SDGs) for 2030.
The SDGs or Global Goals are an urgent
call to action for all countries to address
the environmental, economic and social
imbalances that affect the world’s
population and its institutions.

The SDGs are a blueprint of what is needed
to create a sustainable future for all, but
to deliver them will require productive
partnerships between business, government
and society. We mapped our sustainability
commitments to the SDGs and we know
if we choose to run our business in the
right way we can contribute to meeting
the goals.

Structuring our activities and our reporting
to support the goals gives us two things.
We know we are addressing global issues,
which makes what we do relevant and
important at a global scale. It also gives
us a common language of 17 simple goals,
so investors, partners, customers and
communities can assess our progress in
a familiar way.

UN Global Compact
This year we’ve became a signatory of
the UN Global Compact. This voluntary
initiative brings together leading
businesses ready to commit to universal
sustainability principles and take steps
to support UN goals. Key commitments
include doing business responsibly,
aligning with key principles on human
rights, labour, environment and anti-
corruption. It also asks companies to
take strategic action to advance broader
societal goals.

You can find more information on our
UNGC action, and how we’re addressing
the SDGs, in our Sustainability
Performance and Data Report at
landsec.com/sustainability/reports-
benchmarking

Social
review

Our vision is to be the
best property company
in the UK in the eyes of
our stakeholders. Here,
we set out how we define
and engage with our
many stakeholders and
we review key actions
taken during the year.

Our stakeholders
Our key stakeholders include our customers,
communities, partners and employees. When
we get our many interactions with these groups
right, it enables us to create long-term value for
a fifth stakeholder group critical to our success:
investors. By providing the right space, we help
businesses to succeed, the economy to grow
and people to thrive.

To achieve all this, we continually work to
anticipate, understand and respond to all of our
stakeholders’ needs and expectations, applying
our deep know-how and capabilities to create
mutual advantage. That’s why we’ve themed
this Annual Report ‘Experience matters’.

As a large commercial property company,
the scope and range of the individuals
and organisations we impact is very broad
and constantly evolves. It’s important that
the board, Senior Management and teams
across the business take all stakeholders
into consideration when making decisions.
This includes thinking hard when there are
potential frictions between different interests
and priorities.

Our approach to stakeholder engagement
is informed by our six values, see page 49.

You can read about our approach
to stakeholder engagement at
landsec.com/sustainability/our-
stakeholders

Creating great experiences
for everyone

Around one in five people in the UK has a
disability or impairment and more than half
of households have a connection to someone
with a disability. Their collective spending
power – the purple pound – is almost £250bn,
but they often find shopping environments
difficult to access, navigate and enjoy. We
aim to give every customer a great

experience, so this year we joined the Purple
initiative to make our destinations a positive
environment for those with a disability. Our
goal is to ensure our centres are a champion
in their catchment (known as Disability
Confident Level 3) by the end of 2019.
Bluewater led the way when it became the
first UK centre to achieve Level 3, in October
2018. We then celebrated the launch of the
first Purple Tuesday accessible shopping day
by turning Piccadilly Lights purple.

Our customers
We put customers at the heart of what we
do and how we do it, always looking to create
value for them. By meeting the needs and
aspirations of customers today, and enhancing
our products and services so they appeal to the
customers of tomorrow, we can successfully
pursue our vision and purpose.

Diverse businesses and sectors
Our customer base is large and broad. It ranges
from the companies that occupy our offices
and their employees to retailers, leisure
operators and the millions of people who visit
our locations to shop, dine, drink, play, see
films or socialise. We work with many types
of businesses and organisations, from global
corporations and international consumer brands
to local companies, fast-growing start-ups and
an array of other enterprises. From finance to
fashion, we’re active in a diverse range of
business sectors and we’re constantly scanning
the business landscape to see where the next
generation of great customers will come from.
We aim to anticipate people’s evolving
expectations and needs and we consider future
market scenarios carefully. For more on our
markets and strategy see pages 10-19.

Customer insight and innovation
To help create the right offer, we’ve identified a
number of customer personas. These define the
different roles our customers could take during
our interactions, helping us to understand, at
any given point, what they’re doing, how they’re
doing it and what they might need from us or
our partners. For example, each person in a
small business may have multiple roles whereas
functions tend to be more specialised in larger
businesses. Our approach allows us to identify
which issues or opportunities will have the
biggest impact on each key person and devise
the best way to address them.

The breadth of experience we have within the
business is a powerful asset. We can draw on
people with expertise in many different areas
such as property, construction, architecture,
customer service, technology, innovation,
marketing and human resources. We’re working
to ensure we embed innovative thinking and
processes in our approach, so we can keep
finding new and better ways to deliver a great
experience for customers. We also look to the
wider world, outside our sector and draw on
the best customer experiences seen in other
industries, inspiring us to think differently about
the challenges our customers face.

Landsec Annual Report 2019

Strategic Report
Social review
continued

We experiment and collaborate with our
partners to best meet the needs of our
customers. As an example, we involve them
in workshopping our joint futures through
makeathon sessions. These six-hour immersive
creative workshops focus on a real business
problem, with the aim of finding an effective
and feasible solution. A number of specific
projects are underway to determine the
customer value derived from Smart Buildings;
the impact of new ways of working and living;
and analysis of the longer-term impact of
globalisation to our products and services,
and how we can adapt them.

Knowing our customer means we can support
them with important issues. For many customers
in our buildings, energy costs can be significant.
So we’re helping to drive down costs through
creating insight from energy data, seeking
opportunities for improvement and helping
customers to carry out energy efficiency
projects. Other customers in our buildings can
experience skills shortages, and our community
employment programmes can help to find
candidates in retail, leisure and hospitality.
Working with customers in this way benefits
them, but also creates a bottom line benefit
and value to society.

In this Annual Report, you can read about a
range of ways in which we’re evolving our offer
to customers, including our Myo flexible office
brand (see page 4), our Landsec Lounge
concept (see page 28) and the immersive
brand experiences and next-generation retail
environments we’re creating in our destinations
(see page 6).

It’s an incredible thing to give people
a second chance to turn around their
lives and above all to help people into
employment – with all that means
for personal and family lives, our
communities and society.”

Rory Stewart MP
Prisons Minister, speaking at the launch of our
aerial window cleaning academy in HMP Isis.

Our social value
contribution in 2018
£3.2m

social value created through our
community programmes and partnerships

1,500+

number of people directly supported
through our community programmes

£746,000

rental value of space we donated
to community partners

1,000+

people who benefited from our
volunteering programme

92%

of students reported an increase in
confidence through our education initiatives

£25m

new cumulative target set for 2025

Recent research shows that employment in
the wholesale and retail sector is forecast to
grow by 12% over the next 10 years. In the
accommodation and food services sector that
figure will be 13%. In October 2018, we launched
Ambition:Leeds, a new training academy for
retail and hospitality talent, created in
partnership with Leeds City Council and Leeds
Business Improvement District. We created the
academy in response to demand from retailers
for more skilled recruits ready to join their
workforce. The academy provides bespoke
training by some of the region’s most respected
education partners including Leeds City College,
Leeds Beckett University and The Source Skills
Academy. In its first year alone, the centre will
help to prepare 500 students to join the retail
and hospitality sector.

Our communities
Our destinations play an important role in
their communities as space to work, shop or
live. We listen to local organisations, residents
and businesses when we’re planning and
constructing a development, investing time
and resources to support community projects
and foster close relationships.

Measuring our social value
This year we launched our first Social Contribution
report, measuring the social value of our
community programmes. Doing this enables
us to bring our impact to life and quantify the
difference we are making to people, communities
and society in financial terms. It also helps us to
find the areas of our programme which add the
most value to society, meaning we can shape
our activities to deliver even more. Since 2015
we have generated social value of £9.4m through
our community programmes and partnerships.

Using the baseline from this report, we set
a new social sustainability commitment this
year: to create £25m of social value through
our community programmes by 2025. It’s a
stretching target so we’ll need to work closely
with customers, communities and partners
to achieve it. See ‘Our social value contribution
in 2018’ right for more key facts and figures on
our social contribution this year.

Community employment
In 2011, we set a target to help a total of 1,200
people further from the jobs market into work
by 2020 through our Community Employment
Programme. We’ve already exceeded that
target having now supported over 1,300 people
from our local communities into employment
since 2011. This year our Community Employment
Programme has created £1.2m of social value,
supporting 187 people into jobs.

We know working with ex-offenders creates
significant social value. Getting people into
productive and positive work significantly
reduces the chances of re-offending. For this
reason, in September 2018 we launched the UK’s
first aerial window cleaning training academy
at Her Majesty’s Prison & Young Offender
Institution Isis, in partnership with our charity
partner Bounce Back and our service partner
Not Just Cleaning Ltd.

Aerial cleaning is a skilled job that keeps
our buildings clean and operating efficiently.
This involves highly technical access skills
like abseiling. There’s currently a shortage of
people trained in the necessary skills and this
is a problem for us and our industry. So the new
academy will play an important role in tackling
the ongoing skills shortage while helping to
reduce reoffending. Since 2015, our work with
criminal justice charities has generated £1.3m
of social value.

Landsec Annual Report 2019

This year we launched the first aerial window
cleaning academy in a UK prison at HMP Isis

Students participating in our Made in Portsmouth
challenge, supported by our employees

Cumulative total number of jobs secured

Chart 31

1,336

1,149

962

779

583

426

2014

2015

2016

2017

2018

2019

1,400

1,200

1,000

800

600

400

200

206

2013

Jobs

Target

Education
Too many young people face barriers that may
prevent them from accessing jobs in our industry.
Our education programmes aim to inspire the
next generation of property professionals,
allowing equal access to opportunities and
bridging the skills gap. By encouraging students
from all backgrounds into our industry we can
become more diverse and successful as a
business, and better reflect our local communities.

This year:

— We’ve run enterprise challenges focused

on property and sustainability for students
in London, Portsmouth, Oxford and Leeds

— 295 young people, 63% of whom are female,

took part in our programmes

— 97% of these students felt more prepared

for the labour market.

We’re encouraging more young women to
consider careers in property, engineering and
construction through our Build Your Future
programme. Since 2017, 111 students from
London have taken part to create their idea
for a new development, supported by female
role models from a diverse range of roles in
our industry.

Our programmes raise young people’s
aspirations and develop their employability
skills, with the expertise of mentors from
Landsec and our partners. This means we can
identify future talent for our industry, including
encouraging students from our local communities
to apply to our Trainee Academy.

Charity partnerships
Our partnerships with local and national
charities mean we can support causes that are
important to our employees, customers and
communities. This enables us to address issues
such as rising homelessness, enhance social
mobility and create opportunities for people
living in the communities where we’re based.

Working with Bounce Back since 2012, we have
met a shared objective of empowering people
to fulfil their potential, regardless of background
or any other barrier. Together, we’ve launched
training academies in several London prisons,
engaging closely with our supply partners to
create job opportunities. This year we were
thrilled to welcome Bounce Back’s offices and
community training teams to our Castle Lane
site for 18 months, providing in-kind donations
of space and resources. Our community
partners occupied spaces worth the equivalent
of £746,000 in rental value this year, allowing
them to maximise their resources whilst
bringing our spaces to life between becoming
vacant and redeveloped.

Landsec Annual Report 2019

Strategic Report
Social review
continued

We continue to partner with homelessness
charities local to our assets across the UK,
including The Passage and The Cardinal Hume
Centre. Our employees volunteer, fundraise and
raise awareness to support their work. We’ve
also seen the generosity of our customers and
partners across the country, with over £756,000
of in-kind donations supporting our charity
partners this year. This included £205,000 of
toys and gifts that St David’s Cardiff donated
to local Welsh charities in 2018.

Volunteering
This year more than half of our employees
volunteered time. In total 2,086 hours, or over
85 days, were given by employees to support
our employment and education programmes.
These hours equate to over £163,000 of social
value. This volunteering has helped to:

— Enhance the employability skills of serving

prisoners and ex-offenders

— Provided and served food for people

experiencing homelessness

— Delivered numerous community projects

for ex-offenders, women’s charities,
homelessness charities and young people.

We’ve also expanded our opportunities to
include professional and skills-based volunteering,
delivering support to organisations where we
know our experienced employees and customers
can have real impact while also developing their
own professional skills.

For a full update on our progress
against our sustainability targets,
go to landsec.com/sustainability/
reports-benchmarking

Our employees
Landsec’s employees are its lifeblood and a
powerful source of competitive advantage.
We’re constantly working to create an
environment where people can enjoy work
and feel encouraged and supported to grow.
Experience matters, so we help our talented
people to develop their expertise, knowledge
and skills and increase their contribution
and impact.

As at 31 March 2019

633

total headcount

15%

employee turnover for the year
(11% voluntary turnover)

52%:48%

female:male ratio

40%

female representation on the Board

42%

female representation at Executive
Committee and direct reports

Employee engagement
We aim to provide an employee experience that
truly matches our values. We have found that
the key to a strong culture and engagement is
to listen carefully to what employees tell us and
act on what we learn. Our engagement survey
plays an important role in this. We’re continually
developing ways to give our people a strong
voice on their work experience, life at Landsec
and the overall success of the business.

We conduct employee engagement surveys
across the business every two years. Our last
survey was in 2017 and we set out some of the key
findings in last year’s Annual Report. Since then
we’ve been working hard on key areas we want
to improve, including employee recognition and
performance management and we’ve conducted
shorter pulse surveys in parts of the business to
measure how we’re doing. In a recent survey of
230 employees in our retail business unit, 204
(92%) responded to the survey. We were pleased
to see improved scores in the areas of leadership,
development and performance management.
We will carry out a full engagement survey during
the 2019/20 financial year.

The number of employees leaving the Company
dropped this year. Our turnover reduced from
19.4% (14.7% voluntary turnover) for the 12 months
ending 31 March 2018 to 15.4% (11.1% voluntary
turnover) for the 12 months to 31 March 2019.
The higher turnover number last year resulted
in part from outsourcing activity last year which
led to a transfer of employees to an outsource
partner. There was no outsourcing during this
financial year.

We provide a programme of internal
communication events that enable employees
to hear from our Chief Executive, senior leaders
and colleagues about the Company’s
performance and changes in the business.

Volunteers from Landsec worked with our
ex-offender charity partner Bounce Back
on a community project in Brixton

Our Trinity Kitchen education programme in Leeds is
supported by volunteers from Landsec and our customers

Landsec Annual Report 2019

Topics have ranged from our financial results to
our social contribution, from innovation to the
launch of our Myo flexible offer. These events
are streamed to sites outside London and there
is always a chance for questions and lively
discussion. They’re supported by a constant
stream of news and information on our internal
Landsec News website, which we relaunched
this year.

Our Chief Executive and Human Resources
Director also attend quarterly meetings of our
Employee Forum. The forum is made up of 13
employees who have volunteered to represent
six functional groups of employees covering
our whole business. It acts as a channel for
employees to ask Senior Management questions
and make suggestions.

In October 2018 the Employee Forum had its
first meeting with our Chairman. This is an
opportunity for our people to ask questions
and for the Chairman to hear directly from
employees about their experiences within
Landsec. Meetings between the Chairman
and the Employee Forum enable the Board
to assess the culture of the organisation and
engage directly with employees. We will be
holding a session for the Employee Forum and
other members of staff to get to know the
Board in July 2019.

Creating experiences
This year, senior leaders hosted 33 localised
events with their teams to explore what it
means to be customer-focused. Employees
attending those events scored themselves on
average at 81/100 in terms of how confident
they are personally to deliver great customer
experiences. We also held sessions for new
starters in our business to help them understand
our customer-experience led culture.

Following feedback from employees, and to
better align with our culture and values, we’ve
developed a new performance and development
framework that focuses on each employee’s
impact on customers and other stakeholders.
We involved a number of employees, including
members of the Employee Forum, in developing
the framework and pilot training. The new
framework will be rolled out during 2019/20,
with training support for all employees.

This year we relaunched our Code of Conduct.
The code is not just about providing access to
a set of policies but a statement of how we will
behave and how we will treat our customers
and the communities where we work. It makes
it easy for our people to make the right
decisions and to know what it means to live our
values. As our values articulate how we should
behave every day, we refer to them throughout
our recruitment process. Our aim is to attract
talent who will help us to build an ‘experience’
culture at every level within the organisation.
This year we also updated our Management and
Leadership development programmes to align
the content more to our values and leadership
competencies, better equipping delegates to
deliver exceptional experiences.

Employee health and wellbeing
In addition to our support for employees’
physical wellbeing, we’ve been giving close
attention to the impact of mental health.
One in ten of our employees are mental health
first aiders. This means that, with the support
of training, they are able to:

— Spot the triggers and signs of mental health

issues in fellow colleagues

— Have the confidence to step in, reassure and

support a person in distress

— Use non-judgemental listening skills and
knowledge to ensure our employees are
guided to the support they need.

We have launched a mental health app,
‘Thrive’, for all employees and this was
supported by a powerful campaign video.
We also introduced monthly mental health
first aid lunches called ‘Time for You’, where
our first aiders openly share their experiences
and expertise. See pages 46-47 for information
on how we’re also working to support mental
health within our communities.

Our Chairman met with the
Employee Forum in October

Our values

Customer
service

Accountability

Innovation

Respect

Excellence

Integrity

Landsec Annual Report 2019

Strategic Report
Social review
continued

Diversity
Having a diverse workforce at all levels of our
company will ensure we make better decisions –
for our business and for our stakeholders. We
believe that employing a diverse mix of people
makes us a stronger and more sustainable
business, and one that reflects the diverse
society around us.

We consider diversity in the broadest sense,
including in terms of gender, ethnicity, culture,
socio-economic background, disability and
sexuality. We also value and encourage diversity
of thought, perspective and experience.

In 2017 we set targets to help us achieve our
diversity goals. We focused on gender diversity
and the gap we saw in terms of female
representation at Leader level, setting a target
to increase women at that level to 30% by 2020.

Despite a lot of work to support our female
employees (see information below), we have
moved backwards slightly from 24.4% female
representation at Leader level in March 2018
to 19.5% in March this year. This is the result
of a movement of four positions.

We continue to meet the voluntary targets
set by the Hampton-Alexander Review, which
requires 33% representation of women on
FTSE 350 Boards and 33% representation on
Executive Committee and their direct reports.

Employees have provided more information
about their ethnicity, sexual orientation and
physical ability and this has allowed us to
set some stretching longer term targets and
to measure our progress. See key targets
table below.

During the year, we launched the Landsec
Includes network. This brings together
representatives from our three employee
networks (Women, BAME and LGBT+) and
our Disability Forum. Landsec Includes enables
employees to share their experiences working
at Landsec and exchange ideas that can
enhance Landsec’s role as an inclusive employer.
To support our approach to inclusive recruitment,
this year members of our Executive Committee
received unconscious bias training.

Working with our Women’s network, this year
we piloted new training to help employees with
their confidence and impact and to manage
the conflicting priorities that can occur in a
modern working life. Like our mentoring
programme, this training has been developed
with women in mind but will be available to
support all employees in the year ahead.

We are offering more support to women
commencing and returning from maternity
leave. This has been in the form of coaching to
make the transition back into the workplace as
smooth as possible.

Landsec Annual Report 2019

Whole organisation gender split

Chart 32 Whole organisation by ethnicity

Chart 33

■ Female
■ Male

52%
48%

■ Asian
■ Black
■ Other
■ White
■ Not recorded

6.6%
5.2%
4.6%
78.2%
5.4%

52%

of our overall workforce is female.

16%

of our employees disclose themselves to be from
BAME ethnicity backgrounds. This compares to
14% for the UK population as a whole according
to 2011 UK census data. However, this reduces
to 7% for Executive Committee, Senior Leader
and Leader levels. See 2025 targets below.

Gender by level

Chart 34 Whole organisation

Chart 35

sexual orientation

100

Board/
Executive

Senior
Leader

■ Female ■ Male

Leader

Manager Professional

Support

We have good female representation at all
levels of our organisation except for Leader
level. Out of 82 employees at Leader level
only 16 are female. This is a reduction since
March 2018 of four individuals.

Key targets

■ Bisexual
0.6%
■ Heterosexual
82.1%
■ Lesbian/Gay
2.2%
■ Other
0.2%
■ Prefer not to say 9.7%
■ Not recorded
5.2%

3.0%

of Landsec’s employees have disclosed that
they are LGBT or other. However, 15% of our
employees have not disclosed their sexual
orientation or prefer not to say. We want to
be sure we are a welcoming place for all and
so we will be participating in appropriate
benchmarking over the next year to measure
how we compare.

Whole organisation

Board, Executive
Committee
and Senior Leaders

Leader level

Female
representation
(by 2025)

50% 50% 40%

BAME
representation
(by 2025)

>14% 14% 14%

Sexual orientation
Achieve appropriate accreditation as
a welcoming place to work for everyone
irrespective of sexual orientation.

Disability
Achieve appropriate accreditation as
a welcoming place to work for everyone
irrespective of physical ability.

Gender pay
This is the third year that we have disclosed
information on our gender pay gap and the
information below is based on amounts paid
in April 2019.

The definition of pay shown is an hourly pay rate
for each relevant employee as at 5 April of the
relevant year, reflecting base salary and certain
allowances. This year there has been further
guidance on how to treat certain items including
pension contributions made by employees out
of their gross pay by way of salary sacrifice.
We have reflected this change in the way we
have calculated hourly pay and have adjusted
the 2018 comparison figures from those reported
last year so that the calculation can be viewed
on the same basis for comparison purposes.
The bonus figures shown include total variable
pay over the previous 12 months (bonus paid
plus any proceeds on exercise of SAYE, ESOP
or vesting of LTIP awards).

It is disappointing to note that we have made
negligible progress in narrowing our gender pay
gap in terms of both the mean hourly pay gap
(0.6% point improvement since 2018) and the
median hourly pay gap (0.7% point improvement
since 2018). There has also been very little
improvement in the median bonus gap (2.85%
point improvement since 2018) and the gap has
widened slightly for the mean bonus payment.
The bonus gap remains high.

52% of our employees were women as at
31 March 2019 and female representation
is at 40% or more for our Board, Executive
Committee and their direct reports, and our

Senior Leaders. More than 50% of our managers
are female. However, women are significantly
under-represented in the Leader level of our
organisation and despite putting in place several
initiatives to support women into leadership
we have moved backwards during this year. At the
end of March 2019, 19.5% of our Leaders were
women compared to 24.4% in the previous year.
Although this is a move of only four positions,
we are disappointed with this outcome and will
be looking at new ways to support women into
leadership in the coming year. We have set more
stretching targets for 2025 so that we retain
focus and transparency on this critical issue.

Clearly, female under-representation at senior
levels contributes to our gender pay gap. We
also continue to find it challenging to fill senior
roles with female candidates in core property
and other technical disciplines which tend to
attract a higher market pay. We will be looking
at our recruitment model and working with
our recruitment partners in the coming year
to improve our ability to attract a more diverse
workforce across all under-represented groups

During the year, to support our work on
understanding gender pay and with our
continued focus to ensure our reward packages
are fair, particularly our base compensation,
we appointed an independent law firm to
undertake a detailed impartial equal pay audit.
The audit concluded that Landsec has a robust
pay structure in terms of setting pay fairly and
identified some recommendations to improve
administration. These will be implemented
in 2019/20.

Our partners
Our partners are those who have a direct
working relationship or share a mutual interest
with us and include our joint venture partners,
our supply partners, their sub-suppliers and their
employees. They are all vital to our business and
we work closely with them to ensure that their
and our values are aligned. In each partnership,
we aim to develop best-in-class work practices
and share knowledge.

We treat partners fairly and transparently, and
we follow a clear, standardised procurement
policy and tender process. Our policy is to
source goods and services effectively and fairly
and to achieve best possible value, where value
includes service, lifetime costs, quality, reliability
and timeliness of delivery. We also have a very
clear Gifts and Hospitality Policy and process.
Our internal audit team carry out audits of
our tender processes post the event to ensure
that there is consistency of the quality and
fairness of engagement with our suppliers.
Our Procurement Committee provides oversight
of the Group’s procurement policy to ensure
that it is:

— Consistent with its strategy and Group values

— Applied consistently across the business

— Followed in spirit and process

— Supported by compliance testing and

internal audit.

All of our partners are vital to our business
and we work closely with them to ensure
that their and our values are aligned

As at 5 April 2019

Pay element

Mean hourly pay

Median hourly pay

Male

Female

%
difference

Male

Female

%
difference

April 2019

April 2018 (Salary sacrifice adjusted)

Table 36

Pay gap
year-on-
year
change
(% points)

£48.02

£30.36

(36.8) £43.51

£27.25

£36.99

£23.28

(37.1) £33.48

£20.83

Proportion of employees

78.2% 74.5%

n/a

83.6% 75.5%

receiving a bonus

Mean bonus

Median bonus

£28,419 £10,053

(64.6) £38,336 £13,838

£11,236

£4,803

(57.3) £10,969

£4,376

Quartile split

Lower quartile

Lower middle

Upper middle

Upper quartile

Number

147

148

%
Male

28.6

38.1

55.8

70.9

%
Female

Male
mean
hourly rate

Female
mean
hourly rate

£14.80

£16.20

£24.08

£23.76

£36.66

£35.13

71.4

61.9

44.2

29.1

(37.4)

(37.8)

n/a

(63.9)

(60.1)

0.6

0.7

n/a

(0.7)

2.8

Table 37

%
difference
in hourly
rate

9.5

(1.3)

(4.2)

£82.95

£71.73

(13.5)

Landsec Annual Report 2019

Strategic Report
Social review
continued

Fairness
Our commitment is to ensure everyone working
on our behalf, in an environment we control,
is given equal opportunities, protected from
discrimination and paid at least the Foundation
Living Wage. We’re committed to paying Living
Wages throughout our activities by 2020 and
are working closely with our supply chain
partners to achieve this.

We’re 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
(£10.55 an hour in London; £9.00 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.

We’re actively promoting our
Whistleblowing Policy to our supply
partners and their employees

Engaging our supply chain
We’re committed to disclosure on supply chain
issues and this year took part in the Workforce
Disclosure Initiative for the second time, scoring
73% against an average of 53%. This means
we’re transparent about how we support
our employees and staff in our supply chain.
But being transparent is just the start. We’re
also working with partners to deliver on our
Sustainability Charter, launched last year. The
charter includes our supplier code of conduct
and sets out our sustainability expectations
for our partners.

Fairness is a critical part of our commitments
in this area and it 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. To tackle this, we engaged
our supply chain partners this year, asking
people employed across our activities whether
our policies were effective on the ground.

To do this we carried out ten engagement
surveys, encompassing over 250 supply chain
staff carrying out construction and
maintenance activities. This involved visiting
offices, retail destinations and development
sites and speaking in confidence with supply
chain employees. Based on guidance from
the Gangmasters and Labour Abuse Authority,
we spoke with staff who were most likely to
be the lowest paid, and in roles which typically
experience high levels of turnover. This included
construction labour, cleaning and security staff.
Due to the long and complex nature of supply
chains, especially in construction, this meant
the staff we spoke with were often not
employed either by Landsec or by our partners.

The surveys confirmed we still have progress
to make in ensuring our partners pay the
Foundation Living Wage throughout every
part of the supply chain. This is particularly
problematic in construction, where operatives
employed by labour agencies are often at risk
from wages falling below our expectations.
We also found a small number of cases of
discrimination, from co-workers and members
of the public. To make sure we address these
issues, we’re working with partners to make
sure they have the right procedures, support
and training in place.

This year, we extended the coverage of our
whistleblowing hotline to our supply partners
and their staff. This means future cases of
discrimination or failure to receive a Living Wage
can be reported directly to us. We promoted
the hotline through communication with our
partners and posters in our offices and staff
welfare facilities.

You can find out more about our
approach to fairness and how we’re
addressing the risks of modern
slavery in our annual disclosure at
landsec.com/about/slavery-human-
trafficking-statement

Health, safety and security
Our commitment is to provide a safe, healthy
and secure environment for our people to work
and for our customers to work, live, shop and
relax. Clearly, the areas covered in this section
are relevant to our customers, communities and
employees – and by extension our investors –
but we’ve included them in this communities
section to underline that high standards are
best achieved through great partnerships across
the supply chain and beyond.

This year, we fell behind on training and action
is being taken to ensure we keep ahead in a
fast-moving world. Once again we maintained
our OHSAS 18001 certification, the benchmark
for health and safety management systems,
across 100% of our sites.

Following the Grenfell fire, we worked closely
with customers and partners to consider the
potential ramifications of cladding in our
portfolio. These consultations included our
insurers, surveyors, local authorities and the
London Fire Brigade. We assessed every asset
in the portfolio during the year; remedial works
to cladding and fire stopping are in progress.

Our ongoing work with the Health in
Construction Leadership Group as well as our
Customer Improvement Groups helps ensure
we give health the same billing as safety, with
mental health as important as physical health.
A highlight of the year was the progress made
on mental health, within the business and
across the industry. This was underlined when
Landsec won the best Health and Wellbeing
Strategy Award at the International Institute of
Risk & Safety Management (IIRSM) 2018 Awards.
We will continue to push ahead in this area.

This year, in partnership with Revo (formerly the
British Council of Shopping Centres), we held a
suicide awareness and prevention roundtable.
Increasing awareness around suicide and
enhancing mitigation strategies are now clear
priorities for Landsec and other Revo members.
Through working with the wider industry, we
strive to help support the wider government
suicide prevention strategy, and are engaging
with our local stakeholders to help prevent
suicide incidents.

During the year, we enhanced security training
and advice for employees and partners. We also
reviewed measures to address hostile use of
vehicles and acted where required. We have
introduced a group-wide response plan that
enables us to respond to an increase in national
threat in a proportionate and cost-effective way.
Through our Security Customer Improvement
Group, we’ve engaged with our security partners
to establish a consistent approach to physical
security across our portfolio.

Landsec Annual Report 2019

Our investors
Our investors are those who own shares in
Landsec and our bondholders.

Our economic
contribution

Shareholders are important to us as they are
the owners of the business. They are a vital
source of capital and provide valuable feedback
and challenge to management.

We want to ensure that shareholders know
what we are doing, how we are performing
and what our strategy is for the future. We have
a comprehensive investor relations programme
and are committed to maintaining open dialogue.

In addition to formal events such as the Annual
General Meeting, results presentations and
capital market days, we also host property
tours and sustainability roadshows to enable
shareholders to increase their knowledge of
the business.

The availability, and effective management, of
debt is essential for us to succeed as a property
company. We approach our debt investor
relations on a partnership basis and aim to
provide best practice in our relationships with
bondholders and other providers of debt.

You can find more information
on pages 89-90

Each year we measure our contribution
to the UK economy, helping to show the
number of livelihoods we support and
the financial value we add through our
activities. Some key findings from this
year’s study:

£11.8bn

Total contribution to the UK economy
each year from people based at our assets

£5.1bn

Our ten-year contribution to the economy
through property development

139,000

Number of people working across our
workplace, retail and leisure destinations

54,000

jobs created in construction through our
development activities over the last decade

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. Our security
teams are introducing new and innovative
ways to reduce the opportunity for crime at our
properties, protecting value for our customers.

Public affairs
The company communicates with and responds
to central and local government in many
different ways on issues critical to the success
of society, local communities, our industry and
our business. Our engagement is led by our
public affairs group, which brings together
representatives from across the business to
define key issues and oversee our response.
The group provides a report to the Board twice
a year. This year we identified our key policy
issues as:

— Brexit

— Housing

— Government infrastructure strategy

— Energy and environment.

We engage across government, from No. 10
to constituency MPs in communities where our
key assets are located. This year we sponsored
and took part in events at two party conferences.
At the Conservative conference the event
looked at the private sector’s role in the
rehabilitation of offenders. At the Labour
conference the focus was on construction
sector skills shortages. We are politically neutral.

Our development teams establish productive
relationships with local authorities and
communities wherever we intend to develop
at scale. We work to understand local issues
and find ways to support the local community
in partnership with local government and
organisations.

Senior Management are active in the
government’s Inclusive Economy Partnership.
Focus areas include mental health in the
workplace and getting young people into work.

Landsec Annual Report 2019

Strategic Report
Managing
risk

Our key successes
in 2018/19
[ Improved Group risk reporting
by establishing a principal risk
dashboard

[ Promoted a positive risk culture
across the business using the
risk champion network

[ Operationalised risk appetite
at a business unit level by
establishing the London and
Retail risk forums

[ Enhanced business key controls
to improve the mitigation of
our principal risks

Our key priorities
in 2019/20
[ Improve the alignment of

strategy and risk management
processes

[ Enhance the process to

identify, assess and monitor
emerging risks

[ Improve the asset level risk

reporting processes

[ Analyse risk event root cause

and response plan effectiveness

Landsec Annual Report 2019

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 2019/20.

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
the Audit Committee, before being presented
to the Board. In addition, an in-depth risk session
is held with the Board every two years, with the
next one due to take place in December 2019.

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
is assigned to members of the Executive
Committee. They are responsible for ensuring
the operating effectiveness of the internal
control systems and for implementing risk
mitigation plans.

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 successes this year has been to
improve Group risk reporting by establishing
a principal risk dashboard. This consolidates
existing risk appetite statements and tolerance
ranges into a single risk monitoring dashboard
for the Board and Executive Committee.
This explicitly aligns our risk appetite and the
corresponding key risk indicators (KRIs) to our
strategy and key performance indicators (KPIs).

The risk dashboard uses risk indicators to track
whether our risk level is within our risk appetite.
The risk indicators are a mixture of leading and
lagging indicators, and internal and external
indicators. The primary aim of the dashboard
is to act as a catalyst for discussion about how
the principal risks are moving, whether the risk
tolerance ranges remain appropriate for the
business circumstances, and whether further
mitigating actions need to be taken in order to
bring a risk back within the desired risk tolerance
range. The KRIs are rated red, amber or green
based on where the indicators sit in relation to
our tolerance level.

Each of the principal risks has a number of KRIs
and we provide some examples of the KRIs
against our principal risks in the table below. All
red rated KRIs will be discussed by the Executive
Committee and the relevant business units,
with required actions agreed by the Executive

Sponsor. These actions may be to refresh the
risk tolerance range to reflect a change in the
business landscape and/or further mitigating
actions. The agreed action will be noted in the
Audit Committee and Board reports for final
approval by the Board. On an ongoing basis, we
will continue to refine the tolerance ranges and
to review regularly whether the KRIs continue
to be the best indicators.

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
managers 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 provides 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 remains an area of
focus for 2019/20.

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 business unit
and functional
level

Audit Committee
— Supports 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 2019

Strategic Report
Our principal
risks and
uncertainties

1. Customers
Structural changes in customer and consumer
behaviours leading to an adverse change in demand
for office and retail space and the consequent impact
on rental growth.

Executives responsible:
Robert Noel and Colette O’Shea

2. Market cyclicality

3. Disruption

4. People and skills

Market and political uncertainty leading to a

Failure to react effectively to a disruptive change

Inability to attract, retain and develop the right

reduction in demand or deferral of decisions by

in the competitive landscape.

people and skills required to deliver the business

objectives in a culture and environment where

employees can thrive.

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

Executive responsible: Group HR Director

Our risk assessment
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.

Before mitigating actions
After mitigating actions

h
g
h
y
r
e
V

h
g
H

m
u
d
e
M

w
o
L

t
c
a
p
m

Low
(<25%)

Medium
(26–50%)

High
(51–75%)

Very high
(76–100%)

Probability

Example Key Risk Indicators (KRIs)
— Customer satisfaction metrics
— UK net retail openings and shopping centre

vacancy rates (external metric)

— Amount of people visiting our assets
— Percentage of lease expiries over our five-year plan
— Void rates
— Customer credit risk profile and tenant

counter-party risk

Mitigation
— Our Customer Relationship Management processes

actively monitor our customer base and performance

— We have a robust credit policy and process which
defines what level of credit risk we will accept
— Our London and Retail Executive Committees

review customers at risk and agree the best plan
of action, as well as monitoring online sales trends
— The monthly management accounts review lease

expiries, breaks, re-gears and compare new lettings
against estimated rental value

— We measure footfall and retail sales at our shopping

centres to provide insight into consumer trends
— Our ‘Share Your Thoughts’ programme measures
customer satisfaction at our shopping centres
— We complete post-occupancy surveys in London

to measure customer satisfaction

— All of our colleagues attended the Creating
Experiences training programme focused on
creating a customer-centric culture.

Example KRIs

— UK Gross Domestic Product (external metric)

— Serviced office take-up (external metric)

— UK household spending levels (external metric)

— Proportion of total retail sales that are online

Example KRIs

— Internal promotion rate

— Employee turnover levels

— Employment intentions – Business Services

(external metric)

— High potential employee turnover

— Engagement survey results – innovation mindset

— Employee engagement score

— Succession planning

(external metric)

— Interest rates (external metric)

— Business confidence (external metric)

— Our loan-to-value ratio

Mitigation

— Our Research team prepare a quarterly report for

— We commissioned independent research into

— Our remuneration plans are benchmarked annually

the Retail and London Executive Committees,

customer trends and disruptors so that we have

to ensure they remain competitive and support us

which measures both macroeconomic and internal

a better understanding of the potential impact

in attracting and retaining the best talent

risk metrics, against tolerance ranges, e.g.

on our business

— The talent management programme identifies

occupancy vacancy levels

— Our Insight team holds a monthly Future of Work

high potential individuals within the organisation

— Our Research team also produces a bi-annual

forum examining disruption themes, megatrends

— We have robust succession plans in place for senior

Cycle Watch document, which analyses

and changes in the way people shop, work and live

and critical roles to mitigate key people risks

macroeconomic, political and market risk factors.

— We are actively investing in training our people to

— Clear employee objectives and development plans

This drives the assumptions used in our budget

help create an innovation mindset and have

to ensure alignment to business goals

and forecasting process

established innovation roles in the business

— We recognise the value of employee health and

— We complete scenario analyses as part of our

— We are reviewing each element of our customer

wellbeing through our Health and Wellbeing

annual budgeting and five year forecasting

journeys to identify opportunities to improve

Statement of Practice

process. Specific scenarios we have modelled

— We have defined an innovation process to capture

— We have set specific diversity metrics to be

include the impact of different Brexit outcomes

ideas and workshop with our customers on their

achieved by 2020 and 2025

and changes in legislation

needs in a test office environment. For example,

— Our flexible working policy promotes work-life

— Our business portfolios prepare a quarterly report

we hosted a Make-a-thon which was a seven hour

balance, reduces employee stress and improves

reviewing the market risk for each of our sectors

competition where teams made up of both

performance

— We are active members of local business and

Landsec colleagues and customers had to solve

— We complete an annual employee engagement

community groups, as well as industry and

customer problems

survey to understand areas of strength and

professional bodies. This ensures we are actively

— Our Innovation team is debating and investigating

opportunities for improvement

engaged in decisions affecting our business,

ways to build more efficiently and effectively with

— We have high profile, market-leading developments

customers, partners and communities.

our strategic partners

and assets to manage, in places people want

— We are actively speaking to and involving our

to work.

customers in creating new experiences.

Strategic objectives

Principal risks overview

Change in the year

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

Be a best-in-class
counterparty to our
partners and suppliers

Continually improve
sustainability performance

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

Landsec Annual Report 2019

Strategic objectives

Change in
the year

We continue to see a tough retail environment, with a
number of company voluntary arrangements (CVAs)
throughout the year, and like-for-like footfall and
retail sales also trending downward.

As a result of this, we have reviewed and updated our
credit risk approval and escalation processes. We also
continue to actively manage our Retail Portfolio
assets and believe our focus on delivering experience
destinations for our customers provides as effective
a mitigation of these broader retail sector challenges
as possible.

Opportunity
Enhance and maintain our position as the partner
of choice for our customers by better
understanding their needs.

We are assessing plans for significant mixed use
developments on our suburban London retail sites
where we see opportunities to create value.

This risk has increased which reflects a number of

We have improved our internal capability in this

There has been no material change in the risk level

key drivers, including the high level of uncertainty

area over the last year, with the recruitment of both

for people and skills, with turnover levels within

surrounding the Brexit outcome and the challenging

the Head of Innovation and Head of Strategy roles.

desired ranges and a number of key roles were hired

retail environment.

throughout the year (such as the Heads of Innovation

and Strategy).

We are introducing new skillsets such as user

experience researchers to better understand our

customers and their needs.

We have been developing partnerships with

forward thinking companies, including sponsoring

four UCL students from the Centre for Applied

Spatial Analytics.

Opportunity

The strength of our balance sheet, combined with

Managing change effectively will enable us to

Build further expertise, knowledge and capability

our AA rating, enables us to invest in our growing

deliver further value and growth while maintaining

in the business.

development pipeline and other opportunities as

our competitive advantage.

they arise.

We will create new things of value to Landsec and

our customers.

1. Customers

Structural changes in customer and consumer

behaviours leading to an adverse change in demand

for office and retail space and the consequent impact

on rental growth.

Executives responsible:

Robert Noel and Colette O’Shea

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.

3. Disruption
Failure to react effectively to a disruptive change
in the competitive landscape.

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: Robert Noel

Executive responsible: Group HR Director

Example Key Risk Indicators (KRIs)

— Customer satisfaction metrics

— UK net retail openings and shopping centre

vacancy rates (external metric)

— Amount of people visiting our assets

— Percentage of lease expiries over our five-year plan

— Void rates

— Customer credit risk profile and tenant

counter-party risk

Mitigation

— Our Customer Relationship Management processes

actively monitor our customer base and performance

— We have a robust credit policy and process which

defines what level of credit risk we will accept

— Our London and Retail Executive Committees

review customers at risk and agree the best plan

of action, as well as monitoring online sales trends

— The monthly management accounts review lease

expiries, breaks, re-gears and compare new lettings

against estimated rental value

— We measure footfall and retail sales at our shopping

centres to provide insight into consumer trends

— Our ‘Share Your Thoughts’ programme measures

customer satisfaction at our shopping centres

— We complete post-occupancy surveys in London

to measure customer satisfaction

— All of our colleagues attended the Creating

Experiences training programme focused on

creating a customer-centric culture.

We continue to see a tough retail environment, with a

number of company voluntary arrangements (CVAs)

throughout the year, and like-for-like footfall and

retail sales also trending downward.

As a result of this, we have reviewed and updated our

credit risk approval and escalation processes. We also

continue to actively manage our Retail Portfolio

assets and believe our focus on delivering experience

destinations for our customers provides as effective

a mitigation of these broader retail sector challenges

as possible.

Opportunity

Enhance and maintain our position as the partner

of choice for our customers by better

understanding their needs.

We are assessing plans for significant mixed use

developments on our suburban London retail sites

where we see opportunities to create value.

Example KRIs
— UK Gross Domestic Product (external metric)
— UK household spending levels (external metric)
— Employment intentions – Business Services

(external metric)

— Interest rates (external metric)
— Business confidence (external metric)
— Our loan-to-value ratio

Mitigation
— Our Research team prepare a quarterly report for
the Retail and London Executive Committees,
which measures both macroeconomic and internal
risk metrics, against tolerance ranges, e.g.
occupancy vacancy levels

— Our Research team also produces a bi-annual

Cycle Watch document, which analyses
macroeconomic, political and market risk factors.
This drives the assumptions used in our budget
and forecasting process

— We 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

— Our business portfolios prepare a quarterly report
reviewing the market risk for each of our sectors

— We are active members of local business and
community groups, as well as industry and
professional bodies. This ensures we are actively
engaged in decisions affecting our business,
customers, partners and communities.

Example KRIs
— Serviced office take-up (external metric)
— Proportion of total retail sales that are online

(external metric)

— Engagement survey results – innovation mindset

Example KRIs
— Internal promotion rate
— Employee turnover levels
— High potential employee turnover
— Employee engagement score
— Succession planning

Mitigation
— We commissioned independent research into

customer trends and disruptors so that we have
a better understanding of the potential impact
on our business

— Our Insight team holds a monthly Future of Work
forum examining disruption themes, megatrends
and changes in the way people shop, work and live

Mitigation
— Our remuneration plans are benchmarked annually
to ensure they remain competitive and support us
in attracting and retaining the best talent
— The talent management programme identifies

high potential individuals within the organisation
— We have robust succession plans in place for senior

and critical roles to mitigate key people risks

— We are actively investing in training our people to

— Clear employee objectives and development plans

help create an innovation mindset and have
established innovation roles in the business

— We are reviewing each element of our customer
journeys to identify opportunities to improve

— We have defined an innovation process to capture
ideas and workshop with our customers on their
needs in a test office environment. For example,
we hosted a Make-a-thon which was a seven hour
competition where teams made up of both
Landsec colleagues and customers had to solve
customer problems

— Our Innovation team is debating and investigating
ways to build more efficiently and effectively with
our strategic partners

— We are actively speaking to and involving our

customers in creating new experiences.

to ensure alignment to business goals

— We recognise the value of employee health and
wellbeing through our Health and Wellbeing
Statement of Practice

— We have set specific diversity metrics to be

achieved by 2020 and 2025

— Our flexible working policy promotes work-life

balance, reduces employee stress and improves
performance

— We complete an annual employee engagement
survey to understand areas of strength and
opportunities for improvement

— We have high profile, market-leading developments

and assets to manage, in places people want
to work.

Change in the year

This risk has increased which reflects a number of
key drivers, including the high level of uncertainty
surrounding the Brexit outcome and the challenging
retail environment.

We have improved our internal capability in this
area over the last year, with the recruitment of both
the Head of Innovation and Head of Strategy roles.

We are introducing new skillsets such as user
experience researchers to better understand our
customers and their needs.

We have been developing partnerships with
forward thinking companies, including sponsoring
four UCL students from the Centre for Applied
Spatial Analytics.

There has been no material change in the risk level
for people and skills, with turnover levels within
desired ranges and a number of key roles were hired
throughout the year (such as the Heads of Innovation
and Strategy).

Opportunity
The strength of our balance sheet, combined with
our AA rating, enables us to invest in our growing
development pipeline and other opportunities as
they arise.

Opportunity
Managing change effectively will enable us to
deliver further value and growth while maintaining
our competitive advantage.

We will create new things of value to Landsec and
our customers.

Opportunity
Build further expertise, knowledge and capability
in the business.

Landsec Annual Report 2019

Strategic Report

Our principal risks
and uncertainties
continued

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; criminal/civil proceedings; loss of consumer confidence;
delays to building projects and access restrictions to our properties resulting in loss of income; and
reputational impact.

Executive responsible: Robert Noel

Design image of
21 Moorfields, EC2

Example KRIs
— Security Service national threat level (external

metric)

— Security risk assessment results of our properties
— Health, Safety and Security training

Mitigation
— The Group Health, Safety & Security (HS&S)

Committee is chaired by the CEO and governs
the HS&S management systems and processes.
HS&S performance is reported to the Board every
six months

— Our ‘One Best Way’ standards define mandatory
HS&S compliance policies for the business and our
supply chain

— We hold quarterly Customer Improvement Groups
with our principal contractors and key Service
Providers to drive continuous improvement across
our supply chain

— All of our colleagues must attend HS&S training

relevant to their role

— All our key Service Partners are assessed against

HS&S KPIs

— We have conducted a review of all cladding and
fire stopping in light of the Grenfell disaster, and
where required we are actively mitigating any
identified risks

— The HS&S team completes regular property

health-checks at our assets to audit compliance
with our policies, procedures and legislation

Change in the year

— Number of reportable health and safety incidents
— Employee mental health.

— All accidents and incidents are reported and
recorded in our HS&S system with analysis
performed on trends and root causes of the
incidents

— All 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

— Our menu of tactical security options and Group
building response levels now give us the ability to
react to a local or national criminal threat in a
proportionate and reasonable way

— Our Group insurance programme protects against
losses of rent and service charge resulting from
terrorism

— All our properties have business continuity and

crisis management plans in place, which are tested
at least annually.

This risk remains broadly unchanged. The UK threat
level is currently at severe, and our Group building
response plans now give us the ability to react to a
local or national criminal threat in a proportionate
and reasonable way.

Our health and safety risk remains unchanged, as
we currently have low levels of development activity
underway. We have also evolved our fire risk
assessment process following the Grenfell disaster.

Opportunity
Lead the industry in health and safety to reduce
incident levels.

Enhance our reputation as a trusted and
responsible partner.

Our Head of Group Physical Security is leading a
pilot study to introduce business crime partnerships
and other key stakeholders to our retailers to reduce
the risk of crime.

Landsec Annual Report 2019

Managing risk through the
development process

We have an increasing development
pipeline and actively consider the most
effective way to manage risk through the
design phase of the development process.
For our newest developments, we are
selecting suppliers based on their ability
to introduce more innovation into the
design and construction process. This will
allow us to build faster, more efficiently,
deliver a higher quality product and
improve the environmental performance
of our developments. Some practical
examples include:

— We seek to manufacture and assemble
off-site as much as possible. This will
speed up the development process and
minimises construction time on site
which reduces health and safety risks.

— To make sure we have a positive impact
our local communities, we set out a
community plan for each development.
At Westgate, we opened a cycle hub
and installed 1,000 cycle spaces to
champion Oxford’s local cycling culture.

— Our technical IT standards for building

systems are included in the
development brief to minimise our
cyber and information security threat.

— Our operations team are an integral part
of the design process so that we ensure
we will be able to run our buildings as
efficiently and effectively as possible to
deliver the best customer experience.

— We will design our future assets with

electric heating systems so we can move
away from gas consumption and reduce
our impact on London air quality.

6. Information security and

7. Sustainability

8. Investment and development

cyber threat

Data loss or disruption to the corporate systems
and building management systems resulting in
a negative reputational, operational, regulatory
(including GDPR) or financial impact.

strategy

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.

Unable to effectively execute our strategy of buying,
developing and selling assets at the appropriate time
in the property cycle, including inappropriate sector
selection and weighting; inability to deliver capital
expenditure programme to agreed returns; and/or
occupiers reluctant to take new space.

Executive responsible: Martin Greenslade

Executive responsible: Miles Webber

Executive responsible: Robert Noel

Example KRIs
— Speed of threat and vulnerability detection
— Speed of vulnerability resolution
— Number of data loss events
— Disaster recovery – system availability
— Building Management cyber security risk
— Cyber security and GDPR training

Example KRIs
— Sustainability training
— Energy intensity reduction
— Recycling waste
— Ethical sourcing and living wage in supply chain
— Community Employment Programme
— Portfolio natural disaster risk

Mitigation
— We have a dedicated Information Security team

and Data Privacy Officer who monitor information
security and privacy risk and cyber threat

— All of our colleagues complete mandatory cyber

security and GDPR training

— Our IT security management policy sets out our
standards for security and penetration testing,
vulnerability and patch management, data
disposal and access control

— We complete a quarterly assessment that key

IT controls are operating effectively

— All third party IT providers must complete an

information security vendor assessment which is
reviewed and approved by the cyber security officer

— We work closely with our IT service partners to
manage risk and improve technical standards

— Our development brief clearly defines the required

technical IT standards for all building systems

— Our move to the ‘Cloud’ has improved the

resilience of our disaster recovery and business
continuity plans

— We have an effective vulnerability management
system, including an annual rolling penetration
testing programme across our IT estate.

Mitigation
— Through our Responsible Property Investment Policy
and sustainability due-diligence process, we assess
risks and opportunities in potential acquisitions
— We are making continuous progress against our
science-based carbon target, reducing carbon
emissions and increasing energy efficiency

— We ensure strong community involvement in the
design process for our developments and create
employment and education opportunities through
our construction and operations activities
— We speak directly to individual workers at our

offices, retail destinations and construction sites
to assess whether our Human Rights and Health
and Safety Policies and Foundation Living Wage
commitments are being adhered to

— Our developments are designed to be resilient to
climate change and are ready for the low-carbon
economy, using our Sustainability Brief for
developments and associated processes

— We undergo assurance for data and disclosures
across our sustainability programme, enhancing
the integrity, quality and usefulness of the
information we provide.

Example KRIs
— Development pipeline
— Portfolio liquidity
— Headroom versus development capital expenditure
— Speculative development, pre-development and

trading property risk exposure

— Counter-party credit risk
— Group hedging

Mitigation
— Our 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

— We have appointed a Head of Strategy to support
the effective formulation and execution of our
strategy

— We are actively considering other sector

opportunities and running trials as appropriate
to test our propositions and market demand
and requirements

— Our highly experienced development team

and partners have a track-record of delivery
— We have robust succession plans in place for
senior and critical development and project
management roles.

Change in the year

The level of this risk has increased, reflecting data
that shows companies are subject to an increasing
number of attempted cyber attacks.

During the year, we successfully migrated our
corporate network to the ‘Cloud’. This has reduced
our physical risk and improved our resilience.

Opportunity
Work with our service partners and strategic
suppliers to challenge our industry norms; enhance
our reputation as a trusted and responsible
partner; and consider new technologies to
leverage the latest innovations and opportunities.

The inherent risk has increased in response to new
public data demonstrating how global emissions
continue to grow, increasing climate-related risks.
Residual risk remains the same as we have intensified
our mitigation activities.

We have increased certainty over the London
development pipeline and are progressing our plans
for significant mixed use developments on our
suburban London retail sites.

Opportunity
Lead our business and the property sector toward
a low-carbon economy, creating long-term value
for our shareholders and wider stakeholder groups.

Opportunity
As mentioned above, the strength of our balance
sheet, combined with our AA rating, enables us
to invest in our growing development pipeline and
other opportunities as they arise.

Landsec Annual Report 2019

Strategic Report

Going concern
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 2019.

Viability statement
The viability assessment period
The Directors have assessed the viability of the
Group over a five-year period to March 2024,
taking account of the Group’s current financial
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.

Process
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 and
tested 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.
On the basis of this analysis, the Board agrees
a five-year plan with an upside and downside
sensitivity. The downside sensitivity is then

Landsec Annual Report 2019

Customers
Continued cost pressures on
retailers coupled with declining
consumer confidence.

Structural changes in customer
and consumer behaviours lead
to a change in demand for
office space.

Market cyclicality
Impact of Brexit negotiations.

Investment and
development
strategy
Inability to deliver the
development pipeline and
re-stock the Group’s portfolio.

Link to strategic objectives

Viability scenario
assumption
— No uncommitted debt

refinancing takes place, and
no new debt or bank facilities
are raised or extended

— Any uncommitted forecast
acquisitions, disposals and
developments do not take
place.

Viability scenario
assumption

London Portfolio
— Prime rents deteriorate to
March 2021 then slowly
recover to March 2024.

Retail Portfolio
— Downward pressure on rental

values from the ongoing
disruption caused by online
retail and economic slowdown
— Rents decline throughout the

entire five-year period.

Viability scenario
assumption

London Portfolio
— Economic slowdown and

weakening occupier demand
— Decline in capital values and
outward yield movements
through to March 2021 before
partial recovery to March 2024
and beyond.

Retail Portfolio
— Severe capital value declines
to March 2020; continued
decline to March 2024, albeit
at a slower rate

— Yield expansion across all
sectors to March 2021 and
rental value decline; minimal
yield contraction in the outer
years of the five-year
assessment period.

flexed further to assess the impact of
considerably worse macro-economic conditions
than are currently expected, which forms the
basis of the Group’s ‘viability scenario’.

The viability scenario represents a significant
contraction in the size of the business over the
five-year period considered, with the LTV at 33.0%
at its highest point in the assessment period.

Principal risks
The illustration above sets out those of the
Group’s principal risks (see pages 56-59 for full
details of the Group’s principal risks) that could
most impact its ability to remain in operation
and meet its liabilities as they fall due and how
we have taken these into consideration when
making our assessment of the Group’s viability.

Impact on key metrics
We have assessed the impact of these
assumptions on the Group’s key financial
metrics over the period, including profitability,
loan-to-value ratios, net debt and available
financial headroom.

Key metrics

Loan-to-value ratio

Table 38

Viability
scenario
31 March
2024

32.3%

31 March
2019

27.1%

The Group would be required to renew or
exercise extension options for a minimum of
£1.8bn of its debt facilities at the end of the
period considered. The Directors expect this to
be possible considering the Group’s expected
loan-to-value ratio and the flexibility of the
financing structure in place.

Confirmation of viability
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 2024.

This Strategic Report was approved by
the Board of Directors on 13 May 2019
and signed on its behalf by:

Adjusted net debt

£3,737m

£3,887m

EPRA net assets

£9,920m

£8,038m

Available financial
headroom

£1,570m £(1,760)m

Robert Noel
Chief Executive

Governance

Contents
62 Letter from the Chairman
64 Board of Directors
67 Executive Committee
68 Leadership
72 Our stakeholders and our Board
74 Letter from the Chairman of the

Nomination Committee

76 Effectiveness
81

Letter from the Chairman of the
Audit Committee

Investor relations

84 Accountability
89
91 Directors’ Remuneration Report –
Chairman’s Annual Statement

94 Remuneration at a glance
96 Annual Report on Remuneration
108 Summary of Directors’ Remuneration

Policy

111 Remuneration Policy
118 Directors’ Report

Highlights

Letter from
the Chairman
page 62

Letter from the
Chairman of
the Nomination
Committee
page 74

Letter from
the Chairman
of the Audit
Committee
page 81

Directors’
Remuneration
Report –
Chairman’s
Annual
Statement
page 91

Landsec Annual Report 2019

Governance
Letter
from the
Chairman

Highlights
[ First year as Chairman

[ Two new Non-executive
Directors join the Board

[ Increased focus on stakeholder

engagement

Dear Shareholder

This is my first review
since I took over from
Alison Carnwath as
Chairman after the
AGM in July.

I joined the Landsec Board in 2014, so I already
know the business and my fellow Directors well.
I have long admired Landsec for its rich legacy
and its leadership in the property sector and the
potential within the business. It is a privilege to
succeed Alison as your Chair.

This year
Over the last year I have spent time getting
to know the Company even better, visiting
many of our properties and meeting a cross-
section of colleagues from across the business.
I have also spent time meeting with investors,
customers and other stakeholders important
to our business. I am grateful that they have
been generous with their time and open in
their views.

It is clear to me that Landsec has a well
respected brand with a successful history.
Landsec developments have shaped and
transformed many of our urban environments,
and the portfolio of properties that we own
includes some iconic and exciting sites. We
have a well-let portfolio with diverse income
that is the bedrock of the Company’s
performance and value.

Our key strengths have been honed over time,
and our skills in development, operational
management and customer relationships are
market leading. We are a trusted partner with
construction companies, other scheme investors
and with planners. Our employees are rightly
proud of what we do, and I have really enjoyed
hearing their thoughtful and constructive views.
We have a highly talented and motivated
workforce.

I have met with our principal shareholders
to listen to their perspective on what we
do well and what we can improve. I have
heard many positive views on our strategy,
shareholder engagement, communication
and management. I understand and share the
concerns investors have around the challenges
that we are facing in our markets, especially in
some parts of the retail sector, and I recognise
that we need to communicate our plans clearly.

Cressida Hogg
Chairman

Landsec Annual Report 2019

We want to place greater emphasis
on the quality of our service and
our products, and this can only be
achieved in a company that believes
in the importance of delivering for
its customers, both for the present
and the future.”

This year has clearly been a challenging one for
the property sector, and this has been reflected
in disappointing returns for investors. The
political uncertainty in the UK has led through
to patchy consumer confidence, which has
exacerbated the structural challenges already
in the retail market as consumer purchasing
patterns and behaviours change. Our business
customers have found it harder to plan for the
longer term, although demand for our office
space continues to be strong.

Despite market challenges, Landsec is in a
financially robust position. We have a resilient
balance sheet, which gives us strategic flexibility
to manage the business to best deliver value
for our shareholders over the longer term.
The breadth of our portfolio of properties
generates robust and sustainable income
which we use to underpin our dividends to
shareholders. We will continue to work with our
customers aiming to provide the right product
for their needs in this economic environment.
Meanwhile, we are pleased to recommend
a 3.1% increase in the full year dividend.

Board priorities
The Board is very clear that to drive long-term
shareholder value Landsec needs to be skilled
at anticipating and adapting to market changes.
This year, the evolution of our strategy has
been a priority for the Board. We have been
particularly focused both on how current
market conditions affect our performance,
and what changes will impact the business in
the future. In a changing world, our strategy
needs to be fit for purpose.

The scale and diversity of Landsec’s portfolio
is one of its great strengths. Supporting
management in refreshing and upgrading the
portfolio is always a key focus for the Board.
Our performance is a sum of the parts, and
we need to manage our assets as well as we
can both for short-term income and also for
longer-term value.

Rob is clear elsewhere in this report that over
time we will continue to shift the balance of
the business, reducing the number of assets
in retail and consumer-facing areas. Reducing
complexity in the portfolio should also make
our operations more focused and streamlined.

The Board is excited about the development
pipeline we have and also supports acquiring
new development sites such as the one we
recently bought in Southwark. We have rightly
increased our focus on residential and mixed
use development opportunities especially within
our existing portfolio. These opportunities will
underpin our future growth.

Management has made innovation a key
priority for the business, particularly focusing
on ways in which Landsec can deliver better
products and services for our customers in
a more sustainable way. The Board supports
the investment that we are making in this area,
especially in data analytics and smarter design
and construction methods.

Our people
I have already said how impressed I am with
the talent we have in the business. It is a
fundamental role for the Board to oversee
the systems in place for effective talent
management, and plan for succession
in key roles.

Landsec is rightly committed to improving the
diversity of talent at all levels in the business.
To continue to be a leading UK business,
Landsec’s employee mix should better reflect
society more widely.

As I have met with colleagues over the last
months it has been clear to me that we should
improve the links between employees and the
Board. To this end, this year we will be hosting
a ‘meet the Board’ event immediately after
the Annual General Meeting as the first of many
new ideas for greater Board engagement with
employees. I have very much enjoyed the time
I have spent with members of our Employee
Forum and we will also look at ways other
Directors can become more involved.

Governance
Good governance and control are at the heart
of a well-run business. Under the previous
Chairman, we gained a strong reputation for
our environmental, social and governance
work which I would like to build on. The recent
changes made in the UK Corporate Governance
Code emphasise the important role played by
companies in modern society, and I recognise
the key roles of the Chairman and the Board
in setting tone and direction, and encouraging
broad stakeholder engagement.

Our sustainability programme is wide-reaching
and delivers social value. I am committed to
developing our leadership in this area. In talking
to our employees it has been very clear that
they are passionate and proud of what we do.
One of the things I have most enjoyed this
year is gaining insight into the many different
projects and initiatives that we have which
we will continue to build on.

Board changes
There have been several changes to the Board
during the year.

After nearly nine years as a Director, including
seven as Chairman of the Remuneration
Committee, Simon Palley stepped down on
31 March 2019. I would like to thank Simon for his
wonderful contribution to the Board. His insight
and support as a colleague will be much missed.

I would also like to thank Scott Parsons,
who resigned from the Board in February.
He provided leadership to our retail business
through challenging times and we wish him
well for the future.

We have appointed two new Directors to
the Board.

Madeleine Cosgrave joined the Board at the
beginning of January. She brings to the Board
rich experience in the global real estate market.
We were fortunate to find someone with such
depth of experience in investment and portfolio
management, and she is already making a
valued contribution to Board discussions.

Christophe Evain joined the Board at the start
of the new financial year on 1 April 2019. He
brings to the Board an international heritage
and deep experience both as an investor across
a number of sectors, and as a CEO of a listed
UK company.

I am aware of the attention that investors
give to the balance of skills and capabilities
on a listed board, and this is a key focus
for the Nomination Committee when new
appointments are made. We are also aware
that it is important to maintain continuity
and ‘board memory’ through Board evolution.
With this in mind, I have asked Chris Bartram
to stay on the Board until the end of the next
financial year, even though he has been on the
Board for nine years. His understanding of
the business and his property expertise is highly
valued, and I wanted to retain his insight
through the Board transition and, in the current
macro-economic conditions, at this phase of
the property cycle.

In conclusion, I would like to thank you and the
Board for electing me as your new Chairman,
and thank Alison Carnwath for her thoughtful
and successful leadership of the Company
during her time in the Chair. I am confident
that the business is well set to continue to
deliver value for our shareholders, and I look
forward to meeting many of you at the Annual
General Meeting.

Cressida Hogg
Chairman

Landsec Annual Report 2019

Governance
Board of Directors

Key to symbols

A Audit Committee
N Nomination Committee
R Remuneration Committee
* Independent (as per the UK Corporate
Governance Code). Cressida Hogg
was considered as independent upon
appointment as Chairman.

Chairman of the Board

Non-executive Directors

Cressida Hogg
N R

Appointed to Board: January 2014
Appointed as Chairman: 12 July 2018

Skills and experience
Cressida has spent over 20 years in the investment
industry and 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.
From 2009 to 2014, as Managing Partner, she was
responsible for managing 3i Infrastructure plc, a
FTSE 250 investment company, having co-founded the
infrastructure business at 3i in 2005. Cressida started her
career at JP Morgan. She has extensive Board experience,
including most recently on the Boards of Anglian Water
Group and Associated British Ports. She was previously
a member of the advisory board for Infrastructure UK,
the HM Treasury unit working on the UK’s long-term
infrastructure priorities.

Other current appointments
Non-executive Director, London Stock Exchange Group
plc. Non-executive Director, Troy Asset Management.

Senior Independent Director

Edward Bonham Carter
Non-executive Director*
N R

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 has a comprehensive
understanding of stock markets and investor expectations
which is beneficial to the Company when it considers
its engagement with investors. 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
Vice Chairman, Jupiter Fund Management plc.
Senior Independent Director, ITV plc. Board member,
The Investor Forum CIC. Trustee, Esmée Fairbairn
Foundation. Director, Netwealth Investments Ltd.
Member, Strategic Advisory Board Livingbridge LLP.

Landsec Annual Report 2019

Chris Bartram
Non-executive Director*
A N

Appointed to Board: August 2009

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 Founding 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 was CEO at
Haslemere NV and Chairman of 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.
Chris’s property expertise is of particular relevance to
the current market cycle which is why he has been asked
to remain a Director for a period longer than the
nine-year term.

Other current appointments
Wilkins Fellow of Downing College, University of
Cambridge. Governor, Oundle School. Advisory board
member to certain overseas entities within the Brack
Capital Real Estate Group.

Nicholas Cadbury
Non-executive Director*

Appointed to Board: January 2017

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. This broader commercial perspective adds
breadth of discussion in Board discussions and enables
Nicholas to provide effective challenge as Chairman of
the Audit Committee. 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 the Audit Committee
in September 2017.

Other current appointments
Group Finance Director, Whitbread PLC.

Christophe Evain

Non-executive Director*

Appointed to Board: 1 April 2019

Skills and experience

Christophe has extensive investment experience in

private equity, debt and other alternative asset classes.

As the former CEO of a UK listed company, he also

has management and leadership strengths, having

successfully led the transformation of Intermediate

Capital Group PLC (ICG) from a principal investment

business into a diversified alternative asset management

group with €34bn assets under management. Christophe’s

broad experience, both as a business leader and an

investor, will be a valuable asset to the Board.

Having started his career in banking, holding various

positions at NatWest and Banque de Gestion Privée, he

joined ICG in 1994 as an Investment professional, became

CEO in 2010 and stepped down from that position in 2017.

During this time he held various investment and

management roles, founded the Group’s businesses in

Paris, the Asia-Pacific region and North America, and

was instrumental in adding various additional businesses,

including a UK property lending business.

Other current appointments

None.

Madeleine Cosgrave

Non-executive Director*

Appointed to Board: 1 January 2019

Skills and experience

Madeleine has deep knowledge and perspective in

relation to investment decisions, property management

and market dynamics from her extensive experience

in the property industry. She is a fellow of the Royal

Institution of Chartered Surveyors and former chair of

the INREV Investor Platform and has sat on a number

of GIC Real Estate boards across Europe.

Madeleine qualified as a chartered surveyor and started

her career in 1989 with JLL where she went on to hold

roles in valuation, fund management, leasing and

development in both London and Sydney, before moving

to GIC in 1999. Madeleine is currently Managing Director

and Regional Head of Europe at GIC Real Estate, a position

she has held since 2016. She is responsible for the real

estate investment strategy and portfolio, leads the real

estate business in Europe and is a member of the GIC

Real Estate global investment committee. Madeleine’s

global real estate experience, combined with her

knowledge and perspective of investment decisions,

property management and market dynamics, is an

asset to Board discussions on all property matters.

Other current appointments

Corporate representative, Euro Lily Private Limited

(a corporate director of Cegereal SA).

Stacey Rauch

Non-executive Director*

A N R

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 which is of particular relevance and benefit

to the Company at a time of challenge in the UK retail

sector. In 2019, Stacey was named to the NACD

Directorship 100, the annual list of the most influential

leaders in boardrooms and in corporate governance

in the US.

Other current appointments

Chairman, Board Fiesta Restaurant Group Inc.

Non-executive Director, Ascena Retail Group Inc.

Non-executive Director, Heidrick & Struggles

International, Inc.

Non-executive Directors

Chris Bartram

Non-executive Director*

A N

Appointed to Board: August 2009

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 Founding 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 was CEO at

Haslemere NV and Chairman of 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.

Chris’s property expertise is of particular relevance to

the current market cycle which is why he has been asked

to remain a Director for a period longer than the

nine-year term.

Other current appointments

Wilkins Fellow of Downing College, University of

Cambridge. Governor, Oundle School. Advisory board

member to certain overseas entities within the Brack

Capital Real Estate Group.

Nicholas Cadbury

Non-executive Director*

Appointed to Board: January 2017

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. This broader commercial perspective adds

breadth of discussion in Board discussions and enables

Nicholas to provide effective challenge as Chairman of

the Audit Committee. 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 the Audit Committee

in September 2017.

Other current appointments

Group Finance Director, Whitbread PLC.

Madeleine Cosgrave
Non-executive Director*

Christophe Evain
Non-executive Director*

Appointed to Board: 1 January 2019

Appointed to Board: 1 April 2019

Skills and experience
Madeleine has deep knowledge and perspective in
relation to investment decisions, property management
and market dynamics from her extensive experience
in the property industry. She is a fellow of the Royal
Institution of Chartered Surveyors and former chair of
the INREV Investor Platform and has sat on a number
of GIC Real Estate boards across Europe.

Madeleine qualified as a chartered surveyor and started
her career in 1989 with JLL where she went on to hold
roles in valuation, fund management, leasing and
development in both London and Sydney, before moving
to GIC in 1999. Madeleine is currently Managing Director
and Regional Head of Europe at GIC Real Estate, a position
she has held since 2016. She is responsible for the real
estate investment strategy and portfolio, leads the real
estate business in Europe and is a member of the GIC
Real Estate global investment committee. Madeleine’s
global real estate experience, combined with her
knowledge and perspective of investment decisions,
property management and market dynamics, is an
asset to Board discussions on all property matters.

Other current appointments
Corporate representative, Euro Lily Private Limited
(a corporate director of Cegereal SA).

Stacey Rauch
Non-executive Director*
A N R

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 which is of particular relevance and benefit
to the Company at a time of challenge in the UK retail
sector. In 2019, Stacey was named to the NACD
Directorship 100, the annual list of the most influential
leaders in boardrooms and in corporate governance
in the US.

Other current appointments
Chairman, Board Fiesta Restaurant Group Inc.
Non-executive Director, Ascena Retail Group Inc.
Non-executive Director, Heidrick & Struggles
International, Inc.

Skills and experience
Christophe has extensive investment experience in
private equity, debt and other alternative asset classes.
As the former CEO of a UK listed company, he also
has management and leadership strengths, having
successfully led the transformation of Intermediate
Capital Group PLC (ICG) from a principal investment
business into a diversified alternative asset management
group with €34bn assets under management. Christophe’s
broad experience, both as a business leader and an
investor, will be a valuable asset to the Board.

Having started his career in banking, holding various
positions at NatWest and Banque de Gestion Privée, he
joined ICG in 1994 as an Investment professional, became
CEO in 2010 and stepped down from that position in 2017.
During this time he held various investment and
management roles, founded the Group’s businesses in
Paris, the Asia-Pacific region and North America, and
was instrumental in adding various additional businesses,
including a UK property lending business.

Other current appointments
None.

Board composition – Chart 39
gender
(All Directors)

Board tenure
(Non-executive Directors
including Chairman)

Chart 40

Female
Male

40%
60%

0–3 years 43%
4–6 years 29%

7–9 years
9+ years

14%
14%

Board skills and experience

Table 41

Retail/consumer

Finance

Property

Cressida Hogg
Robert Noel
Martin Greenslade
Colette O’Shea
Chris Bartram
Edward Bonham Carter
Nicholas Cadbury
Madeleine Cosgrave
Christophe Evain

Stacey Rauch

Landsec Annual Report 2019

Governance

Board of Directors
continued

Executive Directors

Robert Noel
Chief Executive

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. Before 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
Director European Public Real Estate Association (EPRA).
Director of the British Property Federation and President
July 2018-19. 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 chairs of the
relevant Committees.

Martin Greenslade
Chief Financial Officer

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
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.

Colette O’Shea
Managing Director, London Portfolio

Appointed to Board: January 2018

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
Business Board Member of the Mayor of London’s
Local Enterprise Partnership for London (LEAP) in 2016.
Joint Chair of the Royal Docks Enterprise Zone
Programme Board.

Management committees
A member of the Group’s Executive and Investment
Committees. From April 2019, Chairman of the
Property Committee.

Other Directors serving on the Board during
the year

Dame Alison Carnwath stepped down as
Chairman of the Board on 12 July 2018 after
serving almost 14 years on the Board, of which
the last nine years were as Chair.

Simon Palley, Non-executive Director and
Chairman of the Remuneration Committee,
retired from the Board on 31 March 2019. Simon
had been a member of the Board since 2010.

Scott Parsons resigned as an Executive Director
on 25 February 2019 having been appointed on
1 January 2018.

Tim Ashby

Group General Counsel and Company Secretary

Joined Landsec in September 2015

Skills and experience

Tim is a 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 Secretariat,

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 leads

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

Member of Executive Committee GC100.

Management committees

Member of the Group’s Executive Committee.

Secretary of Group PLC Board, Secretary of Audit,

Nomination and Remuneration Committee. Attends

Investment Committee.

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

Director of Inspirasia Foundation. Director of

Westminster Forum.

Management committees

Member of the Group’s Executive and Sustainability

Committees. Attends Investment Committee.

Robert Noel

Chief Executive

Martin Greenslade

Chief Financial Officer

Full biography on page 66

Colette O’Shea

Managing Director,

London Portfolio

Full biography on page 66

Jill Brady

Group Human Resources Director

Joined Landsec 15 January 2019

Skills and experience

Jill is a solicitor by background and has held a number

of executive roles in HR, legal and business affairs.

At Landsec, Jill has end-to-end responsibility for the

articulation and delivery of a clear people strategy for

Landsec, including talent, reward, organisational design

and engagement. Jill was most recently Executive Vice

President, Customer at Virgin Atlantic where she was

responsible for leading the business’s 5,000 customer-

facing people through a period of transformational

change and new technology. She was at Virgin Atlantic

for 14 years in a variety of roles, including General

Counsel and Director of People and External Affairs.

Jill has also worked as Head of Legal for lastminute.com

and Opodo.

Other current appointments

Jill is Vice-chair of Trustees for Virgin Unite, the Branson

family foundation, and a Major in the Engineer and

Logistics Staff Corps which forms part of 77 Brigade

in the British Army.

Management committees

Member of the Group’s Executive and Sustainability

Committees. Attends Remuneration and Nomination

Committee meetings at the invitation of the Chairs

of the relevant Committees.

Landsec Annual Report 2019

Executive Directors

Robert Noel

Chief Executive

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. Before 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

Director European Public Real Estate Association (EPRA).

Director of the British Property Federation and President

July 2018-19. 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 chairs of the

relevant Committees.

Martin Greenslade

Chief Financial Officer

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

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.

Colette O’Shea

Managing Director, London Portfolio

Appointed to Board: January 2018

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

Business Board Member of the Mayor of London’s

Local Enterprise Partnership for London (LEAP) in 2016.

Joint Chair of the Royal Docks Enterprise Zone

Programme Board.

Management committees

A member of the Group’s Executive and Investment

Committees. From April 2019, Chairman of the

Property Committee.

Other Directors serving on the Board during

the year

Dame Alison Carnwath stepped down as

Chairman of the Board on 12 July 2018 after

serving almost 14 years on the Board, of which

the last nine years were as Chair.

Simon Palley, Non-executive Director and

Chairman of the Remuneration Committee,

retired from the Board on 31 March 2019. Simon

had been a member of the Board since 2010.

Scott Parsons resigned as an Executive Director

on 25 February 2019 having been appointed on

1 January 2018.

Executive
Committee

Robert Noel
Chief Executive

Martin Greenslade
Chief Financial Officer

Full biography on page 66

Colette O’Shea
Managing Director,
London Portfolio

Full biography on page 66

Jill Brady
Group Human Resources Director

Joined Landsec 15 January 2019

Skills and experience
Jill is a solicitor by background and has held a number
of executive roles in HR, legal and business affairs.

At Landsec, Jill has end-to-end responsibility for the
articulation and delivery of a clear people strategy for
Landsec, including talent, reward, organisational design
and engagement. Jill was most recently Executive Vice
President, Customer at Virgin Atlantic where she was
responsible for leading the business’s 5,000 customer-
facing people through a period of transformational
change and new technology. She was at Virgin Atlantic
for 14 years in a variety of roles, including General
Counsel and Director of People and External Affairs.
Jill has also worked as Head of Legal for lastminute.com
and Opodo.

Other current appointments
Jill is Vice-chair of Trustees for Virgin Unite, the Branson
family foundation, and a Major in the Engineer and
Logistics Staff Corps which forms part of 77 Brigade
in the British Army.

Management committees
Member of the Group’s Executive and Sustainability
Committees. Attends Remuneration and Nomination
Committee meetings at the invitation of the Chairs
of the relevant Committees.

Tim Ashby
Group General Counsel and Company Secretary

Joined Landsec in September 2015

Skills and experience
Tim is a 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 Secretariat,
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 leads
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
Member of Executive Committee GC100.

Management committees
Member of the Group’s Executive Committee.
Secretary of Group PLC Board, Secretary of Audit,
Nomination and Remuneration Committee. Attends
Investment Committee.

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
Director of Inspirasia Foundation. Director of
Westminster Forum.

Management committees
Member of the Group’s Executive and Sustainability
Committees. Attends Investment Committee.

Landsec Annual Report 2019

Governance
Leadership

Leadership structure

Board of
Directors

CEO

Executive
Committee

Audit
Committee

Remuneration
Committee

Nomination
Committee

Board committees

Investment
Committee

Property
Committee

Sustainability
Committee

Health, Safety
and Security
Committee

Management committees

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 described.

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 report, and that of the Chief Financial
Officer and the London and Retail Portfolio
reports that are presented to the Board.

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.

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 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, brand,
resource allocation, succession planning,
organisational development and employee
remuneration.

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 to the Group on its culture, values
and ethics; setting strategy and overseeing its
implementation, agreeing the risk framework
and ensuring only acceptable risks are taken,
taking long-term factors into consideration in
Board decisions; and is 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 81-88.

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 91-117.

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 74-80.

* Terms of reference of each Board Committee can be found

on our website: landsec.com/board-committees.

Landsec Annual Report 2019

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.

Property Committee
Responsible for the financial, operational
and governance performance of the London
and Retail business portfolios. It can approve
transactions up to a value of £10m. In April 2019,
the Property Committee was created by the
merger of the London and Retail Executive
Committees.

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.
The Committee has continued to oversee the
implementation of the agreed actions to
address those properties identified as having
insufficient mitigation measures in place
following the tragedy at Grenfell Tower.

Board composition and roles
Chairman
Cressida Hogg
Leads the Board, responsible for 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.
From April 2019, responsible for the management
of the Retail and London portfolios.

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.

Independent Non-executive Directors
Chris Bartram, Nicholas Cadbury,
Madeleine Cosgrave, Christophe Evain
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.

Board attendance schedule

Table 42

Board

Audit
Committee

Nomination
Committee

Remuneration
Committee

Robert Noel

Martin Greenslade
Colette O'Shea

Scott Parsons1

Dame Alison Carnwath2

Cressida Hogg

Edward Bonham Carter

Chris Bartram

Nicholas Cadbury

Madeleine Cosgrave4

Christophe Evain5

Simon Palley

Stacey Rauch6

8/8

7/7

2/2

8/8

2/2

6/6

8/8

2/2

4/53

5/5

3/3

4/4

1. Resigned on 25 February 2019.
2. Stepped down on 12 July 2018.
3. Cressida Hogg did not attend the May meeting because her appointment as Chairman was discussed.
4. Appointed on 1 January 2019.
5. Appointed on 1 April 2019.
6. Joined the Remuneration Committee on 12 July 2018.

Landsec Annual Report 2019

Governance
Leadership
continued

Board activity
The table shows the key areas of Board activity
during the year to support our strategic
objectives. The key to the right highlights
the link between our strategic objectives
and what the Board did during the year.

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

Be a best-in-class
counterparty to
our partners and
suppliers

Continually improve
sustainability
performance

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

— Debated significant and emerging risks, including
cyber security, terrorism, the loss of key people,
ongoing uncertainty arising from the Brexit process
and other political risks

— Assessment and oversight of data governance

risk including GDPR and cyber security

— Met with Company’s valuers twice in the year.

Link to Strategic objectives

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

— Discussed independent Board evaluation and

— Analysed portfolio liquidity and development

effectiveness review

exposure

— Reviewed progress against the Group’s 2020

— Approved going concern and viability statements

sustainability strategy

— Approved dividend policy, debt funding

arrangements and gearing levels

— Discussed new business opportunities

— Increased focus on innovation

— Approved proceeding with the demolition and
building to grade at One Sherwood Street

— Considered the performance of key schemes and
assets acquired, completed or developed such as
the Westgate Oxford development, Nova Victoria
and the three outlets acquired in 2017.

Link to Strategic objectives

— Reviewed regular health, safety and security

updates, including the outcome of the Hackitt
report on fire safety and hostile vehicle mitigation
actions

— Reviewed and approved the 2018 Remuneration

Policy

— Reviewed developments in corporate governance
and received key legal and regulatory updates

— Received regular meeting reports from the

Chairs 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

— Received training and gave consideration to
stakeholders and the Directors’ duties under
Section 172 of the Companies Act.

Link to Strategic objectives

Taking time to reflect

The Board recognises the importance
of learning from past acquisitions or
developments, both in terms of what went
well and what could be done differently
next time.

During the year, the Board received
evaluation reports on the Nova and
Westgate developments and the acquisition
of the three outlets. The Board discussed
these with the teams, commended the
successes and challenged the teams as
to how they will use the learnings to drive
improvement in the future.

Landsec Annual Report 2019

Providing leadership and direction
— Discussed the composition of the Board and its

Financial performance
— Considered the financial performance of the

Culture
— Reviewed proposals for enhancing worker

Committees, including succession planning, with
a particular focus on the succession planning for
the previous Chairman who retired from the
Board in July 2018 and the appointment of two
Non-executive Directors

— Reviewed the development of people, diversity and
potential talent in the Group, including succession
planning for Senior Leaders

— Oversight of the work being undertaken by the
new Head of Strategy and Head of Innovation

— Discussed progress made on gender pay and

diversity

— Undertook development sessions on the

performance of the retail industry and the 2018
UK Corporate Governance Code.

Link to Strategic objectives

business and approved the annual budget and
key performance targets

engagement, including Chairman attendance
at the Employee Forum

— Discussed the five-year plan and reviewed asset

— Received updates on employee feedback from

performance

the Creating Experiences programme

— Reviewed the half-yearly and annual results and
presentations to analysts and approved the
Annual Report

— Reviewed cultural changes made during 2018

including the launch of the Above and Beyond
recognition programme

— Considered the half-yearly and full year valuation
of the Group’s portfolio by the external valuer.

Link to Strategic objectives

— Reviewed the cultural focus for 2019 including
the implementation of a new performance
management process that prioritises delivery
of business impact

— Reviewed the success of the mental health first

aider programme and progress of Mates In Mind,
the new health and safety mental health initiative

— Reviewed details of the Disability Group which
was launched to cover disability considerations
from both employee and customer perspective.

Link to Strategic objectives

One Sherwood Street, W1

In March, the Board approved the demolition
of the existing buildings at One Sherwood
Street, the site behind the Piccadilly Lights
in central London. This is the first step in
the development of a mixed use scheme
that will include office, retail units and a
roof-top restaurant.

The Board took into account a number of
stakeholder considerations in its decision
to proceed. It was clearly evidenced by
the team that the project is designed with
the end customer in mind and the needs
of the customer would be central to the
success of the project.

In the short term, the project will create
employment in Westminster and will benefit the
community in the long term by the provision
of high-end offices and outdoor space in a high
profile location.

The development includes the provision of eight
affordable housing apartments at Wardour
Street and the project also offers significant
opportunities to further Landsec’s social value
programme, for example, through our Back to
Work programme.

Landsec Annual Report 2019

Governance

Our stakeholders
and our Board

What does the
Board understand as
the key interests of
our stakeholders?

Landsec’s vision to be the best
property company in the UK
in the eyes of its customers,
communities, employees, partners
and investors means that our
stakeholders have been central
to our Board’s discussions and
decision-making for several years.

While the importance of giving due consideration
to our stakeholders is not new, we are taking the
opportunity this year to explain in more detail
how the Board engages with our stakeholders.
Effective engagement with stakeholders at Board
level and throughout our business is crucial to
fulfilling Landsec’s purpose, to provide the right
space for our customers and communities, so
that businesses and people can thrive.

This section serves as our Section 172 Statement.
Section 172 of the Companies Act 2006 requires
Directors to take into consideration the interests
of stakeholders in their decision-making. We are
complying, a year early, with the requirement to
include a statement setting out how our Directors
have discharged this duty.

Stakeholder engagement
Landsec has a Stakeholder
Engagement Policy for which the
Board is responsible. The Board has
identified our stakeholders and
how it will engage with them in
the future.

On pages 22-23 of our Strategic Report, we set
out our stakeholders and why they are important
to us and we set out further details of how we
engage with our stakeholders in the Social
review on pages 45-53. The relevance of each
stakeholder group may increase or decrease by
reference to the issue in question, so the Board
seeks to understand the needs and priorities of
each stakeholder group during its discussions
and as part of its decision-making. This, together
with the combination of the consideration of
long-term consequences of decisions and the
maintenance of our reputation for high standards
of business conduct, is integral to the way the
Board operates.

Landsec Annual Report 2019

Our
customers

Our
communities

Our
employees

Our
partners

Our
investors

Creation of social
value, community
employment,
effective
consultation and
communications
on proposed
developments and
the provision of
public realm.

Excellent customer
service, competitive
rents and
service charges,
sustainable
buildings, space
and services that
enhance work,
shopping and
leisure experiences
and ability to
adapt to changing
customer needs.

A positive
environment
to work, health
and wellbeing,
investment
in personal
development and
career progression,
support for flexible
and agile working,
inclusion and
diversity,
promoting equal
pay and honest
communications.

A productive and
fair working
relationship
through
collaboration and
shared values on
important matters
such as the
management of
health and safety
risks.

Robust financial
accounts, growth
in share price,
sound capital
allocation and
investment
decisions, a
progressive
dividend policy
and effective
communication
of strategy.

Essential to all these interests is effective engagement and communication.

How does the Board hear the
stakeholder voice?

The stakeholder voice is heard by the Board
throughout the year by information provided by
management and also by direct engagement
with stakeholders.

— Members of our Board have visited our assets
during the year and, as part of her induction
programme as a new Director, Madeleine
Cosgrave visited a number of our office and
retail assets. This is a great way for our
Directors to experience Landsec from a
customer and community perspective and
receive information directly from our
employees working on site at those assets.

— The Chairman has now joined the Employee
Forum which aims to ensure that the voice
of employees is heard at Board level. You can
read about the Chairman’s perspective on
her engagement with the Employee Forum
on page 73.

— The Board will be holding its first ‘meet the

Board’ event to follow the shareholder Annual
General Meeting on 11 July 2019. This will be a
great opportunity for the Board to hear first
hand the views of employees and answer any
questions they may have.

— Recognising the importance of the broader

impact that the Company has on its
stakeholders and customers at different
levels, the Board received a development
session to provide it with an update on the
various sustainability initiatives and projects
in which the Group is involved and a better
understanding of the outcomes and wider
benefits that were being achieved.

— The Chairman met many investors in

order to hear their perspective of Group
performance and the priorities they feel the
business should be pursuing. The meetings
gave her an honest assessment of investor
views. The Chairman reported to the Board
on the issues raised.

— The Board receives regular investor feedback
from the Group’s Head of Investor Relations
and this year had the benefit of the biennial
investor review conducted and presented by
Rivel, an external agency. The report from
Rivel was positive in many ways but, as
always, there were areas of improvement
identified. For further detail see page 90.

Returning to Westgate a year
after it opened enabled me to
experience the vibrant destination
we have created for our visitors
and retailers.”

Edward Bonham Carter
Senior Independent Director

What training has the Board
received on the importance
of stakeholder considerations
in its decision-making?

How have we embedded the
consideration of stakeholder
interests within the culture
of the business?

The relevance of stakeholder considerations
in the context of its decision-making has
been brought to the Board’s attention by the
Company Secretary for a while, as the principles
are aligned with the Group’s existing vision.
Nevertheless, we recognise the importance of
keeping the interests of our stakeholders at the
forefront of decision-making and continue to
provide refresher training to Directors. This year,
Slaughter and May conducted a training session
with the Board that focused on corporate
purpose, stakeholders and decision-making.
The Board reflected on the nature of and
opportunities for future engagement with
stakeholders and the need for each Director
to allocate time to this.

The Board recognises the need to review
regularly the identity of our stakeholders as
it makes decisions on behalf of the Group.

We have taken action to embed consideration
of stakeholder interests within the culture and
operating model of the business by providing
training to those management committees
that make investment decisions. Papers
presented to these committees now always
include a section on stakeholders.

How does the Board ensure
that stakeholder considerations
have been taken into account?

We achieve this by ensuring that all papers
coming from the business include a section on
stakeholder considerations and including this
as part of the debate when making decisions.
The Company Secretary is on hand to provide
support to the Board in ensuring that sufficient
consideration is given to stakeholder issues.

The Board and stakeholders
in action: the Chairman’s
experiences of the
Employee Forum.

Who attends the Employee Forum?
Employees from across the business attend,
from a variety of roles, and I have been
pleased with the openness of the discussion
and the questions raised.

What are the key things you have learnt
from attending the Employee Forum?
The Employee Forum has presented me with
a great opportunity to hear from employees
first hand how they feel about life at Landsec,
how the culture is evolving and any concerns
that they might have. We have discussed a
range of topics including the performance
review process for employees and shared
parental leave/family policy.

How do you flow the information you
have gained from attending the Forum
back to the Board?
I report back to the Board on the outcome of
my attendance at the Forum, summarising
my findings and setting out the actions
arising. I seek the Board’s view on the
matters raised.

What does the Board do with this
information?
This information helps the Board to
understand, monitor and assess the culture
at Landsec. Our employees are our most
important assets and we need to ensure
that their voice is heard at Board level.

Landsec Annual Report 2019

Governance
Dear Shareholder

The Nomination
Committee has been
active this year both
in overseeing several
changes to the Board
and monitoring corporate
governance developments
as they affect Landsec.

The Nomination Committee oversees the
process for appointing new directors, assessing
the composition and skillset of the Board and
its Committees and the Group’s diversity policy.
Also, it oversees the governance agenda on
behalf of the Board and considers the papers
and proposals issued by Government and
regulatory bodies, and their application to
Landsec. It then ensures that the decisions
taken by the Board and its delegated
Committees are made in the best interests of
the Company and that they address any wider
implications that may affect stakeholders.

Governance
We applied the main principles and complied
with the provisions of the 2016 UK Corporate
Governance Code throughout the year and
now comply with the new 2018 Code.

Landsec is recognised for its positive approach
to corporate governance and this is something
that I have inherited from our previous
Chairman. This will continue. This Committee
advises the Board on best practice and our
ambition is to remain recognised for our
approach. We inform the Board on governance
matters and invite external advisers to Board
meetings to support this.

You will find more detail regarding our
compliance, governance and effectiveness
elsewhere in this report, including our approach
to Section 172 of the Companies Act 2006 and
how we address the broader stakeholder base,
as well as the interests of our investors. We are
engaging more actively with stakeholders,
including our employees through our Employee
Forum and, for the first time this year,
a ‘meet the Board’ session to follow our
shareholder Annual General Meeting in July.
We want to improve engagement with our
other stakeholders and the Committee is
following this work closely and will deepen
its own engagement over the next 12 months,
complementing the active relationships we
have with leading investors.

Cressida Hogg
Chairman of the Nomination Committee

Letter from the
Chairman of
the Nomination
Committee

Committee members
Cressida Hogg (Chairman and
member from 12 July 2018)

Chris Bartram

Edward Bonham Carter

Stacey Rauch

Highlights
[ Appointment of two new
Non-executive Directors

[ External Board evaluation

[ Early compliance with 2018 UK
Corporate Governance Code

Key responsibilities
[ Structure, size and composition

of the Board and its
Committees

[ Succession planning of the

Board and Senior Management

[ Monitoring corporate

governance

Landsec Annual Report 2019

Board and Committee changes
It has been a busy year for changes to the
Board. I was delighted to accept the invitation
to become Chairman last year, taking up the
position in July 2018 to replace Alison Carnwath.
Since then, we were pleased to appoint two
Non-executive Directors, Madeleine Cosgrave
with effect from 1 January 2019 and Christophe
Evain who joined the Board on 1 April 2019.
However, after nearly nine years as a Director,
we were sorry to see the retirement of Simon
Palley who stepped down on 31 March 2019.

Before appointing Madeleine and Christophe,
the Committee thought carefully about the
skills and experience we wanted from both
appointments. A clear and detailed brief was
developed for each position that focused on
the particular knowledge and capabilities that
we wanted from the new directors, both of
whom were being appointed to provide
succession to directors.

We used different external executive search
companies for each appointment and
demanded diversity in the range of candidates
they proposed. We were pleased with the level
of interest in both roles and the quality of the
shortlists produced for us to review.

Madeleine has worked with GIC for 20 years
and is currently Managing Director and
Regional Head of Europe at GIC Real Estate.
Her background and experience on all property
matters will be invaluable to us in the coming
years and will provide us with continuity in
property expertise when Chris Bartram retires
from the Board. Christophe has extensive
investment experience in private equity, similar
to Simon Palley, and this financially focused,
analytical skill is an important requirement as
we consider investment decisions. Additionally,
both bring a different and fresh perspective to
the Board discussion because of their different
careers. The biographies of each director are
set out in more detail elsewhere in this report.

We also announced Scott Parsons’ resignation
as an Executive Director in February 2019.
Scott had been on the Board in his capacity
as Managing Director, Retail but is leaving
Landsec to pursue other career options and
we wish him well.

I am aware of the attention paid by investors
to the skills and capabilities of a PLC board,
and those available to it. This is an ongoing
discussion for us and we will appoint new
directors, or draw upon external expertise,
when we believe it can help the Board in its
short- and longer-term decision-making.

Board composition and succession
We have reviewed the Board and Committee
composition and, with the changes made
during the year, we believe that the current
composition of the Board and its Committees
remains appropriate for now. However, we
keep this under regular review and the topic
of succession planning is discussed at each

Committee meeting. We meet the Hampton-
Alexander target for gender diversity at Board
level but recognise that we have more to do
in other areas.

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. In my Chairman’s
letter to shareholders on pages 62 and 63,
I explain that I have asked Chris Bartram to
remain on the Board for an extra year beyond
the nine-year term after which he is no longer
considered independent under the Code.
However, the Board continues to consider him
independent in character and judgement,
as evidenced by the way he discharges his
duties as a Board and Committee member.
From a governance perspective, the Board
as a whole is independent.

Landsec is recognised for its
positive approach to corporate
governance and this is something
that I have inherited from our
previous Chairman. This will
continue. This Committee advises
the Board on best practice and
our ambition is to remain
recognised for our approach.”

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 be achieved through the use
of external experts advising the Board on
particular issues and risks and, within Landsec,
by having people with a diverse spectrum
of background, personality and experience.
The Committee has assessed the likely business
needs of the Company by reference to shorter
term trends as well as the longer-term five-
year plan and risks affecting the business.
This has been reflected in the discussions of
management capability and succession plans
at executive and senior manager level.

Independence and re-election to the Board
The independence, effectiveness and
commitment of each of the Non-executive
Directors have been reviewed by the
Committee. We were satisfied with the
contributions and time commitment of all
the Non-executive Directors during the year.
The Committee also debated and took into
consideration the additional commitments
of Directors (and me as Chairman) before
approving any changes to external
appointments and recommending their
approval. It considered potential conflict issues
as part of that assessment. The Committee
is confident that each of the Non-executive
Directors remains independent (but noting
Chris Bartram’s tenure of more than nine years)
and will be in a position to discharge their
duties and responsibilities in the coming year.

Stacey Rauch
Non-executive
Director

I led the process to recruit the
new Chairman to replace Dame
Alison Carnwath who stepped
down following last year’s AGM.
We used Egon Zehnder as our
independent consultants to
provide the Committee with a
long list of candidates, and to
help us narrow this down to a
shortlist by reference to the
skills and experience that we
wanted. After consideration
of highly qualified internal and
external candidates, we were
delighted to appoint Cressida
who has a background in
infrastructure and big projects,
working for many years at 3i
and CPPIB, and was also a
member of the advisory board
of Infrastructure UK, the HM
Treasury unit that works on long
term UK infrastructure projects.
This infrastructure experience,
together with her knowledge of
the Board, was compelling when
recommending her for the role.”

The appointment of Madeleine and Christophe
will be ratified at the Annual General Meeting
in July. The other Directors will stand for
re-election with the support of the Board.

Committee effectiveness
I am pleased to report that the recent externally
facilitated Board performance evaluation
concluded that the Board and its Committees
operated well. This includes this Committee
and the way that it has handled changes
during the year, approved appointments
and led the approach to corporate governance
and sustainability.

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.

Cressida Hogg
Chairman, Nomination Committee

Landsec Annual Report 2019

Governance
Effectiveness

Board evaluation cycle

With the appointment
of Cressida as the new
Chairman, having an
external Board evaluation
this year was well-timed
in providing an objective
assessment of the Board,
its Committees and its
overall effectiveness.

Internal review
focused on Year 1
issues raised and
any new issues
arising

Year 2 progress
reviewed
internally, and
areas of focus
identified

Independent,
externally
facilitated review

Year 2

Year 3

An external evaluation carried
out by No4

Year 1

Performance review against
targets set for 2018/19

Areas of focus identified for
2019/20

Progress against objectives set for 2018/19

Table 43

Strategy and innovation

People and succession
planning

Risk

Our objective 2018/19

Board to keep accessing
diverse expertise and, where
appropriate, to test and
experiment as a part of
the process to understand
customer requirements.

The Board to continue to assess
its own requirements, together
with those of the Executive
team and Senior Leaders within
the organisation.

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.

Our performance 2018/19

The Board has drawn on
external perspective in the
course of its development
sessions and consideration
of strategy, particularly in
the context of the evolving
needs of our customer. It has
supported the launch of Myo
(our flexible offer), modern
methods of construction and
the preliminary test work on
the O2 Centre, Finchley and
the West 12 Centre, Shepherd’s
Bush that is looking at a
build-to-rent opportunity.

The Board has worked on its
own succession planning with
the appointment of two new
Non-executive Directors. The
Board has also continued to
monitor succession plans at
Executive level and below to
ensure that there is a diverse
talent pipeline under
development.

The Board has monitored the
risks affecting the commercial
environment in which we
operate. These include the
wider macro-economic and
political risks affecting business
as well as the risks assessed
when considering entering
into new business areas, for
example the risks around
establishing Myo were
reported to the Board before
proceeding.

Next year’s internal review (Year 2 of the cycle) will assess the extent to which the areas of focus
for 2019/20 have progressed.

Landsec Annual Report 2019

External evaluation: feedback received from Directors

Table 44

Topic

Feedback

Culture, dynamics and the
Non-executive/Executive Director
relationship

— The Chairman invites comment, opinion and challenge in an
appropriately helpful way and the debate and discussion at
Board meetings is well managed.

Strategy and innovation

Performance, risk management
and governance

Organisation, information
and agenda

— The Directors are able to strengthen their relationships when
they meet outside the Board meeting; for example, informal
dinners with no agenda are regarded as helpful sessions to
share opinions and discuss a broader range of issues affecting
the business.

— The Non-executive Directors value their one-on-one time with
the Chief Executive and the Board is pleased that all Executive
Directors are able to provide their insights on the business.

— The Strategy Day is valued by the Board as an opportunity
to understand and debate management’s perspective and
recommendations; strategy should also remain a topic for
discussion at each Board meeting during the year.

— The Board welcomes hearing external perspectives and input
on its strategy; the appointment by the Company of a Head
of Strategy and Head of Innovation was welcomed; the
Board acknowledged that the business needs to keep pace
with innovation.

— The Board should refresh its views on risk appetite as it debates

the context of strategic direction and investment strategy.

— The Board believes that performance is measured by a range

of appropriate indicators, which are presented to and reviewed
by the Board, and as a result, it has a good understanding of
the performance of the business.

— Risk management is well managed by the Audit Committee,
with appropriate escalation of any issues to the Board as and
when relevant.

— The Internal Audit and Risk Management function is working

effectively and providing assurance on controls and governance;
no concerns were raised regarding governance.

— The quality of Board papers has improved (and the volume
reduced); Directors appreciate the focus on balancing data
and insight in Board papers and, as always, this will continue
to evolve.

— The Board meetings tend to follow the agenda and the discussion

centres on topics raised in Board papers and presentations;
Directors welcome time allocated to less ‘scripted’ discussions,
in particular in relation to strategy, and would like this to continue
and would agree to extending the length of Board meetings to
accommodate this.

— Non-executive Director only sessions are valued by the

Non-executive Directors and seen as an opportunity to explore
topics without an agenda.

New Chairman
Cressida Hogg replaced Dame Alison Carnwath
as Chairman of Landsec in July 2018. Dame
Alison retired as Chairman after serving nine
years leading the Board. The Nomination
Committee led the search process for her
replacement. In doing so, it was supported by
Egon Zehnder, an independent search
consultancy with expertise in board level
appointments. The Committee considered a
wide and diverse range of internal and external
candidates with different skills and business
backgrounds that were 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.

Since her appointment, Cressida has
broadened her knowledge of all areas of our
business and spent time with each of the
Directors. This has provided her the opportunity
to understand a broad spectrum of views and
assess the performance of the Group. This
perspective was supplemented by the external
Board evaluation that provided an objective
assessment of the Board, its Committees and
its overall effectiveness.

Board evaluation process 2018/19
In line with our three-year cycle, this year’s
review of the Board’s effectiveness was carried
out by an external facilitator. We used No4, led
by Jan Hall and Emma Fallon, which operates
as an independent board evaluator and has
no other connection with the Company.

Board evaluation
No4 interviewed each of the Directors and
the Company Secretary individually on a
confidential and unattributable basis and
attended Board and Committee meetings as
observers. The output of the evaluation was
presented in a report to the Board at its January
meeting and the Directors discussed the points
raised by the review. To ensure that the process
was robust, following the Board meeting,
No4 provided confirmation to the Senior
Independent Director that all the information
provided in the report was a fair reflection
of the range of views provided by each of the
Directors during the interviews and that the
conclusions in the report were not influenced
inappropriately by any Director.

The No4 report addressed the views of Directors
on the operation of the Board, including its
management by the new Chairman, the
content and scope of topics covered at Board
meetings, the relationships between the
Directors and the Executive, and the nature of
contributions of Directors to meetings. It also
addressed comments relating to the operation
of the Audit, Remuneration and Nomination
Committees, and in each case the conclusions
were discussed by those Committees at their
meetings in March 2019.

Landsec Annual Report 2019

Governance
Effectiveness
continued

Board strengths identified:

[ a collaborative and collegiate

culture

[ open and respectful nature of

discussion and debate

[ wide-ranging input from all

Directors

[ underpinned by good relationships

Our areas of focus for 2019/20

Strategy and innovation

[ Continue with the Board’s

attention to strategy and to
encourage less ‘scripted’
discussions on a broader range
of topics by extending the
duration of Board meetings;
the Board will continue with
its development sessions to
capture external perspectives
and its engagement with senior
managers within the business

People and succession planning

[ The Board will increase its focus
on the diverse talent pipeline
and succession management
for the business

Stakeholder engagement

[ The Board will reflect on the
relevant stakeholder groups
and how to engage with them
appropriately

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. There were no
material issues to report. All Directors noted
that the Board was in a period of transition,
following the appointment of a new Chairman
during the year and with a Non-executive
Director rotating off the Board and two new
Non-executive Directors being appointed.
All Board members were keen to use this
evaluation process as a timely opportunity
to identify ways to improve performance.

Induction
A detailed induction programme has been put
in place for Madeleine and Christophe which
includes asset visits, time spent with Senior
Leaders throughout the business and meeting
with key advisers. The purpose of our induction
plan is to facilitate contribution to Board
discussions as soon as possible by providing
sufficient knowledge to enable constructive
challenge and contribution to strategy.
Our induction plan is delivered over the first
year of tenure, after which Directors participate
in Board development sessions and ongoing
training as required.

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 can
spend time together, for example, when
Directors travel together to visit Group assets.

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 has been
complimentary of the quality of papers which
have been made more concise and the
presentation of information enhanced.

Recruitment of new Non-executive Directors
Two new Non-executive Directors were
appointed to the Board during the year:
Madeleine Cosgrave who joined on 1 January
2019 and Christophe Evain whose appointment
was announced on 20 March 2019 and who
joined the Board on 1 April 2019. The process
for the recruitment of Madeleine Cosgrave was
handled by Spencer Stuart and of Christophe
Evain by Russell Reynolds, both independent
executive search agencies who proposed a list
of candidates to the Nomination Committee for
its consideration. Members of the Nomination
Committee interviewed those candidates on
the shortlist and proposed Madeleine and
Christophe for appointment to the Board based
on their skills and experience that would
contribute to the overall performance of the
Board. Both appointments were approved by
the Board.

The priorities of our induction

Providing an understanding of:

[ the Group’s business and financial

position

[ the way the Group operates, its

culture and history

[ the Group’s strategy, and the

opportunities, risks and threats
it faces

[ the Board’s culture, style,
governance and dynamics

[ the legal and regulatory

obligations of a PLC director

[ the legal and regulatory

environment in which the Group
operates

Getting to know the Chairman
and the Executive Directors:

[ access to the Executive Team

and Chairman

[ access to key external advisers
(for knowledge, insight and
independence)

Professional development, support and
training for Directors
The Board held an increased number of specific
knowledge development sessions during the
year, including a deep dive into the retail sector,
sustainability and the importance of
stakeholder engagement in the context of
Section 172 of the Companies Act. Directors
received regular reports in their Board papers,
facilitating greater awareness and understanding
of the Group’s business and the legal, regulatory
and industry-specific environment in which it
operates. This was complemented throughout
the year by visits to properties owned, managed
or being developed by the Group, which enables
a deeper insight into the operations of the
business and provides Directors with the
opportunity to meet with senior and local
management teams and gain customer and
community insight.

Landsec Annual Report 2019

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 annual strategy meeting in January that enabled
it to explore and debate in detail a wide range of items.

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 the business.

The Board is supportive of the Lord Davies report and
Hampton-Alexander review target for women to represent
33% of boards by 2020. We continue to make good progress
in terms of diversity. As a result of the appointments of
Madeleine Cosgrave and Christophe Evain to the Board
and the departure of Scott Parsons and Simon Palley, our
percentage of women on the Board at 31 March 2019 stands
at 40% (2018: 36%).

Diversity is more than just gender based and the Board
continues to focus on this important issue in the wider
context, considering ethnicity and social and educational
background. We are conscious that a diverse Board benefits
from breadth of perspective and debate which aids
decision-making.

In line with the provisions of the 2018 UK Corporate
Governance Code, our Nomination Committee has
expanded its remit to oversee workforce policies and
practices across the wider workforce and this includes
monitoring our talent pipeline to ensure we have a diverse
succession pool. Further information on diversity throughout
Landsec can be found on page 50.

Madeleine has extensive UK and international
experience in the property sector from her
time at GIC and JLL and her knowledge and
perspective in relation to investment decisions,
property management and market dynamics
will be a great asset to the Board.”

Cressida Hogg
Chairman

I am delighted that Christophe has joined the
Board of Landsec. His broad experience, both
as a business leader and an investor, will be a
valuable addition to the Board.”

Cressida Hogg
Chairman

Landsec Annual Report 2019

Governance
Effectiveness
continued

Conflicts of interest

Table 45

Director

Potential conflict situation

Nomination Committee decision and mitigating action taken

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.

Nicholas Cadbury

Madeleine Cosgrave

Prior to Whitbread PLC’s sale of Costa Coffee to
Coca-Cola in January 2019, a potential conflict had
been identified for Nicholas Cadbury, Group Finance
Director of Whitbread PLC, arising from Costa Coffee
leasing a number of retail properties from the
Company around the UK.

As Regional Head of Europe at GIC Real Estate,
Madeleine may have commercial relationships with
peer/competitor companies. GIC owns a 17.5% stake
in Bluewater and Ms Cosgrave is a Management
Committee member of BWAT Retail Property Unit
Trust – the entity that owns the stake in Bluewater.
GIC also has a stake in AccorInvest which operates
the hotels in Landsec’s portfolio.

Mr Bonham Carter’s position is such that he is unlikely to be
involved in the selection of 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.

Since operational matters, such as retail leasing, were 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. Following the sale of Costa Coffee
at the beginning of the year, this is no longer a potential conflict.

The potential for a conflict of interest situation is recognised
and a letter of understanding has been agreed that sets out
the principles that apply in certain situations. The letter governs
Ms Cosgrave’s involvement in Board decisions (and levels of access
to commercially sensitive information) where there is, or may be,
a conflict and recognises that she has commercial relationships
with some peer/competitor companies. The Nomination
Committee believes that these mitigation principles and actions
are sufficient and appropriate to deal with any issues.

Conflicts of interest
The Board has adopted a policy to identify
and manage Directors’ conflicts or potential
conflicts of interest and delegated authority
to the Nomination Committee to (i) approve
or otherwise any such disclosed conflicts, and
(ii) determine any mitigating actions deemed
appropriate to ensure that all matters in the
Boardroom are considered solely with a view to
promoting the success of Landsec. Directors’
conflicts of interest (which extend beyond third
party directorships and include close family)
are reviewed by the Committee annually, with
new conflicts arising between meetings dealt
with at the time between the Chairman and
the Secretary.

With one exception, set out below, no new
potential conflicts were identified during the
year even though several Directors have taken
on other external positions.

Madeleine Cosgrave joined the Board on
1 January 2019 and, as Regional Head of Europe
at GIC Real Estate, there is the potential for
a conflict of interest to arise. This risk was
considered as part of her appointment process,
but it was agreed that it could be managed and
that the benefits of Madeleine’s appointment
outweighed any risk of conflict.

Additional external appointments
During the year, Edward Bonham Carter
became Senior Independent Director of ITV plc
and Stacey Rauch became a Non-executive
Director of Heidrick & Struggles International,
Inc. In addition, the Chairman became a
Non-executive Director of London Stock
Exchange Group plc. The Board approved each
of these appointments and agreed that the
time commitment would not impact their
ability to commit to the Landsec Board or its
Committees. The appointments do not result
in overboarding, as determined by the ISS proxy
voting guidelines, and no potential conflicts
were raised.

Landsec Annual Report 2019

Financial statements
The Committee monitors the integrity of
the Group’s reporting process and financial
management. It scrutinises the full 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 and estimates made by
management.

Asset valuation
Our asset valuation process is robust. We use
CBRE, an industry-leading agency, to provide
us with an external valuation of our assets
twice a year. CBRE has extensive expertise and
knowledge and uses the best systems to provide
us with a valuation prepared in accordance with
the relevant industry standards. The valuation
process relies on transactional evidence in
the market in the period to the valuation date
and, consequently, asset values are largely
determined by empirical data. This can present
some challenges in a fast-changing market
where market trends are more volatile and,
therefore, the Committee challenges and
debates each valuation prepared by CBRE.
The external valuation process and the values
ascribed to specific assets are also reviewed
independently by our auditor, Ernst & Young
LLP (EY), as part of its audit scope.

Letter from
the Chairman
of the Audit
Committee

Dear Shareholder

I am pleased to report
on the key activities
and focus of the
Audit Committee
during the year.

The activity of the Audit Committee has
been consistent with prior years, with its focus
on financial statements, the integrity of the
reporting process and oversight of the risk
management process and internal controls.
An important part of this is the thorough review
of the asset valuations provided by the external
valuer and examination of the financial
statements and accounting judgements
included in the full and half-yearly financial
results. This helps us to ensure that financial
and other information is verified, reported
fairly in an understandable way and aligns
with Landsec’s goals and corporate purpose.

The composition of the Committee changed
during the year with Madeleine’s appointment
with effect from 1 January 2019. Her extensive
knowledge of the property industry and
perspective on valuation is a real benefit to
the Committee.

Nicholas Cadbury
Chairman of the Audit Committee

Committee members
Nicholas Cadbury (Chairman)

Chris Bartram

Madeleine Cosgrave
(from 1 January 2019)

Stacey Rauch

Highlights
[ New Committee member

[ Continued focus on integrity

of reporting process

[ Rigorous assessment of risk
management and internal
controls

Key responsibilities
[ The reliability of the financial

statements

[ The reliability of the internal

controls

[ Effective risk identification

and management

[ Overall transparency and

governance

Landsec Annual Report 2019

Governance
Letter from the Chairman
of the Audit Committee
continued

Acquisitions and disposals
There were no material property acquisitions
or disposals during the year, in contrast to the
greater level of activity during the previous
year, meaning that no related judgements
or estimates required scrutiny.

Company voluntary arrangements (CVAs)
Regrettably, there has been an increase in
the numbers of CVAs and administrations
among our occupiers, particularly among
our retail customers.

CVAs and administrations affect our income,
as does bad debt, and the Committee reviewed
the application of the accounting treatment
and the Group’s policy to ensure that it was
appropriate. To date, we have been fortunate
that the level of CVAs and administrations has
not affected us materially as a business.
However, from a Committee perspective, it
is important that the accounting is correct
because it has implications on revenue profit,
for example, which is one of the performance
measures by which the annual bonus is
calculated. Consequently, the Committee has
monitored the impact of CVAs and reviewed
trade debtor and tenant incentive balances.

Group financing
The Company’s treasury team has continued to
look at the financing of the Group as a whole.
During the year, the team’s focus shifted from
liability management exercises which had reset
our cost of debt to current market levels to
enhancing our access to flexible revolving credit
facilities. New facilities totalling £625m were
established, taking our total committed bank
lines to £2.7bn at 31 March 2019.

Risk
The risks are set out on pages 56-59 of this
Annual Report and include market cyclicality,
structural changes in our markets, changing
customer behaviours and information security.

Although at one level the categories of principal
risk have remained much the same compared
with last year, this does not mean that things
have remained static. Matters such as data
security have broadened in scope, the health
and safety considerations for our employees
have expanded to include mental health and
the Committee acknowledges the longer-term
nature of some of the sustainability risks. This
is all in addition to the market and economic
uncertainty that has affected Landsec and
other commercial property companies.

The Committee reviews the process by which
risks are identified, prioritised and managed, in
addition to considering the range of identified
risk. The risk register used by the Committee
as the basis of its risk assessment is proposed
by the Group’s Executive Committee. The risk
register is compiled both from the top down,
with identified macro-economic and political
risks, as well as bottom-up, the result of greater
consultation with all the functions within the
organisation. This bottom-up review involved
seeking views from across the business on
existing, new or emerging risks and the issue
of a questionnaire to its Directors, Executive
Committee and Senior Leaders to act as a
catalyst to a discussion on risk and risk appetite.
This is important because it provides a broader
range of data and perspective from which we
can make decisions and has the added benefit
of involving a wider set of contributions from
across the business. Collectively, this improves
the quality and thoroughness of the review
and the identification of emerging risks from
a broader pool of data.

There are particular risks that I would like to
note. First, no-one has been immune from the
implications of the protracted negotiations
to leave the EU throughout the year. This has
affected business and consumer confidence,
and impacted longer-term business planning,
with a knock on effect on the performance
and valuation of assets and revenue income.
During the year, the Company appointed a
project group to assess and monitor the effect
of Brexit risks, both direct and indirect, and we
believe the Group is well-positioned to mitigate
these risks should they materialise.

Second, the issue of data protection and
information security continues to expand as
a risk. We had a strong programme of training
and awareness at the time of the GDPR
legislation taking effect and the Committee has
been pleased with the way this was managed,
a view endorsed by an external audit of our
programme which was complimentary in its
conclusion. Since May 2018, we have (fortunately)
avoided any reportable data breach but
recognise that our business is likely to hold less
personal data than many other companies.
However, GDPR is one aspect: during the year,
the Company migrated its data to a cloud-
based server that provides extra security,
replacing the use of our own servers to store
information and the risks associated with that.
There has been internal training on the new
system, with additional safeguards now in place
to reduce the risk of breach. The Committee
has been pleased with progress on improving
data protection, but there is no complacency
and we continue to look at ways to improve
training, awareness and best practice on data
governance throughout the business.

Internal audit
The Company maintains its own risk
management and internal audit function and
the Committee is confident that this works well
based on the quality of the data and reporting
from the Director of Risk Management and
Internal Audit. However, in order to test this
conclusion, the Committee reviews the scope,
skills and competencies of this function each
year and considers any recommendations for
change. We believe that the knowledge, skills
and resources of our internal audit team remain
appropriate, and there is a clear understanding
that this may require and benefit from specialist
external expertise from time to time. 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,
to ensure that the Committee receives clear
advice and enables us to report to the Board
that the system of internal processes is robust.
External support was provided during the year
by a number of consultants (but not our
auditor, EY) on topics including GDPR and
personal data, data governance, cyber and
physical security and data analytics.

The Committee approves the annual internal
audit plan which is assessed against the risk
register and developing market practice.
Internal audit reports are received by the
Committee and any follow up
recommendations or actions are tracked until
completion. We ensure that we allocate
sufficient time on the agenda to consider risk
matters as part of our 12-month rolling agenda.

In addition to the items for which external audit
support was used, internal audits carried out by
the Group and reviewed by the Committee
included contract risk management, delegations
of authority, accounts payable and credit risk
management. The internal audit team also
provided assurance to the Committee on
key controls and programme assurance, and
developed further its data analytics capability
to improve the identification of any issues.

External auditor
EY was appointed as the Company’s auditor
in 2013 and continues to perform to a high
standard. Following the completion of our full
year results in 2018, Eamonn McGrath stepped
down as our audit partner after five years in
post. He has been replaced as audit partner
by Kathryn Barrow and we are pleased with
the way that the transition was managed.
Kathryn is supported by other members of the
EY audit team who have been involved in the
audit for a number of years and now attend
Committee meetings.

Landsec Annual Report 2019

During the year, the Company
appointed a project group to
assess and monitor the effect
of Brexit risks, both direct and
indirect, and we believe the Group
is well-positioned to mitigate
these risks should they materialise.”

I have separate meetings during the year
with Kathryn, as do other members of the
Committee. This provides us the opportunity
to obtain an independent perspective from
EY as auditor on the Company’s performance
from an accounting perspective, and also to
ask questions of the audit work undertaken
by EY. These meetings are not attended by
management. No material concerns have
been raised.

The fee basis for EY’s services is contained on
page 86 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.

EY was appointed in 2013 following a thorough
tender process and the nominated audit
partner has been rotated after five years in
position. The Committee is aware of the need
to put the audit work to tender every ten years
and of the current review by the Competition
and Markets Authority into audit firms.
However, we took the view that an audit tender
was not required in 2018 because of EY’s
performance to date as auditor, and the choice
of, and smooth transition to, the new audit
partner. We have no contractual obligation
to remain with EY and the choice of audit
firm will remain a topic of consideration for
the Committee.

External valuer
CBRE was appointed as the Group’s valuer for
an initial term of three years expiring in March
2019 and we have been pleased with their work.
We have no reason to change our valuer and
they are still relatively new in role. We learnt
from the change when CBRE was appointed
that the amount of additional management
time and resource involved with any tender
process or a change of valuer is considerable
and not something to be underestimated;
this must be considered against the perceived
benefit to the Company and its shareholders
of changing the valuer on a regular basis.
Accordingly, in March 2019, the Committee
approved the re-appointment of CBRE to act
as valuer for a further three-year period to 2022,
although, as before, we have no contractual
obligation to remain with CBRE and can
terminate their contract on three months’ notice.

Fair, balanced and understandable
The Committee assessed and recommended
to the Board that, taken as a whole, the
Company’s 2019 Annual Report is fair, balanced
and understandable. In order to come to this
conclusion, the Committee relied on the Annual
Report assurance document produced by the
Company that detailed the individual
responsible for each section, the assurance
provided by the CFO following his review of the
Annual Report and financial statements with
the Executive Committee and the confirmation
received from EY as external auditor on the
process for preparing the full year results and
the information contained in the Annual Report.
Additionally, the Company used its own internal
process to check the consistency of data
throughout the Report.

Viability statement and going concern
The viability statement, together with the
rationale behind the chosen five-year time
horizon, is set out on page 60. 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 remained appropriate
taking into account the balance sheet and
financial strength of the Company and its
current exposure to development risk.

Committee effectiveness
The Committee’s performance was considered
as part of the external Board evaluation
conducted this year and the Committee
assessed its own performance having taken
input from its external advisers such as EY and
CBRE. The conclusion is that we operate to a
high standard, with clear priorities, well-defined
responsibilities and clarity around our work plan.
We will continue this next year and remain open
to innovation or other, better ways of working.

The year ahead
The Committee recognises the increased
attention on financial oversight of companies
and will continue to work with management
and the external advisers during the year in
a way that keeps them, and us, at a high
standard. This will apply to the asset valuations,
financial oversight, risk management and
internal audit process, and improvements in
how we can communicate to our shareholders
and stakeholders.

I would like to thank the other members of
the Committee, together with management,
CBRE 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.

The going concern statement is set out on
page 60.

Nicholas Cadbury
Chairman, Audit Committee

UK Corporate Governance Code/
FRC Guidance on Audit Committees
The Committee considered its compliance
with the 2016 and 2018 UK Corporate
Governance Code and the FRC Guidance on
Audit Committees. We believe that we have
addressed both the spirit and the requirements
of each. We note that, under the 2018 UK
Corporate Governance Code, responsibility for
whistleblowing shifts from the Audit Committee
to the Board as a whole. As a result, the Audit
Committee will report regularly to the Board
on our whistleblowing process and any reports
arising from its operation.

We were contacted by the Competition and
Markets Authority in connection with its
investigation into UK audit firms and the
dominance of the ‘Big Four’. We recognise
some of the problems that were identified
but are concerned about the cost/benefit
of ever-increasing regulatory oversight and
the potential loss of talent at audit firms.
We continue to monitor the situation, as well
as the recommendations of the Kingman
review, and how they may affect us.

Landsec Annual Report 2019

Governance
Accountability

The Committee has
continued its rigorous
oversight of the Group’s
risk assessment and
management, internal
controls, 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 team
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 64 and 65.

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 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

Committee
private sessions

Chief
Executive

Chief
Financial
Officer

Group
General
Counsel and
Company
Secretary

Chairman
of the Board

Internal
audit team

CBRE
valuation
team

Director
of Risk
Management
and Internal
Audit

Members of
senior finance
team

All Directors

Landsec Annual Report 2019

Audit Committee activity

Table 46

The table shows the key areas of Audit Committee activity during the year.

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

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 the focus of 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 level of fees paid to EY in accordance with the policy for

— the mitigation actions we take in seeking to

the provision of non-audit services

— EY’s reappointment to office as external auditor.

Risk management and internal
control

— The scope of the internal control and risk management

programme

— The results of internal audit reviews and the progress made

against agreed management 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 and management of the General Data
Protection Regulation (GDPR), data governance and
information security

— 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.

Internal audit

— The scope of the internal audit plan and resourcing requirements

External property valuation

— The independence, appropriateness and effectiveness of

internal audit.

— The quality and appropriateness of 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

— The Committee’s terms of reference and performance

effectiveness

— Compliance with the Code and the Group’s regulatory and

legislative environment.

Significant financial matters

— The appropriateness of significant financial matters made in

connection with the financial statements as set out on page 88.

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 partner (not being

greater than five years); Kathryn Barrow was
appointed as EY audit partner in April 2018,
replacing her predecessor who had been in
post for five years

— 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. Kathryn Barrow took over as audit

Landsec Annual Report 2019

Governance
Accountability
continued

partner on 1 April 2018. There are no contractual
restrictions in relation to the Company’s choice of
external auditor. The Board believes that, having
regard to the quality, stability and continuity of
the relationship with EY as the current auditor,
it is in the best interests of the Company and
shareholders to tender the audit contract by a
date no later than that stipulated by the current
regulations. 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.

The Company has complied with the Statutory
Audit Services Order 2014 for the year under
review.

Audit fee
The fees payable to EY for the audit and
half-yearly review for 2018/19 are £0.8m
(2017/18: £0.8m).

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.

The Committee monitors compliance with the
policy, including the prior approvals required
for non-audit services, which are as follows:

Table 47

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
£178,000. This sum represented 28% 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 2015 and
has recently been re-appointed for a further

Landsec Annual Report 2019

three-year period. The valuation helps to
determine a significant part of the Group’s
total property return and net asset value, which
have 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 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 full
and half-year presentations. The Committee
Chairman and other members of the
Committee 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 73% 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.

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 88.

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, 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, any changes to the process over the
course of the current year and the key risk
management priorities for 2019/20 are described
on pages 54 and 55.

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.

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 of findings and

recommendations from completion of the
internal audit plan

— progress against completion of 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. The Company established a GDPR
project team, led by the Group General Counsel
and Company Secretary, and supported by our
Privacy and Compliance Officer who has
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
the 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,
the Company revised its data protection policies
and processes. The Committee received regular
updates at its meetings on the GDPR
programme. This was supported by an external
audit of all aspects of its implementation and
the outcome was positive and complimentary.
The Company’s focus has now moved more
broadly to data protection and information
security but the Committee will continue to
keep GDPR compliance under review in the
year ahead.

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.

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 and this
was supported by an annual report assurance
document produced by the Company.

Taking the above into account, together with
the views expressed by EY, the Committee
recommended, and in turn the Board
confirmed, that the 2019 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
whistleblowing policy which allows employees to
report concerns about suspected impropriety or
wrongdoing (whether financial or otherwise) on
a confidential basis, and anonymously if
preferred. This includes 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,
no whistleblowing incidents were reported
through the hotline but some HR grievances
were received through other channels.

Each year we run a whistleblowing awareness
campaign, reminding employees that a
dedicated hotline exists 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. This year we have sought
to actively increase awareness of our
whistleblowing hotline amongst our suppliers.
This included the launch of a campaign that
featured new posters which were displayed at
all our retail sites, our 21 Moorfields development
and the management areas of all our other
London assets, including our head office, which
illustrated the types of situation in which a
supplier may need to use the hotline.

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 the policy has been
reinforced this year through the launch of our
new Code of Conduct. Our principal suppliers
are required to have similar policies and
practices in place within their own businesses.

Landsec Annual Report 2019

Governance
Accountability
continued

Significant financial matters

Table 48

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 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 was 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 123-128
and the significant accounting policies disclosed in the notes to the
financial statements.

Further details on significant accounting judgements and estimates
can be found in note 2 to the financial statements on page 134.

Landsec Annual Report 2019

Investor
relations

Approach to investor relations
We are committed to maintaining an open
dialogue with investors and the Board
recognises the importance of that relationship
in the governance process. The Chairman and
Senior Independent Director, supported by the
Executive Directors, have overall responsibility
for ensuring that we listen to and effectively
communicate with our investors.

We maintain a comprehensive investor relations
programme for institutional investors, private
shareholders and debt investors. This programme
aims to help our existing and potential investors
understand our business, strategy and
performance and, importantly, provides the
opportunity to receive valuable feedback from
the owners of the Company and the providers
of our debt. Shareholder feedback is shared with
the Board to help it understand the views of
major investors.

Institutional shareholders’ programme
— The Executive Directors once again held
meetings with shareholders representing
more than half the register by value during
the year

— The geographic spread of the programme

covered Europe and North America

— 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

— Governance and sustainability roadshows

were held during the year.

Investor conference
The investor conference is held in each calendar
year. There was no investor conference during
the last financial year as our last conference
was held in February 2018 in Westgate Oxford
and the next conference will be held in London
in September this year.

The presentations and an audio recording of
our investor conference are available on the
corporate website to enable non-attendees
to access the information provided.

Investor tours and presentations
We invited investors to and hosted various
presentations and tours of some of our major
assets including Buchanan Galleries in Glasgow,
Bluewater and key properties in Victoria, SW1.

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.

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.

We conducted a number of investor tours of
major assets during the year including Nova, SW1

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 Bank of America
Merrill Lynch conferences in London, the
Kempen conferences in Amsterdam and New
York, the Citi conference in Miami and the Exane
BNP Paribas conference in Paris.

Private shareholders
Our private shareholders are encouraged to give
feedback to and communicate with the Directors
through the Company Secretary. They were also
able to meet Directors at our Annual General
Meeting (AGM) in July.

Our 2018 AGM
We held our July Annual General Meeting at our
offices in Victoria Street, SW1. Holding our AGM
on site gives our shareholders the opportunity
to visit our nearby assets.

Our AGM provided all shareholders with an
opportunity to question the Board on matters
put to the meeting. Shareholders who attended
the AGM received an overview of Landsec’s
performance from the Chairman and a general
business update from the Chief Executive.
Shareholders were also shown a short video of
Westgate Oxford which opened in October 2017,
which showcases how our business interacts
with wider stakeholders.

Questions from shareholders included what
plans the new Chairman had for the Company’s
strategy, the expected benefit from the
refinancing that had taken place during the
previous financial year, the CBRE valuation
process and the impact of the current retail
market conditions on the portfolio.

The results of voting at all general meetings are
published on our website: landsec.com/investors.

Our five-year private shareholder
programme
We have a rolling five-year programme for our
private shareholders. The aims of this
programme are:

— A share register with minimal non-cashed

dividends

— The promotion of electronic communications
where appropriate to limit paper distributions
thereby reducing the impact on the
environment

— Effective communications and the provision
of efficient service to our retail shareholders.

Landsec Annual Report 2019

Governance
Investor relations
continued

We work closely with Equiniti, our Registrars,
on the execution of this programme and
this year we carried out the following actions:

— Completed our asset reunification

programme which we had launched the
previous year and successfully returned over
£80,000 to ‘lost’ shareholders

Credit rating agencies
During the year, business and financial updates
were provided by our treasury team and senior
managers 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 year, the Board commissioned Rivel
to undertake an investor relations audit.

— Closed four dissenters’ registers which had

2019 investor perception audit

— During the year, the Board commissioned
Rivel, an independent adviser, to conduct
an audit of investor perceptions of the
Company, its management, strategy,
governance and the investor relations
programme. Rivel conducted a similar
audit in 2017.

— Rivel interviewed over 50 institutions and
five sell-side analysts. The sample of
institutions covered the UK, the US and
continental Europe and included major
investors, target investors and non-
holders.

— The results of the audit were presented to
the Board and included recommendations
from Rivel on how the Company should
respond to the feedback.

— The audit identified that management,
our financial position, the quality of our
assets and strategy were all key strengths.
A significant change in opinion since the
last audit in 2017 is that the Retail Portfolio
and our exposure to the retail sector is now
regarded as a weakness and reflects the
deterioration in that market over the last
two years.

arisen from historic acquisitions

— Decreased the number of hard copies of

the Annual Report by 40% by carrying out
a deemed consent mailing

— Encouraged electronic communications so
that web-default shareholders received the
proxy form only, resulting in a significant
reduction of the number of printed notices
of meeting.

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-yearly
and full year results.

In addition, the team participated in a round
table event at the Investment Association
discussing best practice in liability
management.

Engaging with our investors

We regularly review and
refresh our engagement
with shareholders, lenders
and bondholders and value
the feedback we receive.”

Banks
Regular dialogue is maintained with our key
relationship banks, including at least bi-annual
meetings with our treasury team and in-house
events hosted by the Executive and Non-
executive Directors.

Our treasury team also actively engaged with
new and potential lenders.

Landsec Annual Report 2019

Investor relations events

2018

April

May

— Closed period

— Preliminary results
— Post-results investor

meetings in London and
Scotland

— Real estate investor
conference in The
Netherlands

— Bond holder updates

June

— Investor meetings in

Frankfurt

— North American investor
roadshow in New York

— Generalist investor
conference in Paris
— Governance roadshow

in London

— Bond holder updates

— Annual General Meeting
— Standard & Poor’s annual

review meeting

— Investor meetings in Zurich

July

August

— Analyst meetings with

the CFO

September

— North American investor

roadshow: New York, Boston,
Chicago and Toronto

October

— Closed period

November

— Half-yearly results
— Post results investor

meetings in London and
The Netherlands
— Real estate investor

conference in London
— Bond holder updates

December

— Bond holder updates

2019

January

February

— IR sustainability roadshow

March

in The Netherlands

— Sales team presentations

(CEO and CFO)

— Real estate investor
conference in Miami
(conference calls)
— Real estate investor

conference in New York
— Sales team presentations

(CEO and CFO)

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 and
BAME reporting

[ Approving individual reward
outcomes for the Executive
Directors and Executive
Committee

Edward Bonham Carter
Chairman, Remuneration Committee

Dear Shareholder

I am pleased to
introduce the Directors’
Remuneration Report
for the year.

This is my first report to you as Chairman of
the Committee, having taken over from Simon
Palley on 1 January 2019. Simon stepped down
from the Board on 31 March 2019 after nearly
nine years as a Director.

On behalf of the Board, I would like to thank
Simon for his first-class and significant
contribution for the last six years as Chairman
of this Committee, which included obtaining
consistently strong shareholder support for the
Remuneration Reports tabled at the Annual
General Meetings and an overwhelming vote
last year for our latest Remuneration Policy.
I would also like to welcome Christophe Evain,
who became a Non-executive Director on
1 April 2019 and joined this Committee at the
same time.

I joined the Remuneration Committee in
January 2014 and therefore, have knowledge
and experience of how the Committee
operates at Landsec and of the wider market
considerations and views on the topic of
executive director remuneration. Also, from my
executive role with Jupiter Asset Management,
I see how other companies report on their
remuneration which I find useful when it
comes to how we look at total pay at Landsec.

Directors’
Remuneration
Report –
Chairman’s
Annual
Statement

Committee members
Edward Bonham Carter
(Chairman from 1 January 2019)

Simon Palley
(Chairman until 31 December 2018,
Committee member until
31 March 2019)

Dame Alison Carnwath
(until 12 July 2018)

Cressida Hogg

Stacey Rauch (from 12 July 2018)

Christophe Evain
(from 1 April 2019)

Highlights
[ New Chairman
[ Approval of revised share
award structure below
Executive Committee level

[ Annual bonus outturns achieved

close to target performance
[ Another challenging year for
the Long-Term Incentive Plan

Landsec Annual Report 2019

Governance
Directors’ Remuneration
Report – Chairman’s
Annual Statement
continued

I am aware that remuneration reports have
become detailed and can be confusing to those
shareholders not accustomed to the way pay is
reported. My objective here is to set out clearly
and transparently how we reward our Directors.
To assist with this goal, the report includes
a ‘remuneration at a glance’ summary of
Landsec performance and the corresponding
compensation for our Executive Directors which
I hope you find helpful.

Context for Executive Director pay
at Landsec
It is important that the pay for our Executive
Directors should be seen against the
background of business performance, both
during the financial year in question and over
the performance period of the Long-Term
Incentive Plan (LTIP).

In 2018/19, Landsec increased its revenue profit
to £442m, increased the level of dividend paid
to shareholders and maintained the resilient
financial position of the Group. More broadly,
Landsec delivered on some of its broader
commitments, in particular relating to its
impact on sustainability and the community.
These non-financial metrics are important to
Landsec which is why they are included in the
Group’s business objectives that contribute
towards the outcome of the Company
performance bonus. This resulted in a close
to target performance for the annual bonus
at 49%.

Vesting of the LTIP is determined by performance
against measures of total property return (TPR)
and Total Shareholder Return (TSR). Over the
past three years, our performance has fallen
below that of our peer companies on a
comparative basis. This is partly driven by the
comparison with other property companies that
are in different and better performing sectors
(such as distribution warehouses). For this
reason, the 2016 LTIP for the three years to
31 March 2019 did not vest (2018:0%).

Notwithstanding the comparative performance,
the Directors have continued to focus on the
Group’s core strategy, ensuring that the
business is in the best position financially to
withstand the current period of uncertainty and
is able to take advantage of opportunities as
and when they arise. We hear from shareholders
that they do not want Landsec to be weak
financially if there is a major market correction
in property values and that they want us
to maintain our progressive dividend policy.
At a time when property values do not favour
significant investment on a risk-adjusted basis,
we have addressed some of the trends
impacting us, such as providing a new flexible
offer (Myo), the greater use of technology and

Landsec Annual Report 2019

the focus on our customers and other
stakeholders. We have also looked more broadly
at the ‘build to rent’ residential market as a new
sector. This broad approach will continue next
year and elements will be reflected in the
specific Group business metrics for 2019/20.

Directors’ Remuneration Policy
We tabled our Directors’ Remuneration Policy
(DRP) at last year’s Annual General Meeting
on 12 July 2018 which was overwhelmingly
supported with a 99.4% shareholder vote
in favour.

There were no major changes introduced in last
year’s DRP (a copy of which can be found on
pages 111-117) but the Committee is aware that
there have been governance and regulatory
changes since then. These include the 2018 UK
Corporate Governance Code and the publication
of the revised Investment Association’s Principles
of Remuneration, which impact certain aspects
of our DRP, including the alignment of Directors’
pension contribution rates with the rest of the
workforce, post-employment shareholding
obligations, additional malus and clawback
rights and certain aspects of pay reporting.

We have debated these points as a Committee
and our decision is not to amend the DRP again
in time for a shareholder vote at our AGM in
July 2019. However, we will review these points
over the next 12 months and consult with our
shareholders and, depending on their view, may
bring forward our next DRP approval from 2021
to 2020. In the meantime, the Committee has
the authority to tighten the application of the
approved policy if required. The Committee
will take account of the 2018 Code and other
guidance when the Company appoints the
next Executive Director.

Remuneration outcomes for the year
Executive pay is designed to reward successful
performance and long-term sustainability that
supports the Company strategy in a way that
is fully aligned with our purpose and values.

Annual bonus
The annual bonus for the year forms two
parts, Company performance and personal
performance. Company performance is
determined by three key measures – TPR,
revenue profit and performance against
specific business objectives. All employees
are eligible for a personal performance bonus.
Circa 330 employees (or approximately half
the workforce) benefit from the Company
performance element which is calculated
using the same methodology for everyone.

If the Company performance element exceeds
50%, it unlocks an ‘outperformance element’
that can be used to provide additional reward
to eligible employees (not Executive Directors
or Executive Committee members) that have
contributed most to achieving the Group’s
annual KPIs. This year, the outperformance
element was not triggered.

LTIP
The LTIP has two elements, each contributing
a maximum of 50% to the total. For the
three years to 31 March 2019, both TSR and
TPR (calculated by reference to the MSCI
benchmark) have failed to achieve the threshold
and, as a consequence, there is no vesting of
the 2016 LTIP award.

Judgement and discretion
As mentioned above, the Committee used
its judgement when assessing performance
under certain Group business objectives that
form part of the Company’s annual bonus.
No judgement or discretion was required when
assessing performance of the LTIP as it did
not vest.

When considering the grant of LTIP awards
for 2019, the Committee took into account
the Company’s share price performance over
the 12-month period to 31 March 2019.

The Committee considered the position of
Scott Parsons following his resignation from the
Company. Mr Parsons was on a 12-month notice
period that started on 25 February 2019 and he
will remain an employee for that period (unless
both parties agree otherwise). His remuneration
terms were in line with his service agreement
and he will continue to receive his contractual
salary and benefits, including pension, by way
of phased monthly payments for up to 12
months from 25 February 2019. The Committee
determined that Mr Parsons would be eligible for
a bonus for the financial year ended 31 March
2019, but this was limited to the Company
performance element only. No personal
performance element of the annual bonus
will be paid for last year.

Mr Parsons’ annual bonus will be paid at the
same time as bonus payments to other eligible
employees. With a Company performance
outturn of 49%, this means that Mr Parsons
will receive a bonus of £239k for last year, which
the Committee believes is a fair reflection of his
contribution to the Group’s performance during
the year. He will not receive any bonus for
2019/20, and all his outstanding unvested LTIP
and Matching Share Plan (MSP) awards lapsed.

For 2018/19, the Company performance has
been assessed at being close to target at 49%
(2018: 55.6%). The calculation of the individual
elements of the bonus achievement is set out in
more detail later in the report. The Committee
assessed performance against the relevant
objectives and this was thoroughly debated
and tested by the members of the Committee
before we determined the resulting figure.

There was no other exercise of discretion during
the year by the Committee.

Changes to employee share awards
This does not affect the Executive Directors or
members of the Executive Committee, but the
Committee has approved the move away from
LTIPs and Employee Share Option Plans (ESOPs)
to Restricted Shares Awards (RSAs) for its

In this section

Remuneration at a glance
94-95 Remuneration principles

and structure

Outcomes for the year.

Annual Report on Remuneration
96-107 Detail on outcomes for each

element of remuneration and
for each individual Director

Performance targets for the
year ahead.

Remuneration Policy
111-117 Remuneration Policy

Application of the Policy
in the year ahead.

Senior Leaders and Leaders. RSAs are awards
with no performance conditions and only
subject to time vesting conditions over a
three-year period. The awards vest as nil
cost options with a seven-year exerciseable
period. This change is the result of a review
of workforce remuneration carried out by the
Executive Committee under the supervision of
the Remuneration Committee. Senior Leaders
will be eligible to receive RSAs, budgeted to
the equivalent of an average award of 20%
of salary. There is room under the scheme rules
for some flexibility in awards but only up to a
maximum of 30% of salary. This compares to
an award under the existing LTIP scheme of up
to 50% of salary. For Leaders, the corresponding
figures are 10% (budget) and 15% (maximum).

Pay reporting
There is a continued need to be more
transparent across remuneration, with
greater scrutiny from all stakeholders on reward
matters and how this is reflected across all job
levels and employee groups. It is therefore right
that the Committee has oversight on how our
remuneration reflects pay in the wider context.

Therefore in 2018 we reviewed the following:

— New regulation requirements

In August 2017, the Government announced
that the Directors’ Reporting Regulations
were amended to require a disclosure of the
CEO pay as a ratio to the pay of their UK
workforce (for listed companies with over 250
UK employees) and this has been followed by
guidance from the Investment Association.

The regulations require the following:

— The ratio of the CEO’s pay (the single total
figure of remuneration) to the median
(50th), 25th and 75th percentile full-time
equivalent remuneration of their UK
employees.

Alongside this, there is a requirement for
a more detailed narrative, explaining any
changes over time and how this relates
to pay and benefits across the wider
workforce. Although this is effective for
financial years beginning on or after
1 January 2019, we have made the decision
to disclose the pay ratio in advance of the
regulations coming into force (see page 107).

— There is also a requirement to include

the impact of the future share price on
executive pay and this will be included
in next year’s report.

— Equal pay audit

With our continued focus to ensure our
reward packages are fair, particularly our
base compensation, we appointed an
independent law firm to undertake a
detailed impartial equal pay audit. The audit
concluded that Landsec had a robust pay
structure in terms of setting pay fairly and
identified some recommendations to improve
administration. These will be implemented
in 2019/20.

— Gender pay

The Remuneration Committee continues
to monitor gender pay closely, to ensure
we are committed to reducing the pay gap
and delivering against the objectives set for
increasing gender representation across
Landsec (see page 51).

Employee engagement
As noted by the Chairman in her report,
Cressida is attending the Company’s Employee
Forum as the Board representative so that she
can listen to employee views on matters such
as remuneration and report to the Board and
this Committee. Other Directors are invited to
attend this forum and I intend to do so this year.

Looking forward
I do not anticipate any major changes in the
focus for the Remuneration Committee over
the coming year other than the points already
covered in this letter. However, I am conscious
of the increase in scrutiny of FTSE companies
when it comes to remuneration, across all
elements and all levels of the organisation.

As a Remuneration Committee, we will continue
to have oversight of all reward matters and, in
conjunction with the Executive team, increase
our focus on the key measures to ensure greater
fairness and transparency in our pay structure
and ensure that our reward packages continue
to attract and retain the best talent, regardless
of background. To that end:

— Gender pay: we will continue to monitor
gender pay closely, to ensure we are
reducing the pay gap by delivering
against the objectives set for increasing
gender representation across Landsec
(see page 51);

— Black, Asian and Minority Ethnicity (BAME)
pay: we will undertake an independent
detailed review of our BAME pay. This is in
anticipation of a requirement for greater
transparency for organisations and for
Landsec to show leadership across the
real estate industry on all diversity and
inclusion matters.

I hope that you have found my letter useful,
informative and clear. I am grateful for the
engagement and support provided by you,
our shareholders, and welcome your feedback
on this report.

Edward Bonham Carter
Chairman, Remuneration Committee

Landsec Annual Report 2019

Governance

Remuneration
at a glance

Our at a glance summary
sets out clearly and
transparently the total
remuneration paid to
our Executive Directors
in 2018/19.

We aim to align our organisational strategy
and the total remuneration for our
Executive Directors through a combination
of salary, bonus and long-term incentive
schemes, underpinned by stretching
performance targets.

Remuneration policy and structure

Remuneration principles

We will materially differentiate
reward according to performance.

Performance targets will be
stretching, and will balance both
long- and short-term performance,
absolute and relative measures.

We will reward competitively to
attract and retain the best talent.

The breakdown of fixed and variable
pay will be appropriate to each role.

Long-Term Incentive
Plan awards

More details on
page 113

Long-term

Variable

Annual bonus

More details on
page 112

Short-term

Our framework will be transparent
with clear line of sight from Landsec’s
performance to individual outcomes.

Fixed

Basic salary
+ benefits
+ pension

More details on
page 111

Remuneration across the Group

Gender pay gap reporting

CEO remuneration

36.8%

Gender pay gap (mean hourly pay)

£1,624,153

CEO single figure 2019

£51m

Total spend on pay

88.3%

37.1%

of employees received a pay increase

Gender pay gap (median hourly pay)

2.5%

Average pay increase in the annual review

93.9%

of employees received a bonus

£14,884

Average bonus

64.6%

Mean bonus gap

57.3%

Median bonus gap

Further details on our
gender pay gap reporting
are on page 51

Landsec Annual Report 2019

-4.1%

Total remuneration

-12.6%

Annual bonus

LTIP vesting

Summary of Executive Directors’ remuneration for the year

Table 49

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)

1,624

1,693

1,063

1,108

£2,000

£1,500

£1,000

£500

827

670

197

186

2018/19

2017/18

2018/19

2017/18

2018/19

2017/18

2018/192

2017/18

Basic salary

Benefits

Pension allowance

Annual bonus paid
in cash

Annual bonus
deferred into shares

797

199

400

206

784

196

392

300

519

130

260

134

510

128

255

195

Total emoluments

1,624

1,693

1,063

1,108

Long-term incentives
vested

–

422

104

375

104

212

121

827

–

197¹

–

239

–

670

186¹

–

1. Figures for Colette O’Shea and Scott Parsons for 2017/18 reflect their appointment to the Board on 1 January 2018.
2. The 2018/19 figures for Scott Parsons reflect the period from 1 April 2018 to the date of his resignation on 25 February 2019.

Linking remuneration to achievement of key business priorities

Opportunity as a % of salary

One-year TPR

Revenue profit

21 Moorfields

London shopping centres

Executing the outlet strategy

Business unit innovation

Annual
bonus

Customers

Diversity

Communities

Environment

Total Company bonus opportunity

Individual targets

Total bonus opportunity

Three-year TSR

LTIP

Three-year TPR

Total LTIP opportunity

39.0%

6.5%

12.9%

6.3%

5.3%

4.0%

130%1

20%

150%

Weighting

50%

100%

Outturn
(% of salary)

0.0%

25.6%

5.2%

3.0%

6.5%

6.3%

2.6%

4.0%

63.7%

13.0%2

76.7%

Outturn

0.0%

1. The elements that make up the Company bonus opportunity are aligned to the bonus opportunity for all eligible employees of the award.
2. Average awarded to Robert Noel, Martin Greenslade and Colette O’Shea.

Landsec Annual Report 2019

Governance
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 2018,
has been applied in the financial year ending
31 March 2019.

During the course of 2018/19, the Remuneration
Committee was engaged in a number of key
matters, including:

— 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 2016

— Reviewing the long-term incentive
arrangements below Executive level

— Determining the annual level of LTIP grants

to Executive Directors and Executive
Committee members

— 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

— Determining the remuneration terms for
Scott Parsons following his resignation.

Unless otherwise stated, narrative and tables
are unaudited.

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 2019. Tables 51 and 52 show
the payments we expect to make and then
tables 53 to 57 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 97
is on an ‘accruals’ basis. This means that the
annual bonus column includes the amount
that will be paid in June 2019 in connection
with performance achieved in the financial
year ended 31 March 2019. 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 2016 LTIP awards
for the three-year performance period
ended 31 March 2019 are based on estimated
achievements against the performance
measures. We estimate the vesting level
on the 2016 LTIP to be zero.

Dates of appointment for Directors

(Unaudited) Table 50

Name

Executive Directors

Robert Noel

Martin Greenslade

Colette O’Shea

Scott Parsons (until 25 February 2019)

Non-executive Directors

Cressida Hogg¹

Dame Alison Carnwath (until 12 July 2018)

Chris Bartram

Simon Palley

Stacey Rauch

Edward Bonham Carter

Nicholas Cadbury

Madeleine Cosgrave

Date of appointment

Date of contract

1 January 2010

23 January 2012

1 September 2005

1 January 2018

12 July 2018

1 September 2004

1 August 2009

1 August 2010

1 January 2012

1 January 2014

1 January 2017

9 May 2013

1 January 2018

14 May 2018

13 May 2015

1 January 2017

1 January 2019

22 November 2018

1. Cressida Hogg was appointed to the Board 1 January 2014 as a Non-executive Director and the dates above reflect her

appointment to Chairman in 2018.

2. Christophe Evain joined the Board with effect from 1 April 2019.

Landsec Annual Report 2019

Remuneration structure

Long-Term Incentive
Plan awards

More details on
page 113

Long-term

Variable

Annual bonus

More details on
page 112

Short-term

Fixed

Basic salary
+ benefits
+ pension

More details on
page 111

Single total figure of remuneration for each Executive Director (£000)

(Audited) Table 51

Basic salary1

Benefits2

Pension
allowance3

Annual bonus
paid in cash

Annual bonus
deferred into
shares

Total
emoluments

Long-term
incentives
vested4

Total

2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18

Executive Directors

Robert Noel

Martin Greenslade

Colette O’Shea

Scott Parsons⁴

797

519

422

375

784

510

104

199

130

196

128

400

260

212

239

392

255

206

134

121

–

300

195

1,624 1,693

1,063 1,108

–

827

670

197

186

–

1,624 1,693

1,063 1,108

827

670

197

186

1. Basic salary earned during the year. See table 61 for annual salary that was effective from 1 June 2018.
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

12.5% and 10.5% of basic salary respectively.

4. The figures for Scott Parsons reflect the period from 1 April 2018 to the date of his resignation on 25 February 2019.

Single total figure of remuneration for each Non-executive Director (£000)

(Audited) Table 52

Fees¹

Benefits

Pension
allowance

Annual bonus
paid in cash

Annual bonus
deferred into
shares

Total
emoluments

Long-term
incentives
vested

Total

2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18

Non-executive Directors

Cressida Hogg²

Dame Alison Carnwath²

290

107

375

Chris Bartram

Simon Palley²

Stacey Rauch³

Edward Bonham Carter²

Nicholas Cadbury²

Madeleine Cosgrave4

–

290

107

375

–

290

107

375

–

1. Represents fees paid to Directors during the year. See table 62 for annual fees as at 31 March 2019.
2. The increase in fees paid to Cressida Hogg represents her appointment as Chairman from 12 July 2018. The fees paid to Dame Alison Carnwath represent the period from 1 April 2018

to 12 July 2018 when she was Chairman. The fees for Simon Palley include those paid to him as Remuneration Committee Chairman from 1 April 2018 to 31 December 2018. The fees paid
to Edward Bonham Carter include those paid to him as Remuneration Committee Chairman from 1 January 2019 to 31 March 2019. Nicholas Cadbury’s 2017/18 fee represents his role
as Audit Committee Chairman for six months during the year, compared with a full year for 2018/19.

3. Stacey Rauch receives UK tax return support which is treated as a benefit in kind. The figure in 2018/19 above is an estimate of the benefit relating to the 2018/19 tax year. This benefit has

been provided since her appointment in 2012/13.

4. Made leine Cosgrave was appointed to the Board on 1 January 2019.
5. Kevin O’Byrne stepped down from the Board on 27 September 2017 and was paid £45,000 in respect of 2017/18.

Landsec Annual Report 2019

Governance

Annual Report on
Remuneration
continued

1.2 Annual bonus outturn
In the year under review Executive Directors 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. All targets were set at the beginning of the year. The following
table confirms the targets and their respective outcomes. The on-target bonus potential for the year to 31 March 2019 is 75% of salary.

Annual bonus outturn

Annual Company bonus

Key business targets

Performance assessment

Bonus opportunity

Bonus outturn

% of total
opportunity

Maximum

% of salary

2018/19
achievement

— The Group’s ungeared total

— The Group’s TPR for the year was 0.4%,

26.0%

39.0%

property return (TPR) relative to
an MSCI benchmark comprising all
March-valued properties (excluding
Landsec). Total benchmark value
c. £182bn.

an underperformance of 4.2% versus the
estimated MSCI benchmark. Therefore
none of this element is likely to be achieved.

Table 53

% of salary

payable

— Absolute growth in revenue profit.

— Revenue profit, adjusted to remove

26.0%

39.0%

65.7%

25.6%

the interest benefit of the March 2018
refinancing, exceeded the threshold
level set in 2018.

— 21 Moorfields is proceeding on time and in

accordance with budget but certain stretch
targets have not yet been met.

4.4%

6.5%

80%

5.2%

— Development of 21 Moorfields,
EC2 to be on programme and
on budget

— Specific threshold and stretch

targets were set for the
21 Moorfields development
(project progress versus time
and budget).

— Feasibility work progressed on two

suburban London shopping centres,
O2 Finchley Road and W12

— Although feasibility studies have been
completed, planning applications were
not submitted.

4.4%

6.5%

46%

3.0%

— Specific targets were set around

the completion of feasibility studies
and submission of planning
applications.

— Execution of improvement

programmes for the three outlets
acquired in 2017

— Specific targets were set around

the completion of feasibility work
and submission of planning
applications.

— Progress of innovation workstreams
— Three specific workstreams were
selected for close review by the
Board and the Committee.

— Embedding of a truly customer-
centric culture and the Landsec
brand

— Externally-facilitated qualitative
research was carried out with all
key stakeholder groups including
customers and employees.

— Diversity – achieving real progress

on our stated 2020 targets

— Further measurable progress, by

the end of March 2019, towards our
stated 2020 targets around gender
balance, ethnicity and data
transparency.

— Planning applications submitted and
approvals obtained for the three sites.

4.4%

6.5%

100%

6.5%

— Although the innovation function has made
exciting progress, the Committee decided
to award only half the maximum available
as further progress on implementation
and business improvement was yet to
be delivered.

— We outperformed the targets that

were set and saw significant positive
improvement in our net promoter
score during the last year.

— We met the targets on Hampton-Alexander
measures and improving diversity data,
but we moved backwards on female
representation at Leader level.

8.6%

12.9%

50%

6.5%

4.3%

6.3%

100%

6.3%

3.5%

5.3%

50%

2.6%

Landsec Annual Report 2019

Metric

Performance assessment

— Community Employment

Programme – target was set
around securing permanent
employment for further candidates
by extending the programme
beyond its current focus.

— We have outperformed the targets set

by helping 187 people furthest from the
jobs market back into work.

Bonus opportunity

Bonus outturn

% of total
opportunity

Maximum

% of salary

2018/19
achievement

2.7%

4.0%

100%

% of salary

payable

4.0%

— Environment – delivering

— We have outperformed the targets set,

2.7%

4.0%

100%

4.0%

quantifiable energy reduction
targets across the portfolio.

— Total Company bonus

— Individual targets for Executive

Directors

— Total bonus opportunity

having agreed implementation of
energy reduction measures which will
lead to over 3% reduction versus 2013/14
corporate baseline.

1. Average achieved for Robert Noel, Martin Greenslade and Colette O’Shea.

Bonus paid as a % of basic salary

Director

Robert Noel

Martin Greenslade

Colette O’Shea

Scott Parsons¹

87.0%

130.0%

13.0%

20.0%

49%

65%¹

100.0%

150.0%

63.7%

Table 54

Company bonus

Individual bonus

Total bonus

Maximum
opportunity

Awarded

Maximum
opportunity

Awarded

Maximum
opportunity

Awarded

130.0

63.7

20.0

12.0

15.0

–

150.0

75.7

78.7

63.7

Executive Directors’ personal targets

Assessment

The Chief Executive, Chief Financial Officer and Managing Directors received
a number of personal targets, which included:

— Personal development of succession candidates for all senior roles and

broader identification and support for talent in the organisation

— Focus on internal process in order to improve employee experience and

drive efficiency

— Continuing to build on the Creating Experience programme to enhance

the customer experience-led culture

— For the Managing Directors who were new to the Board in 2018, to develop
in their role as Board Members so that they could be increasingly effective
in Board discussion and decision making

— All members of the Executive Committee and ‘high potential’ employees
have active development plans. New tools to help identify potential have
been introduced alongside those that measure performance

— Improved capability around process improvement has been delivered and
a structured programme of identification and implementation of process
improvement has been introduced

— Sessions were held in all teams across the organisation to further understand
team impact on the customer experience and a new performance tool was
developed which focuses on individual impact

— Both Managing Directors had active development support in place for this
new role and were active participants in the Board throughout the year

— Continue to support the Board to evolve the strategy of the Company

— Detailed work done to support Board conversations throughout the year and

and maintain focus on the longer-term horizon

to build plans for the next period

1. Scott Parsons received no award for the individual element of the annual bonus for 2018/19 in accordance with the terms agreed by the Committee following his resignation.

Landsec Annual Report 2019

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 and MSP performance achievement over the three years to 31 March 2019. Awards granted
in 2016 under the LTIP and MSP for this period are subject to performance conditions that measure and compare the Group’s relative performance
against its peers in total property return (TPR) and Total Shareholder Return (TSR), with each measure representing 50% of the total award. Please see
table 63 for more detail on how vesting levels are determined.

The performance calculation for awards granted in 2016 and vesting in 2019 is set out below:

Long-Term Incentive outturns

Target

Ungeared total
property return

Assessment

The Group’s TPR1 over the three-year period was 2.9% per annum compared with the estimated performance of the
unweighted MSCI including all March-valued properties at 6.3%. As this return was below the threshold, this element
of the total award will not vest.

Total Shareholder Return

The Group’s TSR over the three-year period was -2.8% versus that of the comparator group at 9.7%. As this return
was below the threshold, this element of the total award will not vest.

Table 55

Outturn

% of

maximum

0.0

1. The outturn is adjusted to take account of the performance of trading properties.

1.4 Awards granted in 2017 and 2018
For awards granted in 2017, the Group’s performance over the two years to 31 March 2019 would, if sustained over the third year to 31 March 2020, result
in 0% of the LTIP share awards vesting. For awards granted in 2018, performance over the one-year period to 31 March 2019 would, if sustained over the
second and third years of the period to 31 March 2021, result in 50% of the LTIP share awards vesting.

1.5 Total Shareholder Return – comparator group

Year of award

Table 56

Name

Assura PLC

Big Yellow Group PLC

Capital & Counties
Properties PLC

Civitas Social Housing PLC

CLS Holdings PLC

Daejan Holdings PLC

Derwent London PLC

F&C Commercial Property
Trust Ltd

Grainger PLC

2016 2017 2018 20191

Name

2016 2017 2018 20191

Name

2016 2017 2018 20191

Great Portland Estates PLC

Hammerson PLC

Hansteen Holdings PLC

Intu Properties PLC

LondonMetric Property PLC

NewRiver REIT PLC

Primary Health Properties

RDI 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.

100

Landsec Annual Report 2019

1.6 Individual outcomes by Executive Director versus target and maximum

Table 57

Robert Noel,
Chief Executive
(£000)

Martin Greenslade,
Chief Financial Officer
(£000)

Colette O’Shea,
Managing Director,
London Portfolio
(£000)

Scott Parsons,
Managing Director,
Retail Portfolio1
(£000)

£5,000

£4,000

£3,000

£2,000

£1,000

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

a
u
t
c
A

■ Basic salary
■ Pension
■ Benefits
■ Annual bonus
■ Long-term incentives

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

a
u
t
c
A

■ Basic salary
■ Pension
■ Benefits
■ Annual bonus
■ Long-term incentives

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

a
u
t
c
A

■ Basic salary
■ Pension
■ Benefits
■ Annual bonus
■ Long-term incentives

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

a
u
t
c
A

■ Basic salary
■ Pension
■ Benefits
■ Annual bonus
■ Long-term incentives

Element of pay

Basic salary

Pension

Benefits

Annual bonus2

— Company bonus

— Individual bonus

Long-term incentives³

Total

Maximum
potential
(£000)

Achieved
(%)

Outturn
(£000)

Maximum
potential
(£000)

Achieved
(%)

Outturn
(£000)

Maximum
potential
(£000)

Achieved
(%)

Outturn
(£000)

Maximum
potential
(£000)

Achieved
(%)

Outturn
(£000)

797

199

1,040

160

2,010

4,228

n/a

–

797

199

510

–

38 1,624

519

130

677

104

1,308

2,758

n/a

–

519

130

332

–

422

550

708

39 1,063

1,837

n/a

–

422

269

–

827

375

487

667

1,660

n/a

–

375

239

–

670

1. The figures and chart shown for Scott Parsons have been pro-rated to reflect the period up to 25 February 2019.
2. Robert Noel – £205,529 of the annual bonus will be deferred into shares for one year. Martin Greenslade – £133,788 of the annual bonus will be deferred into shares for one year.

Colette O’Shea – £121,401 of the annual bonus will be deferred into shares for one year.

3. To calculate the maximum potential, the value of shares due for vesting in 2019 has been calculated on the basis of an 876p average share price for the three-month period to 31 March 2019.

Landsec Annual Report 2019

101

Governance

Annual Report on
Remuneration
continued

2. Directors’ interests
2.1 Total shareholding (Audited)
Details of the Directors’ interests, including those of their immediate families and connected persons, in the issued share capital of the Company at the
beginning and end of the year are set out in the table below.

Directors’ shares

Name
Robert Noel2
Martin Greenslade3
Colette O’Shea3
Scott Parsons3, 5 (until 25 February 2019)
Cressida Hogg4, 6
Dame Alison Carnwath4, 5 (until 12 July 2018)
Chris Bartram4
Simon Palley4
Stacey Rauch
Edward Bonham Carter4
Nicholas Cadbury4, 7 (from 1 January 2017)
Madeleine Cosgrave4, 7 (from 1 January 2019)

Salary/Fee
at 31 March

2019
(£)

799,721
520,574
423,000
423,000
375,000
375,000
70,000
70,000
70,000
70,000
70,000
70,000

Required
holding
value
(£)

1,999,305
1,041,149
846,000
846,000
375,000
375,000
70,000
70,000
70,000
70,000
70,000
70,000

Holding
(ordinary
shares)
1 April
2018

381,842
422,153
65,315
75,914
9,375
156,715
13,572
15,995
8,000
9,375
4,481
–

Holding
(ordinary
shares)
31 March
2019

396,810
422,153
66,309
n/a
9,375
n/a
19,080
15,995
8,000
9,375
4,481
–

(Audited) Table 58

Deferred
bonus shares
under holding
period

Value of
holding
(£)1

In
compliance
with
obligation

31,458
20,477
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

3,911,800
4,042,982
605,666
n/a
85,631
n/a
174,277
146,098
73,072
85,631
40,929
–

n/a

1. Using the closing share price of 913p on 29 March 2019 (last dealing day of the year) and including deferred shares at 100%.
2. Requirement for 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. Once the requisite number of shares have been acquired

and retained for the duration of appointment, the ownership guidelines will be deemed to have been met.

5. As Scott Parsons and Dame Alison Carnwath were not Directors at the end of the year, the share ownership guidelines do not apply and the numbers above relate to shares held at the

date of departure from the Board.

6. Cressida Hogg was appointed Chairman in 2018 and therefore the allotted timeframe to acquire the requisite number of shares will be effective from her date of appointment to Chairman.
7. Nicholas Cadbury and Madeleine Cosgrave were appointed in 2017 and 2019 respectively and are still within three years of appointment and therefore deemed to be in compliance with their share

ownership requirements.

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 as nil cost options 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 share awards and those which vested during the year

(Audited) Table 59

Name

Robert Noel

LTIP

Martin Greenslade

LTIP

Colette O’Shea

LTIP

Scott Parsons¹

MSP

LTIP
MSP

Performance
period to
31 March

2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2018
2018

Market
price at
award
date
(p)

1,335
1,005
1,029
953
1,335
1,005
1,029
953
1,335
1,005
1,029
953
1,335
1,005
1,029
1,335
1,335

Award
date

10/08/2015
27/06/2016
26/06/2017
25/06/2018
10/08/2015
27/06/2016
26/06/2017
25/06/2018
10/08/2015
27/06/2016
26/06/2017
25/06/2018
10/08/2015
27/06/2016
26/06/2017
10/08/2015
10/08/2015

Share
award

170,240
229,453
228,583
251,880
110,816
149,361
148,795
163,960
37,650
50,497
49,908
88,881
22,590
30,298
29,945
35,297
21,178

Market
price at
date of
vesting
(p)

n/a

n/a
n/a

Nil cost
options
vested

–

–
–

Vesting
date

10/08/2018
27/06/2019
26/06/2020
25/06/2021
10/08/2018
27/06/2019
26/06/2020
25/06/2021
10/08/2018
27/06/2019
26/06/2020
25/06/2021
10/08/2018
27/06/2019
26/06/2020
10/08/2018
10/08/2018

1. All outstanding LTIP and MSP awards granted to Scott Parsons lapsed on his date of resignation from the Board on 25 February 2019.

102

Landsec Annual Report 2019

2.3 Directors’ options over ordinary shares (Audited)
The options over shares set out below 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 60

Name

Martin Greenslade

Colette O’Shea

Scott Parsons¹

Number
of options
at 1 April
2018

878

1,047

–

1,925

1,047

–

1,047

1,767

–

1,767

Exercise
price per
share
(p)

1,024

859

758.5

859

758.5

848.5

758.5

Number
of options
granted in
year to
31 March
2019

–

2,373

–

1,186

–

1,977

Number of
options
lapsed

Market
price at
exercise
(p)

Number of
options at
31 March

2019

Exercisable dates

878

–

878

–

08/2018 – 02/2019

1,047

2,373

3,420

1,047

1,186

2,233

1,767

1,977

3,744

08/2020 – 02/2021

08/2021 – 02/2022

08/2020 – 02/2021

08/2021 – 02/2022

08/2019 – 02/2020

08/2021 – 02/2022

1. Share options as at date of resignation, 25 February 2019.

3. Application of Policy for 2019/20
3.1 Executive Directors’ base salaries
A formal salary benchmarking exercise was conducted last year and the conclusion of the benchmarking exercise was that the current remuneration
arrangements are competitive and the Committee will undertake a benchmarking exercise next year. The Committee has therefore awarded a basic
salary increase of 1.8% to Robert Noel and Martin Greenslade, effective from June 2019. A basic salary increase of 3.9% has been awarded to Colette
O’Shea effective from April 2019, to reflect a change in responsibilities. The average increase for all the Executive Directors is in line with the average
increase received by employees across the Group.

Executive Directors

Name

Robert Noel

Martin Greenslade

Colette O’Shea

Current
salary
(£000)

800

521

423

New salary
(£000)

814

530

440

Percentage
increase

1.8%

3.9%

Table 61

Average annual
percentage increase

over five years
(including 2019/20)

2.8%

2.0%

3.9%1

1. The average percentage increase over one year, to reflect Colette O’Shea’s appointment to the Board in January 2018.

3.2 Non-executive Directors’ fees
The fees for Non-executive Directors were last increased in 2016. We annually review fees for the Non-executive Directors and this year we concluded
that the fees remained broadly competitive and no change was required.

Non-executive Directors’ fees

Chairman

Non-executive Director

Audit Committee Chairman

Remuneration Committee Chairman

Senior Independent Director

Table 62

(£000)

375

Landsec Annual Report 2019

103

Governance
Annual Report on
Remuneration
continued

3.3 Performance targets for the coming year

Metric

LTIP targets for 2019/20

Link to strategy and value for
shareholders

Performance measure

Performance range

— Total Shareholder Return

— Rewards our outperformance

— Measured over a period of

(TSR)

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.

— Ungeared total property

— Rewards sustained

return (TPR)

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 £13.8bn, 1% per
annum outperformance over
three years would generate
approximately £0.4bn of value
over and above that which
would be received if the
portfolio performed in line
with the benchmark.

three financial years:
— The Group’s 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.

— Measured over a period
of three financial years:
— The Group’s ungeared
TPR relative to an MSCI
benchmark comprising all
March-valued properties
(excluding Landsec).
Total benchmark value
c. £182bn

— 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.

Bonus targets for 2019/20

— Ungeared total property

— Rewards annual

— The Group’s ungeared

return (TPR)

outperformance by our
portfolio compared with
the industry’s commercial
property benchmark

— Incentivises increasing capital

TPR relative to an MSCI
benchmark comprising all
March-valued properties
(excluding Landsec). Total
benchmark value c. £182bn

values and rental income

— 6% of 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.

— 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 £13.8bn, 2%
outperformance would
generate approximately £0.3bn
of return over and above the
returns of commercial property
within our sectors.

1. 300% for Robert Noel and Martin Greenslade and 250% for Colette O’Shea.

104

Landsec Annual Report 2019

Table 63

% of total
opportunity

Maximum

% of salary

50% 250% to
300%1

— 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.

50% 250% to
300%1

— 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.

26%

39%

— Threshold: Matching
the 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.

3.3 Performance targets for the coming year (continued)

Metric

— Absolute growth in revenue

profit.

Key Business Plan Objectives

— Key developments to be on
programme and on budget,
including 21 Moorfields.

— Measurable progress in the
pipeline of developments
in London.

Performance measure

Performance range

Table 63

% of total
opportunity

Maximum

% of salary

— Will be confirmed in the

26%

39%

2020 report.

— Once the Group has met a
threshold level on revenue
profit, a portion (5%) of the
excess is contributed to the
bonus pool for the Group
— This will be capped at 26%

of the overall award.

Link to strategy and value for
shareholders

— 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.

— High profile London

— Targets have been set for

— Will be confirmed in the

9.1%

developments and key drivers
of income and revenue profit
in the future

the developments in relation
to project progress versus
time and budget.

2020 report.

— Proves the value of the

developments and drives
capital growth.

— Ensures future ability to drive
income and capital growth.

— Specific targets have been
set around submission of
planning applications,
receipt of planning consents
and/or commencement of
development.

— Will be confirmed in the

12% 18.2%

2020 report.

— Introducing Modern Methods

— Enables quicker and more

— Specific threshold and

— Will be confirmed in the

6.5%

of Construction in the
development pipeline to
ensure quicker, better and
more flexible development.

efficient construction which will
reduce cost and bring forward
revenue profit generation.

stretch targets have been
set around implementation
of new methodologies in
the development portfolio.

2020 report.

— Delivery of specific

— Key in delivery of projected

— Specific threshold and

— Will be confirmed in the

6.5%

enhanced units for key,
strategic customers at
shopping centres.

performance targets

— Driver of income, revenue profit

and capital growth.

stretch targets have been
set around delivery in
accordance with customer
requirements.

2020 report.

— Communities: Significant

— A key way in which Landsec

— Targets have been set

— Threshold: £3.5m of social

3.9%

progress towards our goal of
creating £25m of social
value through our
community programmes by
2025.

can deliver on its commitment
to support the communities in
which it operates.

around the level of social
value to be delivered
through Landsec’s
community programmes.

— Environment: Delivering
quantifiable energy
reduction targets across
the portfolio.

— Key to our long term

sustainability and reputation
as a responsible business.

— Clear targets have been
set around agreeing
implementation of energy
reduction initiatives which
will deliver measurable
results.

value generated

— Target: £4m of social value

generated

— Outperformance: £4.5m
of social value generated.

— Identify and agree to
implement energy
reduction measures
which will lead to a 1%
(threshold), 2% (target)
or 3% (outperformance)
reduction versus the
2013/14 corporate
baseline.

3.9%

— Diversity: Make progress

towards stated 2025 targets.

Company bonus opportunity

— Individual targets for
Executive Directors.

Total annual bonus
opportunity

— Allows us to attract and retain
diverse talent necessary to
anticipate our customers
changing needs and make
improved decisions for our
business.

— 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.

— Clear targets have been

— Will be confirmed in the

3.9%

2020 report.

set around improving the
diversity of our internal
and external talent pipeline
and measurement of our
performance as a
welcoming place to work.

— A mix of short-term

— Will be confirmed in the

individual goals set at the
beginning of the year.

2020 report.

87%

13%

130%

20%

100%

150%

Landsec Annual Report 2019

105

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 TSR (share price growth plus dividends paid) against a ‘broad equity
market index’ over a period of ten 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 ten years is also included.

Following this chart is a table showing how the ‘single figure’ 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 64

359.9

324.7

325.2

323.9

326.9

326.0

304.0

303.0

298.8

250.3

250.9

307.4

270.2

214.2

203.0

285.0

264.4

201.5

183.6

188.2

224.1

207.5

162.5

150.4

156.7

176.4

170.3

188.9

161.6

163.6

)
d
e
s
a
b
e
r
(
)
£
(
e
u
a
V

400

350

300

250

200

150

100

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Land Securities Group PLC

FTSE 100

FTSE 350 Real Estate

This graph shows the value, by 31 March 2019, 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 ten years

Year

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

Chief Executive

Robert Noel

Francis Salway

Single figure
of total
remuneration
(£000)

Annual bonus
award against

maximum
opportunity1
(%)

Table 65

Long-term
incentive vesting
against amount
awarded
(%)

1,624

1,693

2,692

2,011

4,776

2,274

2,678

2,769

1,798

1,694

50.5

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.

106

Landsec Annual Report 2019

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 30% to 63% of salary (2018: 36% to 64%). The average
bonus was 43% of salary (2018: 52%). 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 across the Group was
2.5%. The ratio of the base salary of the Chief Executive to the average
base salary across the Group (excluding Executive Directors) was 13:1
(£799,722: £61,089).

% change

Chief Executive

Average employee

Salary
(%)

+1.8

+2.5

Benefits

No change

Table 66
Bonus
(%)

-12.6

-1.9

c. CEO pay ratio

Year

2019

Method

Option A¹

25th percentile
pay ratio

38:1

Median

pay ratio

25:1

Table 67
75th percentile
pay ratio

16:1

1. Calculated as total pay and benefits for all employees, using the same methodology that

is used to calculate the Chief Executive’s ‘single figure’.

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

March 2019
(£m)

March 2018
(£m)

338

332

Table 68
%

change

-1.9

1.8

1. Including base salaries for all employees, bonus and share-based payments.
2. Dividend paid represents dividends declared for the year. See note 11 to the financial

statements.

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 ESOP, 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 1,080,624 shares at 31 March 2019.

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 2019, the total number of shares which could
be allotted under this Scheme was 355,095 shares, which represents less than 0.1% of the issued share capital of the Company.

7. Remuneration Committee meetings
The Committee met five times over the course of the year, and all of the members attended all meetings. Simon Palley chaired the Committee up to
31 December 2018, thereafter Edward Bonham Carter was appointed Chairman of the Committee. The other members during the year were Dame
Alison Carnwath (up to 12 July 2018), Cressida Hogg and Stacey Rauch (from 12 July 2018). 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 plc’s Executive Compensation
advisory practice. 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 is a member of the
Remuneration Consultants Group and is a signatory to its 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 has no other connection with the Group.
For the financial year under review, it received fees of £52,202 in connection with its work for the Committee.

8. Results of the voting on the Directors’ Remuneration Report at the AGM in 2018
The votes cast on the resolutions seeking approval in respect of the Directors’ Remuneration Report at the Company’s 2018 AGM were as follows:

Resolution

To approve the Annual Report on Remuneration for the year ended 31 March 2018

1. A vote withheld is not a vote at law.

% of votes
For

98.1

% of votes
Against

1.9

Table 69

Number of votes
withheld1

652,454

The Directors’ Remuneration Report was approved by the Board on 13 May 2019 and signed on its behalf by:

Edward Bonham Carter
Chairman, Remuneration Committee

Landsec Annual Report 2019

107

Governance
Summary of
Directors’
Remuneration
Policy

Approach to policy
Our Directors Remuneration Policy (DRP) was
approved at the 2018 AGM receiving a 99.4%
vote in favour.

The 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

— Long-term performance is assessed by the
delivery of long-term sustainable returns
to shareholders (Total Shareholder Return
(TSR)) and superior relative investment
returns on the Company’s property portfolio

— A two-year LTIP post-vesting holding period

operates

— There is shareholding requirement of 250%
of salary for the Chief Executive 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 focused 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 Committee will always operate within the
policy. 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 111-117.

Remuneration structure

Long-Term Incentive
Plan awards

More details on
page 113

Long-term

Variable

Annual bonus

More details on
page 112

Short-term

Fixed

Basic salary
+ benefits
+ pension

More details on
page 111

108

Landsec Annual Report 2019

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.

Robert Noel,
Chief Executive
(£000)

Martin Greenslade,
Chief Financial Officer
(£000)

Colette O’Shea,
Managing Director, London Portfolio
(£000)

Table 70

£5,000

£4,000

£3,000

£2,000

£1,000

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

y
a
p
d
e
x
F

t
e
g
r
a
t
-
n
O

m
u
m
x
a
M

■ Fixed pay ■ Annual bonus ■ Long-term incentive

Element of pay

Basic salary

Pension

Benefits

Annual bonus

Long-term incentives

Total

Fixed pay
(£000)

On-target
(£000)

Maximum
(£000)

Fixed pay
(£000)

On-target
(£000)

Maximum
(£000)

Fixed pay
(£000)

On-target
(£000)

Maximum
(£000)

814

204

1,040

814

204

611

1,221

2,872

814

204

1,221

2,442

4,703

530

133

530

133

398

795

683

1,876

530

133

795

1,590

3,068

440

330

550

512

1,392

440

660

1,100

2,272

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 basic salary for Robert Noel and Martin Greenslade, and 12.5% for Colette O’Shea.

On-target award

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

Maximum award

Annual bonus pays out in full; LTIP vests in full

Landsec Annual Report 2019

109

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 71

Financial year

Base year

Base year +1

Base year +2

Base year +3

Base year +4

Base year +5

APR

SEP

MAR

APR

SEP

MAR

APR

SEP

MAR

APR

SEP

MAR

APR

SEP

MAR

APR

SEP

MAR

Element of
remuneration
received

Basic salary

Benefits

Pension

LTIP awarded

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

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 second portion
of the annual bonus
(i.e. awards in
excess of 100% of
salary) vests

LTIP awards vest
but remain subject
to a two-year
holding period1

Holding period on
LTIP awards ends

1 2 3

Basic salary,
benefits and
pension

Annual bonus

LTIP

5 6

Annual bonus (cash and deferred shares) and vested and unvested
LTIP awards are subject to withholding and recovery provisions

Performance period

Basic salary review effective 1 June

Payout

1. Assumes base year is year 1 of a three-year performance period.

110

Landsec Annual Report 2019

Remuneration
Policy

1. Executive Directors

Purpose and link to strategy

Operation

Opportunity

Discretion

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.

— 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.

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.

— For 2019/20, the annual basic salaries of the
Executive Directors are £814,000 (Robert
Noel), £530,000 (Martin Greenslade), and
£440,000 (Colette O’Shea). This represents
a 1.8% increase for Robert Noel and Martin
Greenslade and a 3.9% increase for Colette
O’Shea. The average increase for all Executive
Directors is 2.5% which is in line with the
average increase for the workforce in general
— The maximum annual salary increase will not
normally exceed the average increase across
the rest of the workforce (2019: 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.

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.

3
Pension

— To help recruit and retain

— Participation into a defined

high performing Executive
Directors

contribution pension scheme
or cash equivalent.

— To reward continued

contribution to the business
by enabling Executive
Directors to build retirement
benefits.

— The DRP will normally apply as stated.

However, the Committee has the
discretion to maintain existing
arrangements for current Directors.

— Unless they choose to take 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. Robert Noel and
Martin Greenslade each receive a cash
contribution of 25% of salary, which was
the previous policy. Colette O’Shea receives
a cash contribution of 12.5% of salary, an
historic personal term of employment.

Landsec Annual Report 2019

111

Governance
Remuneration Policy
continued

1. Executive Directors continued

Purpose and link to strategy

Operation

Opportunity

Discretion

— Minimum bonus payable is 0% of salary
— Maximum bonus potential is 150% of salary.

— 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.

5 6 7 8
Annual bonus

— To incentivise the delivery
of 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.

— All measures and targets are

reviewed and set by the Board
at the beginning of the year and
payments are determined by the
Committee after the year end,
based on performance against
the targets set

— 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.

112

Landsec Annual Report 2019

Purpose and link to strategy

Operation

Opportunity

Discretion

— Award limit – 300% of salary.

— The Committee may use its discretion
to make lower grants of shares to
Executive Directors if appropriate.
For example the Managing Director,
London Portfolio will receive share
awards equivalent to 250% of salary
in 2019

— 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.

4 9 10
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

— Aligns the long-term interests
of Executive Directors and
shareholders

— Promotes retention.

— 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

— The Committee reviews the

measures, their relative weightings
and targets prior to each award
— The measures selected are relative
and directly aligned to the interests
of shareholders. 50% of an award
is weighted to a measure of total
property return versus the industry
benchmark over a three-year period
and 50% to Total Shareholder
Return versus our listed comparator
group over a three-year period
— For each measure, no awards vest
for performance below that of the
benchmark. Only a proportion,
(20%) will vest for matching the
performance of the benchmark
and significant outperformance is
required for the maximum award
to vest

— 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.

Landsec Annual Report 2019

113

Governance
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 a long-term investment
in the Company’s shares,
through a savings-related
arrangement.

— All employees, including Executive

— The maximum participation levels may

Directors, are entitled to participate
in the SAYE Scheme operated by
the Company in line with UK HMRC
guidelines currently prevailing.

vary in line with HMRC limits. For 2019/20,
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 the longer-term
interests of Executive
Directors and shareholders
in terms of the Company’s
growth and performance.

— Executive Directors are expected to

— n/a

— The DRP will apply as stated.

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.

Additional fees

— 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 103

— Any increases reflect relevant benchmark data
for Non-executive Directors in companies of
— a similar size and complexity, and the time

commitment required.

— 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.

114

Landsec Annual Report 2019

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.

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 2019

115

Governance
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.

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.

116

Landsec Annual Report 2019

4. Application of the Policy

Basic salary
+ benefits
+ pension

Annual bonus

Long-Term Incentive

Plan awards

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Basic salary

More details
on page 111

Benefits

More details
on page 111

Pension

More details
on page 111

5 6 7 8
Annual bonus

4 9 10

Long-Term Incentive Plan awards (and

Matching Share Plan awards for 2019 vesting)

Savings Related Share Option Scheme

Non-executive Director fees

— 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

More details
on page 112

— The average increase in current

salaries for the Executive
Directors will be 2.5%, which is
in line with the average increase
to employees’ pay across the
Group in 2019. The new annual
gross salaries will be £814,000
for Robert Noel, £530,000 for
Martin Greenslade and
£440,000 for Colette O’Shea.

— 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

— A policy of 10.5% pension
provision applies to any
new Executive Director
appointments. As the existing
Executive Directors had
different pension arrangements
prior to April 2018, the
Committee has approved
maintaining the existing
pension arrangements.
A supplement of 25% of basic
salary (gross) is paid to Robert
Noel and Martin Greenslade
and 12.5% to Colette O’Shea

More details

on page 104

— The value of this year’s

More details

on page 114

— The Executive Directors, and

all other eligible employees,

More details

on page 103

— As the fees for Non-executive

Directors are reviewed annually

and no further revisions will take

place over the course of the

year. The annual fee for the

Chairman remains at £375,000

— 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 chairs, and these

remain unchanged.

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. Colette O’Shea will

receive an award equivalent to

250% of salary for 2019. Awards

vest subject to performance

conditions in the form of

nil-cost options with a

seven-year exercise period.

— Outstanding LTIP and

Matching Share Plan awards

granted in 2016 will vest later in

2019 subject to the performance

conditions set at the time and

the plan rules under which they

were granted.

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

More details

on page 114

— 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

newly-appointed Directors

will be given time to build up

their shareholding.

Executive Director Recruitment and

Termination Provisions

More details

on page 115

— 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

More details

on page 115

— 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.

Annual bonus

5 6 7 8

Annual bonus

More details

on page 112

— 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

Basic salary

+ benefits

+ pension

Basic salary

More details

on page 111

Benefits

More details

on page 111

Pension

— The average increase in current

salaries for the Executive

Directors will be 2.5%, which is

in line with the average increase

to employees’ pay across the

Group in 2019. The new annual

gross salaries will be £814,000

for Robert Noel, £530,000 for

Martin Greenslade and

£440,000 for Colette O’Shea.

— 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

More details

on page 111

— A policy of 10.5% pension

provision applies to any

new Executive Director

appointments. As the existing

Executive Directors had

different pension arrangements

prior to April 2018, the

Committee has approved

maintaining the existing

pension arrangements.

A supplement of 25% of basic

salary (gross) is paid to Robert

Noel and Martin Greenslade

and 12.5% to Colette O’Shea

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

Policy Element

Application in 2019/20

4 9 10
Long-Term Incentive Plan awards (and
Matching Share Plan awards for 2019 vesting)

Savings Related Share Option Scheme

Non-executive Director fees

Long-Term Incentive
Plan awards

More details
on page 103

— As the fees for Non-executive

Directors are reviewed annually
and no further revisions will take
place over the course of the
year. The annual fee for the
Chairman remains at £375,000
— 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 chairs, and these
remain unchanged.

More details
on page 104

— 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. Colette O’Shea will
receive an award equivalent to
250% of salary for 2019. Awards
vest subject to performance
conditions in the form of
nil-cost options with a
seven-year exercise period.

— Outstanding LTIP and

Matching Share Plan awards
granted in 2016 will vest later in
2019 subject to the performance
conditions set at the time and
the plan rules under which they
were granted.

More details
on page 114

— 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

More details
on page 114

— 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
newly-appointed Directors
will be given time to build up
their shareholding.

Executive Director Recruitment and
Termination Provisions

More details
on page 115

— 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

More details
on page 115

— 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 2019

117

Governance
Directors’
Report

Dividends
The results for the year are set out in the financial statements on pages 129-180.

The Company has paid three quarterly interim dividends to shareholders for the year under review,
each of 11.3p per ordinary share:

1st Interim
2018/19

Property Income Distribution
(PID)/Non-PID

PID

2nd Interim
2018/19

PID

3rd Interim
2018/19

Final 2018/19
(proposed)

PID

Table 73

Record date

Payment date

7 September 2018 30 November 2018 15 March 2019 21 June 2019

5 October 2018

4 January 2019

12 April 2019

25 July 2019

Amount (per ordinary share)

11.3p

11.65p

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 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 2019 did any Director hold a material
interest, directly or indirectly, in any contract
of significance with Landsec or any subsidiary
other than the Executive Directors in relation
to their Service Agreements.

The Company is proposing a final dividend of
11.65p per share. The proposed final dividend
brings the total dividend for the year to 45.55p,
an increase of 3.1% over the prior year. Subject
to shareholders’ approval at the 2019 Annual
General Meeting (AGM), the final dividend will
be paid on 25 July 2019 to shareholders on the
register at the close of business on 21 June 2019.

The Board has also declared a first quarterly
dividend in respect of the 2019/20 financial
year of 11.6p per ordinary share, to be paid on
4 October 2019 to shareholders on the register
at the close of business on 6 September 2019.

A Dividend Reinvestment Plan (DRIP) election
is currently available in respect of all dividends
paid by Landsec.

Events since the balance sheet date
There were no significant events occuring after
the reporting period, but before the financial
statements were authorised for issue.

Directors
The names and biographical details of the
current Directors and the Board Committees
of which they are members are set out on
pages 64-66.

All the Directors proposed for re-election held
office throughout the year except Madeleine
Cosgrave who joined the Board on 1 January
2019 and Christophe Evain who joined the
Board on 1 April 2019.

Dame Alison Carnwath stepped down as
Chairman of the Board at the end of the AGM
on 12 July 2018, and was succeeded by Cressida
Hogg, who has served as a Non-executive
Director since 2014.

Simon Palley stepped down as a Non-executive
Director of the Board on 31 March 2019.

Scott Parsons stepped down as an Executive
Director of the Board on 25 February 2019.

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.
A summary of these documents is also
included in the Directors’ Remuneration Policy
on pages 115-116.

The Directors present their report for the year
ended 31 March 2019.

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
Credit, market and liquidity risks
Related party transactions
Energy and carbon reporting
Workforce engagement
Stakeholders
Section 172 Statement

Table 72
Page(s)

8-9

48-51
60

62-117
142
162
163-166
177
193-194
72-73
22-23
72-73

UK Corporate Governance Code
The Company has applied the main principles
of and complied with the provisions of the 2016
UK Corporate Governance Code throughout the
year. The Company now also complies with the
2018 UK Corporate Governance Code. 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.

118

Landsec Annual Report 2019

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 2019 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
2019, there were 751,300,993 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 35 to the financial statements.

At the Company’s AGM held on 12 July 2018,
shareholders authorised the Company to make
market purchases of ordinary shares representing
up to 10% of its issued share capital at that time
and to allot shares within certain limits approved
by shareholders. These authorities will expire at
the 2019 AGM (see below) and a renewal of that
authority will be sought.

The Company was notified on 9 May 2019 that
BlackRock, Inc.’s shareholding had risen to 10.01%
and on 10 May 2019 that BlackRock, Inc.’s
shareholding had fallen back below the 10%
threshold to 9.98%, and on 13 May 2019 the
Company received a further notification that
BlackRock, Inc.’s shareholding had once again
risen to above the 10% threshold to 10.07%.
The Company received no other DTR notifications
by way of change to the information set out
below in the substantial shareholders table during
the period from 1 April to 13 May 2019, 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
Equiniti Trust (Jersey) Limited was appointed as
trustee (Trustee) of Landsec’s Employee Benefit
Trust (EBT) on 1 January 2019 following the
resignation of Buck Trustees (Guernsey) Limited
(formerly ACS HR Solutions Share Plan Services
(Guernsey) Limited) on the same date. The EBT
is used to purchase Land Securities Group PLC
ordinary shares in the market from time to time
for the benefit of employees, including to satisfy
outstanding awards under Landsec’s various
employee share plans. The EBT did not purchase
any shares in the market during the year. The
EBT released 97,555 shares during the year to
satisfy vested share plan awards. At 31 March
2019, the EBT held 1,080,624 Land Securities
Group PLC shares. A dividend waiver is in place
from the Trustee in respect of all dividends
payable by Landsec on shares which it holds.

Substantial shareholders
As at 31 March 2019, 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 74

Shareholder name

BlackRock, Inc.

Norges Bank Investment
Management

The Vanguard Group, Inc.

Legal & General Investment
Management Ltd

Aberdeen Standard Investments

Number of ordinary shares

Percentage of total voting rights
attaching to issued share capital1

74,062,757

54,416,199

30,014,120

24,145,633

23,626,719

9.99

7.34

4.05

3.26

3.19

1. The total number of voting rights attaching to the issued share capital of the Company on 31 March 2019 was 741,461,814.

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 36 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. 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 an offer as it thinks fit.

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 2019 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.

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 under
our control. We support the principles set out
within both the UN Universal Declaration of
Human Rights and the International Labour
Organization’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
takes account of the 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 latest
slavery and human trafficking statement, relating
to the financial year ended 31 March 2018, was
approved by the Board on 27 September 2018
and posted on our website on 30 September 2018.

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 48-51.

Landsec Annual Report 2019

119

Governance
Directors’ Report
continued

Political donations
The Company did not make any political
donations or expenditure in the year that
require disclosure (2018: 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 2019 AGM.
The reappointment has been recommended
to the Board by the Audit Committee and EY
has indicated its willingness to remain in office.

2019 Annual General Meeting
This year’s AGM will be held at 10.00 am on
Thursday, 11 July 2019, 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.

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.

The Directors’ Report was approved by the
Board on 13 May 2019.

By Order of the Board

Tim Ashby
Group General Counsel and Company Secretary

Land Securities Group PLC
Company number 4369054

120

Landsec Annual Report 2019

Financial
statements

Contents

Independent Auditor’s Report
Income statement

122 Statement of Directors’ Responsibilities
123
129
129 Statement of comprehensive income
130 Balance sheets
131 Statements of changes in equity
132 Statement of cash flows
133 Notes to the financial statements

Landsec Annual Report 2019

121

Financial statements
Statement
of Directors’
Responsibilities

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 (EU). 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 EU,
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.

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 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;

— 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:

— Cressida Hogg, Chairman*

— Robert Noel, Chief Executive

— Martin Greenslade, Chief Financial Officer

— Colette O’Shea, Managing Director,

London Portfolio

— Edward Bonham Carter, Senior Independent

Director*

— Chris Bartram*

— Nicholas Cadbury*

— Madeleine Cosgrave*

— Christophe Evain*

— Stacey Rauch*

*Non-executive Directors

The Statement of Directors’ Responsibilities
was approved by the Board of Directors on
13 May 2019 and is signed on its behalf by:

Robert Noel
Chief Executive

Martin Greenslade
Chief Financial Officer

122

Landsec Annual Report 2019

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 2019 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 2019

Balance sheet as at 31 March 2019

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 42 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.

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 56-59 that describe the principal risks and explain how they are being managed or mitigated;
— the Directors’ confirmation set out on pages 54-55 in the Annual Report that they have carried out a robust assessment of the principal risks facing

the entity, including those that would threaten its business model, future performance, solvency or liquidity;

— the Directors’ statement set out on page 60 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 entity’s ability to continue to do so over a period
of at least 12 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 60 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.

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, 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 £121m which represents 1% of the carrying value of investment properties line item in the Group balance sheet at

31 March 2019.

— Specific materiality of £22m which represents 5% of revenue profit before tax at 31 March 2019 is applied to account balances not related to

investment properties (either wholly owned or held within joint ventures).

Landsec Annual Report 2019

123

Financial statements

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 tested the
inputs, assumptions and
methodology used by the
external valuers. We have
concluded 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 2019.

We concluded that the value
of the sample of properties
reviewed by our Chartered
Surveyors was within a
reasonable range of values.

We consider 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

2019: £12,094m in investment
properties, £1,117m (the
Group’s share) in investment
properties held in joint
ventures and £23m in trading
properties (2018: £12,336m
in investment properties,
£1,235m in investment
properties held in joint
ventures and £24m in trading
properties).

Refer to the Accountability
section of the Annual Report
(pages 84-88); Accounting
policies (pages 145-146); notes
14, 15 and 16 of the financial
statements (pages 147-155).

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 73% of the
market value of investment properties (including investment properties held in joint ventures)
and 99% 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.

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.

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.

124

Landsec Annual Report 2019

Independent Auditor’s ReportcontinuedKey observations communicated
to the Audit Committee

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.

Risk

Our response to the risk

Revenue recognition,
including the timing
of revenue recognition,
the treatment of rents,
incentives and recognition
of trading property
proceeds

2019: £625m rental income
and £7m trading property
sales proceeds (2018: £612m
rental income and £96m
trading property sales
proceeds).

Refer to the Accountability
section of the Annual
Report (pages 84-88);
Accounting policy (page 138);
and note 6 of the financial
statements (pages 138-139).

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.

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 a 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.

Compared to the prior year, there have been no 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.

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% (2018: 1%) of the carrying value
of investment properties

Revenue profit before tax
(2018: Revenue profit before tax)

Materiality

£121m
(2018: £124m)

£22m
(2018: £20m)

Performance materiality

Audit differences

£91m
(2018: £93m)

£17m
(2018: £15m)

£6m
(2018: £6m)

£1m
(2018: £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 86% of the Group’s total assets (2018: 85%) 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.

Landsec Annual Report 2019

125

Financial statements
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 £442m (2018: £406m). We believe that it is appropriate to use
a profit based measure as profit is also a focus of users of the financial statements.

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% (2018: 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 (2018: £6m), as well
as audit differences in excess of £1m (2018: £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.

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 122 – 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 81-88 – 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 122 – 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.

126

Landsec Annual Report 2019

Independent Auditor’s ReportcontinuedOpinion 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 122, 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.

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 Parent company is complying with those frameworks through enquiry with management, and by identifying the Parent

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.

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.

Landsec Annual Report 2019

127

Financial statements
Other matters we are required to address
— We were appointed by the Parent 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 six years,
covering all year ends between 31 March 2014 and 31 March 2019. 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 Parent company and we remain

independent of the Group and the Parent company in conducting the audit.

— The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report
This report is made solely to the Parent 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 Parent 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 Parent company and the Parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Kathryn Barrow (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
13 May 2019

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.

128

Landsec Annual Report 2019

Independent Auditor’s ReportcontinuedIncome statement
for the year ended 31 March 2019

Revenue

Costs

Share of post-tax profit/(loss) from joint ventures

Profit on disposal of investment properties

Profit on disposal of investment in joint venture

Net deficit on revaluation of investment properties

Operating profit/(loss)

Finance income

Finance expense

(Loss)/profit before tax

Taxation

Loss attributable to shareholders

Loss per share attributable to shareholders:

Basic loss per share

Diluted loss per share

Revenue
profit
£m

748

(249)

499

–

521

(99)

442

Capital
and other
items
£m

(22)

(13)

(107)

–

(441)

(561)

(10)

(565)

2019

Total
£m

757

(271)

486

(85)

–

(441)

(40)

(109)

(123)

(119)

(16.1)p

Notes

Revenue
profit
£m

Capital and
other items
£m

731

(239)

492

–

501

(126)

406

(82)

(98)

(461)

(449)

20181

Total
£m

830

(321)

509

(98)

505

(587)

(43)

(1)

(44)

(5.8)p

1. Restated as a result of changes in accounting policies. See note 41 for details.

Statement of comprehensive income
for the year ended 31 March 2019

Loss attributable to shareholders

Items that may be subsequently reclassified to the income statement:

Movement in cash flow hedges

Items that will not be subsequently reclassified to the income statement:

Revaluation of other investments

Net re-measurement gain/(loss) on defined benefit pension scheme

Deferred tax credit on re-measurement above

Other comprehensive income attributable to shareholders

Total comprehensive loss attributable to shareholders

1. Restated as a result of changes in accounting policies. See note 41 for details.

Notes

2019

Total
£m

(119)

20181

Total
£m

(44)

(1)

–

(1)

(2)

(119)

(26)

Landsec Annual Report 2019

129

Financial statements
Balance sheets
at 31 March 2019

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

Other current assets

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

1. Restated as a result of changes in accounting policies. See note 41 for details.

The profit for the year of the Company was £700m (2018: loss of £93m).

Notes

2019
£m

Group

20181
£m

Company

20181
£m

2019
£m

12,094

12,336

159

1,031

–

176

162

1,151

–

165

–

6,213

6,211

–

13,510

13,897

6,213

6,211

437

524

471

–

572

–

14,034

14,469

6,217

6,215

(934)

(273)

(18)

(872)

(294)

(14)

–

(1,978)

(2,329)

–

(1,225)

(1,180)

(1,978)

(2,329)

(2,847)

(2,858)

(1)

(5)

(36)

–

(8)

(37)

(2,889)

(2,903)

–

(4,114)

(4,083)

(1,978)

(2,329)

9,920

10,386

4,239

3,886

317

–

9,497

9,920

317

–

9,963

10,386

317

374

3,442

4,239

317

374

3,089

3,886

The financial statements on pages 129 to 180 were approved by the Board of Directors on 13 May 2019 and were signed on its behalf by:

R M Noel
Directors

M F Greenslade

130

Landsec Annual Report 2019

Statements of changes in equity
for the year ended 31 March 2019

At 1 April 20171

Total comprehensive loss for the financial year1

Transactions with shareholders:

Share-based payments

Capital distribution

Dividends paid to shareholders

Acquisition of own shares

Total transactions with shareholders

Attributable to shareholders

Ordinary
shares
£m

Share
premium
£m

791

Other
reserves
£m

Retained
earnings
£m

10,301

Group

Total

equity
£m

11,202

–

(475)

–

(474)

–

(10)

(4)

(26)

–

(314)

–

(312)

(475)

(314)

(10)

(790)

At 31 March 20181

317

9,963

10,386

Total comprehensive loss for the financial year

Transactions with shareholders:

Share-based payments

Dividends paid to shareholders

Total transactions with shareholders

–

(119)

(349)

(347)

(349)

(347)

At 31 March 2019

317

9,497

9,920

At 1 April 20171

Total comprehensive loss for the financial year

Transactions with shareholders:

Share-based payments1

Capital distribution

Dividends paid to shareholders

Acquisition of own shares

Total transactions with shareholders1

Ordinary
shares
£m

Share
premium
£m

791

Other
reserves
£m

Merger
reserve
£m

374

Retained
earnings2
£m

3,494

Company

Total

equity
£m

4,769

–

(475)

–

(474)

–

(10)

(4)

–

(93)

–

(314)

–

(312)

(475)

(314)

(10)

(790)

At 31 March 20181

317

374

3,089

3,886

Total comprehensive income for the financial year

Transactions with shareholders:

Share-based payments

Dividends paid to shareholders

Total transactions with shareholders

–

700

(349)

(347)

(349)

(347)

At 31 March 2019

317

374

3,442

4,239

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. Available for distribution.

Landsec Annual Report 2019

131

Financial statements
Statement of cash flows
for the year ended 31 March 2019

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

Cash distributions from joint ventures

Other investing cash flows

Net cash (outflow)/inflow from investing activities

Cash flows from financing activities

Proceeds from new borrowings (net of finance fees)

Repayment of bank debt

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 (outflow)/inflow from derivative financial instruments

Dividends paid to shareholders

Capital distribution

(Increase)/decrease in monies held in restricted accounts and deposits

Other financing cash flows

Net cash outflow from financing activities

(Decrease)/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

2019
£m

516

(114)

(2)

424

(54)

(136)

(46)

–

(29)

–

(4)

(166)

(3)

(8)

(2)

–

(15)

(338)

–

(21)

–

2018
£m

439

(100)

(24)

102

(1)

445

(33)

(349)

(58)

158

633

(111)

(72)

190

–

358

629

–

(1,256)

(385)

(273)

(61)

1,334

(314)

(475)

(8)

(306)

(771)

(48)

The Company did not hold any cash and cash equivalents balances at 31 March 2019 (2018: none) and therefore did not have any cash flows in the year
then ended (2018: none).

132

Landsec Annual Report 2019

Notes to the financial statements
for the year ended 31 March 2019

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 been applied in the year and those
not yet adopted, and their actual or 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, financial
assets at fair value through other comprehensive income (without recycling), 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. The Group’s share of post-tax profit from joint ventures has been included in Operating profit on the face of the income statement, to better
reflect the way in which the Group’s Senior Management view the results of joint ventures. The presentation of the comparative income statement has
also been amended to reflect this change.

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 2019 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 2019

133

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
— Recognising revenue where property management activities are performed by a third party (note 6)

— Compliance with the Real Estate Investment Trust (REIT) taxation regime and the recognition of deferred tax assets and liabilities (note 12)

— Accounting for property acquisitions and disposals (note 14)

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, the impact of which
is outlined below and in note 41.

Changes in accounting policy
The Group has adopted IFRS 9 Financial Instruments on 1 April 2018. While some accounting policies have been amended on adoption of the standard,
there have been no adjustments to the Group’s income statement or balance sheet. The new accounting policies are set out in notes 21 to 26 and 41.

The Group has adopted IFRS 15 Revenue from Contracts with Customers on 1 April 2018. The Group has elected to apply the standard on a full
retrospective basis as permitted by IFRS 15. Certain elements of service charge income and expense are now presented on a net basis as a result of
adopting this standard. See notes 6 and 41 for further details.

The Group has amended its accounting policy for debt refinancing from 1 April 2018 such that it no longer carries a bond exchange de-recognition
adjustment on its balance sheet. The revised policy and the impact of the change in accounting policy on the financial statements is detailed in notes
21 and 41.

The Company has amended its policy for accounting for the Employee Benefit Trust (EBT) from 1 April 2018 such that it no longer treats the EBT as
a separate subsidiary of the Group, but rather as an extension of the Company. The revised policy and the impact of the change in accounting policy
on the financial statements is detailed in notes 35 and 41.

Amendments to IFRS
A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the Group. The most
significant of these is IFRS 16 Leases (effective for the Group from 1 April 2019). Based on the impact assessment carried out, 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. In the year ended 31 March 2019, the amount reported in rental income which would be separated and
reported as service charge income was £7m. There will be no net impact on profit attributable to shareholders or the Group’s balance sheet.

134

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedSection 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 £13.8bn, 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 further understanding 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 provides
further understanding of 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 80.

Landsec Annual Report 2019

135

Financial statements
4. Segmental information continued

Revenue profit

Rental income
Finance lease interest
Gross rental income (before rents payable)
Rents payable2
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

London
Portfolio
£m

360
–
360
(10)
350
41
(51)
(10)
18
(50)
308
(20)
(1)
287
(3)
284

320
9
329
(3)
326
48
(47)
1
16
(33)
310
(15)
(1)
294
(16)
278

Retail
Portfolio
£m

London
Portfolio
£m

359
1
360
(9)
351
36
(45)
(9)
20
(40)
322
(21)
(1)
300
(8)
292

304
9
313
(3)
310
45
(47)
(2)
18
(37)
289
(16)
(1)
272
(20)
252

2019

Total
£m

680
9
689
(13)
676
89
(98)
(9)
34
(83)
618
(35)
(2)
581
(19)
562
3
(44)
20
(99)
442

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. Included within rents payable is finance lease interest payable of £1m (2018: £1m) and £1m (2018: £1m) for the Retail and London portfolios respectively.

Reconciliation of revenue profit to loss before tax

Revenue profit

Capital and other items

Valuation and profits on disposals
Net deficit on revaluation of investment properties
(Loss)/profit on disposal of investment properties
Profit on disposal of investment in joint venture
Profit on disposal of trading properties
Fair value movement prior to acquisition of non-owned element of a joint venture
Movement in impairment of trading properties
Profit from long-term development contracts

Net finance expense
Fair value movement on interest-rate swaps
Premium and fees on redemption of medium term notes (MTNs)
Premium and fees on redemption of QAG Bond
Other

Exceptional items
Impairment of intangible asset
Impairment of goodwill

Loss before tax

1. Restated as a result of changes in accounting policies. See note 41 for details.

136

Landsec Annual Report 2019

2019
Total
£m

442

(557)
(2)
–
–
9
–
3
(547)

(6)
(2)
–
4
(4)

(12)
(2)
(14)

(123)

20181

Total
£m

663
10
673
(12)
661
81
(92)
(11)
38
(77)
611
(37)
(2)
572
(28)
544
2
(45)
31
(126)
406

20181
Total
£m

406

(91)
3
66
30
–
(4)
–
4

8
(390)
(62)
(9)
(453)

–
–
–

(43)

Notes to the financial statementsfor the year ended 31 March 2019 continued5. Performance measures

Three of the Group’s key financial performance measures are adjusted diluted earnings per share, EPRA 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
measure and certain measures defined by EPRA, which have been included to assist comparison between European property companies. 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 provide further understanding of 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.

Total business return is calculated as the cash dividends paid in the year plus the change in EPRA net assets per share, divided by the opening EPRA
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.

Earnings per share

Year ended 31 March 2019

Year ended 31 March 20181

Loss attributable to shareholders

Taxation

Valuation and profits on disposals

Net finance expense

Exceptional items

(Loss)/profit used in per share calculation

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

1. Restated as a result of changes in accounting policies. See note 41 for details.

Net assets per share

Net assets attributable to shareholders

Fair value of interest-rate swaps

Deferred tax liability on intangible asset

Goodwill on deferred tax liability (note 19)

Excess of fair value of debt over book value (note 21)

Net assets used in per share calculation

Net assets per share

Diluted net assets per share

1. Restated as a result of changes in accounting policies. See note 41 for details.

Loss for
the
financial
year
£m

(119)

–

(119)

EPRA
earnings
£m

Adjusted
earnings
£m

(119)

(4)

547

442

(119)

(4)

547

442

IFRS

EPRA

Adjusted

(16.1)p

59.7p

EPRA
triple net
assets
£m

9,920

–

(2)

(239)

2019

EPRA net
assets
£m

9,920

–

(2)

–

Net assets
£m

9,920

–

Loss for
the
financial
year
£m

(44)

–

(44)

IFRS

(5.8)p

Net assets
£m

10,386

–

EPRA
earnings
£m

Adjusted
earnings
£m

(44)

(4)

453

–

406

(44)

(4)

453

–

406

EPRA

53.1p

Adjusted

53.1p

EPRA
triple net
assets
£m

10,386

–

(4)

(217)

20181

EPRA net
assets
£m

10,386

(6)

(4)

–

9,920

9,679

9,920

10,386

10,165

10,380

IFRS

1,341p

1,339p

EPRA
triple

n/a

EPRA

n/a

1,306p

1,339p

IFRS

1,404p

EPRA
triple

n/a

EPRA

n/a

1,374p

1,403p

Landsec Annual Report 2019

137

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 EPRA net assets per share

Dividend paid per share in the year (note 11)

Total return (a)

EPRA net assets per share at the beginning of the year (b)

Total business return (a/b)

1. Restated as a result of changes in accounting policies. See note 41 for details.

6. Revenue

Accounting policy

Weighted
average
(million)

2019

31 March
(million)

Weighted
average
(million)

2018

31 March
(million)

751

(10)

(1)

740

–

740

751

(10)

(1)

740

741

776

(10)

(1)

765

–

765

2019
pence

(64)

(17)

1,403

(1.2)%

751

(10)

(1)

740

–

740

20181
pence

(14)

1,417

1.8%

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 variable consideration and are recorded as income in the year in which
they are earned.

The Group’s revenue from contracts with customers, as defined in IFRS 15 includes service charge income, other property related income, trading
property sales proceeds and long-term development contract income.

Service charge income and management fees are recorded as income over time in the year in which the services are rendered. Revenue is recognised
over time because the tenants benefit from the services as soon as they are rendered by the Group. The actual service provided during each reporting
period is determined using cost incurred as the input method.

Other property related income includes development and asset management fees. These fees are recognised over time, using time elapsed as the
input method which measures the benefit simultaneously received and consumed by the customer, over the period the development or asset
management services are provided.

Proceeds received on the sale of trading properties are recognised when control of the property transfers to the buyer, i.e. the buyer has the ability to
direct the use of the property and the right to the cash inflows and outflows generated by it. This generally occurs on unconditional exchange or on
completion. If completion is expected to occur significantly after exchange or if the Group has significant outstanding obligations between exchange
and completion, the Group assesses whether there are multiple performance obligations in the contract and recognises revenue as each performance
obligation is satisfied.

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.

Revenue on long-term development contracts is recognised over time over the period of the contract as the Group creates or enhances an asset that
the customer controls. Progress towards completion of the development, by reference to the value of work completed using the costs incurred to date
as a proportion of total costs expected to be incurred over the term of the contract is used as the input method.

138

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued Significant accounting judgement

For those properties where the property management activities are performed by a third party, the Group considers the third party to be the principal
delivering the service. The key factors considered by the Group when making this judgement include the following responsibilities of the third party:

— selecting suppliers and ensuring all services are delivered

— establishing prices and seeking efficiencies

— risk management and compliance

In addition, the residual rights residing with the Group are generally protective in nature.

All revenue is classified within the ‘Revenue profit’ column of the income statement, with the exception of proceeds from the sale of trading properties,
income 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

622

623

–

748

–

2019

Total
£m

624

625

Revenue
profit
£m

Capital
and other
items
£m

581

610

–

757

731

1. Restated as a result of changes in accounting policies. See note 41 for details.

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

Group
£m

625

–

Joint
ventures
£m

–

Adjustment
for
non-wholly
owned
subsidiaries2
£m

(2)

–

2019

Total
£m

680

Adjustment for
non-wholly
owned
subsidiaries2
£m

Joint
ventures
£m

–

(2)

(1)

–

Group
£m

612

–

Revenue in the segmental information note

757

129

(2)

884

830

155

(3)

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.

20181

Total
£m

583

612

830

20181

Total
£m

663

182

982

Landsec Annual Report 2019

139

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 and impairments of intangible assets arising on business combinations 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

Amortisation of other intangible asset

Impairment of intangible asset

Impairment of goodwill

Costs per the income statement

Revenue
profit
£m

Capital
and other
items
£m

–

249

–

Revenue
profit
£m

Capital
and other
items
£m

2019

Total
£m

–

271

239

1. Restated as a result of changes in accounting policies. See note 41 for details.

The following table reconciles costs per the income statement to the individual components of costs presented in note 4.

Group
£m

Joint
ventures
£m

Adjustment
for
non-wholly
owned
subsidiaries2
£m

2019

Total
£m

Group
£m

Joint
ventures
£m

20181

Total
£m

–

321

20181

Total
£m

152

–

Adjustment

for
non-wholly
owned
subsidiaries2
£m

–

(1)

–

356

321

109

(1)

429

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

Amortisation of other intangible asset

Impairment of intangible asset

Impairment of goodwill

Costs in the segmental information note

–

271

–

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.

140

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedThe Group’s costs include employee costs for the year of £62m (2018: £62m), of which £7m (2018: £6m) is within service charge expense and £55m
(2018: £56m) is within indirect property expenditure, of which £24m relates to Group Services (2018: £26m).

Employee costs

Salaries and wages

Employer payroll taxes

Other pension costs (note 33)

Share-based payments (note 34)

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

2019
£m

2018
£m

2019
Number

2018
Number

432

135

578

422

138

570

With the exception of the Executive Directors 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 (2018: one) of the Executive Directors had retirement benefits accruing under the defined contribution pension scheme.
None (2018: none) 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 91 to 117.

Details of the employee costs associated with the Group’s key management personnel are included in note 39.

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:

Other assurance services

2019
£m

2018
£m

0.4

0.3

0.1

0.8

0.1

0.9

0.4

0.3

0.1

0.8

0.1

0.9

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 2019

141

Financial statements
9. External valuer remuneration

Services provided by the Group’s external valuer

Year end and half-yearly valuations – Group

– Joint ventures

Other consultancy and agency services

2019
£m

0.7

0.1

1.7

2.5

2018
£m

0.7

0.2

1.6

2.5

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 other derivatives

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

Redemption of medium term notes2

Redemption of QAG Bond2

Revaluation of redemption liability

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

2019

Total
£m

–

(81)

(22)

(6)

(1)

(2)

–

(1)

–

(113)

(109)

–

(6)

(1)

(2)

–

(1)

–

(10)

–

(10)

20181

Total
£m

–

(112)

(15)

–

(7)

(390)

(62)

(2)

(590)

(587)

–

(7)

(390)

(62)

(2)

–

(461)

–

(461)

–

(112)

(15)

–

(2)

(129)

(126)

(95)

(28)

(123)

(4)

(83)

(453)

(548)

–

(81)

(22)

–

(103)

(99)

(79)

(19)

(98)

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. In the year ended 31 March 2018, the Group redeemed the QAG Bond in its entirety and repurchased £1,256m of medium term notes.

Finance lease interest payable of £2m (2018: £2m) is included within rents payable as detailed in note 4.

142

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued11. 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.

Dividends paid

For the year ended 31 March 2017:

Third interim

Final

For the year ended 31 March 2018:

First interim

Second interim

Third interim

Final

For the year ended 31 March 2019:

First interim

Second interim

Gross dividends

Dividends in statement of changes in equity

Timing difference on payment of withholding tax

Dividends in the statement of cash flows

Payment date

PID

Non-PID

Total

Pence per share

2019
£m

Year ended

2018
£m

7 April 2017

27 July 2017

6 October 2017

5 January 2018

6 April 2018

27 July 2018

5 October 2018

4 January 2019

8.95

11.70

9.85

–

9.85

14.65

11.30

–

9.85

–

8.95

11.70

9.85

14.65

11.30

314

–

314

108

349

(11)

338

A third quarterly interim dividend of 11.30p per ordinary share, or £84m in total (2018: 9.85p or £73m in total), was paid on 12 April 2019 as a Property
Income Distribution (PID). The Board has recommended a final dividend for the year ended 31 March 2019 of 11.65p per ordinary share (2018: 14.65p)
to be paid as a PID. This final dividend will result in a further estimated distribution of £86m (2018: £108m). Subject to shareholders’ approval at the
Annual General Meeting, the final dividend will be paid on 25 July 2019 to shareholders registered at the close of business on 21 June 2019.

The total dividend paid and recommended in respect of the year ended 31 March 2019 is 45.55p per ordinary share (2018: 44.2p) resulting in a total
estimated distribution of £338m (2018: £332m).

The first quarterly dividend for the year ending 31 March 2020 will be 11.6p. It will be paid on 4 October 2019 to shareholders on the register at the close
of business on 6 September 2019.

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.

Landsec Annual Report 2019

143

Financial statements
12. Income tax continued

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.

The income tax credit (2018: charge) in the income statement comprises the movement in deferred tax on intangible assets and property, plant
and equipment of £4m (2018: £2m charge) and adjustments in respect of prior financial years of £nil (2018: £1m). The tax for the year is lower than
the standard rate of corporation tax in the UK of 19%. The differences are explained in the table below.

Loss before tax

Loss before tax multiplied by the rate of corporation tax in the UK of 19%

Exempt property rental (losses)/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 credit/(charge) in the income statement

1. Restated as a result of changes in accounting policies. See note 41 for details.

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

2019
£m

(123)

(27)

(4)

(2)

(3)

–

20181
£m

(43)

(68)

(2)

(1)

2019
£m

2018
£m

–

Deferred tax is calculated at the rate substantively enacted at the balance sheet date of 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

2019
£m

237

445

729

2018
£m

233

484

752

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.

144

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued13. Net cash generated from operations

Reconciliation of operating (loss)/profit to net cash generated from operations

Operating (loss)/profit

Adjustments for:

Net deficit on revaluation of investment properties

Profit on disposal of trading properties

Profit on disposal of investment properties

Profit on disposal of investment in joint venture

Share of loss/(profit) from joint ventures

Share-based payment charge

Impairment of intangible asset

Impairment of goodwill

Other

Changes in working capital:

Decrease/(increase) in receivables

(Decrease)/increase in payables and provisions

Net cash generated from operations

2019
£m

(40)

441

–

Group

20181
£m

505

Company

2018
£m

(32)

2019
£m

(30)

(17)

(1)

(66)

(27)

–

512

506

(30)

(32)

(16)

516

(53)

(14)

439

–

1. Restated to reflect the change in presentation of the income statement to include the Group’s share of post-tax profit from joint ventures in Operating profit. See note 1 for details.

Section 3 – Properties

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 £13.8bn, 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 provide further understanding to stakeholders about 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 of return on the outstanding liability. The investment
properties held under finance leases are subsequently carried at their fair value.

Landsec Annual Report 2019

145

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 control of the property.

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 control of the property is 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 control 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 judgement

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 assumes or relinquishes control of the property, 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.

Significant accounting estimate

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.

146

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued14. 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 deficit on revaluation of investment properties

Net book value at the end of the year

2019
£m

2018
£m

12,336

12,144

136

–

(36)

(441)

351

(157)

(98)

12,094

12,336

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 tenant finance leases, head leases and lease incentives separately. The following table reconciles the net
book value of the investment properties to the market value.

Group
(excl. joint
ventures)
£m

12,637

(239)

(334)

12,094

Joint
ventures1
£m

1,149

–

(40)

1,117

Adjustment
for
proportionate
share2
£m

2019

Combined
Portfolio
£m

(36)

13,750

–

(238)

(373)

Group
(excl. joint
ventures)
£m

12,883

(241)

(337)

(34)

13,177

12,336

Adjustment
for

proportionate
share2
£m

(37)

–

2018

Combined
Portfolio
£m

14,103

(240)

(366)

(35)

13,536

Joint
ventures1
£m

1,257

–

(30)

1,235

(441)

(117)

(557)

(98)

–

(91)

Market value

Less: properties treated as finance leases

Plus: head leases capitalised

Less: tenant lease incentives

Net book value

Net (deficit)/surplus on revaluation
of investment properties

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 £2,110m (2018: £2,096m).

Investment properties include capitalised interest of £214m (2018: £209m). The average rate of interest capitalisation for the year is 3.5% (2018: 4.0%).
The historical cost of investment properties is £7,277m (2018: £7,081m).

Valuation process
The fair value of investment properties at 31 March 2019 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. 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. As the development approaches completion, the valuer may consider the
income capitalisation approach to be more appropriate.

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.

Landsec Annual Report 2019

147

Financial statements
14. Investment properties continued

The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2019:

Retail Portfolio

Shopping centres and shops

Outlets

Retail parks

Leisure and hotels

Other2

Total Retail Portfolio
(excluding developments)

London Portfolio

West End

City

Mid-town

Inner London

Total London offices

Central London shops

Other2

Total London Portfolio
(excluding developments)

Developments: residual method

Development programme

Estimated rental value
£ per sq ft

Equivalent yield
%

2019

Costs
£ per sq ft

Low

Average

High

Low

Average

High

Low

Average1

High

n/a

179

n/a

179

4.1%

4.7%

4.8%

3.8%

n/a

3.8%

4.0%

4.2%

4.3%

1.8%

3.1%

n/a

1.8%

5.0%

5.4%

6.2%

5.5%

n/a

5.4%

4.5%

4.8%

4.5%

4.0%

n/a

4.4%

7.3%

7.1%

9.0%

8.9%

n/a

9.0%

4.9%

5.8%

4.6%

5.5%

5.8%

6.5%

n/a

6.5%

4.4%

–

n/a

–

n/a

–

n/a

–

n/a

–

n/a

937

610

937

n/a

937

–

Market
value
£m

2,184

971

636

1,267

5,074

2,838

1,221

1,400

430

5,889

1,372

7,293

270

Market value at 31 March 2019 – Group

12,637

1. The calculation for average costs excludes those properties which are assumed by the Group’s external valuer to be substantially refurbished or redeveloped, but which do not yet form

part of the development programme.

2. 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 2019 – Group

2019

Impact on valuations
of 5% change in
estimated rental value

Impact on valuations
of 25 bps change in
equivalent yield

Impact on valuations
of 5% change in costs

Increase
£m

Decrease
£m

Increase
£m

Decrease
£m

Increase
£m

215

268

(207)

(263)

(11)

261

443

(235)

(391)

(34)

(2)

(22)

(12)

Market
value
£m

5,074

7,293

270

12,637

148

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued 17

n/a

–

2018

The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2018:

Estimated rental value
£ per sq ft

Equivalent yield
%

2018

Costs
£ per sq ft

Low

Average

High

Low

Average

High

Low

Average

High

Retail Portfolio

Shopping centres and shops

Outlets

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

Total London Portfolio
(excluding developments)

Developments: residual method

Development programme

Market
value
£m

2,443

971

786

1,287

5,503

2,845

1,222

1,347

324

5,738

1,435

7,214

166

n/a

179

n/a

179

4.2%

4.7%

3.5%

2.0%

n/a

2.0%

2.9%

4.1%

4.3%

4.7%

2.9%

n/a

2.9%

4.4%

4.8%

5.3%

5.6%

5.4%

n/a

5.1%

4.4%

4.5%

4.4%

4.9%

4.5%

4.1%

n/a

4.4%

7.7%

8.5%

10.0%

8.9%

n/a

10.0%

4.9%

5.9%

4.5%

5.5%

5.9%

6.5%

n/a

6.5%

4.4%

–

n/a

–

n/a

–

n/a

–

Market value at 31 March 2018 – Group 12,883

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

Impact on valuations of
5% change in costs

Increase
£m

Decrease
£m

Increase
£m

Decrease
£m

Increase
£m

234

264

(221)

(256)

(21)

289

452

(262)

(401)

(28)

(4)

(5)

(21)

Market
value
£m

5,503

7,214

166

12,883

Landsec Annual Report 2019

149

Financial statements
15. Trading properties

At 1 April 2017

Capital expenditure

Disposals

Transfer to investment properties

31 March 2018

Acquisitions

Capital expenditure

Disposals

At 31 March 2019

Development
land and
infrastructure
£m

Residential
£m

108

(104)

–

(2)

(8)

(1)

–

(7)

–

Total
£m

122

(112)

(1)

(7)

The cumulative impairment provision at 31 March 2019 in respect of Development land and infrastructure was £nil (31 March 2018: £nil); and in respect
of Residential was £nil (31 March 2018: £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.

150

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedThe Group’s principal joint arrangements are described below:

Joint ventures

Held at 31 March 2019

Nova, Victoria2

Southside Limited Partnership

St. David’s Limited Partnership

Westgate Oxford Alliance Limited Partnership

Harvest3, 4

The Ebbsfleet Limited Partnership3

West India Quay Unit Trust3, 5

Joint operation

Bluewater, Kent

Percentage owned
& voting rights

Business
segment

Year end date1

Joint venture partner

50%

Ownership
interest

30%

London

Retail

London

Retail

Business
segment

Retail

31 March

Canada Pension Plan Investment Board

Invesco Real Estate European Fund

31 December

Intu Properties plc

31 March

The Crown Estate Commissioners

J Sainsbury plc

Ebbsfleet Property Limited

Schroder Exempt Property Unit Trust

Year end date1

Joint operation partners

31 March

M&G Real Estate and GIC
Lendlease Retail LP
Royal London Asset Management
Aberdeen Asset Management

The Group acquired the remaining 50% interest in the following joint arrangement in the year ended 31 March 2019:

Joint venture

The Oriana Limited Partnership3, 6

Ownership
interest

50%

Business
segment

London

Year end date1

Joint venture partner

31 March

Frogmore Real Estate Partners Limited
Partnership

1. The year end date shown is the accounting reference date of the joint arrangement. 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. Included within Other in subsequent tables.
4. Harvest includes Harvest 2 Limited Partnership, Harvest Development Management Limited, Harvest 2 Selly Oak Limited, Harvest 2 GP Limited and Harvest GP Limited.
5. West India Quay Unit Trust is held in the X-Leisure Unit Trust (X-Leisure) in which the Group holds a 95% share.
6. On 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 at 31 March 2019.

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 a trading property.
The Westgate Oxford Alliance Limited Partnership and Nova, Victoria 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 2019

151

Financial statements
16. Joint arrangements continued

Joint ventures

Comprehensive income statement
Revenue1

Gross rental income (after rents payable)

Net rental income

Segment profit before finance expense

Finance expense

Net finance expense

Revenue (loss)/profit

Capital and other items

Net deficit on revaluation of investment properties

Movement in impairment of trading properties

Loss on disposal of investment properties

Fair value movement prior to acquisition of non-owned element
of a joint venture

(Loss)/profit on disposal of trading properties

Profit on long-term development contracts

(Loss)/profit before tax

Post-tax (loss)/profit

Total comprehensive (loss)/income

Nova,
Victoria
100%
£m

Southside
Limited
Partnership
100%
£m

St. David’s
Limited
Partnership
100%
£m

Westgate
Oxford
Alliance
Partnership
100%
£m

(33)

(8)

(25)

(1)

–

(3)

–

(37)

(6)

–

(32)

(101)

(74)

–

(28)

–

(75)

–

(54)

Other
100%
£m

–

(1)

–

(4)

Year ended 31 March 2019

Total
100%
£m

258

109

(39)

Total
Group
share
£m

129

(19)

(233)

(117)

(1)

(4)

(169)

–

(2)

–

(85)

Group share of (loss)/profit before tax

Group share of post-tax (loss)/profit

Group share of total comprehensive (loss)/income

50%

(19)

(14)

(38)

(27)

(85)

1. 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.

152

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedJoint ventures

Year ended 31 March 20181

Comprehensive income statement
Revenue3

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
Partnership2
100%
£m

(8)

–

(8)

–

Nova,
Victoria
100%
£m

147

(33)

–

(33)

(24)

(8)

–

Southside
Limited
Partnership
100%
£m

St. David’s
Limited
Partnership
100%
£m

Westgate
Oxford
Alliance
Partnership
100%
£m

(6)

–

(6)

–

(44)

–

(18)

(15)

(10)

–

Other
100%
£m

–

Total
100%
£m

310

103

(62)

(57)

(8)

Group share of profit/(loss) before tax

Group share of post-tax profit/(loss)

Group share of total comprehensive income/(loss)

50%

(9)

Total
Group
share
£m

155

(31)

(28)

(4)

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. The Group disposed of its interest in 20 Fenchurch Street Limited Partnership on 24 August 2017.
3. 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 2019

153

Financial statements
16. Joint arrangements continued

Joint ventures

Balance sheet
Investment properties1

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

Total liabilities

Net assets

Market value of investment properties1

Net cash/(debt)

Balance sheet
Investment properties1

Non-current assets

Cash and cash equivalents

Other current assets

Current assets

Total assets

Trade and other payables and provisions

Current liabilities

Non-current financial liabilities

Non-current liabilities

Total liabilities

Net assets

Market value of investment properties1

Net cash/(debt)

Nova,
Victoria
100%
£m

Southside
Limited
Partnership
100%
£m

St. David’s
Limited
Partnership
100%
£m

Westgate
Oxford
Alliance
Partnership
100%
£m

Other
100%
£m

161

165

236

(85)

–

495

530

(13)

–

2019

Total
Group
share
£m

1,117

136

152

Total
100%
£m

2,234

272

304

2,538

1,269

(141)

(336)

(477)

(70)

(168)

(238)

(13)

(85)

517

511

549

580

(15)

–

(15)

565

562

151

2,061

1,031

2,298

117

168

(10)

(18)

(28)

2,470

187

220

2,690

(66)

(321)

(387)

1,149

2018

1,235

110

1,345

(33)

(161)

(194)

140

2,303

1,151

118

2,513

1,257

843

921

(26)

(178)

(204)

717

893

845

101

108

953

(24)

(144)

(168)

785

874

263

271

(6)

(142)

(148)

123

265

295

305

(5)

(143)

(148)

157

298

562

580

(11)

(16)

(27)

553

557

(13)

664

684

(12)

(16)

(28)

656

661

(15)

1. 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.

154

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedJoint ventures

Net investment
At 1 April 2017

Total comprehensive income/(loss)

Cash contributed

Cash distributions

Disposal of investment

At 31 March 2018

Total comprehensive (loss)/income

Cash contributed

Cash distributions

Disposal of investment

At 31 March 2019

20 Fenchurch
Street
Limited
Partnership1
50%
£m

Nova,
Victoria
50%
£m

Southside
Limited
Partnership
50%
£m

St. David’s
Limited
Partnership
50%
£m

Westgate
Oxford
Alliance
Partnership
50%
£m

527

–

(531)

–

437

(70)

–

393

(19)

(28)

–

359

104

–

(29)

–

(14)

–

(3)

–

352

(9)

–

(15)

–

328

(38)

–

(13)

–

277

203

(12)

–

282

(27)

(11)

–

258

Other
50%
£m

111

(64)

–

(7)

(2)

Total
Group
share
£m

1,734

111

(190)

(531)

1,151

(85)

(62)

(2)

1,031

1. 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.

17. Capital commitments

Contracted capital commitments at the end of the year in respect of:

Investment properties

Trading properties

Joint ventures (our share)

Total capital commitments

2019
£m

–

2018
£m

131

Capital commitments include contractually committed obligations to purchase goods or services used in the construction, development, repair,
maintenance or other enhancement of the Group’s properties.

Landsec Annual Report 2019

155

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

2019
£m

250

(125)

159

(9)

162

199

262

(134)

162

2018
£m

262

(134)

162

(9)

165

212

274

(143)

165

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.

156

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued19. 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 2017

Capital expenditure

Amortisation

At 31 March 2018

Capital expenditure

Amortisation

Impairment

At 31 March 2019

Goodwill
£m

Software
£m

Other
intangible

asset
£m

–

(2)

(3)

–

(2)

–

(1)

(12)

Total
£m

(4)

(14)

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.

In the year ended 31 March 2019, the intangible asset has been impaired by £12m as a result of a change in the level of internal costs allocated to
Bluewater. As a result of this impairment, £2m of the deferred tax liability has also been released in the year and the corresponding goodwill has
therefore also been impaired by £2m. The recoverable amount of the intangible asset has been based on its value in use, using a discount rate of 6.1%.

Landsec Annual Report 2019

157

Financial statements
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.

On 1 April 2018, the Group changed its accounting policy for debt refinancing transactions such that the bond exchange de-recognition adjustment
is no longer held on the balance sheet. See note 21 for the Group’s current accounting policy for debt refinancing and note 41 for further details on the
change in accounting policy.

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

Adjusted net debt (c)

Adjusted total equity

Total equity (d)

Fair value of interest-rate swaps

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

12,637

12,660

3,781

(36)

(14)

–

3,747

–

3,747

9,920

–

9,920

37.8%

29.6%

28.6%

2.7%

Adjustment
for
non-wholly
owned
subsidiaries2
£m

2019

Combined
£m

Group
£m

(36)

13,750

12,883

–

(36)

13,791

12,907

Joint
ventures
£m

1,149

1,167

Adjustment
for
non-wholly
owned
subsidiaries2
£m

20181

Combined
£m

(37)

14,103

–

(37)

14,177

Joint
ventures
£m

1,257

1,307

(2)

(16)

–

(10)

–

(10)

–

(16)

–

(8)

–

(8)

–

3,789

3,730

(38)

(30)

–

3,737

–

3,737

(15)

(62)

(6)

3,654

3,660

9,920

10,386

–

(6)

9,920

10,380

37.7%

27.1%

2.7%

35.2%

35.3%

28.4%

27.2%

2.6%

–

3,738

(15)

(78)

(6)

3,646

3,652

10,386

(6)

10,380

35.1%

35.2%

25.8%

2.6%

1. Restated as a result of changes in accounting policies. See note 41 for details.
2. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.

158

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued21. 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.

When debt refinancing exercises are carried out, existing liabilities will be treated as being 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.

Current borrowings

Commercial paper

Euro

US Dollar

Total current borrowings

Non-current borrowings

Medium term notes (MTN)

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

Syndicated and bilateral
bank debt

Amounts payable under
finance leases

Total non-current borrowings

Secured/
unsecured

Fixed/
floating

Effective
interest rate
%

Nominal/
notional
value
£m

Fair

value
£m

2019

Book
value
£m

Nominal/
notional
value
£m

Fair

value
£m

Unsecured

Floating

LIBOR + margin

Unsecured

Floating

LIBOR + margin

Secured

Fixed

5.5

5.0

2.0

5.4

2.5

2.4

5.4

5.1

2.6

2.8

729

205

934

400

186

350

300

156

500

729

205

934

405

224

362

310

209

508

515

729

205

934

399

186

347

299

156

493

494

833

872

400

186

350

300

156

500

833

872

401

229

107

352

300

210

498

512

2018

Book
value1
£m

833

872

399

186

347

299

156

493

494

2,611

2,799

2,592

2,617

2,783

2,599

Secured

Floating

LIBOR + margin

Unsecured

Fixed

5.7

225

228

2,866

3,086

2,847

2,876

3,075

2,858

Total borrowings

3,800

4,020

3,781

3,748

3,947

3,730

1. Restated as a result of changes in accounting policies. See note 41 for details.

Landsec Annual Report 2019

159

Financial statements
21. Borrowings continued

Reconciliation of the movement in borrowings

At the beginning of the year

Proceeds from new borrowings

Redemption of MTNs

Redemption of QAG Bond

Issue of MTNs (net of finance fees)

Foreign exchange movement on non-Sterling borrowings

Other

At 31 March

1. Restated as a result of changes in accounting policies. See note 41 for details.

Reconciliation of movements in liabilities arising from financing activities

Borrowings

Derivative financial instruments

Borrowings

Derivative financial instruments

2019
£m

3,730

(8)

–

(25)

–

20181
£m

3,263

632

(1,256)

(273)

1,334

3,781

3,730

Non-cash changes

2019

Cash flows
£m

Changes in
fair value
£m

Other
changes
£m

At 31 March
£m

(15)

–

(25)

–

(25)

Non-cash changes

3,781

3,797

20181

Cash flows
£m

Changes in
fair value
£m

Other
changes
£m

At 31 March
£m

437

468

–

(53)

3,730

3,731

At 1 April
£m

3,730

3,731

At 1 April
£m

3,263

3,270

1. Restated as a result of changes in accounting policies. See note 41 for details.

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 £13.2bn at 31 March 2019 (31 March 2018: £13.7bn). The secured debt structure
has a tiered operating covenant regime which gives the Group substantial flexibility when the loan-to-value and interest cover in the Security Group
are less than 65% and more than 1.45x 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 £8m of MTNs for a total premium of £2m. Details of the purchases and
associated premium by series are as follows:

MTN purchases

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

Purchases
£m

2019

Premium
£m

Purchases
£m

2018

Premium
£m

–

398

233

164

444

1,256

–

162

385

In conjunction with 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% MTN due 2029.

160

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedSyndicated and bilateral bank debt

Syndicated debt

Bilateral debt

Maturity as
at
31 March
2019

2023–24

Authorised

Drawn

Undrawn

2019
£m

2,490

225

2,715

2018
£m

1,965

125

2,090

2019
£m

100

125

225

2018
£m

103

125

228

2019
£m

2,390

100

2,490

2018
£m

1,862

–

1,862

At 31 March 2019, the Group’s committed revolving facilities totalled £2,715m (31 March 2018: £2,090m). The £625m increase in committed facilities
is the result of several increases in the syndicated debt facilities arranged throughout the year.

All syndicated and bilateral facilities are committed and secured on the assets of the Security Group. During the year ended 31 March 2019, the
amounts drawn under the Group’s facilities decreased by £3m.

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 2019 were £1,556m
(31 March 2018: £990m), compared with undrawn facilities of £2,490m (31 March 2018: £1,862m).

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.

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. Restrictions include funds which are held on behalf of tenants
for meeting service charge costs, and funds held by the Group’s captive insurer. 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

2019
£m

Group

2018
£m

Company

2018
£m

–

2019
£m

–

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+

2019
£m

Group

2018
£m

–

Landsec Annual Report 2019

161

Financial statements
2018
£m

–

2018
£m

–

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.

Cash at bank and in hand

2019
£m

Group

2018
£m

2019
£m

–

Company

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+

24. Derivative financial instruments

Accounting policy

2019
£m

–

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.

Carrying value of derivative financial instruments

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Notional amount

Interest-rate swaps

Foreign exchange forward

Foreign exchange swaps

162

Landsec Annual Report 2019

2019
£m

(18)

(1)

(16)

2019
£m

400

–

993

1,393

2018
£m

(8)

–

(1)

2018
£m

400

878

1,323

Notes to the financial statementsfor the year ended 31 March 2019 continued25. 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 54 to 59). 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 Group assesses whether it intends to hold its financial assets to collect the contractual cash flows, or whether it intends to sell them before
maturity and classifies its financial instruments into the appropriate categories. The following table summarises the Group’s financial assets and
liabilities into the categories required by IFRS 7, Financial Instruments: Disclosures:

Financial assets at amortised cost

Cash and cash equivalents

Financial assets at fair value through other comprehensive income (without recycling)

Financial liabilities at amortised cost

Financial instruments at fair value through profit or loss

1. Restated as a result of changes in accounting policies. See note 41 for details.

Financial risk factors

2019
£m

738

20181
£m

743

(3,910)

(3,881)

(52)

(38)

(3,198)

(3,102)

(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 regular reviews 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. The Group assesses on a forward-looking basis the
expected credit losses associated with its trade receivables. A provision for impairment is made for the lifetime expected credit losses on initial
recognition of the receivable. In determining the expected credit losses the Group takes into account any recent payment behaviours and future
expectations of likely default events (i.e. not making payment on the due date) based on individual customer credit ratings, actual or expected
insolvency filings or company voluntary arrangements and market expectations and trends in the wider macro-economic environment in which
our customers operate. These assessments are made on a customer by customer basis. 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 usually obtained from an independent rating agency prior to the inception of a lease with a new counterparty. This
report, alongside the Group’s internal assessment of credit risk, 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.

Landsec Annual Report 2019

163

Financial statements
25. Financial risk management continued

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

2019
£m

1,556

1,570

41.7%

2018
£m

990

1,052

28.3%

The Group’s core financing structure is in the Security Group, although the Non-restricted Group may also secure independent funding.

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 2019, the reported LTV for the Security Group was 28.6% (2018: 27.2%), 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.

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

164

Landsec Annual Report 2019

Less than

1 year
£m

1,064
2
18
7
24
59
3
35
–
1,212

Between
1 and 2
years
£m

Between
2 and 5
years
£m

81
2
–
–
–
–
–
–
–
83

902
5
2
–
–
–
–
–
–
909

Less than
1 year
£m

Between
1 and 2 years
£m

Between
2 and 5 years
£m

955
2
8
5
28
87
3
28
–
1,116

130
2
1
–
–
–
–
–
–
133

467
5
6
–
–
–
–
–
37
515

Over

5 years
£m

2,929
199
–
–
–
–
–
–
36
3,164

Over

5 years
£m

3,455
203
–
–
–
–
–
–
–
3,658

2019

Total
£m

4,976
208
20
7
24
59
3
35
36
5,368

2018

Total
£m

5,007
212
15
5
28
87
3
28
37
5,422

Notes to the financial statementsfor the year ended 31 March 2019 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, including the degree of certainty required under IFRS 9 Financial instruments, the Group does not apply hedge accounting
to hedging instruments used in this context. 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 floating rate debt, these may qualify for hedge accounting.

At 31 March 2019, the Group (including joint ventures) had pay-fixed interest-rate swaps in place with a nominal value of £400m (2018: £400m) and
its net debt was 81.5% fixed (2018: 83.3%). Based on the Group’s debt balances at 31 March 2019, a 1% increase/(decrease) in interest rates would
increase/(decrease) the annual net finance expense in the income statement and reduce/(increase) equity by £7m (2018: £6m). 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 2019, the Group had
issued €847m (2018: €947m) and $268m (2018: $55m) of commercial paper, fully hedged through foreign exchange swaps. A 10% weakening or
strengthening of Sterling would therefore have £nil (2018: £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 2019, the Group had €50m (2018: €50m) of
foreign currency exposure, relating to a foreign currency derivative contract entered into in order to economically hedge forecast foreign currency
purchases. A 10% (weakening)/strengthening of Sterling would therefore have a (£5m)/£4m (2018: (£5m)/£4m) 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

The expected maturity profiles of the Group’s borrowings are as follows:

Fixed
rate
£m

2,641

–

Floating
rate
£m

225

729

205

2019

Total
£m

Fixed
rate
£m

2,866

2,648

729

205

–

Floating
rate
£m

228

833

2018

Total
£m

2,876

833

2,641

1,159

3,800

2,648

1,100

3,748

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

–

439

2,156

2,641

400

3,041

Floating
rate
£m

934

–

225

–

1,159

(400)

759

2019

Total
£m

980

–

664

2,156

3,800

–

3,800

Fixed
rate
£m

–

2,602

2,648

400

3,048

Floating
rate
£m

872

–

228

–

1,100

(400)

700

The expected maturity profiles of the Group’s derivative instruments are as follows (based on notional values):

One year or less, on demand

More than five years

Foreign
exchange
swaps
£m

Foreign
exchange
forward
£m

993

–

993

–

2019

Interest-
rate
swaps
£m

–

400

Foreign
exchange
swaps
£m

Foreign
exchange
forward
£m

878

–

878

–

2018

Total
£m

872

228

2,602

3,748

–

3,748

2018

Interest-
rate

swaps
£m

–

400

Landsec Annual Report 2019

165

Financial statements

25. Financial risk management continued

Valuation hierarchy
Derivative financial instruments, financial assets at fair value through other comprehensive income (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

(19)

Level 3
£m

(36)

2019

Total
£m

(55)

Level 1
£m

–

Level 2
£m

(8)

Level 3
£m

(37)

2018

Total
£m

(45)

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 2.7% (2018: 2.6%), is £62m (2018: £64m). The fair value of the Group’s
finance lease receivables, using a discount rate of 2.7% (2018: 2.6%), is £235m (2018: £243m).

The fair values of any floating rate financial liabilities are assumed to be equal to their nominal value. The fair values of the MTNs 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
and receivable under finance leases fall within Level 3.

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.

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.

166

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedSection 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. The Group assesses on a forward-looking basis the expected credit losses associated with its trade receivables. A provision for impairment is
made for the lifetime expected credit losses on initial recognition of the receivable. If collection is expected in more than one year, the balance is
presented within non-current assets.

In determining the expected credit losses the Group takes into account any recent payment behaviours and future expectations of likely default events
(i.e. not making payment on the due date) based on individual customer credit ratings, actual or expected insolvency filings or company voluntary
arrangements and market expectations and trends in the wider macro-economic environment in which our customers operate.

Trade and other receivables are written off once all avenues to recover the balances are exhausted and the lease has ended. Receivables written off are
no longer subject to any enforcement activity.

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

2019
£m

–

334

437

160

613

2018
£m

337

471

143

636

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% (2018: 4% to 5%).

Ageing of trade receivables

As at 31 March 2019

Not impaired

Impaired

Gross trade receivables

As at 31 March 2018

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

–

Total
£m

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 (2018: nil).

Landsec Annual Report 2019

167

Financial statements
26. Trade and other receivables continued

Movement in allowances for doubtful debts

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 other payables

Total trade and other payables

2019
£m

(4)

(2)

2019
£m

337

–

(4)

–

334

2018
£m

(2)

(4)

2018
£m

311

(1)

(3)

337

2019
£m

145

–

273

274

Group

2018
£m

143

–

294

–

294

2019
£m

–

1,953

1,978

–

Company

20181
£m

–

2,316

2,329

–

1,978

2,329

1. Restated as a result of changes in accounting policies. See note 41 for details.

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 4.1% per annum (2018: 4.3%).

168

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedSection 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 34)

At 31 March

A full list of subsidiary undertakings at 31 March 2019 is included on pages 204 to 206.

29. Other non-current assets

Other property, plant and equipment

Other investments

Net pension surplus (note 33)

Derivative financial instruments

Total other non-current assets

30. Other current assets

Derivative financial instruments

Other investments

Total other current assets

31. Other current liabilities

Provisions

Derivative financial instruments

Total other current liabilities

2019
£m

6,211

6,213

2018
£m

6,205

6,211

2019
£m

–

2019
£m

–

2018
£m

–

2018
£m

Landsec Annual Report 2019

169

Financial statements
32. Other non-current liabilities

Derivative financial instruments

Deferred tax liability

Total other non-current liabilities

33. Net pension surplus

Accounting policy

2019
£m

2018
£m

–

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. Past service costs are recognised
immediately in the income statement in the period in which they are identified. 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 defined contribution schemes was £2m (2018: £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 2018 by the independent actuaries, Hymans Robertson LLP. This valuation was updated to 31 March 2019
using, where required, assumptions prescribed by IAS 19 Employee Benefits. The next full actuarial valuation will be performed as at 30 June 2021.

As a result of the 30 June 2018 valuation, the employer contribution rate remains at 43.1% of pensionable salary to cover the costs of accruing benefits.
It was also 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 2019, employee contributions were 8.0% (2018: 8.0%) of monthly pensionable salary.
The Group expects to make total employee and employer contributions of around £1m (2018: £1m) to the Scheme in the year to 31 March 2020.

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 costs

Past service costs

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

170

Landsec Annual Report 2019

2019
£m

2018
£m

(6)

–

(6)

–

Notes to the financial statementsfor the year ended 31 March 2019 continuedAnalysis of the amounts recognised in other comprehensive income

Analysis of gains and losses

Net re-measurement losses on scheme assets

Net re-measurement gains on scheme liabilities

Net re-measurement gain/(loss)

Cumulative net re-measurement loss recognised in other comprehensive income

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

2019
£m

(2)

(40)

2018
%

100

2018
£m

(4)

(2)

(41)

2018
£m

113

241

(229)

2019
%

100

2019
£m

105

238

(226)

In the year ended 31 March 2019, £8m (2018: £8m) of benefits were paid to members.

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 (2018: £nil).

The defined benefit scheme liabilities are split 9% (2018: 11%) in respect of active scheme participants, 24% (2018: 25%) in respect of deferred scheme
participants, and 67% (2018: 64%) in respect of retirees. The weighted average duration of the defined benefit scheme liabilities at 31 March 2019 is
15.7 years (2018: 17.4 years).

The assumptions agreed with the Trustees of the Scheme for the triennial valuation at 30 June 2018 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

2019
%

3.45

3.30

2.35

3.45

2.65

2019
Years

27.4

29.0

29.7

31.5

2018
%

3.40

3.35

3.25

2.65

3.35

2.55

2018
Years

31.0

31.3

34.0

33.8

Landsec Annual Report 2019

171

Financial statements
33. Net pension surplus continued

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 £19m

Increase by £9m

Increase by £16m

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 £3m at 31 March 2019, as opposed to a surplus of £12m.

In order to reduce risk within the Scheme, 44% (2018: 47%) 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%
(2018: 72%) of the interest rate risk and 79% (2018: 79%) 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 2019 or in the
previous financial year.

34. 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 the number of
options outstanding.

Long-Term Incentive Plan

Deferred bonus share plan

Share award plan

Executive share option scheme

Charge
£m

2019

Number
(millions)

Charge
£m

2018

Number
(millions)

–

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 91 to 117.

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. The awards are issued at nil consideration, subject to performance and vesting conditions being met.
Awards of LTIP shares and matching shares are subject to the same performance criteria and normally vest after three years. Awards are satisfied by
the transfer of existing shares held by the Employee Benefit Trust (EBT). The weighted average share price at the date of vesting during the year was
899p (2018: 974p). The estimated fair value of awards granted during the year under the scheme was £3m (2018: £3m).

172

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedDeferred 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 EBT at
nil consideration. The weighted average share price at the date of vesting during the year was 937p (2018: 941p). The estimated fair value of awards
granted during the year under the scheme was £nil (2018: £1m).

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 918p (2018: 1,051p). The estimated fair value of awards granted
during the year under the scheme was £nil (2018: £nil).

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 930p (2018: 1,032p). The estimated fair value of awards granted during the year under the scheme was £nil (2018: £nil).

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

2019
Number
(millions)

2018
Number
(millions)

2019
Number
(millions)

2018
Number
(millions)

–

(1)

–

(1)

–

(1)

–

(1)

Years

Other plans

Weighted average
exercise price

2019
Pence

947

891

–

1,035

976

1,033

2018
Pence

1,068

970

–

1,142

947

926

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

1. Executive plans are granted at nil consideration.

Outstanding at 31 March 2019

Outstanding at 31 March 2018

Weighted
average
remaining
contractual
life

Weighted
average
exercise
price

Years

Pence

Number
of awards

Number
(millions)

Weighted
average
remaining
contractual

life

Years

Number of
awards

Number
(millions)

–

528

775

885

1,036

1,328

–

Weighted
average
exercise
price

Pence

–

529

763

899

1,022

1,328

Landsec Annual Report 2019

173

Financial statements
34. Share-based payments continued

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:

Year ended 31 March

Share price at grant date

Exercise price

Expected volatility

Expected life

Risk-free rate

Long-Term Incentive Plan

Deferred bonus share plan

2005 ESOS

2019

953p

n/a

20%

2018

1,032p

n/a

20%

2019

953p

n/a

20%

2018

1,029p

n/a

20%

2019

953p

20%

3 years

1 year

3 years

2018

1,029p

20%

3 years

0.75%

0.27%

0.68%

0.25%

0.75%

0.27%

Savings related share option
plan

2019

948p

759p

20%

3 to 5
years

2018

1,074p

859p

20%

3 to 5
years

0.75%
to 1.04%

0.27%
to 0.50%

Expected dividend yield

4.64%

3.74%

nil

4.64

3.75%

4.66%

3.59%

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

Long-Term Incentive Plan

2019

953p

2018

1,032p

2019

n/a

2018

n/a

2019

20%

2018

20%

2019

20%

2018

20%

2019

85%

2018

85%

174

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued35. 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 and Company balance sheets within ‘Other reserves’.
Purchases of treasury shares are deducted from retained earnings.

Ordinary shares of 102/3p each

At the beginning of the year

Issued on the exercise of options

Share consolidation (see note 37)

Cancellation of treasury shares

At 31 March

Group and Company
Allotted and fully paid

2019
£m

2018
£m

Number of shares

2018

801,244,628

139,446

(50,085,104)

(6)

2019

751,298,964

2,029

–

751,300,993

751,298,964

The number of options over ordinary shares from Executive plans that were outstanding at 31 March 2019 was 2,267,391 (2018: 2,105,086). If all the
options were exercised at that date then 2,267,391 (2018: 2,105,086) 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 2019 was 2,150,274 (2018: 1,868,186). If all the options were exercised at
that date then 355,095 new ordinary shares (2018: 304,582) would be issued and 1,795,179 shares would be required to be transferred from the EBT
(2018: 1,563,604).

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 2019 and 2018, there were no ordinary shares acquired to be held as treasury
shares. At 31 March 2019 the Group held 9,839,179 ordinary shares (2018: 9,839,179) with a market value of £90m (2018: £92m) in treasury. The
reduction in the number of shares held in treasury as a result of the share consolidation in the year ended 31 March 2018 is explained in note 37.

Landsec Annual Report 2019

175

Financial statements
36. 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

Group and Company

2019
£m

–

(2)

2018
£m

(6)

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 34).

The number of shares held by the EBT at 31 March 2019 was 1,080,624 (2018: 1,178,179). The market value of these shares at 31 March 2019 was £10m
(2018: £11m).

37. 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.

38. 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.

176

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continued39. 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 undertakings1:

Recharge of costs

Dividends received

Interest paid

1. All cash payments, including dividend payments, are made by another Group company.

Company

2018
£m

(786)

–

(79)

2019
£m

(344)

800

(93)

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:

Year ended and as at 31 March 2019

Year ended and as at 31 March 2018

Group

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

West India Quay Unit Trust

Net
investments
into joint
ventures
£m

Amounts
owed by
joint
ventures
£m

Amounts
owed to
joint
ventures
£m

Income
£m

–

(15)

(3)

(13)

(5)

(2)

–

(33)

162

–

(1)

–

(2)

(3)

–

Net
investments
into joint
ventures
£m

(531)

(50)

(29)

(15)

(63)

(1)

Amounts
owed by
joint
ventures
£m

Amounts
owed to
joint
ventures
£m

–

(1)

–

(2)

(3)

(610)

146

Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group and Company, 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 91 to 117.

Short-term employee benefits

Share-based payments

2019
£m

2018
£m

Landsec Annual Report 2019

177

Financial statements
40. 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 £38m (2018: £40m).

2019
£m

559

1,883

3,852

6,294

2018
£m

533

1,945

3,878

6,356

41. Changes in accounting policies

IFRS 9 Financial instruments
The Group has adopted IFRS 9 with effect from 1 April 2018. IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and
measurement of financial assets and financial liabilities, de-recognition of financial instruments, impairment of financial assets and hedge accounting.
While some accounting policies have been amended on adoption of the standard, there have been no adjustments required to the Group’s income
statement or balance sheet. The new accounting policies are set out in notes 21 to 26.

On 1 April 2018 (the date of initial application of IFRS 9), the Group has assessed whether it intends to hold its financial assets to collect the contractual
cash flows, or whether it intends to sell them before maturity and has classified its financial instruments into the appropriate IFRS 9 categories. There is
no net impact on the income statement or balance sheet as a result of these changes.

Financial asset

Classification – IAS 39

Classification – IFRS 9

Measurement

Trade and other receivables

Trade receivables

Property sales debtors

Loans and receivables

Financial assets at amortised cost

Amortised cost

Financial assets at amortised cost

Amortised cost

Amounts due from joint ventures

Loans and receivables

Financial assets at amortised cost

Amortised cost

Net investment in finance lease

Loans and receivables

Financial assets at amortised cost

Amortised cost

Cash and cash equivalents

Amortised cost

Financial assets at amortised cost

Amortised cost

Other investments

Equity investments

Available for sale

Financial assets at fair value through
Other comprehensive income
(without recycling)

Fair value, with changes recognised
in Other comprehensive income

The Group’s financial assets are subject to the standard’s new expected credit loss model for assessing impairment. The Group applies the simplified
approach to measuring expected credit losses by calculating a lifetime expected loss allowance for all trade receivables, the net investment in finance
leases and contract assets. There has been no adjustment to the loss allowance on 1 April 2018 as the impact of adopting the revised accounting policy
is not material.

IFRS 15 Revenue from contracts with customers
The Group has also adopted IFRS 15 with effect from 1 April 2018, which is 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. As a result of adopting this standard, the service
charge income and expenses for those properties where the property management activities are performed by a third party are now presented on
a net basis. For these properties, the Group considers the third party performing the activities to be the principal delivering the service. The impact of
this change on the Group’s income statement is shown in the table on page 179. There is no impact on the Group’s balance sheet. The new accounting
policy for revenue from contracts with customers is set out in note 6.

178

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedBorrowings
With effect from 1 April 2018, the Group has amended its accounting policy on determining whether an existing liability has been extinguished when
carrying out a debt refinancing transaction. Under the Group’s previous accounting policy, the result of the quantitative ‘10% test’, as described in
IFRS 9 (and previously IAS 39), was the key criterion considered to determine whether an existing liability had been extinguished. Under the revised
policy, greater weight is given to qualitative factors when assessing the appropriate treatment.

The revised accounting policy provides 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 previously reported this position using alternative performance measures which adjusted net assets and
net debt. Under the revised accounting policy, the Group no longer reports the adjusted net assets per share performance measures, as the calculation
is now consistent with that for EPRA net assets per share.

The change in accounting policy has been applied retrospectively in accordance with the requirements of IAS 8 – Changes in accounting policies,
changes in accounting estimates and errors. The impact of this change on the Group’s comparative income statement and balance sheet is shown
in the tables below and on page 180. The revised accounting policy is set out in note 21.

Accounting for the Employee Benefit Trust
With effect from 1 April 2018, the Group has amended its accounting policy for its Employee Benefit Trust (EBT) such that it no longer treats the EBT
as a separate subsidiary of the Group, but rather as an extension of the Company. Under the Group’s previous accounting policy, the Group and
Company recorded transactions and balances with the EBT as a separate legal entity and subsidiary. Under the revised policy, the Company will
record the transactions, assets and liabilities of the EBT as an extension of the Company. See note 35 for the revised accounting policy.

The revised accounting policy provides more relevant and reliable information by more accurately reflecting the impact of satisfying the Group’s
share-based remuneration on the Company’s current net asset position and reserves, with the EBT acting as an extension, and at the direction, of
the Company. The revised policy is also consistent with the generally accepted treatment of these types of vehicles in the UK.

The change in accounting policy has been applied retrospectively in accordance with the requirements of IAS 8 – Changes in accounting policies,
changes in accounting estimates and errors. The impact of this change on the Company’s comparative balance sheet is shown in the tables below.
There is no impact on the Group’s income statement or balance sheet.

Impact on the financial statements
The following tables show the adjustments made to previously reported results for each individual line item. Line items in the balance sheet that were
not affected by the changes have not been shown separately.

Income statement

Revenue1

Costs1

Share of post-tax profit from joint ventures

Profit on disposal of investment properties

Profit on disposal of investment in joint venture

Net deficit on revaluation of investment properties

Operating profit

Finance income

Finance expense2

Loss before tax

Taxation

Loss attributable to shareholders

Earnings per share attributable to shareholders:

Basic loss per share

Diluted loss per share

1. Adjustment to present service charge income and expense on a net basis, for those properties managed by a third party.
2. Adjustment to remove amortisation of the bond exchange de-recognition adjustment.

Group

Year ended 31 March 2018

Reported
£m

Adjustments
£m

Restated
£m

852

(343)

509

(98)

505

(795)

(251)

(1)

(252)

(22)

–

208

–

208

830

(321)

509

(98)

505

(587)

(43)

(1)

(44)

(32.9)p

27.1p

(5.8)p

Landsec Annual Report 2019

179

Financial statements
41. Changes in accounting policies continued

Balance sheet

31 March 2018

1 April 2017

Reported
£m

14,469

(1,180)

(2,752)

(45)

(2,797)

Adjustments
£m

–

Restated
£m

14,469

Reported
£m

14,844

(1,180)

(713)

Adjustments
£m

–

Group

1 April 2017

Restated
£m

14,844

(713)

(106)

(2,858)

(2,545)

(314)

(2,859)

–

(45)

(70)

–

(70)

(106)

(2,903)

(2,615)

(314)

(2,929)

(3,977)

(106)

(4,083)

(3,328)

(314)

(3,642)

10,492

(106)

10,386

11,516

(314)

11,202

10,069

423

10,492

(106)

–

9,963

423

10,615

901

(314)

10,301

–

901

(106)

10,386

11,516

(314)

11,202

31 March 2018

1 April 2017

Reported
£m

6,215

(2,258)

Adjustments
£m

–

(71)

Restated
£m

6,215

Reported
£m

6,226

(2,329)

(1,394)

Adjustments
£m

–

(63)

Company

1 April 2017

Restated
£m

6,226

(1,457)

(2,258)

(71)

(2,329)

(1,394)

(63)

(1,457)

3,957

(71)

3,886

4,832

(63)

4,769

3,148

771

3,957

(12)

(59)

–

(71)

3,089

771

3,886

3,548

1,245

4,832

(9)

(54)

–

(63)

3,494

1,245

4,769

Total assets

Total current liabilities

Non-current liabilities

Borrowings1

Other non-current liabilities

Total non-current liabilities

Total liabilities

Net assets

Equity

Capital and reserves attributable to shareholders

Retained earnings1

Other components of equity

Total equity

1. Adjustment to remove the bond exchange de-recognition adjustment.

Balance sheet

Total assets

Trade and other payables1

Total current liabilities

Total liabilities

Net assets

Equity

Capital and reserves attributable to shareholders

Other reserves1

Retained earnings1

Other components of equity

Total equity

1. Adjustment to present the EBT as an extension of the Company.

42. Events after the reporting period

There were no significant events occurring after the reporting period, but before the financial statements were authorised for issue.

180

Landsec Annual Report 2019

Notes to the financial statementsfor the year ended 31 March 2019 continuedAdditional
information

Contents

182 Business analysis – Group
188 Business analysis – London
189 Business analysis – Retail
190 Sustainability performance
196 Combined Portfolio analysis
198 Lease lengths
199 Development pipeline
199 Alternative performance measures
200 Ten year summary
202 Acquisitions, disposals and capital

expenditure

203 Analysis of capital expenditure
204 Subsidiaries, joint ventures and associates
207 Shareholder information
210 Key contacts and advisers
211 Glossary
IBC Cautionary statement

Landsec Annual Report 2019

181

Additional information
Business analysis – Group

Combined Portfolio performance relative to MSCI
Total property return – year ended 31 March 2019

Retail – Shopping centres2

– Retail parks

Central London shops

Central London offices

Combined Portfolio

1. MSCI Quarterly Universe.
2. Includes outlets.
3. MSCI Retail Warehouses Quarterly Universe.
4. Includes leisure, hotel portfolio and other.

Combined Portfolio value by location at 31 March 20191

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

Landsec
%

(4.5)

(9.2)

(2.0)

4.5

0.44

Shopping
centres and
shops
%

Outlets
%

Retail parks
%

14.2

5.8

–

2.1

6.4

2.3

30.8

–

5.5

–

1.0

0.6

–

7.1

0.2

3.1

0.5

0.4

–

4.6

Hotels,
leisure,
residential

& other
%

3.2

2.9

0.6

0.5

1.7

0.8

9.7

Offices
%

47.7

–

0.1

–

47.8

Table 75

MSCI1
%

(7.2)

(4.0)3

3.4

5.0

4.6

Table 76

Total
%

65.3

17.3

1.1

4.0

9.2

3.1

100.0

1. Percentage figures calculated by reference to the Combined Portfolio value of £13.8bn.

For a full list of the Group’s properties please refer to the website landsec.com.

Total Shareholder Return1

Land Securities Group PLC

FTSE 100

FTSE 350 Real Estate Index

Table 77

Period to 31 March 2019

5 years
£

107.9

134.1

123.3

3 years
£

94.5

133.1

107.2

1 year
£

102.9

107.7

99.7

1. Historical TSR performance for a hypothetical investment of £100 – source: Datastream.

Voids and units in administration – like-for-like (%)

Chart 78 Analysis of performance relative

Chart 79

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

1.7 1.7

s
e
c
ffi
o

n
o
d
n
o
L

4.7

3.8

3.0

2.7

2.8

2.2

1.6

s
e
r
t
n
e
c

g
n
p
p
o
h
S

s
p
o
h
s
d
n
a

s
t
e
l
t
u
O

s
p
o
h
s

a
r
t
n
e
C

n
o
d
n
o
L

l
i

a
t
e
R

s
k
r
a
p

1.5

0.8

e
r
u
s
i
e
L

s
l
e
t
o
h
d
n
a

2.7

2.3

0.8

0.5

0.3

s
e
c
ffi
o

n
o
d
n
o
L

l
l

y
t
r
e
p
o
r
p

s
e
r
t
n
e
c

g
n
p
p
o
h
S

s
p
o
h
s
d
n
a

s
t
e
l
t
u
O

s
p
o
h
s

a
r
t
n
e
C

n
o
d
n
o
L

to MSCI (%)

(0.2)

(3.9)

0.2

–

(3.9)

(4.4)

h
t
w
o
r
g

a
t
i
p
a
C

n
r
u
t
e
r

e
m
o
c
n

e
v
i
t
a
e
R

s
t
n
e
m
p
o
e
v
e
d
f
o
n
o
i
t
u
b
i
r
t
n
o
C

a
t
o
T

e
r
u
t
c
u
r
t
s

f
o
t
c
a
p
m

s
e
s
a
h
c
r
u
p
f
o
n
o
i
t
u
b
i
r
t
n
o
C

s
l
a
s
o
p
s
i
d
f
o
n
o
i
t
u
b
i
r
t
n
o
C

3.1

1.9

0.4 0.4

0.3

0.1

l
i

a
t
e
R

s
k
r
a
p

e
r
u
s
i
e
L

s
l
e
t
o
h
d
n
a

l
l

y
t
r
e
p
o
r
p

31 March 2019

31 March 2018

Voids

In administration

Attribution analysis, ungeared total return, 12 months to 31 March 2019,
relative to MSCI Quarterly Universe – source: MSCI.

182

Landsec Annual Report 2019

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

Share of post-tax loss from joint ventures

Net deficit on revaluation of investment properties

Loss on disposal of investment properties

Fair value movement prior to acquisition of non-owned element
of a joint venture

Profit from long-term development contracts

Exceptional items

Other

Operating (loss)/profit

Finance income

Finance expense

(Loss)/profit before tax

Taxation

Loss attributable to shareholders

Group income
statement
£m

Joint
ventures1
£m

Proportionate
share of
earnings2
£m

625

634

(10)

624

(88)

(8)

(72)

577

(79)

501

(85)

(441)

–

(14)

(1)

(40)

(109)

(123)

(119)

–

(3)

(10)

(1)

(11)

(2)

–

(117)

(2)

–

(19)

–

(2)

–

(2)

–

(2)

–

(2)

–

(2)

–

Table 80

Year ended 31 March 2019

Revenue
profit
£m

Capital
and other
items
£m

680

689

(13)

676

(98)

(9)

(83)

618

(81)

540

–

540

(118)

442

–

(557)

(2)

(14)

–

(561)

(10)

(565)

Total
£m

680

689

(13)

676

(98)

(9)

(83)

618

(81)

540

–

(557)

(2)

(14)

–

(21)

(128)

(123)

(119)

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 81

Year ended 31 March 2019

Year ended 31 March 2018

Tax-exempt
business

Residual
business

Adjusted
results

Tax-exempt
business

Residual
business

421

99.2%

13,502

94.9%

0.8%

726

5.1%

424

14,228

335

91.6%

13,899

95.0%

8.4%

726

5.0%

Adjusted
results

365

14,625

Landsec Annual Report 2019

183

Additional information
Business analysis – Group
continued

Cost analysis

Year ended 31 March 2019

Year ended 31 March 2018

Table 82

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

689

(13)

676

(9)

(49)

618

(37)

581

(41)

(79)

(19)

442

Direct
property
costs
£58m

Indirect
expenses2
£78m

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

Development expenditure

Asset management,
administrat ion and
compliance

Total (incl. direct
vacancy costs)

Costs recovered through
rents

Total cost ratio1

18.2%

Adjusted total costs

EPRA costs (incl. direct
vacancy costs)

Less: Direct vacancy costs

EPRA (excl. direct
vacancy costs)

Total
£m

689

(13)

676

(13)

663

Cost ratio
%1

1.5

1.9

3.2

1.8

Total
£m

673

(9)

664

(12)

652

Cost ratio
%1

1.4

0.8

3.0

2.1

10.2

10.5

136

20.1

132

19.9

(13)

123

(13)

110

18.2

18.6

16.6

(9)

123

(20)

103

18.5

18.9

15.8

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 £5m (2018: £1m) have been capitalised as development costs and are excluded from table 82.

184

Landsec Annual Report 2019

EPRA performance measures

Measure

Adjusted earnings

Definition for EPRA measure

Recurring earnings from core operational activity

Adjusted earnings per share

Adjusted earnings per weighted number of ordinary shares

Adjusted diluted earnings per share

Adjusted diluted earnings per weighted number of ordinary shares

EPRA net assets

Net assets adjusted to exclude the fair value of interest-rate swaps

EPRA net assets per share

Diluted net assets per share adjusted to exclude the fair value of interest-rate swaps

EPRA triple net assets

Net assets adjusted to include the fair value of financial instruments and debt

EPRA triple net assets per share

Diluted triple net assets per share

Net initial yield (NIY)

Topped-up NIY

Voids/vacancy rate

Annualised rental income less non-recoverable costs as a % of market value
plus assumed purchasers’ costs1
NIY adjusted for rent-free periods1

ERV of vacant space as a % of ERV of Combined Portfolio excluding the
development programme2

Cost ratio

Total costs as a percentage of gross rental income (including direct vacancy costs)3

Total costs as a percentage of gross rental income (excluding direct vacancy costs)3

Notes

Table 83

31 March 2019

EPRA
measure

£442m

59.7p

Landsec
measure

£442m

59.7p

£9,920m

1,339p

£9,679m

1,306p

4.2%

4.6%

2.7%

18.2%

n/a

1,306p

4.4%

4.7%

2.7%

18.6%

16.6%

1. 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 adjustments of £42m and £29m
for rent-free periods and other incentives for the Landsec measure and EPRA measure, respectively.

2. 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.
3. 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.

Top 12 occupiers at 31 March 2019

Central Government

Deloitte

Accor

Cineworld

Mizuho Bank

Boots

Sainsbury’s

Equinix

H&M

Taylor Wessing

M&S

1. On a proportionate basis.

Table 84

% of Group
rent1

5.2

5.0

4.4

1.7

1.5

1.2

1.1

1.0

0.9

25.6

Landsec Annual Report 2019

185

Additional information
Business analysis – Group
continued

Property Income Distribution (PID) calculation

Loss before tax per financial statements

Accounting (loss)/profit on residual operations

(Loss)/profit attributable to tax-exempt operations

Adjustments

Capital allowances

Capitalised interest

Revaluation deficit

Tax exempt disposals

Capital expenditure written off

Other tax adjustments

Goodwill amortisation and impairment

Prior year adjustment

Estimated tax-exempt income for the year

PID thereon (90%)

Table 85

Year ended

31 March 2019
£m

31 March 2018
£m

(123)

(20)

(143)

(57)

(5)

557

(13)

(2)

–

354

319

(43)

348

305

(66)

(5)

(67)

302

272

The table above provides a reconciliation of the Group’s loss 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. The table below sets out the dividend allocation for the years ended 31 March 2019 and 31 March 2018:

Dividends paid in year to 31 March 2018

Dividends paid in year to 31 March 2019

Minimum PID to be paid by 31 March 2020

Total PID required

PID
allocation

Ordinary
dividend

Year ended

31 March 2019
£m

31 March 2018
£m

Pre-
31 March 2018
£m

–

214

105

319

137

135

–

272

103

–

£m

–

Table 86

Total
dividend

£m

314

349

–

On 12 April 2019, the Company paid £84m of the PID required to be paid by 31 March 2020.

186

Landsec Annual Report 2019

Annual net rent breakdown by occupier business sector (%)

Chart 87

■ Services
33.0%
■ Retail trade
31.9%
■ Financial services
16.0%
■ Public administration
5.7%
■ Wholesale trade
3.1%
■ Manufacturing
2.8%
■ Transport, communications 2.7%
■ Other
4.8%

% portfolio by value and number of
property holdings at 31 March 2019

£m

0 – 10

10 – 25

25 – 50

50 – 100

100 – 150

150 – 200

200+

Total

Table 89

Value
%

Number of
properties

0.7

3.0

4.4

11.8

7.9

7.7

64.5

100.0

125

Floor space (million sq ft)1

Chart 88

■ London Portfolio
■ Retail Portfolio

Total

6.5
17.5

24.0

Committed development – estimated future spend (£m)
180

Chart 90

165

1. Joint ventures are reflected at 100% values, not Landsec share.

150

120

105

115

2020

2021

2022

2023+

Estimated future spend includes interest costs.

Landsec Annual Report 2019

187

Additional information

Business analysis – London

London Portfolio (%)

Chart 91

London Portfolio floor space (million sq ft)

Chart 93

■ West End
■ Mid-town
■ City
■ Inner London
■ Central London shops
■ Other

40.4%
17.5%
18.6%
5.4%
17.8%
0.3%

£8.0bn

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 £1.5bn 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 92

2.7

2.1

1.7

1.9

1.8

0.5

0.8

Mar
18

Mar
19

Sep
18
London
offices

Sep
Mar
Mar
18
18
19
Central London
shops

Mar
19

Mar
18

Sep
18
London
Portfolio

Voids

In administration

6.5m
sq ft

Top 10 office customers

Central Government

Deloitte

Mizuho Bank

Equinix

Taylor Wessing

Deutsche Bank

Bain & Co

Schlumberger

K&L Gates

Alix Partners

Office other

Total

■ West End offices
■ City offices
■ Mid-town offices
■ Inner London offices
■ Central London shops
■ Other
Total

2.8
1.0
1.2
0.6
0.8
0.1

6.5

Table 94

% of Group rent

5.1

5.0

1.5

1.1

1.0

0.9

0.8

0.6

17.2

22.7

39.9

London like-for-like — rental and capital
value changes % year ended 31 March 2019

West End

City

Mid-town

Inner London

Central London shops

Total London like-for-like portfolio

Table 95

Rental value
change1
%

Valuation
change
%

1.8

(0.3)

4.4

1.2

(0.5)

1.6

(2.3)

0.5

3.4

0.4

(3.6)

(1.0)

1. Rental value change excludes units materially altered during the year and other non

like-for-like movements.

188

Landsec Annual Report 2019

Business analysis – Retail

Retail Portfolio (%)

Chart 96

Retail Portfolio floor space (million sq ft)

Chart 98

■ Shopping centres and shops 49.3%
■ Outlets
16.9%
■ Retail parks
11.1%
■ Leisure and hotels
22.4%
■ Other
0.3%

£5.7bn

■ Shopping centres and shops
■ Outlets
■ Retail parks
■ Leisure and hotels
■ Other
Total

7.8
1.5
2.3
5.4
0.5

17.5

17.5m
sq ft

1.7

1.5

1.2

1.0

0.9

0.8

10.6

43.9

54.5

Top 10 retail customers

Table 99

% of Group rent

Shopping centres and shops
Comprises our portfolio of ten shopping centres in major retail
locations across the UK including Bluewater, Kent, Trinity Leeds
and Westgate Oxford.

Outlets
Our five outlets offer a vibrant and engaging experience in locations
such as Gunwharf Quays, Portsmouth, Braintree Village and Clarks
Village, Street.

Cineworld

Boots

Sainsbury’s

H&M

M&S

Retail parks
Our 11 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.

The Restaurant Group

Arcadia Group

Tesco

Vue

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.

Voids and units in administration –
Like-for-like Retail Portfolio (%)

Retail other (excluding Accor)

Total

Retail like-for-like — rental and capital value
changes % year ended 31 March 2019

Table 100

Chart 97

Shopping centres and shops

Outlets

Retail parks

Leisure and hotels

4.7

Total Retail like-for-like portfolio

4.5

Rental value
change1
%

Valuation
change
%

(5.7)

(1.1)

(4.9)

(0.5)

(3.8)

(11.7)

(1.4)

(15.5)

(1.8)

(8.7)

1. Rental value change excludes units materially altered during the year and other non

3.7

3.4

like-for-like movements.

3.0

3.2

3.1

2.7

1.8

1.4

0.9

5.5

4.8

4.3

Mar
19

Mar
18

Sep
18
Shopping centres
and shops

Mar
18

Sep
18
Outlets

Mar
19

Voids

In administration

Mar
18

Sep
18
Retail parks

Mar
19

Mar
18

Sep
18
Leisure and hotels

Mar
19

Sep
Mar
Mar
18
18
19
Retail Portfolio

Landsec Annual Report 2019

189

Additional information

Sustainability performance

For us, sustainability is about the actions we take to fulfil our purpose
so Landsec prospers far into the future. We want customers to prefer
our spaces. We want communities to be pleased it’s us operating in their
area. We want partners to share our priorities. And we want employees
to invest their energy and ambition here. When we get all this right,
we create value for our investors.

To deliver this we’ve 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 landsec.com/sustainability.

Creating Jobs and Opportunities

Community employment
Commitment: Help a total of 1,200 people furthest from the jobs
market to secure employment by 2020.

Performance: Complete.
Since 2011 we’ve secured employment for 1,336 people furthest from
the job market through our programme. In the year we secured 187
jobs, 105 in London and 82 in Retail. To deliver on this commitment,
we launched the UK’s first-ever aerial window cleaning training
academy at Her Majesty’s Prison & Young Offender Institution Isis, and
Ambition:Leeds, a new training academy for retail and hospitality talent,
responding to demand from retailers for more skilled recruits ready to
join their workforce. Toward the end of the year, we set an ambitious
new commitment to create £25m of social value by 2025 through our
community employment activities.

Cumulative total number of jobs secured

Chart 101

1,400

1,200

1,000

800

600

400

200

206

2013

Jobs

Target

1,336

1,149

962

779

583

426

2014

2015

2016

2017

2018

2019

Fairness
Commitment: By 2020, ensure everyone working on our behalf, in an
environment we control, is given equal opportunities, protected from
discrimination and paid at least the Foundation Living Wage.

Performance: On track.
We continue to be an accredited Living Wage employer, both for our
employees and those working on our behalf. This year we joined the
Living Wage Employers’ Group, a cross-industry partnership tasked with
driving adoption of Foundation Living Wage rates in the supply chain.
In the year we carried out due-diligence in our service and construction
partner’s organisations to gauge adherence to our Living Wage
commitment. Results indicate there are some areas where rates are
not being met, we will focus our engagement on these areas in the

190

Landsec Annual Report 2019

year ahead. Employers who have yet to transition to the Living Wage
by 2020 agreed to communicate this commitment to their staff.

Diversity
Commitment: Make measurable improvements to the profile – in terms
of gender, ethnicity and disability – of our employee mix.

Performance: On track.
We continue to meet Hampton Alexander targets with 40% of the Board
and 42% of Executive Committee and direct reports being female versus
targets of 33%. We have improved disclosure of diversity data in the
organisation which has allowed us to set meaningful targets for 2025
around a broader set of diversity characteristics. However, we have
moved backwards in terms of female representation at Leader level in
the organisation (2018: 24.4%; 2019: 19.5%).

Health, Safety and Security
Commitment: Maintain an exceptional standard of health, safety and
security in all the working environments we control.

Performance: On track.
We continually prepare the business to anticipate and respond to
incidents and this year have enhanced our security training and advice
for employees and partners. We continue to lead and participate
in a number of cross-industry forums in the fields of health, safety
and security.

This year we’ve again we maintained our OHSAS 18001 certification
across 100% of our sites. Following the Grenfell fire, we worked closely
with customers, partners and other key stakeholders to consider the
potential ramifications of cladding across our portfolio.

Efficient Use of Natural Resources

Carbon
Commitment: 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.

Landsec carbon emissions intensity pathway

Chart 102

m
/
e
2
O
C
g
K

2014

2019

2024

2029

2034

2039

2044

2050

Landsec pathway – target

Sector pathway

Landsec pathway – actual

Landsec pathway – projected

Performance: On track.
We’ve reduced carbon intensity by 39.8% compared to 2013/14 baseline,
significantly outperforming our target pathway. This is an improvement
compared to the 2017/18 reduction of 28.6%. These reductions have been
achieved through a combination of energy efficiency projects, changes
in our portfolio, and changes in emissions factors. In the year we’ve
successfully transitioned projects in our development pipeline away from

fossil fuels toward full or partial electrification, designing in Air Source
Heat Pump and electric vehicle solutions. We continue to focus on
reducing carbon emissions in the construction supply chain through
engaging our design and delivery partners.

Renewable energy
Commitment: Ensure 100% of our electricity supplies through our
corporate contract are from REGO-backed renewable sources.

Performance: Complete.
We continue to procure 100% renewable electricity across our portfolio
through our corporate contract. At least 15% of gas volumes are from
green sources.

Commitment: Achieve 3MW of renewable electricity capacity by 2030.

Performance: On track.
Our current on-site renewable electricity capacity is 1.5 MW. In March we
successfully installed a 30 kWp solar PV system on the roof of Westgate,
Oxford which will produce approximately 30,000 kWh of electricity per
year. We’ve also completed solar PV feasibility studies for our outlet
destinations at Junction 32, Braintree Village and Clarks Village, and
commenced a feasibility study for a large-scale solar farm in our strategic
land development pipeline.

Energy
Commitment: 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: On track.
We‘ve reduced energy intensity by 18.2% compared to 2013/14 baseline
year. This is an improvement compared to the 2017/18 reduction of 14.3%.
To deliver on this commitment, in Retail we carried out several lighting
and equipment upgrades including replacing car park lighting with LED
at Bluewater, delivering a saving of over 830 kWh. In London we partnered
with our customer at 7 Soho Square to install LED lighting, reducing the
building’s electricity usage by 13%. In the year we committed to £3m of
energy reduction projects which, combined with a drive to improve the
efficiency of our existing systems, will deliver further energy reductions
in the year ahead.

Landsec energy intensity progress

Chart 103

250

247

204

200

150

100

m
/
h
W
k

129

106

2013/2014
Baseline

2018/2019

2013/2014
Baseline

2018/2019

2013/2014
Baseline

2018/2019

London

Retail

Landsec

2030 target

Waste
Commitment: Send zero waste to landfill.

Performance: Complete.
We continue to divert 100% from landfill across our operational activities.

Landsec monthly portfolio recycling rates 2014-19

Chart 104

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

Sept-18

Feb-19

London

Retail

Landsec

Commitment

Commitment: At least 75% recycled across all our operational activities
by 2020.

Performance: On track.
In the year we recycled 74.7% of operational waste, achieving 78.9% in
London, 76.8% at our Shopping Centres and 60.0% in our Leisure and Retail
parks which are managed by Savills. We launched coffee cup and fashion
textile recycling schemes across our portfolio, working with consumers,
customers and our supply chain partners to find better solutions to resource
use. Our Refill Me campaign to tackle single-use plastics brought together
over 100 retailers to offer shoppers free refills of water.

Sustainable Design and Innovation

Resilience
Commitment: Assess and mitigate physical and financial climate
change adaptation risks that are material across our portfolio.

Performance: On track.
Following the release of the UK Climate Projections 2018 which forecasts
the expected effects of climate change, we conducted further research to
determine how climate change will affect our portfolio. This has provided
an up to date view of climate risk at the portfolio level, helping to inform
our activities across the property life-cycle. In the year our investment
and divestment activities have reduced the risk to our portfolio from
extreme weather. We are one of 617 organisations publicly committed
to the Task Force for Climate-Related Financial Disclosures and offer a
greater level of transparency to investors this year through our disclosures.

Materials
Commitment: Source core construction products and materials from
ethical and sustainable sources

Performance: On track.
In the year we have progressed the design of our developments against
this target. Our 21 Moorfields development team are targeting procurement
of all core construction materials which are manufactured within the UK
and Europe only, to reduce emissions from transportation and reduce risk
of ethical issues in manufacture and extraction. Building on these processes,
we have included responsible sourcing guidelines in our design guides,
providing our design and delivery partners with strict environmental

Landsec Annual Report 2019

191

Additional information
Sustainability performance
continued

and ethical parameters. In the year ahead as our development pipeline
progresses to construction, we will report our quantitative progress
against this target.

Biodiversity
Commitment: 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: On track.
In the year we extended our biodiversity commitment to our assets in
London and are assessing opportunities for installations in the year
ahead. We’ve planned and secured budget for biodiversity enhancements
to the five sites offering the greatest potential, which will deliver net gain
in biodiversity at each site of between 5% and 25%. Completed projects
include a 220m2 wildflower garden installed at Hatfield Galleria and
planting of aquatic plant species in the lakes at White Rose, Leeds. We’re
also committed to delivering net gain through our development pipeline,
and our 21 Moorfields development will deliver over 1,700m2 of new green
walls, trees and plants, totalling 76 different species. We are developing
a strategy for all future developments to deliver net gain.

Wellbeing
Commitment: Ensure our buildings are designed and managed to
maximise wellbeing and productivity.

Performance: On track.
Using learnings from our 80-100 Victoria Street project we’ve adopted
wellbeing clauses in our engineering specifications and design briefs. This
will ensure our developments deliver specific wellbeing outcomes and that
customers are not prevented from achieving the WELL™ standard during
their fit out. Our commercial office developments focus on the delivery of
optimal air and water quality, daylighting, acoustic and thermal comfort.
In addition to core technical design factors, we’re focusing on delivering
wellbeing features, with our 21 Moorfields development featuring a
central atrium and glazed stairwells to maximise penetration of daylight,
a Zen garden and staff wellness centre.

Green building certifications

BREEAM certified space

% of floor area which is BREEAM
certified (m2)
Outstanding

Excellent

Very Good

Good / Pass

2018/19

40.2%

0.2%

19.4%

17.7%

2.9%

Table 105

2017/181

% change

40.1%

0.2%

19.3%

17.7%

2.9%

0.2%

(0.6)%

1. 2017/18 figures have been restated to account for information related to the entire

portfolio, including properties outside our operational control (e.g. FRIs).

The table above outlines the percentage of our portfolio certified by
BREEAM, and the breakdown of ratings. BREEAM is an established
assessment method and rating system for buildings and continues
to be a valuable benchmark for sustainable design.

192

Landsec Annual Report 2019

Climate-Related Risks and Opportunities

We are committed to implementing the recommendations of the Task
Force on Climate-Related Financial Disclosures (TCFD). As an owner and
operator of property, our business is exposed to both risk and opportunity
from climate change. Here we provide data and insight about the
climate-related risks and opportunities which are relevant to our business.

The nature and level of climate-related risk is dependent on government,
business and society’s response in the short and long term. In the event
of a strong response to climate change in the short term up to 2030, our
business will be affected in positive and negative ways by the transition
period. With a limited response to climate change, our business will be
affected in the long term past 2030 by physical effects such as extreme
weather and higher temperatures.

Our exposure to climate risk is determined through analysis of our
property portfolio, using climate and natural hazard databases such
as SwissRe CatNet™ and MunichRe NATHAN™, and is further adjusted
based on expert judgement. Our research incorporates the Met Office
Climate Projections 2018 (UKCP18), which are widely accepted as the
most accurate forecasts for how climate change will affect the climate
and weather in the UK.

Based on our analysis, we are confident our strategy for investing in
high-quality assets in primary locations will continue to be resilient in
this scenario. However, to maintain an effective strategy we will need
to increase our prioritisation of climate change factors in investment,
development and divestment decisions.

Our approach to climate risk and opportunity is discussed further under
principal risks and uncertainties on page 59. Full disclosure of climate
change scenarios and how they may affect our business are included
in our Sustainability Performance and Data Report at landsec.com/
sustainability.

Climate-Related Financial Metrics

Value of BREEAM certified assets

Percentage of total portfolio value

Rental income derived from BREEAM
certified assets

Percentage of rental income

Operational expenditure in low-
carbon equipment and products

Savings from investments in
low-carbon equipment and products

Capital expenditure in low-carbon
equipment and products

Avoided energy consumption costs
measured against 2013/14 baseline

Forecast increase in energy costs
resulting from climate change
by 2100

Insured value of assets exposed to
possible significant increase in river
flood risk due to climate change
by 2100

Insured value of assets exposed to
possible significant increase in
coastal flood risk due to climate
change by 2100

2018/19
£m

8,283

60%

387

57%

2017/18
£m

8,631

61%

369

56%

Table 106

Change
£m

(348)

(1)%

–

(1)

–

257

281

(24)

Scope 1 and 2 GHG emissions using location-based emission factors have
dropped by 18% compared with the previous year. This has been primarily
driven by a reduction in the UK’s emission factors due to 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. The detailed breakdown of the main
factors driving the change in our scope 1 and 2 emissions can be seen in
chart 109. In terms of market-based emissions, we have seen a reduction
of 9%. This has been due to increasing the number of sites supplied with
100% renewable electricity via our contract with Smartest Energy and
at least 15% of our total gas purchase from green sources.

CO2e Conversion Factors – Location based1

Table 108

Electricity (kWh)

Natural Gas (kWh)

2017/18

0.44572

0.21201

2018/19

% Change

0.35276

0.20953

(20.9)%

(1.2)%

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 – Location based

Chart 109

3,603

51,374

2,188

(4,182)

(2,328)

(1,528)

42,008

(7,120)

60,000

50,000

40,000

e
2
O
C
t

30,000

20,000

10,000

2017/18

Site
additions

Divestments Operational

changes

Weather
conditions

Energy
initiatives

Emission
factor

2018/19

Table 110 shows our total energy consumption with a breakdown by
landlord and tenant consumption. In 2018-19, absolute energy intensity
has reduced by 1.1% compared with the previous year. This has been
achieved by savings realised from our active energy management
programme. This year, we identified and committed to implement £3m
worth of energy reduction projects across our portfolio. For instance,
we replaced all car park lampposts with LEDs at our Bluewater shopping
centre, delivering a saving of 832.458 kWh in the first 6 months. More
information on our energy programme can be found on pages 41-42
(physical review).

Energy and Carbon reporting

We report our full greenhouse gas (GHG) emissions annually in accordance
with 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 2018. Since April 2017, at least 15% of our gas purchases are from
green sources (i.e. biogas). Our market-based emissions from biogas are
reported as following: the CH4 or N2O emissions from biogas are reported as
scope 1, 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 remaining 85% of our gas purchases, as well as
the CH4 or N2O conversion factors associated with biogas. Scope 2 market-
based emissions are reported using the conversion factor associated with
each individual electricity, heating and cooling supply.

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 8 are directly relevant for Landsec.

Landsec – Scope 1 and 2 emissions 2017-2019

Table 107

Scope 1 and 2 mandatory reporting
Emissions

Scope 1 tCO2e
Scope 2 tCO2e
Scope 1 and 2 tCO2e

Intensity
Scope 1 and 2 tCO2e/m2

Scope 1 and 2 mandatory reporting
Emissions

Scope 1 tCO2e
Scope 2 tCO2e
Scope 1 and 2 tCO2e

Intensity
Scope 1 and 2 tCO2e/m2

2017

16,477

47,066

63,543

Location based emission factors
2019

2018

14,755

36,620

51,374

11,490

30,518

42,008

0.038

0.028

0.023

2017

16,477

3,862

20,338

Market based emission factors
2019

2018

12,550

2,200

14,749

9,879

3,517

13,396

0.012

0.008

0.007

Landsec Annual Report 2019

193

Additional information
Sustainability performance
continued

Landsec – Energy consumption 2017-2019

Energy consumption (kWh)

Natural Gas

Electricity

for landlord shared services

(sub)metered exclusively to tenants

Total Natural Gas consumption

for landlord shared services

(sub)metered exclusively to tenants

Total Electricity consumption

District Heating and Cooling1

for landlord shared services

(sub)metered exclusively to tenants

Total Heating and Cooling consumption

Energy intensity (kWh/m2)

1. District Heating & Cooling was not consumed in 2016/17.

2017

2018

79,457,220

14,612,292

94,069,513

70,393,965

15,943,826

86,337,791

Table 110

2019

53,714,180

27,595,980

81,310,160

117,500,848

101,815,934

102,604,274

51,473,041

65,691,130

64,985,746

168,973,888

167,507,064

167,590,020

–

5,238,035

6,641,102

9,607,784

7,063,310

11,879,137

16,671,094

157

144

142

Every year we report our full carbon footprint. The table below provides a breakdown of our entire emission inventory including scope 3.

Landsec – Carbon footprint

GHG Scope