Annual report
and accounts 2014
L
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LondonMetric aims to deliver
attractive returns for shareholders
through a strategy of increasing
income and improving capital
values. It invests across the UK,
primarily in out-of-town retail and
distribution properties.
It employs an occupier-led
approach to property investments
through opportunistic acquisitions,
joint ventures, active asset
management and short-cycle
developments.
The asset focus is on properties
with enduring occupier appeal
providing opportunities to improve
both rental values and the security
and longevity of income; and limited
risk redevelopments with the aim of
enhancing shareholder returns.
Portfolio value
%
Development
Retail
Leisure
Distribution
Retail distribution
Residential
Offices
March 2013
20
10
29
59% core
n
w
o
t
-
f
o
-
t
u
O
21
10
10
Distrib u t i o n
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
£1,217m
Portfolio value
2013
2014
22
D
i
s
t
r
i
b
u
t
i
o
n
8
25
20
6
15
10
7
Strategic report
March 2014
A year of delivery
Chairman’s statement
6
14
Re-shaping our
portfolio
86% core
Q2 2009:
20.4m sq ft
We are focused on
growth markets
1
2
4
6
Q4 2013:
15.9m sq ft
37
u t-of-town
O
Our business model
to create value
8
5
£1,220m
0
2015
Q4
2004
Portfolio value
Q4
2008
Q4
2006
A strong performance
2016
Q4
2010
Chief Executive’s review
2017
Q4
2009
2018
Q4
2011
Retail warehouse
Distribution
Retail parks
Investment
All property
Asset management
and development
Second-hand
10
Q4
2012
12
Q4
2013
17
Newly built
23
Approach to responsible business
Performance data
Advisor’s statement
Financial review
Risk management
Governance
Board of Directors
Corporate governance
Nomination Committee report
Audit Committee report
Remuneration Committee report
Report of the Directors
Directors’ responsibilities statement
Financial statements
Auditor’s report
Group financial statements
Notes forming part of the
Group financial statements
Company financial statements
Notes forming part of the
Company financial statements
Financial calendar
Shareholder information
32
42
44
45
51
58
60
66
68
71
84
87
89
92
96
116
117
120
120
Front cover:
Primark Distribution Centre, Thrapston
www.londonmetric.com
Link to another page:
Pages 10 and 11
Link to website:
londonmetric.com/investors/latest_results
Link to further reading:
Page 12
A year
of delivery
Financial highlights
(2013: loss of £13.5m)
(2013: £676.7m)
£125.3m Reported profit
£755.9m Net assets
4.2p
121.0p
7.0p
EPRA earnings per share
(2013: 3.9p)
EPRA net assets per share
(2013: 109.4p)
Dividend per share
(2013: 7.0p)
Portfolio highlights1
(2013: £62.5m)
(2013: £20.3m)
£72.72m Annualised rental income
£95.9m Valuation uplift
£1,219.8m Portfolio value
£405.6m Acquisitions in the year
£568.4m Disposals in the year
(Average exit yield 4.4%)
(Average yield 7.6%)
(2013: £1,216.8m)
1
2
Including share of joint ventures
Contracted rental income at 31 March 2014 is £78.0 million
1
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Link to another page:
Page 66
Link to further reading:
Page 45
Chairman’s
statement
The year to 31 March 2014 has been an extremely
busy period for all at LondonMetric. We set
ourselves a demanding series of objectives for
the year and I believe the team has worked
remarkably hard and effectively to achieve them.
To remind ourselves of the tasks, they
were to complete the successful
integration of the newly merged
London & Stamford and Metric
Property businesses, to move to
new combined premises without
loss of focus, to restructure the
portfolio, including particularly a
material reduction in our residential
programme and a material increase
in our distribution weighting, to focus
strongly on adding value through
asset management and to focus
on obtaining higher income yields
and longer weighted average
lease lengths.
A very high level of portfolio activity
has taken place, with £405.6 million of
purchases and £568.4 million of sales
in the period. Our average purchase
yield was 7.6% and our sales yield was
4.4%. The weighted average lease
length has risen from 11.6 years to
12.7 years.
Beyond all of that our most important
objective was to achieve a run rate of
contracted net rental income to cover
our dividend and we have achieved
this. It will flow through to increasing
earnings in the coming year. We also
have the resources available to ensure
that from the present position, further
improvement can be achieved.
Recurring income remains a core aim,
but it is also balanced with a need
to make the right investment and
divestment decisions so that overall
total returns are sustained.
Results
The results this year reflect the
first full year for the enlarged
LondonMetric Group.
The prior year comparatives reflect
the activity of London & Stamford for
the period from 1 April 2012 until the
merger and then show the combined
activity of the enlarged Group for the
two months to 31 March 2013.
EPRA earnings for the year of
£26.4 million is a 20% increase on 2013
and contributes to a retained profit of
£125.3 million (2013: loss of £13.5 million).
The strength of the market and our
own asset management activity has
helped to generate a revaluation
surplus of £95.9 million in the year
(2013: £20.3 million) and, as advised
to you last year, the results have been
sustained by a significant reduction in
exceptional items to only £14.1 million
(2013: £53.4 million) as the impacts
of the merger, the completion of the
amortisation of the internalisation
consideration and the write off of
the Green Park intangible asset also
created on internalisation, have
been absorbed.
Net assets at 31 March 2014 were
£755.9 million (2013: £676.7 million),
an increase of £79.2 million (11.7%).
This is equivalent to 120.8p per share
(2013: 107.7p).
The Board has proposed a final
dividend of 3.5p per share to be paid
on 21 July 2014 which, when taken
with the interim dividend of the same
amount paid on 20 December 2013,
will give a total dividend in respect of
the year of 7.0p (2013: 7.0p).
Our most important
objective was to achieve
a run rate of contracted
net rental income to
cover our dividend and
we have achieved this.
Patrick Vaughan
Chairman
2
LondonMetric Property Plc Annual report and accounts 2014 Chairman’s statement
continued
We will continue to
manage the portfolio
with vigour, with
a constant eye to
improving income
and the quality of the
portfolio.
Portfolio
Outlook
The market in the second half of
the year has been very strong and
rational pricing has returned to most
sectors across the UK. In some areas
pricing has strengthened further than
we could have anticipated, which in
certain instances will encourage us
to sell sooner than we had expected.
I remain confident that we will be able
to find opportunities to reinvest in both
on- and off-market transactions and
seek out more attractive assets in those
areas where we have a competitive
advantage. We will continue to
manage the portfolio with vigour, with
a constant eye to improving income
and the quality of the portfolio.
Patrick Vaughan
Chairman
3 June 2014
As a result of the investment activity
in the year 86% of the portfolio is now
core out-of-town retail and distribution.
At a property level, a total return of
17.0% comprising an 11.2% capital
return and a 5.3% income return, has
outperformed IPD by 360bps.
The Board
There are a number of changes to
the Board. It is my great pleasure
to welcome Rosalyn Wilton to the
Board as a Non-Executive Director.
Her financial acumen will make a
very valuable addition to the Audit
Committee. Humphrey Price has
announced his intention to retire from
the Board which will take effect from
31 March 2015.
As was the intention at the time of the
merger, I am pleased to welcome our
two senior members of the Executive
Committee, Valentine Beresford and
Mark Stirling, to the Board, who will join
with immediate effect.
I can confirm that at the end of the
half year, I propose to stand down as
Executive Chairman and am delighted
to continue to serve as Non-Executive
Chairman and to be engaged with
the Company for several days a week.
I feel it is a good plan for the Company,
given the very high quality of the
Executive team.
3
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Re-shaping
our
portfolio
As a result of an active year with £405.6 million of
acquisitions and £568.4 million of sales, 86% of the
portfolio is now core, up from 59% a year ago.
WH Smith DC, Birmingham
Boden DC, Leicester
Wickes, Maldon
Argos DC, Bedford
Location
Ipswich
Sector
Retail
Tenant
Various
Birmingham Distribution
WH Smith
Milton Keynes
& Cardiff
Retail
Eastbourne3
Retail
Various
Various
Leicester
Distribution
Boden
Crick
Distribution
Norbert
Dentressangle
Various3
Dartford3
Bedford
Various
Retail
Retail
Wickes
Various
Distribution
Argos
Leisure
Odeon
Brackmills
Distribution
Travis Perkins
Hertford3
Bridgwater3
Retail
Retail
Various
The Range
Daventry
Distribution
Royal Mail
Various4
Sheffield
Swindon
Retail
Distribution
DFS
M&S
Distribution
Oak Furniture
Doncaster
Distribution
Superdrug
Islip
Development
Land
No. of
properties
1
1
2
1
1
1
5
1
1
10
1
1
1
1
Date1
14-May-13
01-Aug-13
07-Aug-13
13-Aug-13
05-Sep-13
13-Sep-13
27-Sep-13
15-Oct-13
18-Oct-13
18-Nov-13
21-Nov-13
19-Dec-13
24-Jan-14
13-Feb-14
27
25-Mar-14
30-April-14
29-May-14
24-June-14
Summer 2014
1
1
1
1
59
Cost at
share
£m
Rent
£m
Yield
%
WAULT2
(years)
10.4
10.1
25.8
3.0
5.2
17.9
9.3
3.2
51.7
80.7
9.0
5.4
1.2
36.0
53.4
32.2
22.1
13.0
16.0
0.7
0.8
2.2
0.2
0.5
1.3
0.7
0.2
3.8
5.9
0.8
0.4
0.1
2.4
5.3
2.6
1.5
1.0
–
405.6
30.4
6.5
7.9
8.0
7.2
8.3
7.0
7.2
6.6
7.0
7.2
8.8
5.9
6.8
6.5
9.4
7.6
6.5
7.6
–
7.6
10.9
21.0
6.8
11.5
4.0
10.0
19.4
10.3
9.4
24.9
0.3
11.6
18.8
9.6
16.0
7.3
8.6
6.9
–
13.4
4
Acquisitions:LondonMetric Property Plc Annual report and accounts 2014 Portfolio value
%
Development
Retail
Leisure
Distribution
Retail distribution
Residential
Offices
March 2013
20
10
29
59% core
n
w
o
t
-
f
o
-
t
u
O
21
10
10
Distrib u t i o n
March 2014
6
8
14
86% core
22
D
i
s
t
r
i
b
u
t
i
o
n
6
7
37
u t-of-town
O
£1,217m
Portfolio value
£1,220m
Portfolio value
Fleet Place, London
Clerkenwell Quarter, London
St Mary’s Road, Sheffield
Unilever HQ, Leatherhead
Sector
Tenant
No. of
properties
Proceeds
at share
£m
Date1
Rent
£m
Yield
%
WAULT2
(years)
Distribution
Various
11
02-Jul-13
Gillingham
Development
Land
Location
Various
London –
Fleet Place
Oxford3
Sheffield,
Mansfield
Bedford
Congleton
Office
Retail
Retail
Retail
Retail
Leatherhead Office
Dudley
Various4
London
Leisure
Retail
SNR
Denton
Wickes
Various
Various
Various
Unilever
Odeon
DFS
1
1
1
2
1
1
1
1
30-Aug-13
17-Sep-13
25-Oct-13
27-Nov-13
18-Dec-13
20-Dec-13
30-Jan-14
31-Jan-14
85
25-Mar-14
341
369
Various
Residential
Various
1
2
3
4
5
Date of completion or expected completion
Weighted average unexpired lease term, to first break
MIPP joint venture, LondonMetric share 33.3%
DFS joint venture, LondonMetric share 30.5%
Rising to 10 post period end with two deferred completions for £1.1 million at share
138.4
3.3
112.5
4.1
19.2
6.5
16.4
75.8
7.7
13.2
171.3
568.4
7.4
–
6.1
0.2
1.4
0.4
1.0
4.8
0.5
1.2
3.7
26.7
5.0
–
5.1
5.3
6.8
6.2
5.8
5.8
6.0
8.6
2.0
4.4
9.2
–
12.0
24.7
12.2
9.8
7.0
9.8
24.4
16.0
0.0
9.5
5
Disposals:LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
We are
focused on
growth
markets
Our core sectors are well placed
for growth
Prime vs secondary spread
contracting
As the economy continues to
strengthen, both the investment and
occupational markets are benefiting.
Investor appetite is extending liquidity
to the majority of the UK as equity
inflows continue, both from UK
institutions and overseas investors;
primarily driven by pension funds and
private equity. There is increasing
appetite for long-let income which
is forcing investors to look outside the
south-east and is bringing liquidity
to the majority of sectors and UK
regions. This is evidenced across our
own portfolio where we continue
to receive unsolicited approaches.
This has enabled us to realise
value on some mature assets and
capitalise on the back of this strong
institutional demand.
Over the last 12 months the spread
between prime and the best
secondary assets has begun to
contract. The yield gap between
the two is still 200bps compared to
130bps at the peak.
Over the last year secondary yields
have moved in by 100bps, whereas
prime yields have only contracted by
25bps (CBRE). As a result secondary is
firmly outperforming prime both at a
capital as well as at an income level.
Good secondary outperforming
According to CBRE, the secondary
retail warehouse sector has delivered
a total return of 22.3%, with an income
return of 8.0% and capital growth of
14.3% over the last year.
Prime Open A1 assets have produced
a total return of 10.25%; with an
income return of 5.25% and a
capital return of 5.0%.
We expect this dynamic to continue as
the spread between the two tightens
further over the coming year.
Logistics trends driving growth
• Strong yield compression is supported
by an expectation of real rental
growth in the sector
• Continued strong floor space
demand with 65% of logistics
occupiers expecting their floor
space to increase over the next
three years and 63% of logistics
occupiers indicated e-commerce
and multi-channel retail is a top
three trend (JLL and CoreNet Global
Occupier Survey)
• Take-up by retailers forecast at
50 million sq ft over the next five years,
up 21% over the last five years (Savills)
6
LondonMetric Property Plc Annual report and accounts 2014 Historic yields1
11%
10%
9%
8%
7%
6%
5%
4%
Good
secondary
retail
RW – prime
restricted
solus
RW – prime
restricted
RP
RW –
secondary
Distribution
– prime
Retail warehouse availability (m sq ft)2
25
20
15
10
5
0
Q4
2004
Q2 2009:
20.4m sq ft
Q4 2013:
15.9m sq ft
Q4
2006
Q4
2008
Q4
2009
Q4
2010
Q4
2011
Q4
2012
Q4
2013
● Trough yield ● Peak yield ▲ Current yield ■ Mean yield
1 StDev
Second-hand
Newly built
Retail warehouse voids2
14%
Q2 2009: 11.8%
12%
10%
8%
6%
4%
Nominal rental growth3
3.5%
Average: 9.8%
Q4 2013: 8.8%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
Q4
2006
Q4
2008
Q4
2009
Q4
2010
Q4
2011
Q4
2012
Q4
2013
2013
2014
2015
2016
2017
2018
All RW
Open A1
Restricted use
All RW average
Retail warehouse
Distribution
Retail parks
All property
1
CBRE
2
Trevor Wood
3
IPD, Real Estate Forecasting Limited
Yields sit above 2007 peak
First signs of rental growth
Return to equivalent yield pricing
Increasing confidence of real rental
growth will also prompt a valuation shift
away from initial to equivalent yield
pricing, as we have witnessed in the
West End retail and office markets.
Our focus on low average rents – £16.50
psf across our retail warehouse portfolio
and £5.10 psf across distribution –
where there is a sufficient gap between
the passing and sustainable rents, will
allow us to be an early beneficiary
from this valuation move.
Current yields across our core sectors
continue to sit well above their 2007
peak, and in line with their 15-year
mean based on CBRE historic yields.
See CBRE historic yields chart above.
This compares with other sectors,
particularly prime shopping centres
and City and West End offices where
current yields are only 25bps away
from their peak, and well below their
15-year mean.
Voids on the decline
As the economy has continued
to strengthen, the vacancy rate
across retail warehousing is down
to 15.9 million sq ft – a 22% fall from
its peak of 20.4 million sq ft in 2009.
See retail warehouse availability
chart above. Void rates are now 8.8%
compared to a peak void rate of 11.8%
in Q2 2009, and an average rate of
9.8% over the last seven years (Trevor
Wood). See retail warehouse voids
chart above.
Across our own portfolio we are
witnessing a strengthening occupier
environment. Our voids are very low,
we have seen a tightening of tenant
incentives and there is limited new
supply. We are already seeing the
first signs of rental growth and these
ingredients give us the confidence that
it will continue to accelerate.
This is supported by future rental growth
forecasts by Real Estate Forecasting Ltd
which estimate retail warehousing is
expected to move from rental declines
in 2013 to outperform all property by
2017/18. Historically the distribution
sector has under-performed the wider
market, however it is expected to be
the key beneficiary with the rise of
online shopping and the growth in
multi-channel retailing. See nominal
rental growth chart above.
7
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Our business
model to
create value
velopment
cle d
e
Refurbish/
redevelop/build
Work in partnership with
occupiers to pursue
sustainable extensions,
refurbishments, additional
new space or larger
redevelopment.
y
c
-
t
r
o
h
S
Inv
est
m
Recycle capital
Unemotional and
disciplined disposal
programme where
value has been realised or
asset no longer
fits strategy.
e
n
t
Buy desirable
real estate
Acquire properties offering
attractive income and
opportunities for value
appreciation from
asset management
initiatives.
Occupier
Staying close to our customers to
understand their needs and overall
contentment in our buildings helps
us assess the long-term income
growth of all of our assets.
Deliver
income growth
Grow and improve income
through an extensive
programme of asset
management initiatives.
t
n
e
m
e
g
a
n
a
Asset m
Focus on
sustainable income
Target rents that have the
potential to trend towards
their sustainable level over
the medium term.
Inc
o
m
e
8
LondonMetric Property Plc Annual report and accounts 2014 Investment
Recycle
capital
Buy desirable
real estate
Our strategic priorities:
• Review of future
• Focus on out-of-town and
retail distribution
Income
Focus on
sustainable
income
Asset
management
Short-cycle
development
Deliver
income
growth
Refurbish/
redevelop/
build
• Understand total needs
and costs of occupier
• Fixed rental uplifts and
longer lease lengths
• Favourable planning
• Delivery within 6–18
• Use bottom-up occupier-
• Ensure relatively low rentals
• Pursue re-gears to
months
led approach
• Buy assets that can be
institutionalised
• Acquire off-market
appeal to a range of
occupiers
lengthen income streams
• Robust rental evidence for
• Work in partnership with
occupiers
• Offer the right location and
reviews and renewals
• Reduce environmental
space configuration
impact
performance prospects for
each property
• Dispose of non core assets
• Sell where value has been
optimised and future asset
management potential
is limited
Our achievements:
• 11 disposals for
• 19 acquisitions for
£568.4 million off blended
yield of 4.4%
• Core sector weightings
£405.6 million off blended
yield of 7.6% in preferred
sectors
• 48 occupier transactions
across 2.3 million sq ft of
space with 35 different
occupiers
improved from 59% to 86%
• Four portfolio acquisitions
• Low average rents of
for £169.2 million off
blended yields of 8.1%
• 73% of acquisitions
transacted off-market
£16.50 psf (retail) and £5.10
psf (distribution)
• Income return on asset
management capital
expenditure of 12%
• 33% of the income subject
to fixed uplifts or benefit
from income linked to RPI
• Pre-lets at 79% across
committed developments
• Planning determinations
• 18 rent reviews and
re-gears in the past 12
months delivered income
growth of 5.4%
• Like-for-like rental growth
and submissions of
214,900 sq ft
• BREEAM Very Good
ratings on 155,000 sq ft of
developments
of 3.4%
• Spread between
purchases and sales
generated a yield
arbitrage of 320bps
and WAULT arbitrage
of 4.7 years (3.9 years
to first break)
Associated risks:
• Lack of liquidity
• Debt restrictions on
charged properties
• Property cycle and
investor sentiment
• Valuation risk
• Increasing debt costs
• Weak letting market
• Tenant default
• Low inflation outlook
• Occupier low growth or
contraction strategies
• Construction costs
and delays
• Level of pre-letting
• Planning
Our focus:
• LTV corporate target of
• Capitalise on market
• Retain fully occupied
• Lease re-gears to grow
<50%
• Non core residential to
be sold within next 18–24
months
pricing anomalies in areas
where we have expertise
• Grow asset management
and short-cycle
development exposure
status
• Focus on fixed uplifts
• Ancillary car park income
income and improve lease
length
• Yield improvement
through strengthening
covenants
• Add floor space to grow
income and bring new
operators
• Commence pipeline
of two committed
development across
1.2 million sq ft
Our key criteria:
• Hurdle Rate of ungeared
• Core sector weighting
IRR >7.0%
>80%
• Positive yield gap between
all in debt and EPRA net
initial yield
• Target cash on cash >8.0%
• Single tenant exposure
<15% of portfolio
• Target occupancy >98%
• WAULT >12 years
• >15% of investment
portfolio subject to fix/
index linked rental uplifts
• Income growth >CPI
• Return on asset
• 150bps yield on cost
spread to exit yield
management capex >10%
• Ungeared IRR target 12%
• WAULT > seven years
to 20%
9
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements A strong
performance
We use six principal key performance indicators
to monitor the performance of the Group and its
joint ventures and the delivery of our strategy.
Key performance indicators
EPRA earnings per share (p)
2014
2013
WAULT (years)
2014
2013
4.2p
3.9p
12.7
11.6
EPRA vacancy (%)
2014
2013
0.4%
4.5%
2013
EPRA like-for-like income growth (%)
2014
3.4%
Portfolio total return (%)
2014
Total shareholder return (%)
2014
17.0%
2013
8.0%
2013
Performance measure
EPRA earnings per share
Definition
Recurring earnings from core operational activities divided by the average number
of shares in issue over the year.
EPRA vacancy
ERV of vacant space divided by ERV of the whole portfolio.
EPRA like-for-like income growth
Current year and prior year net rental income from properties owned through
the current and prior year.
WAULT
Portfolio total return
Total shareholder return
Average unexpired lease term across the investment portfolio
(excluding residential and development) weighted by net rental income.
Unleveraged weighted capital and income return of the total portfolio, including
residential and development, held during the financial period.
Share price growth with dividend deemed to be reinvested on the
ex-dividend date.
10
3.5%
41.7%
2.4%
Page
45
14
30
25
25
83
LondonMetric Property Plc Annual report and accounts 2014 Total shareholder return
(index rebased to 100)
150
140
130
120
110
100
90
Apr
2013
May
2013
Jun
2013
Jul
2013
Aug
2013
Sep
2013
Oct
2013
Nov
2013
Dec
2013
Jan
2014
Feb
2014
Mar
2014
LondonMetric Property
FTSE All Share REIT index
Other performance measures
EPRA NAV per share (p)
2014
2013
EPRA NNNAV per share (p)
2014
2013
121p
109p
EPRA topped up net initial yield (%)
2014
6.4%
Loan to value (%)
2014
2013
6.3%
2013
Debt maturity (years)
2014
2013
EPRA cost ratio* (%)
2014
2013
3.7
3.0
121p
111p
32%
43%
25%
21%
EPRA net initial yield (%)
2014
2013
Cost of borrowing (%)
2014
2013
6.2%
6.3%
3.9%
4.0%
Income expiry over five years (%)
2014
4.3%
2013
Performance measure
EPRA NAV per share
EPRA NNNAV per share
EPRA net initial yield
Definition
Balance sheet net assets excluding fair value of derivatives, revaluation of trading
properties and deferred tax on revaluation divided by the number of shares in issue
at the balance sheet date.
EPRA NAV adjusted to include the fair value of financial instruments, debt and
deferred taxes divided by the number of shares in issue at the balance sheet date.
Annualised rental income based on cash rents passing at the balance sheet date,
less non recoverable property operating expenses, divided by the market value of
the property, including estimated purchaser’s costs.
EPRA topped up net initial yield
Recurring earnings from core operational activities.
Loan to value
Cost of borrowing
Debt maturity
EPRA cost ratio
Net debt expressed as a percentage of the total value of investment and
development properties including net share of joint ventures.
The cost of finance (including the amortisation of finance costs) expressed as a
percentage of Group and joint venture borrowings at the year-end.
Weighted average period to expiry of Group and joint venture drawn debt.
Total operating costs as a percentage of gross rental income.
Income expiry over five years
Contracted net rental income of the investment portfolio (excluding residential and
development) expiring over the next five years.
* Excluding direct vacancy costs
3.8%
Page
48
n/a
106
n/a
49
49
50
n/a
25
11
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Link to another page:
Page 8
Link to further reading:
Page 6
Chief Executive’s
review
2013/14 has been an active year, repositioning our
portfolio through nearly £1 billion of investment
activity and 48 occupier transactions across
2.3 million sq ft. Our core assets now account for
86% of our portfolio.
Strategic priorities on track
Significant achievements
Over one year on from the merger
we have delivered on our strategic
objectives to focus on our core sectors
of out-of-town and retail distribution
with a priority of growing income
and investing in opportunities for
creating value as part of a balanced
contribution to our total returns.
Our strategic objectives remain on
track and over the coming year we will
focus on:
• Growing income, both in quality
and quantum
• Completing our divestment
programme across our remaining
office and residential assets
• Investing in our core sectors by
growing both our retail distribution
and our out-of-town portfolios
• Recycling capital in our portfolio
where value has been optimised
and reinvesting in opportunities with
more attractive asset management
and redevelopment potential
• Delivering on our development
programme
Our investment and asset
management teams have delivered
to reposition both the investment and
development portfolios with some
noteworthy achievements:
• Four portfolio acquisitions totalling
£309.5 million (LondonMetric share:
£169.2 million) benefiting from a
concurrent disposal strategy on three
of the portfolios. Case studies on
DFS, Odeon and Wickes portfolios
are on pages 15, 16 and 19 and the
acquisition metrics are on page 4
• Material disposals of our Fleet
Place and Leatherhead offices for
£188.3 million, reflecting a blended
exit yield of 5.4%
• The disposal of our residential
portfolio for £171.3 million – selling
341 units in total across our schemes
at Clerkenwell Quarter, Battersea,
Highbury, Stockwell and Moore House
in the year, with a further 37 units
for £20.4 million in solicitors’ hands.
A breakdown of disposals are listed
on page 5 and the make-up of
residential sales are summarised on
page 22
• Considerable progress pre-letting
Carter Lane now 72% pre-let, securing
£4.8 million of rent roll in the period.
Further details can be found on
pages 27 and 39
• Intense level of occupier transactions
delivering an increase in our rental
income of £6.5 million per annum
across the investment portfolio –
including like-for-like rental growth
of 3.4%. Refer to page 30 for
further details
Retailers have a clear
vision of the right size
and shape of their
store portfolios. Their
distribution strategies are
continuing to evolve.
Andrew Jones
Chief Executive
12
LondonMetric Property Plc Annual report and accounts 2014 Chief Executive’s review
continued
As a REIT, we are focused
on distributable income
forming a meaningful
part of the total return
equation.
121p
NAV per share
£72.7m
Annualised rental income
We have grown gross rental income as
reported in the income statement1 by
30% to £61.9 million (2013: £47.7 million)
primarily by achieving a profitable
spread between lower yields on
disposals and higher reinvestment
yields. The timing of acquisitions and
disposals as well as transaction costs
has resulted in EPRA earnings per share
of 4.2p (2013: 3.9p).
Over the period there were £568.4 million
of sales off average disposal yields of
4.4% and £405.6 million of purchases
off average yields of 7.6%. These
investment decisions as well as our
asset management activity have
increased our annualised rental
income by £10.2 million to £72.7 million
(2013: £62.5 million). Refer to the
growing rental income table on page 27.
Looking forward, our development
pipeline and further capital recycling,
particularly of non core residential and
office sectors, will continue to feature in
our performance, helping to improve
our income growth further.
Outperformed IPD by 360bps
We delivered a property level total
return of 17.0%, comprised of a
weighted income return of 5.3% and
weighted capital return of 11.2%. This
compares to IPD total return of 13.4%
with an income return of 5.5% and
a capital return of 7.5%. Both of our
core retail and distribution portfolios
outperformed their IPD benchmarks by
800bps and 900bps respectively. Refer
to the performance against IPD table
on page 25 for full details.
• Securing our first retail distribution
development in Islip, Northamptonshire
– the development is in excess
of 1 million sq ft, is 100% pre-let at
£5.3 million per annum on a new
25-year lease with annual fixed rental
uplifts. Refer to Islip case study page 29.
Strong JV partnerships
Earlier this year we created a new DFS
joint venture to acquire a portfolio of
27 DFS assets for £175 million, reflecting
a net initial yield of 9.3%. Our stake is
30.5%. The transaction completed
on 25 March and we simultaneously
announced the disposal of ten of these
properties. We have now sold a further
three assets, bringing total disposals to
£64.2 million, reflecting an exit yield of
8.4%. Refer to the case study on page
15 for more details.
Our MIPP joint venture had an active
year, with £66.5 million of acquisitions
(LondonMetric share £22.2 million) at
a blended yield of 6.8% and average
lease length of 15.5 years (15.3 years to
first break). Refer to page 4 for details
of acquisitions.
This includes the portfolio of five Wickes
units acquired in September. Refer to
the case study on page 19 for more
details. The joint venture reached its
target investment in December and
post period end we agreed with USS to
extend the joint venture to increase our
stake to 50% from 33.3%. Refer to page
18 for further details.
Delivering robust results
EPRA net assets per share has grown
by 11% to 121.0p (2013: 109.4p), driven
by a very strong valuation surplus of
15.3p, recurring profit of 4.2p, offset by
dividends paid of 7.0p. Refer to page
23 for a breakdown of contributions to
our valuation movement and page 48
for the details of the NAV bridge.
1
As reflected in the proportionately consolidated income statement, see financial review on page 46.
13
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Achieving dividend cover
Our annualised recurring profits
now cover our dividend obligations
of £44 million. We have been
able to successfully deliver on this
strategic objective set out last year
by realising a 320bps arbitrage
between the yields on purchases
and sales increasing income by
£3.7 million per annum and delivering
additional income of £11.8 million
per annum from asset management
activity across the investment
and development portfolios.
Occupier contentment
We operate a customer-focused
business and aim to be the partner
of choice across the retail and
distribution sectors.
We build first-class relationships and
leverage this knowledge to ensure that
our properties have enduring occupier
appeal. These deep relationships
have allowed us not only to improve
the operational performance of
our existing portfolio but have also
allowed us to intelligently acquire
new investment and development
opportunities that will benefit us over
the next few years.
We undertook a total of 39 new
lettings and re-gears during the period,
granting on average new leases of
16.2 years (15.4 years to first break).
Refer to page 27.
Our focus on lengthening and
strengthening our income streams by
actively engaging with our occupiers
allowed us to increase the weighted
average unexpired lease terms to
12.7 years (11.8 years to first break)
across the investment portfolio,
compared to last year’s 11.6 years
(10.8 years to first break). The passage
of time makes that comparison even
more favourable.
Only 4.3% of our rental income is
due to expire over the next five years
and we have materially improved
the proportion of expiries in excess
of 15 years. Refer to the lease expiry
profile on page 25.
The intense asset management activity
increased portfolio occupancy to
99.6% with only five units vacant across
30,500 sq ft (2013: 94.5%).
Andrew Jones
Chief Executive
3 June 2014
Chief Executive’s review
continued
We operate a customer-
focused business and
aim to be the partner of
choice across the retail
and distribution sectors.
14
LondonMetric Property Plc Annual report and accounts 2014 Creating
comfort
at DFS
In December 2013 we formed
a new joint venture, to acquire
a portfolio of 27 assets let to DFS
from the administrators to Delphi
Properties Limited.
Key features of the acquisition include:
• Portfolio purchase price
£175.0 million, reflecting a net
initial yield of 9.3%
• Portfolio composition: 22 retail
warehouses, four industrial units and
DFS’ headquarters and distribution
centre, covering a total area of
903,700 sq ft
• Rent roll £17.3 million per annum and
co-terminus lease expiry in March
2030 (WAULT 16.3 years)
• LondonMetric share 30.5%
• In March 2014 and simultaneously
with the closing of the transaction,
the joint venture agreed the sale
of ten of the portfolio assets in
three separate transactions for a
total consideration of £47.1 million
(LondonMetric share £14.4 million),
reflecting a blended exit yield
of 8.6%. The sales generated
a net profit of c. 13% after
transaction costs
A further three assets have been
sold post period end for £17.1 million
(LondonMetric share £5.2 million),
reflecting an exit yield on cost of 7.8%.
The remaining core portfolio:
• 14 assets with a book value of
£140.1 million and running yield on
cost of 7.8%
• The joint venture has agreed
a £71.8 million five-year facility
post period end. Debt will
be provided across the portfolio
of 14 assets at an LTV of 51%
The above sales have reduced
LondonMetric’s tenant exposure
to DFS from 9.7% to 7.4%.
15
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Fanatical
about
Odeon
In November 2013 LondonMetric
acquired a portfolio of ten Odeon
multiplex cinemas from Odeon
Property Group LLP.
Key features of the acquisition include:
• Portfolio purchase price £80.7 million,
reflecting a net initial yield of 7.2%.
Acquisition part funded by a term
facility of £43.5 million from
Lloyds Bank plc
• Let to Odeon Cinema Limited on
co-terminus leases of 24.9 years
with no breaks
• Rent roll £5.9 million per annum and
subject to annual rental uplifts of
between 1% and 5% linked to the
annual RPI index
• Portfolio comprises 384,220 sq ft
located in: Chelmsford, Derby,
Huddersfield, Lee Valley (London),
Merryhill (Dudley), Preston,
Tamworth, Taunton, Telford
and Warrington
Since completion LondonMetric sold
the Odeon in Dudley for £7.7 million to
clients of Aberdeen Asset
Management, reflecting a net initial
yield of 6.0% and post period end
sold the Odeon in Huddersfield for
£15.2 million to clients of TIAA
Henderson Real Estate, reflecting
a net initial yield of 6.1%.
The remaining portfolio:
• Eight assets across 290,000 sq ft with
a book value of £68.6 million and
running yield of 6.1%
• Rent roll £4.4 million per annum,
yield on cost 7.2%, WAULT 24 years
across all the leases
The above sales have reduced the
tenant exposure to Odeon from
underwriting of 9.1% to 7.4%.
16
LondonMetric Property Plc Annual report and accounts 2014 Link to another page:
Pages 4 and 5
Link to further reading:
Page 15
Investment
£974 million of investment
activity capitalising on
320bps of positive yield
arbitrage between
acquisitions and
disposals.
Valentine Beresford
Investment Director
We target out-of-town retail and distribution
properties with a focus on strong income,
asset management initiatives and short-cycle
development opportunities.
We have materially transformed
the portfolio over the last year.
Acquisitions have targeted our
preferred sectors of out-of-town retail
parks and retail distribution centres,
which benefit from our deep occupier
relationships. Disposals have been
made from our non core office and
residential portfolios and selective sales
across our out-of-town retail portfolio
where value has been optimised
or we have received appealing
unsolicited approaches.
Benefiting from yield arbitrage
between purchases and sales
of 320bps
The sales of our low yielding offices
and residential assets has allowed us
to reinvest at significantly higher yields,
generating a positive yield arbitrage
of more than 320bps. Furthermore,
the active recycling of our portfolio
has also allowed us to materially
improve the security of our income.
The remaining lease lengths on our
acquired assets are on average 4.7
years (3.9 years to first break) longer
than on those we have disposed of.
Alongside our focus on retail parks and
distribution centres, our reinvestment
has primarily been targeting assets
that provide strong income, asset
management initiatives or short-cycle
development opportunities, within
those two sub-sectors. We continue to
view real estate through these three
lenses with occupier contentment a
key ingredient in all of our acquisitions.
We hold the firm view that the overall
prosperity of the occupier is an
essential requirement in our efforts
to grow income and in turn create
capital growth.
Over the period, we completed
acquisitions across 19 transactions
for £405.6 million (at share),
generating a net initial yield of 7.6%
and a contracted rental income of
£30.4 million per annum. The average
unexpired lease lengths stood at 14.3
years (13.4 years to first break), which
included simultaneous re-gears on
acquisition across several properties.
17
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Investment
continued
Out-of-town retail and leisure acquisitions for
£192.4 million, NIY 8.0%
with an attractive unexpired lease length of 18.5 years and
an average yield of 8.1%.
We completed nine out-of-town retail and leisure
investment transactions covering 49 properties. Our share
of the purchase price was £192.4 million at an average
yield of 8.0% and a total rent of £15.6 million per annum.
The average unexpired lease term stands at 17.8 years.
We acquired four separate portfolios during the year off
attractive wholesale pricing totalling £169.2 million (at share)
We have already begun to monetise several of the non core
assets contained within these portfolios at prices materially
ahead of their allocated acquisition prices. To date we have
sold two Odeon cinemas from the portfolio of ten that we
acquired and 13 DFS units from the 27 that we acquired in
the joint venture. We have also sold the Wickes in Oxford
following a lease re-gear which allowed us to extend their
occupation from nine years to 25 years, refer to page 5.
Sub-sector breakdown of acquisitions
Sub-sector
Retail
Leisure
Distribution
Total commercial
Development
Total including development
Four portfolio acquisitions
Portfolio
Milton Keynes & Cardiff
Wickes (MIPP JV2)
Odeon
DFS (DFS JV3)
Total
No. of
transactions
No. of
assets
Cost at share
£m
8
1
9
18
1
19
Date of
completion
7-Aug-13
27-Sep-13
18-Nov-13
25-Mar-13
39
10
9
58
1
59
111.7
80.7
197.2
389.6
16.0
405.6
No. of
assets
Cost at share
£m
2
5
10
27
44
25.8
9.3
80.7
53.4
169.2
NIY
%
8.4
7.2
7.2
7.6
–
7.6
NIY
%
8.0
7.2
7.2
9.3
8.1
WAULT1
(years)
13.5
24.9
8.8
13.4
–
13.4
WAULT1
(years)
6.7
19.4
24.9
16.0
18.5
1
2
Weighted average unexpired lease term, to first break
MIPP JV, total purchase price £28.0 million
3
DFS JV, total purchase price £175.0 million
LondonMetric ownership in MIPP joint venture to
increase to 50%
We acquired a further nine properties in five separate
transactions during the year for £22.2 million (at share)
on behalf of our MIPP joint venture with the Universities
Superannuation Scheme (“USS”). We currently own 33.3% of
this joint venture but have recently agreed terms to extend
by a further two years and increase our ownership to 50%
through a further equity investment of c. £28.5 million. This will
allow us to increase the investment portfolio to £220 million.
MIPP has a current portfolio value of £160.6 million and a
running yield of 6.3% across 18 properties. The unexpired
lease term is 14.9 years with 25% of the rental income
benefiting from fixed indexation tied to RPI-linked uplifts.
The portfolio is 100% let off an average passing rent of
£14.50 per sq ft. Looking ahead, the investment strategy
will remain the same with a strong focus on well-let real
estate occupied by the best retailers, where there is the
opportunity to grow income through indexation, open
market rent reviews or asset management initiatives.
18
LondonMetric Property Plc Annual report and accounts 2014 Fixing
things at
Wickes
In September 2013 the Metric
Income Plus Limited Partnership
(“MIPP”), LondonMetric’s £150
million joint venture with Universities
Superannuation Scheme (“USS”),
acquired a portfolio of five
standalone Wickes retail warehouse
units from clients of Aberdeen
Asset Management.
Key features of the acquisition include:
• Portfolio purchase price £28.0 million
(LondonMetric share £9.3 million),
reflecting a net initial yield of 7.2%
• The five Wickes units were located
in Oxford (28,200 sq ft), Chatham
(24,900 sq ft), Maldon (27,000 sq ft),
Oldham (25,000 sq ft) and Barnsley
(25,900 sq ft)
Simultaneous with the acquisition
the joint venture re-geared Oxford,
Chatham and Barnsley, increasing
the portfolio WAULT from 10.1 years to
19.4 years, at a yield on cost of 6.9%.
In October 2014 the joint venture
completed on the sale of the
Oxford Wickes unit for £12.4 million
(LondonMetric share £4.1 million) to
Lothbury Investment Management,
reflecting a net initial yield of 5.3%.
19
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Investment
continued
Completed on nine distribution acquisitions for
£197.2 million, NIY 7.2%
Over the year there has been a strong focus on growing our
distribution portfolio, particularly those currently occupied
by our retailer partners.
Retailers are putting an increased focus on their distribution
infrastructure as they respond to evolving multi-channel
supply chain requirements. As a result, we are keen to build
up the UK’s leading portfolio of retail distribution centres and
extend our working relationship with our key partners to help
them achieve their objectives.
We completed the acquisition of nine distribution centres
totalling £197.2 million at an average yield of 7.2%, adding
£14.8 million to the annual rent roll. The average unexpired
lease term is 10.6 years (8.8 years to first break).
We acquired the WH Smith Distribution Centre (“DC”) in
Birmingham for £10.1 million, where we simultaneously
re-geared their lease from 11 to 21 years off a NIY of 7.9%
followed by the purchase of the Argos DC in Bedford for
£51.7 million off a NIY of 7.0%.
Similarly, we acquired the Travis Perkins DC in Brackmills for
£9.0 million, showing a net initial yield of 8.8%. Shortly after
acquisition we surrendered their existing lease, which
only had four months to expiry, and granted them a new
ten-year lease. We also obtained our first exposure to the
catalogue and internet fashion retailer Boden by acquiring
their DC unit in Leicester for £5.2 million, NIY 8.3%.
During the period we announced three further retailer
DC acquisitions totalling 1,220,000 sq ft for £67.3 million at
a blended yield of 7.2%. These include the 626,000 sq ft
Marks & Spencer DC in Sheffield, Superdrug’s northern DC in
Doncaster and Oak Furniture Land’s only UK DC in Swindon.
These purchases completed post period end. We have
also acquired a second Royal Mail DC in Rotherham for
a purchase price of £10.3 million, reflecting a NIY of 6.0%
with fixed rental uplifts equating to 1.75% per annum. It is
a very modern, well located unit with a 14-year unexpired
lease term.
All these acquisitions increase the size of our retail DC
portfolio and complement our 783,000 sq ft Primark DC in
Thrapston which we acquired last year. We are now well
placed to be the UK’s largest owner of retailer distribution
assets within the listed sector.
Post period end retail distribution completions
Location
Sheffield
Rotherham
Swindon
Doncaster
Total
Retailer
M&S
Royal Mail
Oak Furniture Land
Superdrug
Date of
completion
30-Apr-14
13-May-14
29-May-14
24-Jun-14
Cost at share
£m
32.2
10.3
22.1
13.0
77.6
NIY
%
7.6
6.0
6.5
7.6
7.0
WAULT1
(years)
7.3
13.9
8.6
6.9
8.3
1
Weighted average unexpired lease term, to first break
One million sq ft distribution development
As part of our objective to actively increase our investment
within the distribution sector, we have also been focusing
on development opportunities with our key retail partners.
During the year we acquired a 70-acre site in Islip,
Northamptonshire, for £16.0 million, from a private property
company. Post period end we have now received planning
consent to develop a new 1.06 million sq ft retail distribution
centre which we have pre-let to one of the UK’s top 25
retailers. Preliminary site works are already underway and
we expect to commence construction in summer 2014 with
practical completion targeted for summer 2015. The total
development cost is estimated at £77 million, generating
a yield on cost of 6.9%. Refer to pages 29 and 30.
20
Commercial disposals across ten transactions for
£397.1 million, NIY 5.5%
We sold 28 properties in ten separate transactions over the
period for gross proceeds of £397.1 million (at share) at an
average exit yield of 5.5%. The average lease lengths on
disposals were 11.1 years (11.0 to first break). These sales
generated equity for reinvestment of £141 million after
repayment of cross collateralised debt on Carter Lane and
Marlow. Refer to pages 5 and 21 for a detailed breakdown
of sales.
LondonMetric Property Plc Annual report and accounts 2014 Investment
continued
Over the period we completed on two non core office
disposals at Fleet Place in the City and Unilever’s headquarters
in Leatherhead for £112.5 million (NIY 5.1%) and £75.8 million
(NIY 5.9%) respectively, and 3.5% ahead of previous valuation.
Both sales went to foreign investors where demand for prime
office continues unabated.
We are currently marketing the sale of Forest House and
Elm Park Court in Crawley. Our remaining office investment,
Marlow International, will be retained until we have
concluded our various asset management initiatives.
We have recently completed the major refurbishment of our
only remaining City of London office building in Carter Lane.
This is already 72% pre-let and we are in negotiations on the
remaining space. Carter Lane remains debt-free and upon
disposal would generate significant funds for reinvestment.
Across the out-of-town retail portfolio, we have sold
opportunistically as demand from institutional investors
continues to grow outside the south-east and into the
regions. Retail sales include a small portfolio sale of our
Sheffield and Mansfield retail parks £19.2 million (NIY 6.8%),
our Midland Road high street units in Bedford £6.5 million
Sub-sector breakdown of commercial disposals
(NIY 6.2%), Congleton Retail Park £16.4 million (NIY 5.8%) and
the Wickes unit in Oxford £12.4 million (share £4.1 million) (NIY
5.3%), which we sold a month after we acquired it following
a lease re-gear. In January 2014 we sold the Odeon cinema
in Dudley £7.7 million (NIY 6.0%) which we had acquired as
part of a portfolio of ten Odeon cinemas purchased for
£80.7 million (NIY 7.2%) in November 2013.
Simultaneous with the closing of our joint venture’s purchase
of 27 DFS assets for £175 million (share £53.4 million) (NIY 9.3%),
we announced the sale of ten DFS assets for £47.1 million
(share £14.4 million) (NIY 8.6%). LondonMetric has a
30.5% stake in the joint venture. Post period end we have
exchanged on the sale of three further assets for £17.1 million
(share £5.2m).
The remaining portfolio now comprises 14 assets with an
unexpired lease term on the portfolio of 16.0 years, an
investment value of £140.1 million (share £42.7 million) and
a running yield of 7.8%, generating a rent roll of £11.6 million
(share £3.5 million). The joint venture has also agreed a
£71.8 million five-year facility across the remaining 14 assets,
reflecting an LTV of 51%.
Sub-sector
Office
Retail
Leisure
Distribution
Development
Total
No. of
transactions
No. of
assets
Proceeds at share
£m
2
5
1
1
1
10
2
13
1
11
1
28
188.3
59.4
7.7
138.4
3.3
397.1
NIY
%
5.4
6.8
6.0
5.0
–
5.5
WAULT1
(years)
11.0
12.5
24.4
9.2
–
11.0
1
Weighted average unexpired lease term, to first break
We sold our recently completed M&S redevelopment of
the former Post Office in Berkhamsted shortly after practical
completion to Lothbury with one 3,000 sq ft restaurant unit
remaining vacant. The sale price was £12.3 million, reflecting
a disposal yield of 3.9% rising to 4.6% upon full occupancy.
strengthen. The remaining Odeon portfolio comprises
eight assets with an investment value of £68.6 million,
generating a rent roll of £4.4 million. The unexpired lease
term is 24.4 years with no breaks and benefits from annual
RPI index-linked increases between 1% and 5%.
We have also recently sold an Odeon cinema in
Huddersfield for £15.2 million, reflecting NIY of 6.1%, as
investor demand for long well-let income continues to
21
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Investment
continued
Post period end disposals
Sub-sector
Location
Retailer
No. of
assets
Proceeds at share
£m
Retail
Retail
Retail
Leisure
Total
Berkhamsted
Various
Various
M&S
DFS
DFS
Huddersfield
Odeon
1
Weighted average unexpired lease term, to first break
1
3
2
1
7
12.3
5.2
1.1
15.2
33.8
NIY
%
3.9
7.8
8.5
6.1
5.6
WAULT1
(years)
19.0
16.0
16.0
24.4
20.8
Residential sales of £171.3 million across 341 units
Residential sales were very strong over the year, with 341
units sold generating £171.3 million of gross sales receipts
and releasing £121.8 million of equity for reinvestment into
our preferred sectors. Post period end we transacted on
a further 37 units for £20.4 million, releasing £12.0 million of
equity. Sales in the period were 2.2% ahead of valuation.
To date the sales programme has generated £191.7 million of
gross sales across 378 units.
We now only have three remaining units in our wholly-owned
residential portfolio and have successfully sold out all of
our residential units at Clerkenwell Quarter, Highbury and
Stockwell. This has been a tremendous achievement.
Our last remaining residential asset at Moore House is held in
a joint venture with Green Park and PSP, where our 40% share
had a book value at 31 March 2014 of £74.0 million. We have
£48.0 million of equity.
We have recently commenced a targeted sales campaign
on a number of units and to date have agreed the sales
on 10% of the units at prices in line with our March 2014
valuations. We expect to be a patient seller of this property
over the next 18–24 months as the area improves with the
delivery of the adjoining Chelsea Barracks.
Sales (units)
Gross sales (£m)
Completed
Agreed
Completed
Agreed
107
109
43
72
10
341
–
25
5
2
5
37
61.2
53.0
23.9
28.9
4.3
171.3
–
14.5
2.7
0.9
2.3
20.4
Total equity
released
£m
59.4
38.0
15.8
16.6
4.0
Total
61.2
67.5
26.6
29.8
6.6
191.7
133.8
As at 31 March 2014
Location
Clerkenwell Quarter
Highbury
Battersea
Stockwell
Moore House (40%)
Total
22
LondonMetric Property Plc Annual report and accounts 2014 Link to another page:
Page 31
Link to further reading:
Page 29
Asset management
and development
Our 1.2 million sq ft
development pipeline
is now 79% pre-let
highlighting our focus on
attractive risk adjusted
development returns.
Mark Stirling
Asset Director
Despite our activity, our core portfolio still contains
significant asset management and development
opportunities, with 80% of our total portfolio having
been acquired over the last three years and 94%
since March 2010.
Property portfolio
Valuation contributors
The commercial investment
portfolio now comprises 86 assets
valued at £952 million, generating
a total annualised rental income of
£65.0 million. Our portfolio is well‑let
with occupancy at 99.6% and an
average lease length of 12.7 years
(11.8 years to first break), which is one
of the longest in the sector.
Valuation uplift of £95.9 million or 8.5%
The portfolio generated a valuation
uplift in the period of £95.9 million
or 8.5%; £35.6 million in H1 and
£60.3 million in H2. This has contributed
to the portfolio valuation as at
31 March 2014, including developments
and residential, of £1,219.8 million.
This uplift was a combination of both
intense asset management activity
and a strong improvement in the
investment market.
The portfolio benefited from an inward
yield shift of 60bps, with 33bps from
market yield movements and 27bps
from our asset management initiatives.
Forty‑eight occupier transactions
generated uplift in rental income of
£11.8 million per annum on average
lease lengths of 16.2 years (15.4 years
to first break). Our core sectors of retail
and distribution made the greatest
contributions.
New lettings and rent
reviews
New space
Asset management
yield shift
Market yield shift
Total
Valuation uplift
%
18
9
18
55
100
Valuation contributors by sector
Distribution
Retail
Developments
Office
Residential
Total
Valuation uplift
£m
24.9
35.9
26.8
5.3
3.0
95.9
360bps outperformance against IPD
Our weighted total property return
was 17.0%, which compares to the
IPD All Property Quarterly Index at
13.4%, with outperformance driven
by distribution and retail. Our active
management approach ensured
that we continued to outperform IPD
Retail at both the income and capital
level, with a total outperformance
of 800bps. Our distribution portfolio
also outperformed IPD by 900bps
at the total return level generated
by a 26% capital return. Overall, we
outperformed on capital return with an
11.2% return compared with IPD at 7.5%,
a 370bps outperformance.
23
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Serving up
a treat at
Berkhamsted
In March 2012 LondonMetric
conditionally acquired the former Post
Office site on Berkhamsted High Street
to redevelop it into 22,500 sq ft of new
retail and restaurant space (subject
to planning).
LondonMetric acquired the site
from Royal Mail in 2012 for £2.5 million
and obtained planning and
committed a further £5 million
of development costs.
Key features of the development
included:
• Pre‑let to M&S (18,000 sq ft) on
a 20‑year lease at £25 psf and
Costa (1,500 sq ft) on a 10‑year
lease at £33 psf, with an additional
restaurant unit (3,000 sq ft) to be let
• Total costs of £7.5 million and with
yield on cost of 8.0% based on a
fully let rent roll of £0.6 million
Post period end we sold the
development to Lothbury Property
Trust for £12.3 million, reflecting an
exit yield of 3.9% on the contracted
income, rising to 4.6% when the vacant
unit is let. This disposal delivers a total
development profit of £4.5 million
and profit on cost of 58%. The disposal
completed at the end of May.
24
LondonMetric Property Plc Annual report and accounts 2014 Asset management and development
continued
Performance against IPD1 (%)
Retail
Distribution2
Office
Residential
Total
Income return
Capital return
Total return
Outperformance
LMP
6.5
6.5
4.6
1.8
5.3
IPD
5.7
6.7
4.8
5.6
5.5
LMP
10.9
18.2
15.8
3.4
11.2
IPD
4.2
9.4
12.9
5.1
7.5
LMP
18.1
25.8
21.0
5.3
17.0
IPD
10.1
16.7
18.3
10.9
13.4
(bps)
+800
+900
+270
–560
+360
1
IPD All Property Quarterly Index
2 Represents IPD All Industrials Index
Only 4.3% of income due to expire over the next five years
Fixed uplifts comprise 33% of annualised rental income3
The portfolio weighted average unexpired lease term is
12.7 years (11.8 years to first break). This is an improvement
of more than one year on March 2013 and credits the
significant level of investment activity, acquiring long
leases and selling shorter ones combined with new lettings,
re‑gears and renewals, all extending our average unexpired
lease term. Only 4.3% of our income is due to expire in the
next five years and our weighting towards 15+ year income
has materially improved relative to our position last year.
Lease expiry profile – % of annualised rental income3
Fixed uplifts provide security of income growth and are
increasingly sought after by institutions, generating a positive
premium yield. The split between sectors is set out below.
Including our development pre‑let at Islip, 38% of our
portfolio’s income was subject to fixed rental uplifts
(or 47.2% of the distribution sub‑section).
Fixed uplifts
0–5 years
5–10 years
10–15 years
15 years +
Total
31 March 2014
31 March 2013
4.3
36.5
29.7
29.5
3.8
31.3
51.6
13.3
Distribution
Retail
Leisure
Office
100.0
100.0
Total portfolio
3 Commercial investment portfolio annualised rental income
% of
annualised
rental income3
% of sub‑
sector rental
income
11.8
8.0
8.3
4.5
32.6
34.5
14.1
100.0
48.5
25
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Tenant exposure (weighted by March 2014 annualised
rental income)
Trading name
1. Odeon Cinema Ltd
2. DFS
3. Argos
4. Primark
5. B&Q
6. M&S
7. Allergan
8. Royal Mail
9. SEB
10. MFS Global
Total top ten customers
Other
Total rental income
Rent per
annum
£m
% of total rent
5.4
5.4
4.0
3.9
3.7
3.6
3.0
2.4
2.4
2.4
36.2
36.5
72.7
7.4
7.4
5.5
5.4
5.2
5.0
4.1
3.3
3.3
3.2
49.8
50.2
100.0
The proportion of rental income generated by retail
occupiers has increased from 57% last year to 78% today.
However, our tenant sector exposure remains well diversified
across many occupiers, numerous locations and a number
of sub‑sectors. We would expect our exposure to the
strongest retailers to increase as we invest further within
the retail distribution portfolio.
Asset management and development
continued
Tenant diversity and covenant strength
One of our strategic priorities has been to rebalance the
portfolio towards out‑of‑town and retail distribution and
the table below shows the significant progress we have
made recycling capital out of offices and residential into
these sectors.
Sector exposure (%)
31 March 2013
31 March 2014
Today1
Out of town
Retail
Leisure
Distribution
Retail distribution
Non‑retail
distribution
Office
Residential
Development
Total
29
–
10
10
20
21
10
100
37
7
22
6
6
8
14
100
38
6
23
6
6
8
13
100
1
At 2 June 2014, including post period end acquisitions and disposals
Managing tenant exposure through sales
We continue to focus on balancing our tenant exposure,
which has evolved over the year with intense activity in the
investment market.
The wholesale acquisition of the Odeon and DFS portfolios
materially extended our exposure to these two covenants.
We have been conscious of this exposure and since
acquisition have actively looked to manage this as part
of a wider reinvestment strategy.
Since January we have now sold two of the Odeon cinemas
and 13 DFS stores, crystallising material receipts over their
wholesale purchase prices as well as reducing our income
exposure to them. The DFS income exposure has reduced
from 9.7% at acquisition to 6.7% today. Similarly, our Odeon
exposure has reduced from 9.1% at acquisition to 6.1%
post period end.
26
LondonMetric Property Plc Annual report and accounts 2014 Asset management and development
continued
Occupier transactions
Growing rental income (£m)
£11.8 million rental income uplift across 48 occupier
transactions
During the period we executed on 48 occupier transactions,
generating £25.8 million of rental income, a net uplift of
£11.8 million over the March 2013 passing rent roll of
£62.5 million. This was £1.4 million or 5.7% ahead of
management expectations and at average lease lengths
of 16.2 years (15.4 years to first break). In addition, the positive
contribution from rent roll gained on acquisitions less
disposals has added a further £3.7 million, increasing the
contracted rent roll by £15.5 million from £62.5 million to
£78.0 million.
Annualised rental income
31 March 2013
New lettings on existing space
Rent reviews/re‑gears
Uplift over previous passing rent
Net new investment (acquisitions
less disposals)
Annualised rental income
31 March 2014
Islip development
Contracted rental income
31 March 2014
Contributors/
total increase
Rental
income
5.9
0.6
6.5
3.7
10.2
5.3
15.5
62.5
5.9
0.6
69.0
3.7
72.7
5.3
78.0
Occupier transactions summary
New lettings
Re‑gears
Rent reviews
Total
No. of transactions
Net uplift in
income
£m
WAULT (years)
To expiry
To first break
30
9
9
48
11.2
0.4
0.2
11.8
19.1
12.3
–
16.2
17.8
12.3
–
15.4
New lettings have contributed an increase in contracted rental income of £11.2 million. These transactions have been let
on average lease terms of 19.1 years (17.8 years to first break). This includes lettings to MFS and SEB at Carter Lane (rent roll
£4.8m) and the 100% pre‑let development at our 1.06 million sq ft distribution development at Islip (£5.3 million), which
combined account for £10.1 million. These have been let with average lease lengths of 21.5 years (20.3 years to first break).
The remaining 26 lettings generated an uplift in rental income of £1.1 million across 14 retail parks covering 330,000 sq ft.
New letting summary
Retail
Islip development
Carter Lane
Total
Re-gears adding 4.3 years to wAuLT
No. of transactions
Net uplift in
income
£m
WAULT (years)
To expiry
To first break
26
1
3
30
1.1
5.3
4.8
11.2
14.2
25.0
17.5
19.1
12.4
25.0
15.0
17.8
Re‑gears were undertaken across 750,000 sq ft, achieving average lease terms of 12.3 years and securing £10.5 million
of rental income and producing an annual uplift of £450,000. This includes the re‑gears of the Wickes portfolio, the
simultaneous acquisition and re‑gear of the WH Smith DC in Birmingham and the re‑gear of the Travis Perkins DC lease
at Brackmills.
27
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Asset management and development
continued
Re-gear summary
Scheme name
Unilever House, Leatherhead
Asset management initiatives
– Re‑geared existing lease from 9 years to 10 years to expiry
– Increased rent by 7.5% to £26.55 psf
Allergan, Marlow
– Re‑geared existing lease from 6.8 years to 12.3 years to expiry
WH Smith DC, Birmingham
– Re‑geared existing lease from 11 years to 21 years to expiry
– Increased rent from £4.00 psf to £4.75 psf +18.8%
Travis Perkins DC, Brackmills
– Re‑geared existing lease from 0.3 years to 10 years to expiry
Carpetright, Milton Keynes
– Re‑geared existing lease from 6.1 years to 11.1 years to expiry
Carpetright, Christchurch
– Re‑geared existing lease from 7.9 years to 12.9 years to expiry
Wickes, Barnsley (MIPP)
– Re‑geared existing lease from 6 years to 17 years to expiry
Wickes, Chatham (MIPP)
– Re‑geared existing lease from 5 years to 20 years to expiry
Wickes, Oxford (MIPP)
– Re‑geared existing lease from 10 years to 25 years to expiry
Rent review showing 12.6% uplift over previous passing
Nine rent reviews were completed in the period at rents of 12.6% over the previous passing rent.
28
LondonMetric Property Plc Annual report and accounts 2014 Delivering first
mega-shed
in Islip
In July 2013 LondonMetric
commenced a phased acquisition
of a 70-acre site off the A14 in
Northamptonshire with outline
planning in place.
Post period end, we announced
the 1.06 million sq ft fully pre‑let
development to a top 25 retailer.
Key features of the development
include:
• New 25‑year lease at £5 psf with
annual fixed uplift of 1.5%
• Agreed guaranteed maximum
price build contract expected to
deliver a yield on cost of 6.9%
• Significant groundworks are well
advanced with construction of
the building expected to start
in summer 2014, with practical
completion anticipated in
summer 2015
29
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Asset management and development
continued
Like-for-like income growth 3.4%
Our management activity delivered EPRA like‑for‑like
income growth of 3.4%, driven by rent reviews and lettings
in our retail portfolio.
We have also recently just completed the refurbishment of
our City of London office building at 1 Carter Lane (127,600
sq ft). We are already 72% pre‑let, with 33,600 sq ft to let over
the ground and first floors. We are in detailed negotiations
on the remaining space.
Like-for-like rental growth – properties owned
throughout 2013/14
These three developments have delivered a blended profit
on cost of 21% over the last two years.
No. of
properties
Opening
rent roll
£m
Like‑for‑like
rental growth
%
46
15
2
63
22.8
7.2
6.0
36.0
4.8
2.2
–0.6
3.4
Retail
Distribution
Office
Total
Development
Over the period we successfully achieved practical
completion of phase 2 of our 27,000 sq ft extension at
Bishop Auckland.
Following lettings to Home Bargains (11,100 sq ft), Vision
Express (1,000 sq ft), Card Factory (1,400 sq ft) and TK Maxx
(10,000 sq ft), the scheme is now over 92% let, with one unit
of 6,200 sq ft remaining across the entire park.
In April we announced the acquisition and pre‑letting
of our first retail distribution development. We have since
secured the detailed planning consent and the site works
are already underway. Completion of the site acquisition
will take place in summer 2014. We have now signed a fixed
price construction contract and expect to deliver the new
building in the summer of 2015.
The development is already 100% pre‑let on a new 25‑year
lease at an annual rent of £5.3 million subject to fixed annual
uplifts of 1.5%. Total cost, including site purchase, is anticipated
at £77 million, reflecting a yield on cost of 6.9%.
We announced the acquisition of the Oak Furniture Land DC
in March, which completed at the end of May. Planning is
in place for a 150,000 sq ft extension to Oak Furniture Land’s
existing 302,000 sq ft DC. We are in detailed discussions with
them and remain hopeful of reaching an agreement to start
construction later this year.
Post period end we have successfully completed the
22,500 sq ft redevelopment as Berkhamsted. The scheme
is anchored by an 18,000 sq ft M&S Simply Food with a
1,500 sq ft unit let to Costa and a 3,000 sq ft unit still available.
We have continued to make progress on our 120,000 sq ft
shopping park development at Kirkstall, Leeds. We have
agreed vacant possession with BHS for later this summer
with construction to commence shortly thereafter.
We have now successfully sold the development for
£12.3 million, reflecting an initial yield of 3.9% rising to 4.6%
upon letting of the last remaining unit. This has delivered an
overall profit of £4.5 million and a profit on cost of 58%.
At St Austell, our detailed planning application for a
171,000 sq ft Open A1 retail park was refused and we are in
the process of submitting a new application for a smaller
scheme. Our acquisition of the site is conditional on us
achieving satisfactory planning consent and pre‑lets.
30
LondonMetric Property Plc Annual report and accounts 2014 Asset management and development
continued
Development summary
Scheme
Completed
Carter Lane
Berkhamsted
BA Phase 2
Total completed
Committed
Islip
Leeds
Total committed
Conditional
St Austell
Derby
Swindon
Planning gains
Sector
Office
Retail
Retail
Distribution
Retail
Retail
Retail
Distribution
Area
sq ft
Pre‑let
%
Rent roll
£m
Yield on cost
%
Valuation
yield
%
72
84
77
74
100
38
79
6.3
0.6
0.4
7.3
5.3
2.7
8.0
5.8
7.7
9.1
6.1
6.9
7.8
7.2
4.8
4.6
5.7
4.9
5.6
6.3
5.8
127,600
22,500
27,300
177,400
1,062,000
120,000
1,182,000
103,000
22,000
150,000
We received ten planning consents across 214,900 sq ft, including for small pod units. Post period end planning permission
was received for a 1.06 million sq ft pre‑let development at Islip. We have also submitted 11 applications over 84,000 sq ft
where we expect determination over the next six months.
Planning gains achieved
Scheme name
Alban Retail Park, Bedford
Planning success
– 1,000 sq ft A3 consent for pod unit
Tindale Crescent, Bishop Auckland
– 4,100 sq ft A3 consent for three pod units
Channons Hill, Bristol
– 23,900 sq ft D2 leisure consent for Xercise 4 Less
– 6,000 sq ft Open A1 consent for Poundland
Airport Retail Park, Coventry
– 15,000 sq ft A1 consent for Smyths Toys
Pierpoint Retail Park, Kings Lynn
– 5,000 sq ft Open A1 consent for new unit
Damolly Retail Park, Newry
– 9,800 sq ft Open A1 consent for relaxation of use
Christchurch Retail Park, Christchurch
– 10,100 sq ft Open A1 consent on former Comet unit
Mountbatten Retail Park, Southampton
– 10,800 sq ft D2 leisure consent for Gym Group
Carter Lane, London
– 129,200 sq ft B1 office consent for refurbishment
31
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Link to another page:
Page 39
Link to website:
londonmetric.com/responsibility
Link to further reading:
Page 60
Approach to
responsible business
In 2013 I introduced our commitment to sustainable
business practices as a key element of our
operations and performance measurements.
One year on, I am proud of the progress we
have made, including the development of a
robust Responsible Business Strategy which will
add value to our business.
Top-level sustainability highlights from the year:
Developed a Responsible Business Strategy
and Policy
Prepared for CRC phase 2 and mandatory
carbon reporting
Analysed EPC risk across our portfolio
Tracked environmental performance against
key metrics
Achieved BREEAM Very Good for two
developments: One Carter Lane and
Bishop Auckland phase 2
We have developed a new approach
to responsible business which is focused
on managing the sustainability risks
and opportunities that are most
material for our business (see page 33
for further details). This strategy will be
fully integrated with our core activities,
enabling us to deliver a development
pipeline that is fit for purpose in the
future, generate sustainable value
through our investments and respond
to occupier needs whilst maintaining
good risk management and excellent
stakeholder relationships at all levels.
In November 2013, we commissioned
JLL’s Upstream Sustainability Services
team to support us to develop a
new Responsible Business Strategy
and to analyse our environmental
performance data.
Having set ourselves a series of targets
for the next three years, the past
12 months have seen us progress with
our responsible business commitments:
having qualified for CRC phase 2, we
are now able to track the performance
of our portfolio in terms of energy
and carbon as well as other key
environmental indicators; we are
actively managing portfolio EPC
and CRC risks, and we are focused
on delivering new developments
of high environmental quality and
performance (in particular I can
highlight the Bishop Auckland phase 2
extension and our One Carter Lane
refurbishment in the City, featured in
the case study on page 39). For an
external evaluation of our progress,
please refer to JLL’s advisor’s statement
on page 44 of this report.
We are still in the early stages of our
journey, and going forward we will
build upon these achievements
within our strategic framework,
ensuring that the management
of material environmental risks is
embedded in investment processes;
deploying actions to improve energy
management; primarily refurbishing
existing stock but also developing
new buildings, to meet high
sustainability standards.
Through these actions and others,
we are anticipating future regulatory
requirements, managing costs,
focusing on investor interests and
responding to our customers’ needs.
Overall, it is clear that developing
and delivering responsible business
practices supports our core
business goals.
Developing and
delivering responsible
business practices
supports our core
business goals.
Andrew Jones
Chief Executive
32
LondonMetric Property Plc Annual report and accounts 2014 Approach to responsible business
continued
approach; in particular, the fact that
over 90% of our GHG emissions are
generated by our office portfolio,
which is non core, and the fact that
we are only responsible for water and
waste management at a minimal
number of properties. These aspects
are therefore less material to our
business than they are for other
property companies.
We have created a strategic
framework that enables us to
concentrate our efforts and investment
on a small number of material issues
and is designed to deliver added
value to each of our core activities.
Within the scope of this framework,
we have developed and approved a
Responsible Business Policy supported
by our Responsible Business Roadmap,
which encompasses both short- and
medium-term targets, presented in the
following sections of this report.
The governance and implementation
of our Responsible Business Strategy
is overseen by our Executive
Committee. The Head of Responsible
Business is responsible for day to
day management and reports
directly to the Executive Committee
who will take high-level oversight
of the establishment and delivery
of our responsible business targets.
We will report publicly on progress
made against these targets and
performance in relation to our KPIs
on an annual basis.
The following sections of this report
provide an overview of our strategy
and details of actions implemented
during the reporting year and future
plans, both at a corporate level
and with respect to each of our
core activities.
Our Responsible Business Strategy
With support from our external real
estate sustainability advisors, we have
developed a Responsible Business
Strategy based around our core activities
of investment, asset management and
short-cycle development. It is supported
by the foundations of good risk
management and a focus on creating
and maintaining excellent stakeholder
relationships at all levels.
Following the merger and our renewed
commitment to sustainable business,
we identified great opportunities to
adapt quickly and commercialise
sustainability, whilst managing risks and
related costs.
In the context of increased legislative
pressure on environmental issues;
growing demand from investors for
sustainability disclosure; and potential
long-term risk to asset value associated
with less resource-efficient assets,
our Responsible Business Strategy is
designed to manage key sustainability
risks, deliver short-term profitability and
cost savings, strengthen relationships
with our key stakeholders – in particular
staff, investors, JV partners, occupiers,
communities and local authorities; and
enhance our brand value and long-
term profitability.
Our approach to developing this
strategy involved a baseline business
review; an assessment of legislative
risks; a review of investor expectations;
an assessment of our peers’
sustainability practices and an analysis
of portfolio EPC risk. Together, these
analyses enabled us to identify and
prioritise a series of material issues for
each of our core activities. They also
highlighted some peculiarities for our
business in terms of our sustainability
Responsible
investments
Generating
sustainable value
More detail:
Pages 34 – 44
Responsible
development
Future-proofing
our pipeline
Responsible
business
Managing
stakeholder
relationships
and risk well
Responsible
asset
management
Responding to
occupier needs
33
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Approach to responsible business
continued
Focus on:
Responsible business
Managing stakeholder
relationships and risk well
Within the framework of our
Responsible Business Strategy, we are
undertaking actions at a corporate
level to support shareholder value
creation through our three core
areas of activities. These focus on
sustainability risk management
throughout our operations and
effective engagement with key
stakeholders, both internal and
external to the business.
Our Responsible Business Strategy
encompasses our approach to
ongoing environmental impact
reduction at our corporate head office
and to management of HR issues
such as staff retention and diversity.
It also includes the work with our
supply chain on labour conditions,
health and safety, and human rights
issues, and our commitment to society
through our annual programme of
sponsorships and charitable donations
within the local communities in which
we operate.
Our progress
Over the past financial year, we
have undertaken an assessment of
environmental and social risks for
our business and ensured that our
Responsible Business Strategy is tailored
to managing these risks as a priority.
In particular, we mapped the scope
of our expected liabilities under
the CRC Energy Efficiency Scheme
and prepared to report in line
with mandatory carbon reporting
requirements. In addition, we
carried out a review of the Energy
Performance Certificate (“EPC”) risk
across our portfolio.
EPC risk assessment:
• Identification of the ways in which
EPCs are influencing the market
• Collection of EPC data from assets
across our portfolio
• Analysis of EPC risk exposure by
passing rent
• Comparison of LondonMetric’s EPC
risk exposure with peer benchmarks
Based on the findings of this review,
we have made asset management
decisions where assets are at risk, and
made it a priority to obtain EPCs for
properties which did not have one.
Further information on the results of
our EPC risk review can be found on
page 40.
We delivered responsible business
training to staff across our property
teams as well as to senior personnel
in our finance team. In response to
investor interest, we undertook a
targeted review of our scorecard results
from the GRESB survey with a view to
improving our level of sustainability
disclosure going forwards. We have
also engaged in over 70 meetings
with our investors this year, and going
forward we anticipate these meetings
will increasingly involve discussions on
our responsible business approach.
Honouring our commitment to
communities, our charitable activities
in 2013/14 involved a total of £22,080
in charitable donations, including a
donation of £10,000 to LandAid, a
£5,000 donation to Children In Need
and sponsorship of Berkhamsted
Raiders junior football team.
We have undertaken
an assessment of
environmental and
social risks for our
business and our
Responsible Business
Strategy has been
tailored to manage
those risks.
34
LondonMetric Property Plc Annual report and accounts 2014 Berkhamsted Raiders Community Football Club aims to promote community participation in healthy recreation and to
advance the education of children and young people whether or not in formal education.
LandAid
LandAid works to improve the lives
of children and young people in the
UK who experience disadvantage
due to their economic or social
circumstances. As a charitable
foundation supported by the property
industry, LandAid finds ways to apply
the generosity and expertise of the
industry to this cause.
Our future plans
Over the next financial year, we
will seek to integrate cost-effective
measures to uprate EPCs for relevant
assets. We will also commission our
external sustainability advisor, JLL,
Roadmap for responsible business
to deliver a responsible business
training session for all staff, including
our Directors, aiming to ensure that
the strategy becomes fully embedded
within the DNA of our Company.
Focus area
Short-term targets
Medium-term targets
Corporate
communications
Approve and publish a
Responsible Business Policy
Create and launch a Responsible
Business section on the LondonMetric
website which includes the new policy
and 2014/15 targets
Investor surveys and
communications
Share the Responsible Business Policy
with existing and potential joint venture
partners
Include a more detailed
Responsible Business section in
the annual report, publishing
data in line with the guidance
provided by the EPRA sBPRs
Target a GRESB score above 30% and
improve on the relative peer ranking
against 2013 performance
Incorporate a responsible business
update into investor road shows
Provide staff with training on our new
“Responsible Business” Strategy
Target a GRESB score above 50%
Ensure that responsible
business training is integrated
into the induction procedure
for new recruits
Staff training
35
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Approach to responsible business
continued
Focus on:
Responsible investments
Generating sustainable value
Our customer-focused approach to
real estate allows us to capitalise on
our strong relationships with occupiers
to invest in properties which have a
long-term appeal. In keeping with
our stakeholders’ growing concern
about the sustainability performance
of real estate, we aim to ensure
that material sustainability risks and
opportunities are integrated into
acquisition and disposal processes,
with specific attention to issues such as
energy & carbon liabilities, flood risk
and sustainable transport options with
good connectivity.
Our progress
With a portfolio that encompasses
primarily a mix of retail and distribution
properties as well as two large office
properties, sustainability risks and
opportunities for LondonMetric
are diverse, potentially including
land contamination; asbestos;
vulnerability to flooding and other
extreme weather events; accessibility;
energy efficiency and energy costs;
CRC liabilities; renewable energy
generation; water efficiency; security
and more. Across the real estate sector,
environmental and social risks are
being given increasing importance
as part of the due diligence process
for new acquisitions, and sustainability
criteria are starting to influence
investment decisions.
We are currently in the process of
updating our pre-acquisition process
to ensure that all material sustainability
factors are appropriately factored in,
and we are developing a procedure
to ensure that our future investment
decisions fully review risks to value from
EPC and carbon liabilities, such as
CRC legislation.
Our future plans
In future, we will also focus on making
sure that relevant sustainability risks
are addressed as part of asset sale
preparation and include
environmental performance
information in asset marketing to
support sales where appropriate.
Roadmap for responsible investments
Focus area
Short-term targets
Medium-term targets
Pre-Acquisition
Sustainability
Checklist
Update the pre-acquisition process with a specific
sustainability checklist covering the following:
assessment of energy performance; assessment
of carbon (CRC) liabilities; EPC risk; flood risk;
sustainable transport links
Investment
Decision Process
Develop a procedure to ensure that investment
decisions fully review risks to value from both
building EPC ratings and CRC liabilities
Asset Sales &
Marketing
Ensure asset readiness for sale by ensuring that at a minimum an EPC is
in place – and where relevant flood risk has been assessed. Additionally,
if EPC rating is an E or below, consider establishing cost of upgrade/
improvement works to avoid excessive price-chip on a riskier asset
(ongoing target)
Include information on environmental efficiency in asset marketing
information to support sales (ongoing target)
36
LondonMetric Property Plc Annual report and accounts 2014 Approach to responsible business
continued
Focus on:
We will continue to
aim for all significant
refurbishments and
developments to
reach BREEAM Very
Good certification as
a minimum.
Responsible
development
Future-proofing our pipeline
Creating desirable real estate is
fundamental to our business model
and drives our leasing, planning and
development strategies. We will aim to
develop flexible buildings positioned to
meet changing financial, environmental
and social demands. In particular,
all larger new developments will be
designed to achieve a recognised
sustainable building certification
standard (such as BREEAM) and
requirements will be put in place
for contractors to guarantee the
implementation of responsible property
development practices (such as the
Considerate Constructors Scheme).
Our progress
Redeveloping brownfield sites and
exploiting the existing building stock
for regeneration and redevelopment
furnishes us with an opportunity to
deliver development with lower
environmental impacts and positive
social benefits. In February 2014, we
completed the second phase of the
Bishop Auckland development, a
26,100 sq ft extension to the existing
retail park, achieving a BREEAM Very
Good rating and a 10% reduction
in CO2 emissions against Building
Regulations for the new retail units.
We engaged with tenants to develop
and implement a Green Travel Plan
and a Green Building User Guide, and
provided £130,000 in funding to the
local council to support the provision
of apprenticeships and a local business
advisory service.
We completed our One Carter Lane
offices refurbishment in April 2014,
also achieving BREEAM Very Good
and delivering some significant
improvements in terms of
environmental performance (see case
study on page 39 for further details).
Our future plans
In future, we will continue to aim for
all significant new developments,
expansions and major refurbishments
to achieve a BREEAM Very Good
certification as a minimum, and ensure
that our contractors deliver sound
management of key construction
sustainability issues such as health and
safety, and waste.
Roadmap for responsible development
Focus area
Short-term targets
Medium-term targets
Sustainable building
certification
standards
Large new developments,
expansions and major
refurbishments to achieve
BREEAM Very Good
Develop minimum
requirements for development
contractors covering
responsible business issues
(e.g., health and safety
and waste performance)
and regularise how these
are incorporated into new
contracts signed
Responsible
business
requirements
for contractors
Achieving higher
sustainability
standards on
new builds
Regularise guidance for development
teams on the application of sustainable
building certification standards
to ensure that they meet with the
necessary requirements
Monitor the implementation of
contractors’ responsible business
requirements and engage with
contractors to address any issues
identified
Where there is landlord control, monitor
the environmental performance
of new developments and major
refurbishments once in operation
Investigate how development projects
in the pipeline will achieve the UK’s
2019 “zero carbon requirement” for
commercial buildings
37
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements 80%
of existing structure reused
16%
reduction in carbon emissions
post refurbishment
38
LondonMetric Property Plc
Annual report and accounts 2014
One Carter
Lane
In 2013, we commenced the
refurbishment of One Carter Lane,
a 130,000 sq ft office building located
in the City of London. This project
involves replacing 75% of the shell
and core base build engineering
services; delivering a new Category
A fit-out to the office areas and
refurbishing several other internal
areas; repairing the external façade
and creating a new entrance
canopy, allowing for higher levels of
natural light and improving the user
experience. In keeping with good
practice in responsible development,
we have sought to reduce the social
and environmental impacts of the
refurbishment process and to ensure
that One Carter Lane will achieve
a higher standard of sustainability
performance following the works.
We applied the BREEAM Offices
2008 sustainability assessment
standard to identify and deliver a
number of interventions to meet a
higher standard of eco-efficiency
at One Carter Lane, and our project
team worked to the Considerate
Constructors Scheme requirements
to minimise impact to the local
community.
Sustainability targets:
• Install zone lighting and heating/
cooling systems to allow for separate
occupant control in different areas
• Replace manual switch lighting with
daylight dimming and sensor lighting
• Deliver an improvement in the
energy efficiency of the building’s
fabric and services, thereby achieving
a lower level of CO2 emissions
• Install water sub-meters and a leak
detection system
• Integrate a mix of native and
wildflower plants to enhance the
ecology of the site
• Deliver best practice construction
waste management
• Implement a Green Travel Plan
Achievements:
• Achieved a BREEAM Very Good
rating based on the interim design
stage assessment
• Achieved an EPC rating of ‘C’,
compared to a ‘D’ rating prior to
the refurbishment
• Reused more than 50% of the total
building façade (by area); more
than 80% of the existing primary
structure and responsibly sourced
100% of insulation material
• Minimised construction waste,
with at least 75% by weight of
non hazardous construction waste
diverted from landfill
• Provided 115 cycle parking spaces
and shower facilities in accordance
with our Green Travel Plan
Furthermore, an energy analysis of the
building was carried out to assess the
impact of the proposed sustainable
and low energy technologies. The
analysis was performed utilising
a three-dimensional thermal
model, which indicated that the
new sustainable and low energy
technologies included in the
refurbishment will result in a 16.3%
reduction in carbon emissions
post-refurbishment.
We will continue to optimise the
building systems through seasonal
commissioning and deliver a tenant
fit-out guide and user manual for the
technology installed to ensure that it is
used most effectively.
LondonMetric Property Plc
Annual report and accounts 2014 39
Strategic reportGovernanceFinancial statements Focus on:
Responsible asset
management
Responding to occupier needs
Our asset management objective is to
invest in a portfolio of properties with
enduring occupier appeal, which
provides opportunities to improve
both rental values and the security
and longevity of income, including
limited risk short-cycle developments to
improve the quality of assets.
To support this objective, we
engage in practical actions with
our occupiers to understand and
establish sustainable rental levels,
grow future income streams and
mitigate material risks. These actions
encompass monitoring, targeting and
improving energy, water and waste
management; tenant engagement on
a range of issues including improving
accessibility; implementation of
responsible property management
requirements for managing agents;
assessment and management of EPC
risk; and exploration of the feasibility
of renewable energy technology, for
energy security and long-term cost
and carbon management purposes.
Our actions are designed to promote
the long-term sustainability of our
assets and their value.
Our progress
At this stage, we have environmental
reporting procedures in place which
are aligned across our business.
Consequently, we have been able
to establish baseline data for key
performance metrics, which are
presented on page 42.
Furthermore, we have undertaken a
review of the EPC ratings across our
portfolio. This process has enabled
us to identify that a maximum of
12% of assets in rental value present
potential risk. During 2014/15, we will
be developing plans to further assess
the risk of this pool by undertaking
EPCs where we do not currently have
one in place and upgrading assets,
where appropriate and relevant, as
part of our asset management plans,
taking account of void periods and
lease events. EPCs present a range
of risks to property owners – including
obsolescence, improvement costs
and minimum occupier requirements.
We are confident that taking a pro-
active approach to managing EPC
risk can help to sustain asset values
and maintain the appeal of our assets
to customers.
88%
EPC ratings by passing rent
classified as no risk
EPC ratings by passing rent
New development – 7%
A – 1%
B – 15%
C – 36%
D – 12%
E – 17%
F – 3%
G – 1%
Unknown – 8%
40
88% no risk
LondonMetric Property Plc Annual report and accounts 2014 Approach to responsible business
continued
Our focus will be
on managing
risk and reducing
operational cost.
Our future plans
Going forwards, we will aim to identify
and implement actions to improve
environmental performance (in
particular energy, which is more
material to our business) at relevant
owned and managed assets, with a
focus on managing risk and reducing
operational costs. Leveraging our
strong relationships with property
managers and customers, we will
collaborate with both managing
agents and occupiers to make
sure that our buildings are used as
efficiently as possible, and we will
explore options for alternative energy
solutions including on-site renewables
at selected assets.
Roadmap for responsible asset management
Focus area
Short-term targets
Medium-term targets
Monitoring, targeting
and improving energy,
water and waste
management
Establish baseline data for annual
energy consumption; GHG
emissions; water consumption and
waste generation at all relevant
owned and managed assets
and use this data to set targets to
improve performance in 2015/16
Identify and implement
actions to improve energy
consumption; GHG emissions;
water consumption and waste
management performance at
relevant owned and managed
assets in accordance with the
targets set; continue to monitor
performance
EPC risk management
Following the analysis of EPC rating risk across the portfolio, review and
action opportunities to reduce risk in the context of the asset business
plan (ongoing target)
Renewable energy
feasibility
Carry out a feasibility study on
renewable energy opportunities
Update managing agents’
contracts to incorporate responsible
procurement requirements
Responsible
management
requirements for
managing agents
Occupier
engagement
If applicable, proceed with
the implementation of on-site
renewable energy at assets
where this was deemed
feasible
Monitor the implementation of
managing agents’ responsible
business requirements and
engage with them to address
any issues identified
Incorporate discussions on responsible business topics at occupier
meetings to identify opportunities for implementing mutually
beneficial asset management initiatives (ongoing target)
41
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Performance data
92%
of our carbon emissions arise
from our office portfolio
As per our reported ambition last year, we have been working hard over the past
year to collate and analyse as much sustainability performance data as possible.
Table 1 reports our energy and carbon footprint related to the financial year
2013/14. Table 2 reports a selection of our social performance data as of the end
of the same financial year.
Data table 1: Energy and carbon performance data
EPRA
indicator
Sustainability performance measures
3.1
Electricity
(sub)metered exclusively to tenants
for landlord shared services
3.2
District heating
and cooling
Total landlord-obtained electricity
for landlord shared services
(sub)metered exclusively to tenants
Total landlord-obtained district heating and
cooling
for landlord shared services
3.3
Fuels
(sub)metered exclusively to tenants
Total landlord-obtained fuels
Proportion of energy (MWh) estimated
Coverage of data disclosed by asset number1
Direct greenhouse
gas emissions
Scope 1 – emissions from gas use and facility
operations2
Scope 2 – emissions from electricity
purchased for own use
3.5
3.6
3.6
Indirect
greenhouse
gas emissions
Indirect
greenhouse
gas emissions
2013/14
7,120 MWh
2,852 MWh
9,972 MWh
N/A
N/A
N/A
3,845 MWh
N/A
3,845 MWh
24%
72 of 77
708 tCO2
3,172 tCO2
Scope 3 – emissions from third parties in
value chain3
1,650 tCO2
Scope 1 and 2 intensity:
tonnes CO2 per £m net income after administrative costs4
99
Data qualifying notes
We have used the main requirements of ISO14064 Part 1 and the GHG Protocol Corporate
Accounting and Reporting Standard (revised edition) for our methodology, using energy
consumption data from our owned and occupied properties. We have chosen to report greenhouse
gas emissions under our operational control, rather than financial control; this may mean that
the scope of our greenhouse gas emissions disclosure differs from that of the consolidated
financial statements.
We have used emissions factors from the UK Government conversion factors for company reporting.
In this disclosure, estimation refers to filling invoice gaps, not to whether invoices are based on
estimated or actual readings.
1
Landlord-controlled emissions from our wholly-owned residential portfolio (Clerkenwell Quarter,
Highbury, Stockwell and Battersea) are not included in this disclosure as they are not material
to our total carbon footprint (represent <2% of total emissions). Emissions from our joint venture
residential property at Moore House are excluded because we were unable to obtain
comprehensive data for the reporting period – we are working to improve data collection for
future reporting, if the data transpires to be materially relevant to our footprint.
2
Scope 1 does not include refrigerant emissions as these have been determined to not be
material (represent <2% of total emissions); owned fleet does not apply.
3
Scope 3 includes landlord-obtained energy (only if sub-metered to tenants), all transmission and
distribution losses, and tenant-obtained energy where applicable and tenant provides data.
4
Net income after administrative costs are as reported in these financial statements on page 92.
42
LondonMetric Property Plc Annual report and accounts 2014 Performance data
continued
We will be setting energy
and carbon reduction
targets over the
coming year.
During 2014/15 we will be developing meaningful energy and carbon
performance indicators for each property and asset type, which demonstrate
the energy and carbon intensity of each asset in the most appropriate way, such
that performance can be tracked over time. Note that the vast majority of our
emissions (92% in 2013/14) arise from our office portfolio, with only 8% from our retail
portfolio in the same period. We will also be setting internal energy and GHG
reduction targets for the two-year period April 2014 to March 2016, against
a 2013/14 baseline.
Data table 2: Social performance data
Indicator
2013/14
The number of persons of each sex who were Directors of
the Company
The number of persons of each sex who were senior managers
of the Company (other than persons identified as Directors)
The number of persons of each sex who were employees
of the Company
1
9
3
4
20
22
Human rights concerns reported to the Executive Committee
Our operations are based solely in the UK and are very low risk in relation to
human rights issues. No human rights concerns have arisen within our direct
operations or our supply chain during 2013/14.
43
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Advisor’s statement
For the remainder of 2014 and beyond,
we believe that LondonMetric should
focus on:
• Delivering training to staff on the
Responsible Business Strategy, thereby
guaranteeing that responsible
business practices are fully integrated
into day to day activities
• Making sure that key risks (including
EPC and CRC liabilities) are reviewed
as part of the investment process
• Continuing to implement actions
to manage EPC risk and increase
energy efficiency across the
operational portfolio
• Continuing to ensure that
environmental data is accurately
reported on an ongoing basis
and that opportunities to improve
performance are identified and
acted upon
• Engaging with occupiers to gain
feedback, identifying potential
opportunities for collaboration
in delivering responsible
business commitments
Sophie Walker
Director, JLL
JLL has been engaged by
LondonMetric to support the
development of its Responsible Business
Strategy and prepare the responsible
business section of its annual report
and accounts 2014.
JLL provides industry-leading
strategic advice on sustainable
property and on environmental
sustainability. Its team has extensive
experience in producing and
assuring sustainability reports, data,
information, systems and processes.
This Advisor’s statement provides an
external evaluation of LondonMetric’s
reported performance but does
not constitute fully independent
assurance or verification. Any errors
and misstatements identified by JLL
during the report drafting process
were amended accordingly
by LondonMetric.
JLL would like to highlight the following
areas as evidence of progress made
by LondonMetric with respect to
responsible business during the financial
year 2013/14:
• Development of a robust Responsible
Business Framework and Policy,
supported by a comprehensive
review of the most significant
sustainability risks and opportunities
for LondonMetric’s business
• Responsible Business Framework
and Policy approved at Board level
as a testament to the Company’s
commitment to deliver responsible
business practices
• Implementation of environmental
reporting procedures across the
business, and the reporting of key
environmental metrics, including
GHG emissions data, in accordance
with industry protocols
The Responsible Business
Policy approved at Board
level is a testament to the
Company’s commitment
to deliver responsible
business practices.
44
LondonMetric Property Plc Annual report and accounts 2014 Financial review
Since the merger of the two former businesses of
London & Stamford and Metric in January 2013,
the key strategic focus has been to reposition the
portfolio, increase dividend cover and enhance EPRA
earnings per share.
On a contracted basis
at 31 March 2014 the
dividend is now fully
covered.
Martin McGann
Finance Director
The Group has had a very successful
post-merger year with EPRA earnings
per share increasing by 8% to 4.2p and
EPRA NAV per share by 11% to 121.0p.
EPRA measures are used as alternatives
to IFRS equivalent measures as they
highlight the underlying recurring
performance of the property
rental business.
The dividend has been maintained
at 7.0p per share and the charge
in the year is 60% covered by EPRA
earnings compared to 52% a year ago.
On contracted basis at 31 March 2014
the dividend is now fully covered.
There has been a significant number
of transactions in the year which have
repositioned the portfolio into our
core out-of-town and retail distribution
property sectors.
Highlights
EPRA earnings per share
+8%
Portfolio valuation uplift +372%
2014
2013
4.2p
3.9p
2014
2013
Net rental income
+34%
EPRA NAV per share
2014
2013
£58.5m
£43.6m
2014
2013
Loan to value
2014
2013
£95.9m
£20.3m
+11%
121.0p
109.4p
32%
43%
45
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Financial review
continued
Income statement
A full reconciliation between EPRA earnings and IFRS
reported profit is provided in note 9 to the accounts.
A summary of the key items is as follows:
EPRA earnings
Adjustments:
Surplus on revaluation
Movement in fair value
of derivatives
Profit on disposal1
Cost of closing out
derivatives
Current tax and other
Profit before tax and
exceptional items
Exceptional items and
tax
2
Reported profit/(loss)
after tax
Group
£m
23.3
87.5
8.4
12.2
(6.2)
(0.2)
JV
£m
3.1
8.4
2.8
2.3
(2.1)
(0.1)
2014
£m
26.4
2013
£m
22.0
95.9
20.3
11.2
14.5
(8.3)
(0.3)
(2.8)
1.1
–
(0.7)
125.0
14.4
139.4
39.9
(14.1)
–
(14.1)
(53.4)
110.9
14.4
125.3
(13.5)
1
Comprises profit on sale of investment property of £14.0 million and
trading property of £0.5 million in 2014
2
Comprises share-based payments, amortisation of intangible assets
relating to the internalisation of management in 2010 and taxation.
The previous year included the impairment of an investment
EPRA earnings
The Group’s profit before tax and exceptional items on
a proportionately consolidated basis was £139.4 million
compared with £39.9 million last year, an increase of 249%.
This excludes the accounting impact of the internalisation
of management in 2010 of £12.6 million (2013: £14.4 million)
which has now been fully charged to the income statement.
Additional costs of £0.2 million associated with the merger
with Metric (2013: £11.9 million) and tax of £1.3 million
(2013: £3.9 million) were other exceptional items in the
year. Last year the Group impaired the carrying value of its
investment in the Meadowhall Shopping Centre held with
Green Park Investments by £23.2 million.
Favourable valuation yield movements, careful investment
and value enhancing initiatives have all contributed to the
£95.9 million valuation gains reported in the year, being the
major contributor to the increased profit before tax and
exceptional items noted above.
The proportionally consolidated EPRA income statement for the current and previous year is as follows:
Group
£m
54.1
(2.8)
–
51.3
0.8
(13.5)
(15.4)
0.1
23.3
JV
£m
7.8
(0.6)
–
7.2
(0.8)
(0.4)
(2.9)
–
3.1
2014
£m
61.9
(3.4)
–
58.5
–
(13.9)
(18.3)
0.1
26.4
Group
£m
32.7
(3.5)
1.9
31.1
8.5
(11.0)
(11.7)
–
16.9
JV
£m
15.0
(0.6)
–
14.4
(1.4)
(0.7)
(7.9)
0.7
5.1
2013
£m
47.7
(4.1)
1.9
45.5
7.1
(11.7)
(19.6)
0.7
22.0
Gross rental income
Property costs
Other income
Net income
Management fees
Administrative costs
Net finance costs
Current tax credit
EPRA earnings
46
LondonMetric Property Plc Annual report and accounts 2014 Financial review
continued
A detailed analysis of EPRA earnings for the Group’s share of its individual joint ventures is shown in note 11 to the accounts.
The movements in the proportionally consolidated income statement from the previous year can be summarised as follows:
EPRA earnings (£m)
22.0
+13.0
-7.1
-2.2
+1.3
-0.6
26.4
2013
Net rental
income
Management
fees
Administrative
costs
Net finance
costs
Tax
2014
EPRA earnings from joint ventures of £3.1 million has fallen
by £2.0 million as a result of the sale of ten distribution assets
early in the year and the sale of Meadowhall in the previous
year. A full year’s contribution from MIPP, the joint venture
acquired on merger with Metric, offset in part this loss.
Net finance costs, excluding the costs associated with
repaying debt and terminating derivative arrangements
following sales in the year, was £18.3 million, a reduction of
£1.3 million over the previous year.
Our interest rate exposure is hedged by a combination of
fixed interest rate swaps and caps. We take independent
advice from J C Rathbone Associates before entering
into derivative arrangements. The favourable derivative
movement of £11.2 million on a proportionally consolidated
basis comprises the release of provisions on termination
of derivative products following sales in the year and
movements in future swap rates.
Gross rental income increased by £14.2 million or 30% to
£61.9 million. Like-for-like gross rental income reported on
a statutory basis increased by £19.3 million due to a full
year’s contribution from the Saturn portfolio, the Primark
distribution unit in Thrapston and the Metric portfolio of
assets, all acquired late in the previous year, offset by the
loss of rent at Carter Lane during its redevelopment phase.
Income foregone from disposals in the year of £13.5 million
was offset in part by income of £8.4 million generated by
acquisitions made throughout the year.
Management fees have fallen following the sale of joint
venture investments last year and in the early part of this
year, and also as a result of an adjustment of £0.8 million
to performance fees accrued in the previous year.
Performance fees earned in the previous year amounted
to £3.5 million.
Group only administrative expenses have increased
by £2.5 million when compared with the previous year,
reflecting the higher overhead cost of the combined
post-merger Group for the whole year. The combined
administrative expense of the pre-merged companies was
£15.6 million, excluding share of joint ventures. At the time
of the merger, we anticipated cost synergies in excess of
£2.5 million. Cost synergies achieved of £2.1 million are lower
than expected as a result of increased bonus payments
following a very successful post-merger year.
47
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Financial review
continued
Balance sheet
Reported IFRS net assets
Adjustments:
Fair value of derivatives
Deferred tax
Other adjustments
EPRA net assets
EPRA NAV per share
2014
£m
2013
£m
755.9
676.7
1.3
–
(0.2)
757.0
12.6
(2.3)
0.3
687.3
121.0p
109.4p
The Group has seen EPRA net assets increase by £69.7 million
to £757.0 million or 121.0p per share. The increase comprises
EPRA earnings for the year of 4.2p per share, the property
revaluation surplus of 15.3p per share and a net profit on
disposals after finance break charges of 1.0p per share,
offset by dividends paid of 7.0p per share and other
exceptional items of 1.9p per share.
Portfolio valuation
Opening valuation
Acquisitions
Capital expenditure
Disposals
Revaluation
Lease incentives
Total
Group
£m
990.6
335.3
27.3
JV
£m
2014
£m
226.2
1,216.8
79.5
0.2
414.8
27.5
(418.1)
(125.2)
(543.3)
87.5
8.0
8.4
0.1
95.9
8.1
1.030.6
189.2
1,219.8
The Group’s portfolio was valued at £1,219.8 million
at 31 March 2014 including its share of joint ventures,
an increase of £3.0 million over the previous year.
Underpinning this net increase is a significant amount
of transactional activity.
The Group spent £414.8 million (including acquisition
costs) on property acquisitions and £27.5 million on capital
expenditure, which principally related to the redevelopment
of property at Carter Lane, London. The Group disposed
of 28 commercial and 341 residential assets generating
proceeds of £568.4 million, principally offices at Fleet Place,
London, and Leatherhead and London residential flats.
The acquisitions and disposals reshape the portfolio into the
out-of-town and retail distribution sectors in accordance
with our strategy.
Our core portfolio of retail, distribution and developments
now accounts for 86% of the portfolio valuation as opposed
to 59% last year. Properties under development have
increased following the acquisition of a 70-acre site at
Northamptonshire which has been pre-let on a new 25-year
lease. The development is expected to commence late
summer, with practical completion targeted for summer
2015. The total cost of the development, including the site
purchase is anticipated to be c. £77 million.
EPRA net asset value (£m and p per share)
687.3
(109.4p)
+26.4
(4.2p)
+95.9
(15.3p)
-44.0
(7.0p)
+14.5
(2.3p)
-8.4
(1.3p)
-12.5
(1.9p)
-2.2
(0.0p)
757.0
(121.0p)
2013
EPRA earnings
Revaluation
Dividend
Profit on
disposal
Finance
break costs
Exceptional
items
Shares held
in trust
2014
48
LondonMetric Property Plc Annual report and accounts 2014 Financial review
continued
Financing
Our on balance sheet debt at 31 March 2014 was £415.5 million compared with £464.5 million last year. On a look-through
basis, taking account of our joint venture debt, gross debt at 31 March 2014 was £473.0 million compared with £573.0 million
this time last year.
Gross debt
Cash
Loan to value
Average cost of debt1
Hedging
Maturity
Undrawn facilities
1
Includes the amortisation of finance arrangement fees
Gross debt movement (£m)
573.0
+148.7
+14.5
-263.2
473.0
2013
Acquisitions
Refinancing
Disposals
2014
Debt of £263.2 million was repaid following sales that
completed in the year. The £96.0 million investment facility
used to finance both City office assets at Fleet Place and
Carter Lane was repaid following the sale of Fleet Place and
the commencement of development at Carter Lane.
During the year two new five-year facilities were completed
with Helaba and RBS totalling £283.1 million and have been
used to finance the acquisition of nine properties in the year
and refinance seven assets acquired in the previous year as
well as the former Metric retail portfolio.
Group
JV
2014
Total
Group
JV
2013
Total
£415.5m
£57.5m
£473.0m
£464.5m
£108.5m
£573.0m
£78.4m
£9.0m
£87.4m
£37.6m
£8.3m
£45.9m
33%
3.9%
86%
26%
4.2%
75%
32%
3.9%
85%
43%
4.0%
80%
44%
4.2%
76%
43%
4.0%
79%
3.8 years
3.0 years
3.7 years
3.0 years
3.1 years
3.0 years
£96.0m
–
£96.0m
£37.0m
£16.7m
£53.7m
A further new £43.5 million four-year facility was agreed
with Lloyds to finance the acquisition in November 2013 of
the Odeon Cinema portfolio and £40.5 million was drawn
under our revolving facility with Lloyds to refinance property
at Marlow.
The new facilities have increased debt maturity to 3.7 years
from 3.0 years in March 2013.
Loan to Value at the year-end, including our share of joint
ventures and net of cash resources, was 32% compared with
43% last year.
Following the completion of debt facilities agreed post
year-end, the Group’s LTV increases to 35%.
The Group has undrawn facilities of £96 million available
at 31 March 2014. Its weighted average cost of borrowing,
including the amortisation of arrangement fees, was 3.9%
(2013: 4.0%). The weighted average interest rate alone was
3.5% (2013: 3.6%). Hedging in place equates to 85% of current
gross debt including its share of joint ventures. The Group
has complied comfortably throughout the year with all of its
loan covenants.
Post period end we have drawn the remainder of the Lloyds
revolving credit facility and extended our £80 million RBS
revolving credit facility by a further 2.5 years, now expiring
June 2019.
49
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Financial review
continued
The Group’s gross debt as at 31 March 2014 can be
summarised as follows:
Lender
Group
Helaba
Metlife
Lloyds
RBS
Wells Fargo
Lloyds
JV (at share)
Metlife
RBS
Pfandbrief
Total
Debt
drawn
£m
Maturity
(years)
Sector
Distribution
Residential
Office
Retail
Retail
Leisure
Distribution
Residential
Retail
143.1
17.6
40.5
140.0
34.7
39.6
7.4
25.1
25.0
473.0
4.3
2.3
2.2
4.4
2.1
3.6
1.9
2.4
3.8
3.7
Debt maturity profile (£m)
2014
2015
2016
2017
2018
2019
7.4
64.6
Drawn
Undrawn
Liquidity and cash
117.9
96.0
283.1
The Group had cash resources, including its share of joint
ventures, of £87.4 million (2013: £45.8 million). Cash deposits
are placed with a diverse mix of institutions taking
into account credit rating, rates of return and funding
requirements across the Group.
50
LondonMetric Property Plc Annual report and accounts 2014 Risk management
The Board’s approach to managing risk
The Board has overall responsibility for risk management
within the Group, including its joint ventures. It recognises
that risk is inherent in the operation of the business and that
effective management of risk is key to the success of the
organisation whilst it aims to maximise shareholder returns.
The Board has delegated responsibility for the assurance of
the risk management process and the review of mitigating
controls to the Audit Committee. The Executive Committee
assisted by senior management is responsible for the
Risk framework
LondonMetric Board
Overall responsibility for
risk management and
internal controls.
Audit Committee
Monitors and reviews
risk register and internal
financial control framework.
Reports findings to the
Board.
Executive Committee and
senior management team
Prepares risk register and
Internal Control Evaluation
Questionnaire. Considers
and challenges mitigating
controls.
design, implementation and maintenance of the systems of
internal controls.
The Company has a risk register which identifies principal
risks, the impact of each risk, the likelihood of it occurring
and the strength of the mitigating controls in place.
This register is updated annually or more frequently if
circumstances require it. The risk register was last presented
to the Audit Committee and Board in March 2014.
The significance and probability of each risk identified
to the Group is rated by senior management as having
either a high, medium or low impact. Greater weighting
is applied the higher the significance and probability of
a risk. These weightings are then combined to produce
an overall gross risk rating. Specific risk management
safeguards for each risk are identified, detailed and rated
by senior management as strong, medium or weak with
greater weighting applied the stronger the safeguard.
The gross risk rating and strength of safeguards against that
risk are then combined to produce a resultant overall net
risk. Consideration is given to the implementation of further
action to reduce risk where it is considered necessary. Finally,
each risk is allocated an owner and details of how the
safeguards are evidenced are noted. The Board recognises
that risk cannot be eliminated completely from the business
at an acceptable cost but maintains a low appetite for
risk across each area of the business consistent with its
strategic objectives.
The risk register has been updated over the last year to take
into account changes in the business of the Group following
the Company’s merger in January 2013 with Metric Property
Investments Plc, the £100 million tender offer in February
2013, the implementation of the integration plan including
the consolidation of staff into one new office in May 2013
and the consolidation of accounting systems in June 2013.
The Group has undergone a strategic repositioning of its
portfolio since merger and the impact of this as well as
market and economic changes have been considered.
As part of the portfolio repositioning a significantly higher
proportion of the Group’s acquisitions and divestments
have been by way of corporate transactions with increased
inherent risk. The Group has also undertaken significant
loan refinancing over the past year and is poised to
commence a number of large developments within the
next 12 months. In December 2013 a joint venture with
new partners was created to acquire a DFS portfolio of 27
assets. The Company has also had to consider an increasing
burden of new regulation.
The summary overleaf includes the principal uncertainties
and risks facing the Group:
Pages 52 – 56
51
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Risk management
continued
Key:
Risk exposure increased
Risk exposure reduced
No significant change in risk exposure
The table below summarises the principal
uncertainties and risks facing the Group.
Strategic and economic risks
The risk that the Group’s strategy is unsuitable for delivering expected shareholder returns in the current market.
Risk and impact
Unclear strategy
Controls and mitigation
Commentary
Change since
2013 annual
report
An unclear and unrealistic strategy
in the economic climate and
property cycle leads to suboptimal
returns for shareholders and poor
investment decisions.
The Company has an
entrepreneurial approach and
its management team have
extensive experience in the real
estate sector.
The Board considers that this risk
has remained broadly unchanged
from last year.
The Executive Committee are
closely involved in transactions
and day to day management and
operate from one office location
which enables them and the Board
to review and update strategy on a
regular basis, adapting to changes
in economic conditions and new
opportunities as they arise.
The Group’s financial forecasts are
updated in the light of strategic
changes and regular reporting
of strategy and objectives takes
place at Board and Executive
Committee meetings. The Group
has a rolling three‑year forecast.
Research is commissioned
into economic and
occupational markets to assist in
strategic decisions.
The Company’s staffing plan
is focused on experience and
expertise necessary to deliver its
business plans.
The market review on pages 6 to
7 contains details on the current
property market outlook.
The Group portfolio has been
significantly repositioned since
merger as shown on page 5.
It now benefits from longer lease
expiry dates, higher yields and
higher occupancy. The retailer‑led
logistics sector in which the Group
has invested significantly over the
course of the last year is one of the
sectors which has experienced the
highest levels of yield compression
as evidenced by the recent
valuation increase of £95.9 million
and split noted on page 23.
A new Asset Management
Committee headed by Mark
Stirling was formed during the
course of the year to enhance
the provision of information to the
Executive Committee and Board.
The post‑merger relocation of both
companies into one office has also
improved communication and
review processes.
Economic conditions
The property market and
economic conditions are
not in the Group’s control.
The Group only invests in the
UK. This minimises exposure to
weaker economies.
Further details on the impact of
the strengthening economy and
investor appetite is given in the
market review on pages 6 to 7.
52
LondonMetric Property Plc Annual report and accounts 2014 Risk management
continued
Transactional risks
The risk that the Group may not be able to source investment opportunities to fulfil its strategy or acquires assets which
subsequently fall in value or otherwise underperform.
Risk and impact
Controls and mitigation
Commentary
Change since
2013 annual
report
Investment opportunities
Investment opportunities
are missed.
The Board considers the risk
of identifying appropriately
priced investment opportunities
has increased given investor
appetite in the market and recent
yield compression.
The extensive experience of the
Executive, Investment and Asset
Management Committees and
their network of connections
provide a privileged insight into the
property market and opportunities.
The Group ensures it has sufficient
funds in place to take advantage
of investment opportunities by
selling assets which have achieved
target returns and monitoring its
cash flow closely.
Joint venture arrangements are
in place with a number of well
funded partners, particularly
for larger acquisitions, and the
Company maintains good
relationships with a wide range of
debt providers.
The Company has extended its
MIPP joint venture arrangements
with USS which reached full
investment during the course
of the year. It has also agreed
terms to extend its joint venture
arrangements with its Middle
Eastern partner, Green Park
Investments, which are due to
expire next year and entered into
a joint venture with a new partner
to acquire a portfolio of DFS assets.
The DFS portfolio and a significant
number of other acquisitions were
acquired off‑market. See case
study on page 15.
The Group has undertaken a
number of acquisitions during
the course of the year where
management’s skills and contacts
have been used to re‑gear leases
with tenants between exchange
and completion. See re‑gear
summary on page 28.
Valuation risk
There is no certainty that property
values will be realised.
This is a continuous risk inherent to
the property industry.
The property cycle is continually
monitored with investment and
divestment decisions being made
strategically in anticipation of
changing conditions.
The property portfolio performance
is regularly reviewed and
benchmarked on an individual basis.
Focus on secure income, let to high
quality tenants within a diversified
portfolio of well located assets with
increased weighted average lease
lengths reduces the risk of negative
movements in a downturn.
Acquisitions which have
opportunities to enhance value by
undertaking asset management
initiatives and playing to the
strengths of the asset management
team and their connections are
favoured as well as assets which
are considered to be mis‑priced.
53
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Risk management
continued
Key:
Risk exposure increased
Risk exposure reduced
No significant change in risk exposure
Risk and impact
Controls and mitigation
Commentary
Change since
2013 annual
report
The Company has used its
relationship with one of its key
operators to enable it to pre‑let
a 1 million sq ft distribution centre
development. See case study on
page 29.
The redevelopment of Carter Lane
in the City has secured pre‑lets
on the majority of space (72%).
This development was initially
undertaken speculatively on the
basis of a shortage of grade A
space being released to the
market versus demand.
Investments underperform
Investments underperform
financial objectives.
The Board consider that this risk
has remained broadly unchanged
from last year.
Development returns
Development projects fail
to deliver expected returns
due to inconsistent timing
with the economic cycle and
adverse letting conditions or
increased costs, planning or
construction delays.
The Board considers this residual
risk to be low.
Corporate transactions
Corporate acquisitions import
the risk of unforeseen actual and
contingent liabilities for which there
is no recourse.
The Board considers the
residual risk to be low given
the enhanced due diligence
process which is undertaken for
corporate transactions.
54
Acquisitions are thoroughly
evaluated by undertaking a
detailed financial, legal and
operational appraisal prior to
Board approval.
The Company only considers
short‑cycle development
and its Executive Committee
has significant experience
of development.
Exposure to developments and
phasing of projects is considered
as part of the quarterly financial
forecasting process for the Board.
Standardised appraisals and
cost budgets are prepared for
all developments with regular
monitoring of actual expenditure
against budget to highlight
potential overruns at an early stage.
The procurement process includes
tendering and the use of highly
regarded firms to minimise
uncertainty over costs.
Developments are only
undertaken in areas of high
occupier demand and significant
pre‑lets are secured where
possible before development work
commences to de‑risk projects.
Similarly to asset acquisitions a
large amount of due diligence is
undertaken with the assistance
of advisors from major legal and
accounting firms.
Guarantees and indemnities
are sought for potential liabilities
which may arise in the future and
where the credit worthiness of
the counterparty is of insufficient
strength insurance or lodging
funds into an escrow account is
a consideration.
LondonMetric Property Plc Annual report and accounts 2014 Risk management
continued
Financial risks
The risk that the Group cannot access debt on terms that facilitate the implementation of its strategy.
Risk and impact
Interest rates
Adverse interest rate movements
can significantly increase financing
costs on debt, reduce profitability
and increase the risk of a loan
covenant breach.
The Board considers this risk
broadly unchanged from last year.
Availability of finance
The inability to raise debt could
prohibit the Group’s investment
strategy or significantly increase
borrowing costs.
The Board considers this risk to have
decreased from last year.
Loan covenants
A breach of loan covenant could
result from a substantial decline
in property values, a material loss
of rental income or increased
borrowing costs.
The Board considers this risk
broadly unchanged from last year.
Controls and mitigation
Commentary
Change since
2013 annual
report
At 31 March 2014 the Group had
£358 million of hedges in place on
its debt covering 86% of total debt.
Average cost has fallen to 3.9%.
Further information is provided
in the Financial review on pages
45 to 50.
The availability of debt for the real
estate sector and its pricing has
improved during the course of the
year with increased competition
amongst banks and newcomers
into the market.
The Group has undrawn loan
facilities of £96 million as at
31 March 2014 and undertook
a number of loan refinancings
during the year and post period
end as detailed in the Financial
review on pages 45 to 50.
The Group has a modest level
of gearing of 32% and has
comfortably complied with its
financial covenants during the
year. The Group’s business model
is predicated on an LTV target of
less than 50% as detailed on pages
8 to 9.
The Group uses interest rate
derivatives to fix or cap its exposure
to such movements.
The Group nurtures its relationships
with a diversified range of banks
and alternative lenders and
regularly reviews its loan facilities.
The availability of debt and its
respective terms are considered
as part of the analysis for
each acquisition.
Headroom in loan covenants
is actively monitored and
incorporated into the
Group’s financial forecasting.
Non financial covenants are also
closely monitored.
Gearing levels are carefully
considered and stress
tested before entering into
new arrangements.
The impact of disposals on loan
facilities covering multiple assets
are also considered as part of the
strategic decision making process.
The Group’s loan facilities
incorporate covenant headroom,
cure provisions and sufficient
flexibility to implement known asset
management initiatives.
55
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Risk management
continued
Key:
Risk exposure increased
Risk exposure reduced
No significant change in risk exposure
Operational risks
The risk that operational issues pose to delivering the Group’s strategy.
Risk and impact
Tenant default
Controls and mitigation
Commentary
Change since
2013 annual
report
Tenant default and failure to
let vacant units leads to a loss
of recurring net income and
dividend cover.
Tenant covenant strength and
concentration are assessed
for all acquisitions and
leasing transactions.
The Board considers this risk to have
reduced since last year as a result
of improving economic conditions.
Staff
An inability to attract, motivate
and retain high calibre skilled
staff will impact the delivery
of the Company’s strategy.
Executive succession planning is
vital to the long‑term success of
the business.
The Board considers this risk
broadly unchanged from last year.
The Group’s dedicated
and experienced property
management team work closely
with tenants and consider action
for slow payers.
Rent collection is closely monitored
and reported to the property
management team to identify
potential issues.
The Group has a diversified
tenant base.
The remuneration structure
for all staff is aligned to the
long‑term key performance
targets of the business with
long‑term share‑based incentive
arrangements in place.
The Executive Directors have
a substantial investment in
the Company.
Annual appraisals identify
training requirements and
access performance.
Specialist agencies are contracted
where appropriate if there are
perceived short‑term skills shortfalls,
for example in the acquisition
of the Odeon portfolio.
The Group has a very low level of
tenant default within the industry
and occupancy levels have
increased since the previous year
to 99.6%.
The Company has announced
the promotion of new Executive
Directors to the Board from the
Executive Committee and the
transition of the Chairman into
a Non‑Executive capacity.
See Governance report on
page 61 for further details.
The Group has rationalised
its investment and asset
management teams post‑merger
and has a team with sufficient
relevant skills to effectively manage
a bigger portfolio.
On behalf of the Board
Andrew Jones
Chief Executive
3 June 2014
56
LondonMetric Property Plc Annual report and accounts 2014 Strategic report
Governance
Financial statements
Governance
In this section:
Board of Directors
Corporate governance
Nomination Committee report
Audit Committee report
Remuneration Committee report
Report of the Directors
Directors’ responsibilities statement
58
60
66
68
71
84
87
LondonMetric Property Plc
Annual report and accounts 2014 57
Board of Directors
Patrick Vaughan
Executive Chairman
Andrew Jones
Chief Executive
Martin McGann
Finance Director
Patrick has been involved in the UK property
market since 1970. He was a co-founder
and CEO of Arlington; of Pillar, and of
London & Stamford, leading all three of
the companies to successful listings on the
FTSE main market. Upon completion of
London & Stamford’s merger with Metric in
January 2013, he was appointed Executive
Chairman. Patrick also served as an
Executive Director of British Land 2005 to
2006, following its acquisition of Pillar.
Andrew was a co-founder and CEO of
Metric from its inception in March 2010
until its merger with London & Stamford
in January 2013. On completion of the
merger, Andrew became Chief Executive
of LondonMetric. Andrew was previously
Executive Director and Head of Retail at
British Land. Andrew joined British Land
in 2005 following the acquisition of Pillar
and served on the main board with
responsibilities for shopping centres, retail
park investment and asset management.
Andrew is a Non-Executive Director of The
Unite Group Plc.
Martin joined London & Stamford as Finance
Director in September 2008 until its merger
with Metric in January 2013, when he
became Finance Director of LondonMetric.
Between 2005 and 2008, Martin was a
Director of Kandahar Real Estate. From 2002
to 2005 Martin worked for Pillar, latterly as
Finance Director. Prior to joining Pillar, Martin
was Finance Director of the Strategic Rail
Authority. Martin is a qualified chartered
accountant, having trained and qualified
with Deloitte.
Valentine Beresford
Investment Director
Mark Stirling
Asset Director
Valentine was appointed Investment
Director following the merger in January
2013 of Metric, of which he was a founder
and Board member, and London &
Stamford and joined the Board of
LondonMetric on 3 June 2014. Prior to the
setting up of Metric, Valentine was on
the executive committee of British Land
and was responsible for all British Land’s
European retail/leisure developments and
investments. Valentine joined British Land in
July 2005, following the acquisition of Pillar,
where he served as Investment Director with
responsibility for the Company’s out-of-town
UK and European retail investment activities.
Mark Stirling was appointed Asset
Management Director following the merger
in January 2013 of Metric, of which he
was a founder and Board member, and
London & Stamford and joined the Board
of LondonMetric on 3 June 2014. Prior to
the setting up of Metric, Mark was on the
Executive Committee of British Land and as
Asset Management Director was responsible
for the planning, development and asset
management of the retail portfolio. Mark
joined British Land in July 2005 following
British Land’s acquisition of Pillar where he
was Managing Director of Pillar Retail Parks
Limited from 2002 until 2005.
Charles Cayzer
Senior Independent Director, Chairman
of Nomination Committee, member of
Audit and Remuneration Committees
Charles joined the Board of London &
Stamford in July 2010. He has considerable
experience of merchant banking,
commercial banking and corporate and
project finance from his career at Baring
Brothers, Cayzer Irvine and Cayzer Limited
and was appointed a Director of Caledonia
Investments in 1985. Charles is also
Chairman of The Cayzer Trust Company Ltd
and The Sloane Club, and a Non-Executive
Director of Eredene Capital and Quintain
Estates & Development Plc.
58
LondonMetric Property Plc Annual report and accounts 2014 Board of Directors
continued
Humphrey Price
Chairman of Audit Committee
Humphrey was Finance Director of Arlington
from 1982 to 1992, he then became a
Director of Pillar in 1991 and Finance Director
from 1993 to 2004, resigning from the
Board in 2005 upon its sale to British Land.
He was a Director of London & Stamford
from incorporation until April 2009 and
was appointed to the Board of London
& Stamford Property Plc as a Non-Executive
Director in July 2010. Humphrey is a
Non-Executive Director of Hansteen
Holdings Plc and Chairman of their Audit
Committee. Humphrey is a qualified
Chartered Accountant.
Andrew Varley
Member of Audit and Remuneration
Committees
Philip Watson
Member of Remuneration and
Nomination Committees
Andrew joined the Board of Metric at
the Company’s inception in March 2010.
He was, until recently, Group Property
Director and an Executive Director of
NEXT, with the responsibility for property,
franchise, corporate responsibility and
code of practice related issues. Andrew
joined NEXT in 1985 and was appointed to
its Board in 1990. His previous experience
includes 12 years in retail and commercial
property. From 1999 to 2007, Andrew was a
non-executive member of the British Heart
Foundation’s shops committee.
Philip joined the Board of Metric at the
Company’s inception in March 2010. He is
the Chief Investment Officer of Mirabaud
Investment Management Limited. Philip
joined Hill Samuel in 1971 and then Robert
Fleming in 1972 on the UK desk, where he
worked as an investment analyst and fund
manager. Philip left Robert Fleming in 1982
to found TWH Asset Management Limited
(now Mirabaud Investment Management
Limited) in which he and his partners sold
a controlling interest to Mirabaud Pereire
Holdings Limited in 1991.
Alec Pelmore
Member of Audit and Nomination
Committees
Alec joined the Board of Metric at the
Company’s inception in March 2010. He
has been a member of the supervisory
board of Unibail-Rodamco SE, one of
Europe’s largest property companies, since
2008 and is currently a member of its Audit
Committee. Alec held positions as an equity
investment analyst specialising in property
companies from 1981 to 2007. The majority
of his career as an investment analyst was
spent at Dresdner Kleinwort Benson and
Merrill Lynch, where his teams were voted
number one for property in Europe by the
Institutional Investor European Property
Research Survey for 12 out of 13 years from
1995 to 2007.
Rosalyn Wilton
Member of Audit Committee
James Dean
Chairman of Remuneration Committee
James was appointed to the Board of
London & Stamford in July 2010. He is a
Chartered Surveyor and has worked with
Savills plc since 1973, serving as a director
from 1988 to 1999. James is a Non-Executive
Director of Branston Holdings and Chairman
of Pearlcrown Ltd, London & Lincoln
Properties Ltd and Patrick Dean Ltd.
Rosalyn was appointed to the Board of
LondonMetric in March 2014. She is a Non-
Executive Director of Axa UK Ltd where she
acts as Chairman of the Risk Committee
and of Optos Plc where she Chairs the
Remuneration Committee. Until 2009, she
was Chairman of Ipreo Holdings LLC, the
US-based financial data and solutions
group formed following the merger of i Deal
LLC and Hemscott Group Ltd. Before the
merger, Rosalyn was Chief Executive Officer
of Hemscott plc. Prior to this, she worked
for Reuters Group leaving the Company
as Managing Director, Reuters Information
in 1999. Rosalyn has held Non-Executive
Directorship positions with Scottish Widows
and the London International Financial
Futures Exchange. She has previously served
as a Senior Advisor to 3i Investments and
Providence Equity Partners.
59
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Corporate governance
The Board continues to be committed to maintaining high standards of
corporate governance which it considers underpins the successful management
of the business and the delivery of its strategic objectives.
Governance framework
Board Committees
LondonMetric
Board
Chairman:
Patrick Vaughan
Executive
Committee
Audit
Committee
Chairman:
Humphrey Price
Remuneration
Committee
Chairman:
James Dean
Nomination
Committee
Chairman:
Charles Cayzer
Investment
Committee
Asset
Management
Committee
Capacity
Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Audit
Committee
Remuneration
Committee
Nomination
Committee
Board Committee members
Member
Patrick Vaughan
Charles Cayzer
James Dean
Alec Pelmore
Humphrey Price
Andrew Varley
Philip Watson
Rosalyn Wilton
60
LondonMetric Property Plc Annual report and accounts 2014 Corporate governance
continued
The Board has considered the Company’s compliance
with the main principles and provisions of the UK Corporate
Governance Code (the “Code”) published by the Financial
Reporting Council in September 2012 and has sought to put
in place practices to enable full compliance. The Board
fully supports the principles set out in the Code and can
confirm that it applied all of the principles of the Code for
the year under review and to the date of this report except
as explained below.
Good governance is a key strategic priority and compliance
with the Code has been the subject of significant debate.
As a result the Board has decided that, with effect from
1 October 2014, Patrick Vaughan will undertake his role as
Chairman in a non-executive capacity.
Future succession planning has led to a further three Board
appointments, as discussed below, and the planned
retirement of Humphrey Price in March 2015.
This report sets out the Company’s principal governance
policies and practices and explains how it complies with the
provisions of the Code.
The Board of Directors
Composition
The Nomination Committee keeps the composition of the
Board under review and makes recommendations on the
appointment of Directors.
The Board has comprised throughout the year of the
Executive Chairman, two other Executive Directors and six
Non-Executive Directors. A further Non-Executive Director
and two further Executive Directors were appointed to
the Board in March 2014 and June 2014 respectively.
The biographies of all members of the Board are set out on
pages 58 to 59.
Following the merger of the Company with Metric Property
Investments plc (“Metric”) last year, Patrick Vaughan was
appointed as Executive Chairman. Although this did not
comply with Provision A.3.1, which discourages a chief
executive becoming chairman of the same company, the
Board considered it an appropriate exception to maintain
continuity of leadership and to facilitate the combination
of the two businesses given his excellent prior working
relationship with the newly appointed Chief Executive,
Andrew Jones. His experience as a founder of London
& Stamford and his relationship with key joint venture
partners was considered to be crucial for their continued
support and to provide shareholders with a balanced
and effective Board. Leading shareholders of both former
companies were consulted at the time and the reasons
for his appointment explained to them. His executive
capacity represented a commitment previously given to
the shareholders on the internalisation of the management
company in 2010, to continue at least until 30 September
2013, at which time the three-year lock-in period created on
the internalisation came to an end. The Board now feels that
it is appropriate, a year on from the successful merger of the
two businesses and repositioning of the portfolio, that best
governance practice be adopted and that the Chairman’s
role should operate in a non-executive capacity. This will
take effect from October 2014.
The composition of the Board changed following last year’s
AGM when both Mark Burton and Andrew Huntley decided
not to offer themselves for re-election. The remaining Board
members, comprising three Executive and six Non-Executive
Directors, held office throughout the year. The Board’s
composition is continually reviewed to ensure it has the
correct balance of skills required for proper stewardship of
the business and to plan for future succession. Consequently,
a new female member, Rosalyn Wilton, was appointed
to the Board and Audit Committee on 25 March 2014.
Rosalyn’s full biography is on page 59. Being a Non-Executive
Director, Chairman of the Risk Committee and member
of the Audit Committee at AXA UK Limited, Rosalyn brings
extensive experience to complement the existing expertise
of the Board members.
In addition, it was decided on 3 June 2014 to promote
Valentine Beresford and Mark Stirling to the Executive Board.
Valentine and Mark were founders and former Directors
of Metric Property Investments plc and have worked with
the existing Executive Board for many years previously at
Pillar Property Plc and British Land. Valentine is responsible
for Investment and Mark for Asset Management and both
are considered instrumental to the successful future of the
business. Both have served throughout the year as members
of the Executive Committee to which the Board delegates
responsibility for the day to day running of the Group.
Humphrey Price has announced his intention to retire in
March 2015. Humphrey has had a long and successful
working relationship with the Executive Board, who would
like to thank him for the valuable contribution he has made.
61
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Corporate governance
continued
The Board is collectively
responsible to the
shareholders for the
strategy, control and
effective leadership of
the Group.
Following the proposed changes to the composition of the
Board, there will be four Executive and six independent Non-
Executive Directors, excluding the Chairman and Humphrey
Price, who is not considered to be independent. The Board’s
composition meets the Code’s requirement that at least half
of its members, excluding the Chairman, are independent
Non-Executive Directors.
There is a division of responsibility between the Executive
Chairman and Chief Executive which has been approved
by the Board. The Chairman is responsible for leading
the Board and monitoring its effectiveness and the Chief
Executive is responsible for the day to day management
of the Group and the implementation and delivery of its
agreed strategic objectives. The Chairman is responsible for
ensuring a constructive relationship between Executive and
Non-Executive Directors and for encouraging and fostering
a culture of Boardroom challenge and debate.
Attendance at Board meetings
The Board has a regular schedule of meetings together
with further ad hoc meetings as required to deal with
transactional matters. Non-Executive Directors are
encouraged to communicate directly with the Executive
Directors and senior management between scheduled
Board meetings, as part of each Director’s contribution to
the delivery of strategy and enhanced shareholder returns.
The following table shows Directors’ attendance at Board
meetings they were eligible to attend during the year:
62
Member
Date appointed
Patrick Vaughan
13 January 2010
Andrew Jones
25 January 2013
Martin McGann
13 January 2010
Charles Cayzer
29 July 2010
James Dean
29 July 2010
Humphrey Price
29 July 2010
Andrew Varley
25 January 2013
Alec Pelmore
25 January 2013
Philip Watson
25 January 2013
Rosalyn Wilton
25 March 2014
Mark Burton
Andrew Huntley
29 July 2010
Resigned 10 July 2013
25 January 2013
Resigned 10 July 2013
Meetings
attended
Meetings
eligible to
attend
7
7
7
7
6
7
7
7
7
–
1
–
7
7
7
7
7
7
7
7
7
–
1
1
All Directors are expected to attend all meetings of the
Board and of the Committees on which they serve, and to
devote sufficient time to the Company’s affairs to enable
them to fulfil their duties as Directors. Where Directors are
unable to attend meetings, their comments are provided to
the Board prior to the meeting.
Board activities
The Board is collectively responsible to the shareholders for
the strategy, control and effective leadership of the Group.
The Executive Directors are responsible for the business
strategy and transactions. The Non-Executive Directors are
responsible for ensuring strategies proposed by the Executive
Board are fully considered and for bringing independent
judgement and scrutiny to decisions taken. There is a formal
schedule of matters reserved for the Board’s approval, which
is reviewed and updated annually, including the following;
• Setting and monitoring of overall strategy
• Ensuring there are adequate resources to meet objectives
• Approving property and corporate acquisitions
and disposals
• Approving major capital expenditure projects
• Approving interim and annual financial statements
and dividends
• Reviewing property valuations
• Reviewing treasury and financing arrangements
• Internal control and risk management
• Reviewing corporate governance arrangements and
succession planning
• Evaluating the performance of the Board and Committees
LondonMetric Property Plc Annual report and accounts 2014 Corporate governance
continued
The Board delegates authority to its committees to assist
in meeting its business objectives and to maintain a sound
system of internal control and risk management.
The day to day running of the Group is delegated by the
Board to the Executive Committee, comprising the Executive
Directors and Valentine Beresford (Head of Investments) and
Mark Stirling (Head of Asset Management).
The Executive Committee meets monthly to discuss
property investment/divestment, development and asset
management activities and the operational management
of the Group. The Executive Committee supports the Chief
Executive in the delivery of strategy, the achievement
of financial and operating targets and the assessment
and management of business risks. The minutes of these
meetings are made available to the Board. There are
informal meetings between the Executive Directors at
other times and they are involved in all significant business
discussions and decisions due to the size of the organisation.
The Executive Committee has established two sub
Committees; the Investment Committee, chaired
by Valentine Beresford, and the Asset Management
Committee, chaired by Mark Stirling. Both Committees
comprise members of the Executive Committee and senior
management team and meet at least monthly.
Information flow
The Chairman, together with the Company Secretary,
ensure that the Directors receive clear information on all
relevant matters on a timely basis. Comprehensive reports
and briefing papers are circulated one week prior to Board
and Committee meetings to give the Directors time to
thoroughly digest the information provided and promote an
informed Boardroom debate.
The Board papers contain property and financial updates
as well as other specific papers relating to agenda items.
The Board receives other ad hoc papers of a transactional
nature at other times, circulated by email, for their review
and approval.
Presentations on current and prospective property portfolios
are made to the Board by senior management where
appropriate and property visits are arranged.
Independent advice
All Directors have access at all times to the advice and
services of the Company Secretary, who is responsible for
ensuring that Board procedures are followed and that
applicable rules and governance regulations are complied
with. The Directors may, in the furtherance of their duties,
take independent professional advice at the expense of
the Company. None of the Directors sought such advice in
the year.
Time commitment
The commitments of each Director outside of the Company
are kept under review by the Board to ensure that sufficient
time is available to enable them to discharge their
responsibilities effectively. The Board must be informed of
any changes to Directors’ other appointments.
Induction and professional development
The Chairman is responsible for ensuring that induction and
ongoing training is provided to Directors. The Company
arranges an induction programme for all new Directors
to help them develop an understanding of the business
including its strategy, processes, people, assets, finances,
risks and controls. Following the appointment of Rosalyn
Wilton, a comprehensive briefing pack was prepared which
included a summary of key transactions and assets, financial
budgets and results, debt facilities, risks and controls. This was
presented by the senior management team who were
available to answer any questions raised. Further meetings
were held individually with the Chairman of the Audit
Committee, Chief Executive, Finance Director, Audit Partner
and other members of the senior management team,
including a property tour.
Training and information updates in relation to the Group’s
business and regulatory responsibilities is provided to
the Directors through Board briefing papers, reports
from advisors, presentations by senior executives and
property visits. Each Director is expected to maintain
his or her professional skills and take responsibility for
identifying their individual training needs to ensure they are
adequately informed about the Group’s strategy, business
and responsibilities.
Non-Executive Directors are encouraged to familiarise
themselves with the Group’s business through regular
communications with the Executive Directors and
senior management.
Re-election of Directors
All Directors are subject to election by the shareholders
at the first Annual General Meeting following their
appointment and in accordance with the Code all Directors
will stand for re-election at the forthcoming AGM.
63
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Corporate governance
continued
Non-Executive Directors
The Non-Executive Board is a diverse group with a wide
range of experience encompassing property, finance,
fund management, investment and risk management and
retailing. They are responsible for bringing independent and
objective scrutiny and judgement to all matters raised and
considered. Each of the Directors, other than Humphrey
Price, is considered to be independent in accordance with
the provisions of the Code. Some investors may consider
that Humphrey Price’s long working relationship with the
Executive Directors, particularly at Pillar Property Plc and
London & Stamford, could compromise his independence.
The Board maintains that his knowledge, experience and
contribution at Board and Committee meetings and
his ability to contribute to unbiased and independent
debates make him a most qualified and appropriate Non-
Executive Director and Chairman of the Audit Committee.
Humphrey Price has announced his intention to retire from
the Board in March 2015 and Rosalyn Wilton was appointed
as Non-Executive Director in March 2014.
Charles Cayzer is a Non-Executive Director of Caledonia
Investments Plc, a shareholder of the Company holding
a 2.48% interest as at 16 May 2014. Charles Cayzer himself
is not a shareholder in the Company and the Board is
satisfied that there are procedures in place at Caledonia
Investments to address this potential conflict. The Board does
not believe Charles Cayzer’s independence is compromised
by his position and is satisfied that he is able to carry out
his function as Senior Independent Director effectively.
The Non-Executive Directors have met without the Executive
Directors present and will continue to do so as necessary,
and at least annually, to address any matters which they
may wish to raise and to appraise the performance of the
Chairman. The outcome of these discussions is conveyed
to the Chairman by the Senior Independent Director.
The Senior Independent Director acts as an intermediary
Communication with
shareholders is given
very high priority and the
Company undertakes
a regular dialogue with
major shareholders and
fund managers.
64
to the Executive Directors for the Non-Executive Directors
and shareholders as required. He has met with a number
of significant shareholders during the year and he is
available to meet with shareholders at their request to
address concerns or, if other communication channels fail,
to resolve queries raised. No such requests were received
from shareholders in the year. The Senior Independent
Director also leads the annual performance appraisal of
the Chairman.
Positions held by the Non-Executive Directors are set out
in their biographies on pages 58 to 59. On appointment
they are advised of the likely time commitment to fulfil the
role. The ability of individual Directors to allocate sufficient
time to discharge their responsibilities is considered as
part of the annual evaluation process, overseen by the
Chairman. The Board is satisfied that each of the Non-
Executive Directors is able to devote sufficient time to the
Company’s business.
Board Committees
The Board has three Committees, the Audit, Remuneration
and Nomination Committees, each having written terms
of reference which are reviewed annually by the Board
and which are available on written request and on the
Company’s website: www.londonmetric.com.
The Audit and Remuneration Committees are composed
entirely of Non-Executive Directors. The Company Secretary
acts as secretary to each Committee and minutes of
meetings are circulated to all Directors. The Chairman of
each Committee reports the outcome of meetings to the
Board. Reports from each of the Committees follow on
pages 66 to 83.
Relations with shareholders
Communication with shareholders is given very high priority
and the Company undertakes a regular dialogue with major
shareholders and fund managers. The Chief Executive and
Finance Director are the Group’s principal representatives
with investors, analysts, fund managers and other interested
parties and manage the Group’s investor relations
programme assisted by the Head of Investor Relations and
the Company’s brokers. The Senior Independent Director
is available for shareholders to contact if other channels
of communication with the Company are not available
or appropriate.
During the past year, the Company has held over 70
meetings with its top shareholders, analysts and potential
investors in addition to its usual full year and interim results
presentations. The meetings comprised individual meetings,
Group presentations and a number of property tours.
Feedback from presentations and meetings is provided to
the Board, together with any published brokers’ reports.
In addition, the Chairman of the Remuneration Committee
and Finance Director liaised with the corporate governance
LondonMetric Property Plc Annual report and accounts 2014 Corporate governance
continued
officers of the Company’s major shareholders, representing
31% of the Company’s share capital. Meetings were offered
to shareholders to discuss the changes to the composition
of the Board, the independence of Directors, corporate
social responsibility and the Remuneration Policy. The key
Remuneration Policy proposals were circulated by letter
to major shareholders in April 2014. Feedback from
the governance officers was positive and the Board’s
efforts to improve corporate governance processes was
acknowledged and commended.
reports are submitted to the Audit Committee to assess
the effectiveness of the process, compliance with the
Turnbull Guidance on Internal Control and to report any
recommendations for improvement to the Board.
The Audit Committee has not identified any material
weaknesses in the Group’s control structure following their
review in the year and is satisfied that the Group has in place
effective risk management and internal control systems.
The key elements of the internal control framework are:
The Company’s website is an important source of information
for shareholders and the presentations made to analysts
following the announcement of the Group’s results and
other ad hoc presentations are made available immediately.
• A defined schedule of matters reserved for the
Board’s attention
• A comprehensive system of financial budgeting
and forecasting
Shareholders are kept informed of the Company’s progress
through results statements and other announcements
released through the London Stock Exchange. Company
announcements are made available on the website
affording all shareholders full access to material information.
The website includes a comprehensive investor relations
section containing all RNS announcements, share price
information and annual reports available for download.
Shareholders can raise questions directly with the Company
at any time through a facility on the website.
The Executive Directors and Senior Independent Director
are available as a contact for shareholders and the whole
Board attends and is available to answer shareholder
questions at the Company’s Annual General Meeting,
which provides a forum for communication with both private
and institutional shareholders alike. Full interim and annual
reports are sent to all shareholders at least 20 working
days before the AGM and details of the resolutions to be
proposed can be found in the Notice of Meeting which
has been sent separately to shareholders. Details of the
number of proxy votes for, against and withheld for each
resolution will be disclosed at the meeting and posted on
the Company’s website.
• Measurement of the Group’s quarterly financial
performance against budget and long-term
financial plans
• Short-term cash flow forecasting that is updated, reviewed
and considered weekly in light of investment and
development opportunities
• A formal whistle-blowing policy
• A management structure with clearly defined roles,
responsibilities and limits of authority that enable effective
and efficient decision making
• Close involvement of the Executive Directors in day to
day operations including regular meetings with senior
management on all operational aspects of the business
• Monthly meetings of the Executive, Investment and Asset
Management Committees, which assess and monitor
strategic and operational risk
• The maintenance of a risk register and a financial reporting
procedures memorandum, both of which identify key
financial and other internal controls
• A documented appraisal and approval process for all
significant capital expenditure
The Group’s internal control processes accord with the
Turnbull guidance.
Internal controls
Report and accounts
The Board is responsible for establishing and maintaining the
Group’s system of internal controls and risk management
and for reviewing its effectiveness at least annually.
The principal risks and uncertainties identified by the Board
and the processes in place to manage and mitigate such
risks are summarised in the Strategic report on pages 52 to 56.
The Board has considered the Group’s report and accounts
and, taking into account the recommendation of the
Audit Committee, is satisfied that, taken as a whole, it is fair,
balanced and understandable and provides the necessary
information for the shareholders to assess the Company’s
performance, business model and strategy.
The system is designed to give the Board confidence that
the risks are mitigated or managed as far as possible.
However, it should be noted that no system can eliminate
the risk of failure to achieve the Group’s objectives entirely
and can only provide reasonable but not absolute
assurance against material misstatement or loss.
Executive Directors and senior management meet annually
to review the risks facing the business and the controls
in place to minimise such risks. Following these reviews,
Jadzia Duzniak
Company Secretary
3 June 2014
65
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Nomination Committee report
The Committee is responsible for reviewing the size,
structure and composition of the Board, including
diversity and the balance of Executive and Non-
Executive Directors.
Charles Cayzer
Chairman, Nomination Committee
The Committee comprised throughout the year of the
Chairman and three independent Non-Executive Directors
and was chaired by Charles Cayzer.
The Committee considers succession planning for Directors
and other senior executive positions and reviews the
leadership of the Company. It is responsible for identifying
and approving candidates to fill Board vacancies
using external search consultants where appropriate.
Recommendations on Committee membership changes
are made to the Board.
Members of Committee
Member
Date
appointed
Patrick Vaughan
1 November 2012
Charles Cayzer
1 November 2012
Alec Pelmore
25 January 2013
Philip Watson
25 January 2013
Certain members met and the Committee reviewed
Rosalyn Wilton’s CV and references and satisfied itself
that she had no former links to the Company or Board.
It considered her extensive corporate and risk management
experience would complement and improve the existing
skill set of the Non-Executive Directors. Valentine Beresford
and Mark Stirling were founders and former Directors of
Metric Property Investments plc and have worked with
the Executive Board previously at Pillar Property Plc and
British Land. Valentine is responsible for Investment and
Mark for Asset Management and both are considered
instrumental to the successful future of the business.
Both have served throughout the year as members of
the Executive Committee to which the Board delegates
responsibility for the day to day running of the Group.
Meetings
attended
Meetings
eligible to
attend
2
2
2
1
2
2
2
2
The Committee considered the need to maintain the
appropriate balance of skills, experience and knowledge of
the industry regarding these appointments and the balance
of Executive and Non-Executive Directors. It did not believe
it was necessary to engage an external search agency in
this process and was satisfied that the Board’s composition
following the appointments met the Code’s requirements.
Meetings and activities during the year
The Committee met twice during the year to consider
changes to the Remuneration Committee composition
following the resignations of Andrew Huntley and Mark
Burton, the external Non-Executive appointment of
Rosalyn Wilton to the Board and Audit Committee and the
internal executive appointments of Valentine Beresford and
Mark Stirling to the Board.
66
LondonMetric Property Plc Annual report and accounts 2014 Nomination Committee report
continued
Diversity
The Nomination Committee acknowledges all aspects of
diversity including gender, ethnic origin, age, business skills
and experience throughout the Company at every level
of recruitment.
The Board is committed to a culture that attracts and
retains talented individuals to deliver outstanding results
and as part of this it promotes diversity across a range of
criteria including skills, knowledge, experience, gender and
ethnicity. It supports the Davies report recommendations to
promote greater female representation. It does not believe,
however, given the size of the Company and Board, that
setting diversity targets is appropriate. This will be kept under
review in light of the requirements for Board succession
and development.
Board performance and evaluation
The Board undertakes an annual evaluation of its
performance and that of the Committees to ensure each
continues to operate effectively. It considers the balance of
skills, knowledge and diversity of the Board and how it works
together as a unit. This process is led by the Chairman and
involves the completion of a questionnaire in advance of
a series of individual meetings. The questionnaire is based
on the components of good governance and focuses on
the objectives, composition and performance of the Board,
individuals and Committees. The Company Secretary
collates the results and reports them to the Nomination
Committee for review.
The results of the internal evaluation were positive and
indicated the Board, its Committees and individual Directors
were operating effectively. Their key findings were as follows:
• Committees were reporting any findings to the Board
following their meetings
• Business strategy was clearly communicated and
performance was aligned with strategy
• Regular and open communication with shareholders exists
The review of the Chairman’s performance was led by
the Senior Independent Director who concluded that the
Chairman’s leadership was of a high standard and a key
contributor to the success of the business in the year.
The Board has decided to undertake an externally
facilitated evaluation of its performance and of its
Committees this year and has started the process.
Charles Cayzer
Chairman, Nomination Committee
3 June 2014
The Board is committed
to a culture that attracts
and retains talented
individuals to deliver
outstanding results and
as part of this it promotes
diversity across a range
of criteria.
67
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Audit Committee report
This year the Audit Committee has focused on the
audit tender process and appointment of external
auditors as well as reviewing changes to the narrative
reporting and corporate governance disclosures in
the annual report.
Humphrey Price
Chairman of Audit Committee
The Board asked the Committee to advise on the statement
by the Directors that the annual report, when read as a
whole, is fair, balanced and understandable and provides
the requisite information for shareholders to assess the
Group’s performance and business strategy. The Committee
was satisfied that taken as a whole the 2014 report is fair,
balanced and understandable and confirmed this to the
Board, whose statement in this regard is set out on page 87.
Membership
The Committee currently comprises entirely of five
Non‑Executive Directors chaired by Humphrey Price.
Mark Burton retired from the Board and Committee on
10 July 2013 and Rosalyn Wilton was appointed to the Board
and Committee on 25 March 2014. Members have no day to
day involvement with the Company.
Members
Date appointed
Humphrey Price
1 October 2010
Charles Cayzer
1 October 2010
Andrew Varley
25 January 2013
Alec Pelmore
25 January 2013
Mark Burton
1 October 2010
(resigned 10 July 2013)
Rosalyn Wilton
25 March 2014
Meetings
attended
Meetings
eligible to
attend
4
4
4
4
1
–
4
4
4
4
1
–
Humphrey Price brings recent and relevant financial
experience as required by the UK Corporate Governance
code as a Chartered Accountant, former Finance Director
and Audit Committee Chairman of Hansteen Holdings Plc.
Meetings
The Committee met four times last year, with meetings
aligned to the Company’s financial reporting timetable.
Meetings are attended by the Committee members and,
by invitation, the Group’s external auditor, independent
property valuers (CBRE Ltd and Savills Advisory Services
Limited), the Finance Director and senior management.
Time is allocated for the Committee to meet the external
auditor without management present. In addition, the
Chairman has separate and ad hoc meetings with the
audit partner.
Activities during the year
During the year, the work undertaken by the Committee has
included the following:
• A formal external audit tender process in September 2013.
A recommendation was made to the Board to appoint
Deloitte LLP (“Deloitte”) as new auditors of the Group and
its subsidiaries
• Considered and discussed with the external auditors at
audit planning meetings the key accounting treatments
and significant reporting judgements in advance of interim
and annual results
• Reviewed interim and annual financial statements,
including consideration of key accounting issues and
areas of significant judgement, compliance with statutory
obligations and accounting standards and consistency
throughout the report
• Reviewed the processes undertaken to ensure that
the Board is able to confirm that the annual financial
statements are “fair, balanced and understandable”
• Met the independent property valuers to discuss the
interim and annual portfolio valuations on a property by
property basis
• Assessed the effectiveness of the external auditor which
included reviewing their independence, objectivity, terms
of engagement, the scope of their audit and effectiveness
of the audit process
• Monitored the level of non audit fees and the scope of
non audit services provided in the year
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continued
The Committee monitors
the integrity of the
financial information
published in the interim
and annual statements.
• Considered the need for an internal audit function and
concluded it was unnecessary at present, given the size
and complexity of the business, but agreed to keep the
matter under regular review
• Reviewed the Group’s internal controls and risk
management systems, whistle‑blowing arrangements
and procedures for detecting and preventing fraud
and bribery. A detailed internal control evaluation
questionnaire and risk assessment matrix was completed
by management and reviewed by the Committee.
The risk register identified key risks and the management
and operational framework in place to address, monitor
and minimise the key risks. The Committee reported their
findings to the Board
• Considered the appropriateness of the going
concern assumption
• Reviewed its own effectiveness, Terms of Reference,
constitution and performance
Financial reporting and significant judgements
The Committee monitors the integrity of the financial
information published in the interim and annual statements
and considers the extent to which suitable accounting
policies have been adopted, presented and disclosed.
In assessing this, it considers whether management has
made suitable and appropriate estimates and judgements,
and seeks support from the external auditors to assess
them. In particular, it considers those estimates material
to the Group’s results and those involving a high level
of complexity or judgement. The significant areas of
judgement considered by the Committee and assessed
with the external auditors during the year were as follows:
Property valuations
All of the Group’s investment properties are externally
valued by independent property valuers. As the property
valuation is a significant part of the Group’s reported
performance it is a key area of focus. Property valuations
are inherently subjective and require significant judgement.
The Committee met twice with the property valuers without
management present to discuss the interim and annual
valuations and to assess the integrity of the valuation
process. The key judgements applied to individual valuations
and any issues raised with management were considered
and discussed.
The ERV growth and yield compression assumptions were
challenged and supporting market evidence was provided
to enable the Committee to conclude that the assumptions
applied to the valuations were appropriate.
As part of their audit work, Deloitte valuation specialists
met the external valuers without management present
and had an open dialogue and exchange of information
that is independent of management.
Property transactions
The accounting treatment for corporate acquisitions was
considered to ensure compliance with IFRS3 (Business
Combinations). This included the acquisition of ten Odeon
cinemas, the Royal Mail Distribution Unit in Daventry,
the Argos Distribution Unit in Bedford and the Norbert
Dentressengle Distribution Unit at Crick. All transactions
were considered to be property acquisitions in accordance
with IFRS3.
Investments in joint ventures
The Committee considered the accounting treatment for
the Group’s 30.5% interest in 27 DFS retail units acquired in
the year by LMP Retail Warehouse JV Property Unit Trust, a
joint venture created with LVS II Lux x S.a.r.l. The Committee
was satisfied that the Group’s interest was accounted for
as a joint venture under the equity method and with the
presentation of information in note 11 to the accounts.
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continued
Intangible assets
The Committee considered the carrying value of the
Group’s intangible asset created in 2010 on the acquisition
of the Property Advisory Agreement for LSP Green Park
Property Trust and the impairment review undertaken by
management in the year. It was satisfied that the asset
had been fully impaired in the year as no significant further
investment had been made since the sale of the majority
of assets held by the joint venture to support the level of
management fees receivable.
A number of other judgements made by management
were considered including those applied to the charge
for equity settled remuneration, bad debt provisions and
the recoverability of financial assets, none of which had a
material impact on the financial statements. In addition,
the presentation of recurring and exceptional items in
the income statement was reviewed and considered to
be appropriate.
Management confirmed that they were not aware of any
material mis‑statements and the auditors confirmed they
had not found any material mis‑statements in the course of
their work.
After reviewing reports from management and following its
discussions with the auditors and valuers, the Committee is
satisfied that the key financial judgements and estimates
have been appropriately and adequately addressed by the
Executive Directors, reviewed by the external auditor and
reported in these financial statements.
External audit
Following the merger of the Company with Metric Property
Investments plc in January 2013, the Directors felt it was
appropriate to formally tender the audit of the Group and
its subsidiaries. In August 2013, four firms were invited to
tender. Three submissions were made and all firms presented
to the Committee Chairman, the Finance Director and
The Committee met
four times last year, with
meetings aligned to the
Company’s financial
reporting timetable.
senior management. A comparison of the salient points
was undertaken, including consideration of sector‑related
exposure and experience at firm and lead partner level,
technical and advisory support teams, audit approach,
extent of transitionary work and proposed fees.
Following their review, the Committee made a
recommendation to the Board to appoint Deloitte LLP as
external auditor of the Company and the Group.
Current UK regulations require rotation of the lead audit
partner every five years and a formal tender of the auditors
every ten years. The Committee is supportive of these
regulatory requirements.
Since the appointment the Committee has assessed the
performance, independence and objectivity of the external
auditors in conjunction with the senior management team.
In making this assessment the Committee considers the
qualifications, expertise and resources of the audit team
as well as the quality of the audit deliverables. It recognises
the importance of auditor objectivity and has reviewed
the level of non audit fees paid in the year of £45,000 to
ensure their independence was not compromised. It took
into account the fact that taxation services and advice is
provided separately by PwC and corporate due diligence
work is undertaken by BDO LLP. It is satisfied that the audit
is an effective process and an appropriate independent
challenge and review.
The Company’s policy governing the provision of non audit
services considers each appointment on a case by case
basis. Taxation, valuation, due diligence and remuneration
services are generally provided by other professions
but other advisory services, including but not limited to
taxation, REIT compliance, regulatory and shareholder
circulars, may be undertaken by the external auditor given
their knowledge of the Group’s business. The Executive
Directors can authorise an engagement up to a fee limit
of £100,000, above which the engagement is referred to
the Audit Committee for review and approval. Deloitte LLP
has confirmed to the Audit Committee that they remain
independent and have maintained internal safeguards to
ensure the objectivity of the engagement partner and audit
staff is not impaired.
Humphrey Price
Chairman of the Audit Committee
3 June 2014
70
LondonMetric Property Plc Annual report and accounts 2014 Remuneration Committee report
The Remuneration Committee’s key role is to
determine a reward structure that incentivises
the Executive Directors to deliver the Group’s
long‑term business plan and strategy of enhanced
shareholder returns.
James Dean
Chairman of Remuneration Committee
Chairman’s statement
This report details the activities of the Remuneration
Committee for the year to 31 March 2014. It sets out the
remuneration policy and remuneration details for the
Executive and Non-Executive Directors and has been
prepared in accordance with Schedule 8 of the Large and
Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008 as amended in August 2013.
This is the first report prepared in accordance with these
amended regulations and is split into two sections:
• The Directors’ remuneration policy report, which sets out
the framework for executive remuneration. This sets out
the policy we propose to apply from the 2014 AGM and is
subject to a binding shareholder vote
• The annual remuneration report, which provides details
on executive remuneration in the year and is subject to an
advisory shareholder vote at the 2014 AGM
The Group’s remuneration policy has not changed in the
year and is as proposed in the Policy report. The Committee
felt it was important to consult with major shareholders
during the year to ensure the policy continues to meet
investor expectations. The feedback received was carefully
considered and reported to the Board and supports the
remuneration policy as proposed. The Group welcomes
continued dialogue with shareholders on these and other
governance matters.
The overriding objective is to attract, motivate and retain
individuals of the highest calibre through simple and
transparent arrangements which align rewards with the
Group’s key strategic priorities, long-term growth and the
delivery of attractive shareholder returns.
The Group has performed well this year, meeting a
demanding set of objectives and delivering a very good set
of financial results. EPRA earnings per share has increased
by 8% to 4.2p and EPRA NAV per share by 11% to 121p.
Group like-for-like net rental income increased by 3.4%
and the Group’s total property return of 17.0% outperformed
the IPD Composite Index of 13.4% by 3.6%. Its key strategic
priority to reposition the portfolio towards out-of-town retail
and retailer distribution, with focus on growing income, asset
management and short-cycle, de-risked development, has
allowed full dividend cover to be met as EPRA earnings on
an annualised basis now cover the Group’s target dividend
of 7p per annum. Reflecting the performance of the
Group in the year, the Committee has calculated annual
bonuses for the Executive Directors to be at their respective
maximum levels.
The Committee approved base pay increases of 2.5% for
the Executive Directors, effective from 1 June 2014 and
consistent with the increases for employees generally.
Delivery of long-term growth in shareholder value is
rewarded through the Group’s LTIP arrangements and the
Executive Directors already hold and are encouraged to
retain significant shareholdings to align their interests with
those of shareholders (see table on page 82).
James Dean
Chairman
3 June 2014
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continued
Remuneration policy
This part of the Remuneration Committee report sets out
the remuneration policy for the Group. The policy has
been developed taking into account the principles of the
UK Corporate Governance Code 2012 (the “Code”) and
the view of major shareholders and describes the policy
to be applied in relation to the three-year period from the
2014 AGM.
Remuneration principles and structure
The Committee has adopted remuneration principles
which are designed to ensure Executive Director and senior
executive remuneration:
• Is aligned to the business strategy and achievement of
business goals
• Is aligned with the interests of shareholders by encouraging
high levels of share ownership
Executive Directors’ remuneration
• Attracts, motivates and retains high calibre individuals
• Is competitive in relation to other comparable
property companies
• Encourages high and sustainable long-term performance
by ensuring a substantial proportion of the remuneration
package consists of LTIP awards which are linked to
the Group’s total shareholder return and EPRA earnings
per share
• Is set in the context of pay and employment conditions of
other employees
The table on pages 72 to 75 sets out the remuneration policy
that the Group intends to apply, for a term of up to three
years, subject to shareholder approval, from 17 July 2014, the
date of the Annual General Meeting of the Company.
Any commitments made by the Group prior to the approval
and implementation of the proposed policy are consistent
with the policy and can be honoured.
Base salary
Purpose and
link to strategy
Operation
Maximum
opportunity
Provide a competitive level of fixed pay to attract and retain Directors of the required calibre to deliver the
Group’s strategy.
Level of pay reflects individuals’ skills, seniority and experience and complexity of the role.
Normally reviewed annually with changes effective from 1 June, with reference to inflation, responsibilities,
performance and market rates. In determining the base salary, consideration is given to pay increases for
other employees and for other comparable property companies.
Directors’ salaries for the year ahead are stated in the annual remuneration report on pages 78 to 83.
The Committee considers average wage increases across the Group, prevailing rates of inflation, the
Directors’ development, performance and role, and comparable market data. In normal circumstances
the Directors’ salaries will not increase by more than the range offered to the wider workforce. However,
larger increases may be offered if there is a material change in the size and responsibilities of the
role (which covers significant changes in Group size and/or complexity) or if it is necessary to remain
competitive to retain a Director.
Performance
measures
The Directors are subject to an annual performance assessment, the outcome of which is taken account of
in setting base salaries.
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continued
Annual bonus
Purpose and
link to strategy
Operation
Incentivise the achievement of annual financial targets consistent with the Group’s business plan for the
relevant financial year with particular focus on total property return (TPR) and EPRA earnings per share as
well as the delivery of agreed personal objectives. Partial award in shares aligns interests with shareholders.
Annual performance targets are set by the Committee at the start of the financial year linked to the
Group’s long-term strategy of growth in EPRA earnings per share and TPR. At least half of the bonus will
be linked to the key property and financial metrics. Non financial targets are set to measure individual
personal performance and contribution to the achievement of portfolio management initiatives and other
operational management objectives.
The annual bonuses for the Chief Executive and other Executive Directors will be paid 50% in cash and
50% in deferred shares, which will vest in three equal instalments over three years and will be subject to
continued employment, save as in the leaver circumstances described in the Payment for loss of office
section of this policy. The bonus for the Executive Chairman will be paid 100% in cash due to his existing
substantial shareholding in the Group.
No further performance conditions apply and dividend equivalents are paid out at the end of each
vesting period.
The Committee has the discretion to exercise standard clawback provisions to share-based elements of the
bonus in the event of gross misconduct or material mis-statement in the accounts.
Maximum
opportunity
The maximum bonus limit is capped at 200% of base salary. Within this limit, the following individual limits
currently apply:
100% of salary for the Executive Chairman
150% of salary for the Chief Executive
125% of salary for the other Executive Directors
If the Committee wishes to increase these within the maximum bonus limit, then it would first consult with
leading shareholders and their representative bodies.
Performance
measures
The Committee will set challenging annual targets consistent with the Group’s business strategy that are
appropriately stretching, but achievable.
Performance is assessed against target financial and non financial measures which may vary each year
depending on the annual priorities of the business. At least half of the bonus payment is subject to financial
and/or property performance targets. There is no payment in respect of TPR if it is negative. The Committee
retains discretion to amend the vesting level where it considers it to be appropriate but not so as to exceed
the maximum bonus potential. Further details of the targets set and measures applied for the year to
31 March 2014 are provided in the annual remuneration report on pages 78 to 83.
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continued
Long-term incentives
Purpose and
link to strategy
Incentivise and reward the delivery of long-term Group performance and sustained growth in line with
business strategy, thereby building a shareholding in the Group and aligning Directors’ interests with
shareholders’.
Operation
The LTIP rules were approved by the shareholders at the 2013 AGM.
Awards made are discretionary and vesting is dependent upon the achievement of performance
conditions over three years starting at the beginning of the financial year in which the award is made.
If employment ceases during the vesting period, awards will normally lapse, save in the leaver
circumstances as described in the Payment for loss of office section of this policy. Awards granted are
subject to clawback conditions in the event of gross misconduct or material mis-statement in the accounts.
Awards include dividend equivalent (in cash or shares) in lieu of dividends forgone between the day of
grant and the vesting of the award based on the number of shares which have vested.
Maximum
opportunity
Maximum overall limit on LTIP awards of 200% of salary.
Within this limit, the following current individual caps apply:
175% of basic salary for the Chief Executive
140% of basic salary for other Executive Directors. If the Committee wishes to increase these within the
maximum policy limit then it would first consult with leading shareholders and their representative bodies
The Executive Chairman has a very significant shareholding in the Company and will not receive awards under
the LTIP.
Performance
measures
The Committee will review the appropriateness of performance measures on an annual basis and set
challenging targets consistent with the business strategy. This review may result in changes to weightings or
the introduction of new measures which are more closely aligned to the Group’s business strategy at the time.
At present, two measures apply as follows: 75% of any award is subject to a total shareholder return (TSR)
exceeding the index of the FTSE 350 Real Estate Companies TSR and 25% of any award is on the basis of
EPRA EPS growth versus RPI. The Committee retains the discretion to amend the performance conditions
and/or weightings of each of the future awards. However, it is the current intention of the Committee that
future awards be granted with the same performance measures and conditions as for the 2014/15 awards
detailed on page 81.
Further details of the targets set and measures applied for the year ahead are provided in the
annual remuneration report on pages 78 to 83.
Provide a competitive post-retirement benefit to attract and retain individuals.
The pension allowance is a 15% monthly contribution to the Executive Director’s individual personal pension
plan or taken as a cash equivalent. Salary sacrifice arrangements can apply.
The maximum contribution is 15% of salary. No element other than base salary is pensionable.
None.
Pension
Purpose and
link to strategy
Operation
Maximum
opportunity
Performance
measures
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LondonMetric Property Plc Annual report and accounts 2014 Remuneration Committee report
continued
Benefits
Purpose and
link to strategy
Provide a comprehensive and competitive benefit package to aid recruitment and the retention of high
quality executives.
Operation
Each Executive Director receives the following:
• Car allowance
• Private medical insurance
• Life insurance
• Permanent health insurance
The Committee may wish to offer Executive Directors other benefits on broadly similar terms as
other employees.
Maximum
opportunity
Car allowance is £20,000 per annum for each Executive Director.
Other benefits are provided at the market rate and therefore the cost will vary from year to year based on
the cost from third party providers (e.g. reflecting changes in insurance premiums).
Performance
measures
None.
Notes: The Committee will operate the Company’s incentive plans according to their respective rules and consistent with normal market practice,
the Listing Rules and HMRC rules where relevant, including flexibility in a number of regards. These include making awards and setting performance
criteria each year, dealing with leavers, adjustments to awards and performance criteria following acquisitions, disposals, changes in share capital
and to take account of the impact of other M&A activity.
The Committee also retains discretion within the policy to adjust the targets, set different measures and/or alter weightings for the annual bonus
plan and, in exceptional circumstances, under the rules of the long-term incentive plan to adjust targets to ensure that the awards fulfil their original
purposes. All assessments of performance are ultimately subject to the Committee’s judgement.
Any discretion exercised (and the rationale) will be disclosed in the annual remuneration report.
Non‑Executive Directors’ remuneration:
Fees and benefits
Purpose and
link to strategy
To attract and retain suitably qualified Non-Executive Directors by ensuring fees are competitive.
Non-Executive Directors are not eligible to receive benefits other than travel, hospitality related or other
incidental benefits linked to the performance of their duties as a Director.
Operation
Normally, fees payable are reviewed annually by the Board and reflect the time commitment and
responsibility taken by them.
Maximum
opportunity
Where appropriate, the Board considers fees paid by comparative companies of similar scale.
The current fee levels are set out in the annual remuneration report on page 82.
Increases may be greater than those of Company employees in a particular year (in percentage terms)
given the periodic nature of increases and changes in responsibilities or time commitments. The maximum
level of fees set out in the Articles of Association for Non-Executive Directors is currently £500,000 per annum
and will be increased to £1,000,000 per annum subject to shareholder approval at the forthcoming AGM.
Consistency with remuneration for other employees
Communication with shareholders and employees
The remuneration policy for Executive Directors is in line
with the remuneration philosophy and principles for the
Group’s other employees. The individual elements of the
remuneration package for employees below Board level
are the same as those offered to the Board. The Board sets
individual salary levels, annual bonus levels, LTIP awards and
benefits at its discretion and according to the employees’
level of responsibility and performance and in light of other
comparable market rates.
When considering salary increases, bonus and LTIP awards
for Executive Directors, the Committee considers increases,
bonuses and LTIP awards offered to other employees.
The Board has communicated with shareholders
representing c. 31% of the Group’s issued share capital
during the year on governance issues including its
remuneration policy. The key remuneration proposals
were circulated by letter to major shareholders in April 2014.
The Committee will continue to consult with its major
shareholders in advance of any significant policy changes.
It receives the reports received from shareholders relating
to remuneration matters when their approval is sought at
the AGM and it follows up any concerns raised.
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continued
The Committee has not consulted with employees on
setting the remuneration policy for the Executive Directors
as the policy is consistent throughout the organisation.
The Committee does however consider the remuneration
arrangements for all employees when determining
remuneration policy for the Executive Directors.
New Non-Executive Directors will be appointed through
letters of appointment and fees set at a competitive market
level and in line with the other existing Non-Executive
Directors. Letters of appointment are normally for an initial
term of three years and are subject to a notice period of
three months by either party.
Recruitment remuneration arrangements
Service contracts and payment for loss of office
The service contracts for the Executive Directors were
reviewed and revised following the merger in 2013. Service
contracts are terminable by either party with notice of
12 months. The Committee considers this appropriate for all
existing and newly appointed Directors.
Provision for payments on termination are contained
in the Directors’ service contracts which stipulate that
compensation is based on what would be earned by
way of salary, pension entitlement and other contractual
benefits over the notice period. Non-Executive Directors’
appointments are normally for an initial three-year
term and may be terminated on three months’ notice
without compensation.
The Committee will exercise discretion when calculating
termination payments and will take into consideration
individual and Group performance, mitigation of loss and
the length of service undertaken. It believes discretion on
such payments is required to recruit and retain the highest
calibre Directors.
If a claim is made against the Group in relation to a
termination (e.g. for unfair dismissal), the Committee retains
the right to make an appropriate payment in settlement
of such claims as considered in the best interests of the
Group. Additional payments in connection with any
statutory entitlements (e.g. in relation to redundancy),
departing Directors’ legal fees and out placement services
may be made as the Committee deems reasonable and
as required.
If the departing Director is deemed a “good leaver”, i.e. if he
or she dies or leaves employment through illness, injury or
disability, retirement, sale of the Company for which he or she
works, or for any other reason approved by the Committee,
a discretionary bonus may be payable for the period worked,
subject to the achievements of the relevant performance
condition. Deferred shares which have not vested shall vest
although the vesting of share awards under the Group’s LTIP
is not automatic and the Committee would retain discretion
to allow partial vesting depending on the extent to which
performance conditions had been met and the length of
time the awards had been held.
The Committee will seek to apply the same remuneration
policy and principles when setting the remuneration
package for a new Executive Director as listed in the policy
table on pages 72 to 75.
Salary will be set at a level appropriate to the role, the
experience of the Director being appointed and their
current salary, and may initially be set below the perceived
market rate, with phased multi-year increases (which may
be above those offered to wider employees) to bring it into
line with market subject to their continued development in
the role. Ongoing benefits and pension provision will be no
more than that offered to Executive Directors.
The Committee may make awards on hiring an external
candidate to buy out remuneration packages forfeited
on leaving a previous employer. This may take the form of
cash and/or share awards. The maximum payment under
any such arrangement, which would be in addition to the
normal variable remuneration, should be no more than
the Committee considers is required to provide reasonable
compensation to the incoming Director and would not
exceed an estimate of the expected value being forfeited,
taking into account the time period to expected vesting
and any relevant performance criteria. The Committee may
therefore rely on exemption 9.4.2 of the Listing Rules which
allow for the grant of awards to facilitate, in exceptional
circumstances, the recruitment of a Director. If an external
appointment requires a Director to relocate, a relocation
payment can be paid at the discretion of the Committee
which it feels is reasonable and appropriate.
The maximum level of ongoing variable remuneration
granted to newly appointed Directors would be in line with
the existing level of variable remuneration granted to the
current Executive Directors. Depending on the timing and
nature of the appointment, the Committee may wish to set
different annual bonus performance measures and targets to
those of current Executive Directors, although this will only be
in respect of the bonus year in which he/she is appointed.
The emphasis on linking pay with performance through the
Company’s LTIP will continue so as to align the Directors’ and
shareholders’ interests.
In the case of an internal appointment, any pre-existing
remuneration commitments would be honoured in
accordance with their terms. Otherwise the policy will be
consistent with that for external appointees.
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continued
Change of control
Illustration of potential remuneration for Directors
In the event of a change of control such as a takeover or
other capital event, vesting of award shares under the LTIP
depends on the extent to which performance conditions
had been met at that time. Early vesting would normally
be on a time pro-rata basis. The Committee may vary the
level of vesting if it believes the circumstances at the time
warranted this. Deferred bonus shares awarded will vest
in full upon a change of control. Annual bonuses may be
awarded based on performance to the date of the change
of control and unless the Committee determines otherwise
would be time pro-rated. In the event of a variation of
share capital, the Committee may make adjustments
to awards under the LTIP and deferred bonus plan as it
considers appropriate.
Shareholding guidelines
The remuneration policy places significant importance
on aligning the long-term interests of shareholders with
those of management by long-term incentives and share
awards. To support this, the Committee has established
share ownership guidelines for the Executive Directors
that encourage them to build up a shareholding in the
Company over a five-year period, a holding equivalent
to at least four years’ salary.
There are no shareholding requirements for
Non-Executive Directors.
Current levels of share ownership are shown in the table
on page 82.
Other Directorships
Executive Directors are permitted to accept external,
non-executive appointments with the prior approval of
the Board where such appointments are not considered
to have an adverse impact on their role within the Group.
Fees earned may be retained by the Director. Andrew Jones
was appointed a Non-Executive Director of Unite Plc in
1 February 2013 and receives fees of £41,000 per annum.
The charts below set out the potential remuneration
receivable by the Executive Directors based on the 2014
remuneration policy and base salaries proposed for the
year commencing 1 April 2014 as reflected on page 79
and as increased from 1 June 2014.
Potential remuneration for Directors (£)
403,833
506,333
608,833
587,246
956,246
1,325,246
396,466
598,263
800,060
410,139
622,639
835,139
410,448
622,948
835,448
Patrick
Vaughan
Andrew
Jones
Martin
McGann
Valentine
Beresford
Mark
Stirling
Minimum
On target
Maximum
The minimum scenario reflects fixed remuneration of salary,
pension and benefits only as the other elements are linked to
future performance. Base salary is that to be paid in 2014/15.
Benefits are as shown in the single figure remuneration table
for 2013/14 on page 79. The remuneration for the Chairman
has been reduced to £320,000 per annum in fees from
October 2014.
The on-target scenario reflects fixed remuneration as above
plus 50% of the maximum annual bonus entitlement and the
threshold level of vesting for the LTIP awards, being 25% for
both the TSR and EPS performance requirements.
The maximum scenario reflects the fixed remuneration plus
the maximum payout of all other incentive arrangements.
77
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements The main activities of the Committee during the year and to
the date of this report were as follows:
• Approved new LTIP arrangements for the Executive
Directors and staff
• Approved Executive Directors’ share awards under the LTIP
following the announcement of the Company’s 2013 results
• Set a base EPS target for the 2013 LTIP and annual
bonus awards
• Assessed the performance of Executive Directors against
targets set and determined annual bonuses for 2013/14
• Reviewed and approved annual salary increases effective
from 1 June 2014
• Reviewed the revised remuneration reporting regulations
and prepared the annual remuneration report
• Approved the updated Terms of Reference for
the Committee
• Consulted with major shareholders on the proposed
remuneration policy
Members of Committee
Member
James Dean
Charles Cayzer
Philip Watson
Andrew Varley
Date appointed
1 October 2010
1 October 2010
25 January 2013
30 May 2013
Meetings
attended
Eligible to
attend
6
6
6
3
6
6
6
3
Remuneration Committee report
continued
Annual remuneration report
The role of the Remuneration Committee
The Committee’s responsibilities are set out in its terms
of reference which are reviewed annually by the
Board and are available on the Company’s website:
www.londonmetric.com.
The Committee’s responsibilities include the following:
• Setting and reviewing the Group’s overall remuneration
policy and strategy
• Determining and reviewing individual
remuneration packages
• Determining and approving the rules for the Long-
Term Incentive Plan (LTIP) and Deferred Bonus
Plan arrangements
• Approving salaries, bonuses and share awards for the
Executive Directors
All members are Non-Executive Directors of the Company,
which is an important pre-requisite to ensure Executive
Directors’ and senior executives’ pay is set by Board
members who have no personal financial interest in
the Company other than as potential shareholders.
The Committee meets regularly without the Executive
Directors being present and is independently advised
by New Bridge Street (a trading name of Aon plc), a
signatory of the Remuneration Consultants’ Code of
Conduct and who has no connection with the Group
other than in the provision of advice on executive and
employee remuneration matters. For the financial year
under review, total fees paid to New Bridge Street were
£56,000 (including design, operation and administration
of remuneration policy). No Executive Director is involved
in the determination of his own remuneration and fees for
non-executives are determined by the Board as a whole.
The Board recognises that it is ultimately accountable for
executive remuneration but has delegated this responsibility
to the Committee. The Chairman reports to the Board on
proceedings and outcomes following each Committee
meeting. The Committee met on four occasions during
the year.
78
LondonMetric Property Plc Annual report and accounts 2014 Remuneration Committee report
continued
The following section of the annual remuneration report provides details of the implementation of the remuneration policy
for all Directors for the year to 31 March 2014. All of the information set out in this section of the report has been audited.
Single total figure of remuneration for each Director
Director
Salary and fees
Taxable benefits2
Pension benefits5
Annual bonus6
Total
2014
£000
2013
£000
2014
£000
2013
£000
2014
£000
2013
£000
2014
£000
2013
£000
2014
£000
2013
£000
Executive
Patrick Vaughan
Andrew Jones3
Martin McGann4
Non‑Executive
Mark Burton1
Charles Cayzer
James Dean
Andrew Huntley1,3
Alec Pelmore3
Humphrey Price
Andrew Varley3
Philip Watson3
Rosalyn Wilton7
400
480
315
14
60
59
15
50
60
50
50
1
335
59
258
50
54
58
11
9
60
9
9
–
20
24
27
–
–
–
–
–
–
–
–
–
8
5
5
–
–
–
–
–
–
–
–
–
60
72
39
–
–
–
–
–
–
–
–
–
36
12
50
–
–
–
–
–
–
–
–
–
362
720
332
325
90
271
842
1,296
713
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14
60
59
15
50
60
50
50
1
704
166
584
50
54
58
11
9
60
9
9
–
1 Andrew Huntley and Mark Burton resigned from the Board on 10 July 2013
2 Taxable benefits include the provision of a car allowance and private medical insurance
3 Directors appointed to the Board following the merger with Metric Property Investments Plc on 25 January 2013. Prior year comparatives represent
the two-month post merger cost
4 Salary sacrifice arrangements in place whereby additional pension contributions are paid in lieu of salary
5 Pension contribution is 15% of salary (excluding any salary sacrifice) and may be taken partly or entirely in cash
6 Annual bonus payable in respect of the financial year ending 31 March 2014 determined in accordance with the performance measures outlined
in the policy table and further discussed in the additional disclosures below
7 Appointed to the Board on 25 March 2014
Additional notes to the single total figure of
remuneration
The salaries for the year ahead are therefore as follows:
Directors’ remuneration for 2014/15
Base salary
Base salaries post the merger in 2013 were set with effect
from 1 February 2013 to reflect new roles and responsibilities.
On 22 May 2014 the Committee approved increases of 2.5%
for the Chairman, Chief Executive and Finance Director with
effect from 1 June 2014. The average base salary increase
for other employees was 2.5%. The Chairman will undertake
his role in a non-executive capacity from 1 October 2014
and his remuneration will be reduced to £320,000 per
annum in fees. He will receive no bonus, LTIP, benefits or
pension benefit/allowance for the period from when he
undertakes this new role. The Committee also agreed
salary levels for the two new Executive Directors, Valentine
Beresford and Mark Stirling, from their date of appointment.
Base
salary from
1 February
2013
£400,000
£480,000
£315,000
n/a
n/a
Base
salary from
1 June 2014/
date of
appointment
£410,0001
£492,000
£322,875
£340,000
£340,000
% increase
2.5
2.5
2.5
n/a
n/a
Executive Director
Patrick Vaughan
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
1 Reducing to £320,000 per annum from 1 October 2014 when the role
becomes non-executive
79
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Remuneration Committee report
continued
Annual Bonus Plan
Group financial targets
The table below details the performance conditions and
composition of targets for the annual bonus:
Performance
measure
Maximum
% of bonus
Target to
achieve
100%
bonus
Actual
performance
Total
bonus
Composition of
financial targets
35% EPRA EPS
35% total
property return
Annualised
EPRA earnings
per share
Total property
return
35%
6.62p
7.0p
100%
35%
16.0%
17.0%
100%
Individual non financial targets
Executive Directors’ non financial targets accounted for
30% of the maximum bonus award. Personal objectives
were designed around the delivery of the business plan
and the Group’s key strategic objectives, specifically
the repositioning of the portfolio towards out-of-town
retail and leisure and retailer-led distribution and
maximising recurring income through investment and
asset management initiatives. The Committee felt that
all Executive Directors had fully achieved their individual
personal objectives and approved the maximum level
of payout.
Year of
award
2014/15
Proportion
deferred in shares
2013/14
50%
50%
Weighting of
performance
measures
70% financial
targets
30% personal
objectives
70% financial
targets
30% personal
objectives
35% EPRA EPS
35% total
property return
Total property return (TPR) is compared with the IPD
Composite Index TPR. A full payout in respect of TPR is made
if it is at least 120% of the IPD Index. A 50% payout is made
if TPR is at least 110% of the IPD benchmark and a 25%
payout if it is equal to the IPD benchmark, with straight-line
interpolation between these limits. No payout is made if TPR
is negative.
The following table summarises the annual performance
measures and performance assessment undertaken by
the Committee in respect of the 2013/14 annual bonus.
The Committee set the EPS targets from a prior year pro
forma of 6.3p which was higher than had been indicated
during consultations with shareholders prior to the 2013 AGM.
The table below outlines the key personal objectives set for each of the Executive Directors for the 2013/14 annual bonus:
Performance measure
Maximum % of bonus
Personal objectives
Patrick Vaughan
Portfolio management
10% Reposition portfolio to core sectors
Management objectives
20% Manage the merger and integration process
Andrew Jones
Portfolio management
15% Reposition portfolio into core sectors
Grow contracted income
Maximise yield arbitrage between acquisitions and disposals
Extend portfolio lease lengths
Maintain high occupancy levels
Management objectives
15% Build and maintain good relationships with investors and analysts
Martin McGann Management objectives
30% Build and maintain good relationships with investors and analysts
Manage the merger and integration process
Comply with the regulatory reporting framework
80
LondonMetric Property Plc Annual report and accounts 2014 Remuneration Committee report
continued
In the opinion of the Board, the annual bonus performance
conditions and individual objectives for the year ahead are
commercially sensitive and accordingly are not disclosed.
These will be reported upon with disclosure next year.
Based on the performance assessments above, the resulting
2014 annual bonus payments are as follows:
Financial
objectives
Individual
objectives
Patrick Vaughan
Andrew Jones
Martin McGann
100%
100%
100%
100%
100%
100%
Total
bonus
100%
100%
100%
Total
bonus
£000
362
720
332
In accordance with the remuneration policy, 50% of the
annual bonuses for the Executive Directors, but excluding
the Chairman, will be deferred and paid by way of shares
in the Group in three equal instalments over three years and
are subject to continued employment.
In accordance with the circular issued to shareholders
dated 27 November 2012, in respect of the merger, the
bonuses for Patrick Vaughan and Martin McGann have
been calculated on the basis of pre-merger arrangements
up until 30 September 2013 and only in accordance with the
enlarged Group policy from 1 October 2013.
Long‑Term Incentive Plan
Awards granted in the year were as follows:
Director
Date of grant
Share
awards
number
Face
value
per
share
Andrew Jones1
21 August 2013
839,895
114.3p
Martin McGann2
27 November
2013
167,885
131.3p
Face
value
£000
960
220
1 As explained in the shareholders’ circular dated 27 November 2012,
additional LTIP performance shares were awarded as settlement of
former Metric share scheme arrangements which were terminated.
The face value of this award is 25% of salary, which is in addition, to the
grant of 175% of his salary
2 With effect from 1 October 2013, he received 125% of his salary
(pro-rated)
The face value is based on a weighted average price per
share, being the average share price over the five business
days immediately preceding the date of the award for
all awards other than awards made to Andrew Jones
on 21 August 2013, where the face value is based on a
weighted average price per share over the five business
days post announcement of the 2013 results.
The Committee has resolved that grants to Andrew Jones,
Martin McGann, Valentine Beresford and Mark Stirling will
be at the levels of 160%, 125%, 125% and 125% of salary
respectively for 2014/15.
Awards will vest after three years subject to continued
service and the achievement of performance conditions.
75% of awards will be subject to a TSR measure against an
index of FTSE 350 Real Estate companies. 25% of this element
will pay out for performance equal to the index, rising on a
straight-line basis to full payout for outperforming the index
by 50% of the index growth. No part of the TSR award will
pay out unless TSR performance is positive.
25% of awards will be subject to an EPRA EPS growth
measure against RPI. 25% of this element of the award will
pay out for EPRA EPS performance equal to RPI plus 3% over
three years, rising on a straight-line basis to full payout for
EPRA EPS growth of RPI plus 8% over three years. The base
EPRA EPS for the 2013/14 awards was set at 6.3p and for
2014/15 awards the base EPRA EPS will be set materially
higher than the EPRA EPS for the year ended 31 March 2014.
The overriding objective
is to attract, motivate and
retain individuals of the
highest calibre through
simple and transparent
arrangements.
James Dean
Chairman of Remuneration Committee
81
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Remuneration Committee report
continued
Non‑Executive Directors’ fees
The fees for Non-Executive Directors (excluding the
Chairman) are determined and reviewed by the Board.
The following fees for Non-Executive Directors excluding the
Chairman have been set for the year ahead:
Base fee – £45,000 per annum
Additional fee for Audit/Remuneration Committee
Chairmanship – £10,000 per annum
Non-Executive Directors are not eligible for performance-
related bonuses, participation in the staff incentive plan,
pensions or any other benefits from the Company other than
travel, hospitality-related benefits or other incidental benefits
linked to the performance of their duties as a Director.
The fee payable to the Non-Executive Chairman from
1 October 2014 is £320,000 per annum.
Payments to past Directors and for loss of office
Additional fee for Audit/Remuneration Committee member
and Senior Independent Director – £5,000 per annum
There have been no payments made to retiring Directors or
for loss of office in the year.
Directors’ shareholdings and share interests
The beneficial interests in the ordinary shares of the Group held by the Directors and their families who were in office during
the year or at the date of this report are set out below:
31 March 2014
Ordinary shares
of 10p each
31 March 2013
Ordinary shares
of 10p each
31 March 2014
Share ownership
as % of salary1
Shareholding
guideline met
Executive Directors
Patrick Vaughan
Andrew Jones
Martin McGann
Non‑Executive Directors
Mark Burton
Charles Cayzer
James Dean
Andrew Huntley
Alec Pelmore
Humphrey Price
Andrew Varley
Philip Watson
Rosalyn Wilton
16,337,997
2,243,479
2,341,585
–
–
20,000
114,000
120,500
2,015,733
47,000
174,000
–
16,619,997
2,178,979
3,341,585
–
–
–
114,000
120,500
2,015,733
47,000
94,000
–
5,788
662
1,053
Yes
Yes
Yes
1 Based on the Company’s share price at 31 March 2014 of 141.7p
There were no movements in Directors’ shareholdings between 31 March 2014 and the date of this report. The shareholding
guidelines recommend Executive Directors build up a shareholding in the Company at least equal to four times salary.
All Executive Directors complied with this requirement at 31 March 2014 and as at the date of this report. No Director had
any interest or contract with the Company or any subsidiary undertaking during the year.
82
LondonMetric Property Plc Annual report and accounts 2014 Remuneration Committee report
continued
Performance graph
Percentage change in Chief Executive remuneration
The graph below shows the Group’s total shareholder
return (TSR) for the period from 1 October 2010, when the
Company listed on the Main Market of the London Stock
Exchange, to 31 March 2014, compared to the FTSE All Share
REIT Index. This Index has been chosen by the Committee
as it is considered the most appropriate and relevant
benchmark against which to assess the performance of the
Company. The starting point required by the remuneration
regulations was close to the bottom of the property cycle
where a number of property companies launched rights
issues while the Company did not. The Company’s share
price had not fallen as much as the average share price of
the FTSE REIT sector prior to this starting point, thereby setting
a higher initial base price for this graph. The share price has
outperformed the same index over the last year as shown in
the graph on page 11.
Total shareholder return measures price growth with
dividends deemed to be reinvested on the ex-dividend date.
(index rebased to 100)
180
160
140
120
100
80
Oct
2010
Mar
2011
Sep
2011
Mar
2012
Sep
2012
Mar
2013
Sep
2013
Mar
2014
LondonMetric Property
FTSE All Share REIT index
Chief Executive’s remuneration table
The table below details the remuneration of the Chief
Executive for the period from the Company’s listing on the
main market of the London Stock Exchange on 1 October
2010 to 31 March 2014.
Total
remuneration
£000
Annual
bonus (as
a % of the
maximum
payout)
LTIP vesting
(as a % of the
maximum
opportunity)
1,296
166
583
664
323
100
100
100
100
100
–
–
–
–
–
Year to 31 March 2014
2014
2013 (Andrew Jones)1
2013 (Patrick Vaughan)1
2012
20112
1 Andrew Jones became Chief Executive and Patrick Vaughan became
Chairman on 25 January 2013 following the merger of the Company
with Metric Property Investments plc
2 For the six months from the Company’s listing on 1 October 2010 to
31 March 2011
The percentage change in the role of the Chief Executive’s
remuneration from the previous year compared to the
average percentage change in remuneration for all other
employees is as follows:
% change
Salary and
fees
Taxable
benefits
47
47
77
36
Annual
bonus
100
30
Chief Executive1
Other employees2
1 Patrick Vaughan for the period 1 April 2012 to 25 January 2013,
thereafter Andrew Jones, so the analysis is not on a comparable basis
between the two years
2 Excludes Chief Executive
Relative importance of spend on pay
The table below shows the expenditure and percentage
change in spend on employee remuneration compared to
other key financial indicators:
Employee costs1
Dividends paid2
2014
£000
9,857
43,964
2013
£000
6,894
37,996
% change
43
16
1 Figures taken from note 5 Employee costs on page 102
2 Figures taken from note 8 Dividends on page 103
Statement of voting at AGM
At the AGM on 10 July 2013, the Remuneration Committee
report received the following votes from shareholders
representing 70% of the issued share capital of
the Company.
For
Against
Withheld
Total
Number of votes
% of votes cast
230,240,057
143,879,801
65,571,288
439,691,146
61.54
38.46
The key area of criticism was in relation to the level of
disclosure of performance targets relating to the annual
bonus arrangements prior to the merger. Bonus performance
targets for the post-merger firm was not an area of criticism
and the Company has addressed all key concerns raised by
shareholders last year.
83
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Report of the Directors
The Directors present their report together with the audited financial statements
for the year ended 31 March 2014.
The principal activity of the Group continues to be property
investment and development, both directly and through unit
trusts and joint venture arrangements.
Principal activities and business review
The purpose of the annual report is to provide information to
the members of the Company which is a fair, balanced and
understandable assessment of the Group’s performance,
business model and strategy. A detailed review of the
Group’s business and performance during the year, its
principal risks and uncertainties and its business model and
strategy is contained in the Strategic report on pages 1 to 56
and should be read as part of this report.
The annual report contains certain forward-looking
statements with respect to the operations, performance
and financial condition of the Group. By their nature, these
statements involve uncertainty since future events and
circumstances can cause results and developments to differ
from those anticipated. The forward-looking statements
reflect knowledge and information available at the date
of preparation of this annual report. Nothing in this Annual
Report should be construed as a profit forecast.
Results and dividends
The Group reported a profit for the year of £125.3 million
(2013: loss of £13.5 million) as shown on page 92. An
interim dividend for 2014 of 3.5p per share was paid on
20 December 2013 and the Directors propose a final
dividend of 3.5p per share, resulting in a total dividend of
7.0p per share for the year to 31 March 2014 (2013: 7.0p per
share). The final dividend will be paid following approval
at the Annual General Meeting on 17 July 2014 to ordinary
shareholders on the register at the close of business on
11 June 2014.
As disclosed in note 8, 1.5p of the final dividend payment
will comprise a Property Income Distribution (PID) which
is paid, as required by REIT legislation, after deduction of
withholding tax at the basic rate of income tax. The balance
of 2.0p will be paid as an ordinary dividend which is not
subject to withholding tax.
Investment properties
A valuation of the Group’s investment properties at
31 March 2014 was undertaken by CBRE Limited and Savills
Advisory Services Limited on the basis of fair value which
amounted to £1,030.6 million as reflected in note 10 to
these accounts.
Share capital
As at 31 March 2014, there were 628,043,905 ordinary shares
of 10p in issue, each carrying one vote and all fully paid.
There is only one class of share in issue and there are no
restrictions on the size of a holding or on the transfer of
shares. None of the shares carry any special rights of control
over the Company. There were no persons with significant
direct or indirect holdings in the Company other than those
listed as substantial shareholders on page 85.
There were no changes to the Company’s share capital
during the year or since the year-end.
The rules governing appointments, replacement and powers
of Directors are contained in the Company’s Articles of
Association. These include powers to authorise the issue and
buy back of shares by the Company.
Purchase of own shares
The Company was granted authority at the Annual
General Meeting in 2013 to purchase its own shares up to
an aggregate nominal value of 10% of the issued nominal
capital. That authority expires at this year’s Annual General
Meeting (“AGM”) and a resolution will be proposed for its
renewal. No ordinary shares were purchased under this
authority during the year.
Directors
The present membership of the Board and biographical
details of Directors are set out on pages 58 to 59.
The interests of the Directors and their families in the shares
of the Company are set out in the Remuneration Committee
report on page 82.
Rosalyn Wilton was appointed to the Board as a Non-
Executive Director on 25 March 2014 and Valentine Beresford
and Mark Stirling were appointed Directors on 3 June 2014.
In accordance with the UK Corporate Governance Code,
all of the Directors will retire and offer themselves for
re-election at the forthcoming AGM on 17 July 2014.
Directors’ and Officers’ liability insurance
The Company has arranged Directors’ and Officers’
liability insurance cover in respect of legal action against
its Directors, which is reviewed and renewed annually and
remains in force at the date of this report.
84
LondonMetric Property Plc Annual report and accounts 2014 Report of the Directors
continued
Substantial shareholders
The Directors have been notified that the following
shareholders have a disclosable interest of 3% or more in the
ordinary shares of the Company at the date of this report:
Rathbone Investment Management
Blackrock Investment Management Ltd
Threadneedle Asset Management
Suppliers
Number of
shares
36,515,214
34,763,918
31,617,465
%
5.81
5.54
5.03
The Group aims to settle supplier accounts in accordance
with their individual terms of business.
The number of creditor days outstanding for the Group at
31 March 2014 was 19 days (2013: 22 days).
On the basis of this review, and after making due enquiries,
the Directors have a reasonable expectation that the
Company and the Group have adequate resources to
continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going
concern basis in preparing the annual report and
financial statements.
Post-balance sheet events
Details of the Group’s post-balance sheet events are
reflected in note 21 to these financial statements on
page 115.
Employees
The Group currently has 43 employees. The Group’s
employment and environmental policies are summarised in
the Responsible Business section on pages 32 to 43.
Provisions on change of control
Greenhouse gas reporting
Under the Group’s credit facilities, the lending banks may
require repayment of the outstanding amounts on any
change of control.
The Group’s Long Term Incentive Plan and Deferred Share
Bonus Plan contain provisions relating to the vesting of
awards in the event of a change of control of the Group.
In accordance with Schedule 7 of the Large and
Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008, information regarding the
Company’s greenhouse gas emissions can be found on
page 42.
Disclosure of information to auditors
Essential contracts
The Company has no contractual or other arrangements
which are considered essential to the business.
Financial instruments
Details of the financial instruments used by the Group and
financial risk management policies can be found in notes
1 and 16 and in the review of Risk management on page 55.
Charitable and political contributions
During the year, the Group made charitable donations of
£24,080 (2012: £40,900). No political donations were made
during the year (2013: £nil).
Going concern
The principal risks and uncertainties facing the Group’s
activities, future development and performance are
on pages 51 to 56. The Group’s borrowings, undrawn
facilities, hedging and liquidity are described in note 16
to the accounts. The Directors have reviewed the current
and projected financial position of the Group, making
reasonable assumptions about future trading performance.
As part of the review, the Group has considered its cash
balances, its debt maturity profile, including undrawn
facilities, and the long-term nature of tenant leases.
So far as the Directors who held office at the date of
approval of this Directors’ report are aware, there is no
relevant audit information of which the auditors are
unaware and each Director has taken all steps that he
or she ought to have taken as a Director to make himself
or herself aware of any relevant audit information and to
establish that the auditors are aware of that information.
Auditors
Deloitte LLP is willing to be reappointed as the external
auditor to the Company and Group. Their reappointment
has been considered by the Audit Committee and
recommended to the Board. A resolution will be proposed
at the AGM on 17 July 2014.
Annual General Meeting
The AGM of the Company will be held at the Connaught,
Carlos Place, Mayfair, London W1K 2AL at 10 am on
17 July 2014.
The Notice of Meeting sent separately to shareholders sets
out the proposed resolutions and voting details.
85
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Report of the Directors
continued
Transfer of listing category
The Company intends to propose a transfer of the listing
category of the whole of the Company’s issued share
capital from a premium listed closed-ended investment fund
under Chapter 15 of the Listing Rules, to a premium listed
commercial company under Chapter 6 of the Listing Rules.
Such a transfer would only change the listing category of
the Company and would not affect its status as either a
premium listed company or a UK REIT.
However, as a company with a Chapter 6 listing does not
require an investment policy, the Board intends to ask
shareholders to approve the removal of its investment
policy, which was adopted in 2010 and is set out below.
The Company will instead pursue the business strategy set
out on pages 8 to 9.
Further information in relation to a resolution to effect this
proposed transfer will be sent separately to shareholders.
Investment Policy (adopted in 2010)
Key principles of the investment policy
The Group is able to make investments in property via a
number of methods which include:
(a) direct investment in or acquisition of the real estate asset
or portfolio of assets
(b) direct investment in or acquisition of the holding
company of the real estate asset or portfolio of assets
(c) direct investment in or acquisition of a joint venture
vehicle which has a direct investment in or holds the real
estate assets or the holding company of the real estate
asset or portfolio of assets
Gearing
The level of gearing of the Group is governed by careful
consideration of the cost of borrowing and the ability to
mitigate the risk of interest rate increases and the effect of
leverage on the returns generated from assets acquired.
The Group’s level of borrowing will not exceed 100%. of the
gross value of the Group’s real estate assets at any one time.
Restrictions
The Group is focused on investing in commercial and
residential property, including office, retail and industrial real
estate assets, principally in the UK, and may also consider
opportunities overseas, where the Directors consider the
opportunity exists to extract above-average returns for
shareholders. The Group is an active investor and has
implemented strategies to enhance the quality and value of
acquired assets and improve annual rental values.
The Group has the following investment restrictions:
(a) not more than 30% of the Group’s gross assets will be
invested in non-UK real estate assets
(b) not more than 40% of its gross assets will be invested in
non-commercial real estate assets
(c) the Group will not acquire a single property unit with a
value greater than 40% of the Group’s gross assets
Investment criteria
On behalf of the Board
The Group looks for opportunities in the UK property market,
offering double-digit cash on equity yields. Strict selection
criteria are applied in assessing investment opportunities.
Properties are considered and evaluated to identify
potential for value enhancement as a result of physical
improvements, lease restructurings, optimising tenant mix
or new build opportunities. The Group works closely with
existing tenants with regard to such issues to ensure that
the Group understands the demands of tenants in order to
anticipate and benefit from future requirements.
The Directors look to identify latent potential in the Group’s
property portfolio and realise value, by making sales, when
investments have fulfilled expectations or no longer meet
the Group’s performance criteria or investment needs.
Martin McGann
Finance Director
3 June 2014
86
LondonMetric Property Plc Annual report and accounts 2014 Directors’ responsibilities
statement
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 are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European
Union and Article 4 of the IAS Regulation and have elected
to prepare the Parent Company financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company law the
Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss of the
Company for that period.
In preparing the Parent Company financial statements, the
Directors are required to:
• Select suitable accounting policies and then apply
them consistently
• Make judgements and accounting estimates that are
reasonable and prudent
• State whether applicable UK Accounting Standards
have been followed, subject to any material departures
disclosed and explained in the financial statements
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
• Properly select and apply accounting policies
• Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
• Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance
• Make an assessment of the Company’s ability to continue
as a going concern
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• The financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole
• The Strategic report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face
• The annual report and financial statements, taken as
a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s performance, business model
and strategy
By order of the Board
Martin McGann
Finance Director
3 June 2014
Andrew Jones
Chief Executive
3 June 2014
87
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements Financial
statements
In this section:
Auditor’s report
Group financial statements
Notes forming part of the Group financial statements
Company financial statements
Notes forming part of the Company
financial statements
Financial calendar
Shareholder information
89
92
96
116
117
120
120
88
LondonMetric Property Plc
Annual report and accounts 2014
Auditor’s report
Opinion on financial statements of LondonMetric Property Plc
In our opinion:
– The financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at
31 March 2014 and of the Group’s profit for the year then ended
– The Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union
– The Parent Company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice
– 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
The financial statements comprise the Group income statement, the Group and Parent Company balance sheets, the Group
statement of changes in equity, the Group cash flow statement, and the related notes 1 to 21 for the Group financial
statements and the related notes (i) to (vii) for the Parent Company financial statements. The financial reporting framework
that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the
European Union. The financial reporting framework that has been applied in the preparation of the Parent Company
financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
Going concern
As required by the Listing Rules we have reviewed the Directors’ statement contained on page 85 that the Group is a going
concern. We confirm that:
– We have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial
statements is appropriate
– We have not identified material uncertainties related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
Our assessment of risks of material mis-statement
The assessed risks of material mis-statement described below are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
Property valuation (see note 10)
The Group owns a portfolio of retail and distribution property assets.
The valuation of the portfolio is a significant judgement area and is
underpinned by a number of assumptions including (i) capitalisation yields;
(ii) future lease income; and (iii) with reference to development properties,
costs to complete.
The Group uses professionally qualified external valuers to fair value
the Group’s portfolio at six-monthly intervals. The portfolio (excluding
development properties) is valued by the investment method of valuation
with development properties valued by the same methodology with a
deduction for all costs necessary to complete the development together
with an allowance for remaining risk.
The valuation exercise also relies on the accuracy of the underlying lease
and financial information provided to the valuers by management.
– We assessed management’s process for reviewing and assessing the
work of the external valuer and development appraisals
– We met with the external valuers of the portfolio to discuss the results
of their work. We discussed and challenged the valuation process,
performance of the portfolio and significant assumptions and critical
judgement areas, including lease incentives, break clauses, future lease
income and yields
– We assessed the competence, objectivity and integrity of the
external valuer
– We tested a sample of properties through benchmarking, understanding
the valuation methodology and wider market analysis together with
testing the integrity of a sample of the information provided to the
independent valuer by agreeing that information to underlying
lease agreements
89
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Auditor’s report
continued
Property transaction accounting (see note 10)
The Group has undertaken a large number of property acquisitions and
disposals including the acquisition of the DFS portfolio, the Odeon cinema
portfolio and a number of distribution warehouses. The disposal of offices at
Fleet Place, London and Leatherhead as well as a significant proportion of
the residential portfolio were also undertaken during the course of the year.
These transactions can include complexities such as rental top-up
payments, conditionality and deferred completion mechanics or joint
venture contractual obligations, requiring judgement as to the appropriate
accounting to be applied.
– We assessed the fair value of consideration and confirmed key
transaction terms by reference to acquisition or disposal agreements
and other external evidence for all significant acquisitions and disposals
in the year
– We considered the date at which the transactions completed based
on the timing of the transfer of risks and rewards of ownership per the
acquisition or disposal agreements, and considered the impact of these
transactions on revenue recognition
– We considered the adequacy of the disclosure of the transactions in the
financial statements
– We recalculated the profit or loss on disposals based on the terms of
the transaction
Revenue recognition (see note 3)
Accounting for unusual or more complex items including rent-free periods
and capital incentives is complex, requiring an understanding of specific
terms and conditions which vary between contracts.
As part of our audit of revenue, we focused on any unusual and complex
adjustments to revenue, agreeing the lease incentives for a sample of items
to the underlying leases. We recalculated the required adjustment to the
annual rent in relation to these items to determine whether the correct
amount of revenue had been recognised in the year.
– We considered the performance of the underlying asset management
agreements together with income projections, having regard to the
existing assets subject to management and future transactions
– We considered any indicators of impairment and management’s
impairment analysis
– We assessed the impairment booked during the year to fully impair the
Green Park intangible, in light of the impairment analysis prepared by
management
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding
of the Group and its environment, including Group-wide
controls, and assessing the risks of material mis-statement at
the Group level. The Group is audited by one audit team, led
by the Senior Statutory Auditor, responsible for the audit of the
Company and each of its subsidiaries and joint ventures. Our
audit work on subsidiaries and joint ventures is carried out to a
materiality which is lower than, and in most cases substantially
lower than, Group materiality as set out above. Our audit
also included testing of the consolidation process and
Group-wide controls.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
– The part of the Directors’ remuneration report to be
audited has been properly prepared in accordance with
the Companies Act 2006
– 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
Impairment of intangible assets (see note 12)
The intangible assets held on the balance sheet reflect the value attributed
to asset management agreements on internalisation of London & Stamford
and the acquisition of Metric. The audit risk relates to the potential
impairment of the balance where there have been indicators of
impairment during the year.
The Audit Committee’s consideration of these risks is set out on
pages 69 and 70.
Our audit procedures relating to these matters were designed
in the context of our audit of the financial statements as a
whole, and not to express an opinion on individual accounts
or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of mis-statement in
the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.
We determined materiality for the Group to be £15.2 million
which is 2% of shareholders’ equity. In addition to net assets,
we consider EPRA Earnings as a critical performance measure
for the Group and we applied a lower threshold of £1.3 million
based on 5% of that measure for testing of all balances and
classes of transactions which impact that measure, primarily
transactions recorded in the income statement other than
fair value movements on investment property, development
property and derivatives.
We agreed with the Audit Committee that we would report
to the Committee all audit differences in excess of £0.3 million,
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the
financial statements.
90
LondonMetric Property Plc Annual report and accounts 2014
Auditor’s report
continued
Auditor’s report
continued
Matters on which we are required to report
by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
– We have not received all the information and explanations
we require for our audit
– 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
– The Parent Company financial statements are not in
agreement with the accounting records and returns
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if in our opinion certain disclosures of Directors’ remuneration
have not been made or the part of the Directors’
remuneration report to be audited is not in agreement with
the accounting records and returns. We have nothing to
report arising from these matters.
Our Group audit was scoped by obtaining an understanding
Corporate governance statement
Under the Listing Rules we are also required to review the part
of the Corporate governance statement relating to the
Company’s compliance with nine provisions of the
UK Corporate Governance Code. We have nothing to report
arising from our review.
Our duty to read other information in the annual report
Under International Standards on Auditing (UK and Ireland),
we are required to report to you if, in our opinion, information
in the annual report is:
– Materially inconsistent with the information in the audited
financial statements
– Apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in
the course of performing our audit
– Otherwise misleading
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the Directors' statement that
they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately
discloses those matters that we communicated to the Audit
Committee which we consider should have been disclosed.
We confirm that we have not identified any such
inconsistencies or misleading statements.
Property transaction accounting (see note 10)
– We assessed the fair value of consideration and confirmed key
The Group has undertaken a large number of property acquisitions and
transaction terms by reference to acquisition or disposal agreements
disposals including the acquisition of the DFS portfolio, the Odeon cinema
and other external evidence for all significant acquisitions and disposals
portfolio and a number of distribution warehouses. The disposal of offices at
in the year
Fleet Place, London and Leatherhead as well as a significant proportion of
– We considered the date at which the transactions completed based
the residential portfolio were also undertaken during the course of the year.
on the timing of the transfer of risks and rewards of ownership per the
These transactions can include complexities such as rental top-up
payments, conditionality and deferred completion mechanics or joint
venture contractual obligations, requiring judgement as to the appropriate
accounting to be applied.
acquisition or disposal agreements, and considered the impact of these
transactions on revenue recognition
– We considered the adequacy of the disclosure of the transactions in the
– We recalculated the profit or loss on disposals based on the terms of
financial statements
the transaction
Revenue recognition (see note 3)
As part of our audit of revenue, we focused on any unusual and complex
Accounting for unusual or more complex items including rent-free periods
adjustments to revenue, agreeing the lease incentives for a sample of items
and capital incentives is complex, requiring an understanding of specific
to the underlying leases. We recalculated the required adjustment to the
terms and conditions which vary between contracts.
annual rent in relation to these items to determine whether the correct
amount of revenue had been recognised in the year.
Impairment of intangible assets (see note 12)
– We considered the performance of the underlying asset management
The intangible assets held on the balance sheet reflect the value attributed
agreements together with income projections, having regard to the
to asset management agreements on internalisation of London & Stamford
existing assets subject to management and future transactions
and the acquisition of Metric. The audit risk relates to the potential
– We considered any indicators of impairment and management’s
impairment of the balance where there have been indicators of
impairment analysis
impairment during the year.
– We assessed the impairment booked during the year to fully impair the
Green Park intangible, in light of the impairment analysis prepared by
management
The Audit Committee’s consideration of these risks is set out on
An overview of the scope of our audit
pages 69 and 70.
Our audit procedures relating to these matters were designed
of the Group and its environment, including Group-wide
in the context of our audit of the financial statements as a
controls, and assessing the risks of material mis-statement at
whole, and not to express an opinion on individual accounts
the Group level. The Group is audited by one audit team, led
or disclosures. Our opinion on the financial statements is not
by the Senior Statutory Auditor, responsible for the audit of the
modified with respect to any of the risks described above,
Company and each of its subsidiaries and joint ventures. Our
and we do not express an opinion on these individual matters.
audit work on subsidiaries and joint ventures is carried out to a
Our application of materiality
We define materiality as the magnitude of mis-statement in
the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.
materiality which is lower than, and in most cases substantially
lower than, Group materiality as set out above. Our audit
also included testing of the consolidation process and
Group-wide controls.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
We determined materiality for the Group to be £15.2 million
– The part of the Directors’ remuneration report to be
which is 2% of shareholders’ equity. In addition to net assets,
audited has been properly prepared in accordance with
we consider EPRA Earnings as a critical performance measure
the Companies Act 2006
– 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
for the Group and we applied a lower threshold of £1.3 million
based on 5% of that measure for testing of all balances and
classes of transactions which impact that measure, primarily
transactions recorded in the income statement other than
fair value movements on investment property, development
property and derivatives.
We agreed with the Audit Committee that we would report
to the Committee all audit differences in excess of £0.3 million,
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the
financial statements.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ responsibilities
statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
We also comply with International Standard on Quality
Control 1 (UK and Ireland). Our audit methodology and tools
aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and
systems include our dedicated professional standards review
team, strategically focused second partner reviews and
independent partner reviews.
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material mis-statement, whether caused by fraud or
error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the Parent
Company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the Directors;
and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the annual report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we
become aware of any apparent material mis-statements or
inconsistencies we consider the implications for our report.
Claire Faulkner
Senior Statutory Auditor
For and on behalf of Deloitte LLP, statutory auditor
London
United Kingdom
3 June 2014
91
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Note
2014
£000
2013
£000
3
54,061
32,752
(2,789)
(3,511)
3
51,272
799
499
–
52,570
29,241
8,466
–
1,913
39,620
(13,484)
(10,956)
4
(3,790)
(10,484)
–
(8,794)
(189)
(6,251)
(3,954)
(5,661)
(26,257)
(37,306)
10
87,519
11,682
8,394
1,076
–
(23,178)
11
14,424
15,969
4
6
6
6
7
139,938
162
4,575
730
(21,794)
(12,553)
8,383
126,689
(1,352)
(1,704)
(8,952)
(4,441)
125,337
(13,393)
125,337
(13,456)
–
63
125,337
(13,393)
9
9
20.0p
4.2p
(2.4)p
3.9p
Group income statement
For the year ended 31 March
Gross rental income
Property operating expenses
Net rental income
Property advisory fee income
Net proceeds from sales of trading properties
Other operating income
Net income
Administrative costs
Share-based payments
Write down of goodwill on acquisition of subsidiaries
Amortisation of intangible asset
Acquisition costs
Total administrative costs
Profit on revaluation of investment properties
Profit on sale of investment properties and subsidiaries
Impairment of investment in associate
Share of profits of associates and joint ventures
Operating profit
Finance income
Finance costs
Change in fair value of derivative financial instruments
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Profit/(loss) for the year and total comprehensive income attributable to:
Equity shareholders
Non controlling interest
Earnings/(loss) per share
Basic and diluted
EPRA
All amounts relate to continuing activities.
The notes on pages 96 to 115 form part of these financial statements.
92
LondonMetric Property Plc Annual report and accounts 2014
Group income statement
For the year ended 31 March
Net proceeds from sales of trading properties
Gross rental income
Property operating expenses
Net rental income
Property advisory fee income
Other operating income
Net income
Administrative costs
Share-based payments
Amortisation of intangible asset
Acquisition costs
Total administrative costs
Write down of goodwill on acquisition of subsidiaries
Profit on revaluation of investment properties
Profit on sale of investment properties and subsidiaries
Impairment of investment in associate
Share of profits of associates and joint ventures
Change in fair value of derivative financial instruments
Operating profit
Finance income
Finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Equity shareholders
Non controlling interest
Earnings/(loss) per share
Basic and diluted
EPRA
All amounts relate to continuing activities.
Profit/(loss) for the year and total comprehensive income attributable to:
Note
2014
£000
2013
£000
3
54,061
32,752
(2,789)
(3,511)
(13,484)
(10,956)
4
(3,790)
(10,484)
(26,257)
(37,306)
10
87,519
11,682
–
(23,178)
11
14,424
15,969
51,272
799
499
–
52,570
–
(8,794)
(189)
139,938
162
8,383
126,689
(1,352)
3
4
6
6
6
7
29,241
8,466
–
1,913
39,620
(6,251)
(3,954)
(5,661)
8,394
1,076
4,575
730
(1,704)
(8,952)
(4,441)
(21,794)
(12,553)
125,337
(13,393)
125,337
(13,456)
–
63
125,337
(13,393)
9
9
20.0p
4.2p
(2.4)p
3.9p
Group balance sheet
As at 31 March
Non current assets
Investment properties
Investment in equity accounted associates and joint ventures
Intangible assets
Other tangible assets
Deferred tax assets
Current assets
Trading properties
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Non current liabilities
Borrowings
Derivative financial instruments
Total liabilities
Net assets
Equity
Called up share capital
Capital redemption reserve
Other reserve
Retained earnings
Equity shareholders’ funds
Net asset value per share
EPRA net asset value per share
Note
2014
£000
2013
£000
10
11
12
7
13
14
15
16
16
1,030,553
986,793
108,990
120,919
844
451
829
9,638
311
2,311
1,141,667
1,119,972
–
44,050
78,357
122,407
3,837
11,731
37,572
53,140
1,264,074
1,173,112
96,839
96,839
26,232
26,232
409,938
460,328
1,443
9,883
411,381
470,211
508,220
496,443
755,854
676,669
18
62,804
9,636
62,804
9,636
225,420
227,920
457,994
376,309
755,854
676,669
9
9
120.8p
121.0p
107.7p
109.4p
The financial statements were approved and authorised for issue by the Board of Directors on 3 June 2014 and were signed
on its behalf by:
Martin McGann
Finance Director
Registered in England, No 7124797
The notes on pages 96 to 115 form part of these financial statements.
The notes on pages 96 to 115 form part of these financial statements.
93
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Group statement of changes in equity
For the year ended 31 March
At 1 April 2013
Profit for the year and total comprehensive
income
Purchase of shares held in trust
Share-based awards
Dividends paid
At 31 March 2014
Note
Share
capital
£000
62,804
Capital
redemption
reserve
£000
Other
reserve
£000
Retained
earnings
£000
Subtotal
£000
Non
controlling
interest
£000
9,636
227,920
376,309
676,669
–
–
–
–
–
–
–
–
–
125,337
125,337
(2,500)
–
–
–
311
(2,500)
311
(43,963)
(43,963)
8
62,804
9,636
225,420
457,994
755,854
Total
£000
676,669
125,337
(2,500)
311
(43,963)
755,854
–
–
–
–
–
–
At 1 April 2012 (as previously reported)
Note
Share
capital
£000
54,280
Restatement
10
–
At 1 April 2012 (after restatement)
Loss for the year and total comprehensive
income
Share issue on merger with Metric
54,280
–
17,860
Capital
redemption
reserve
£000
Other
reserve
£000
Retained
earnings
£000
Subtotal
£000
Non
controlling
interest
£000
Total
£000
300
–
300
–
–
47,069
531,905
633,554
5,783
639,337
–
(2,650)
(2,650)
–
(2,650)
47,069
529,255
630,904
5,783
636,687
–
(13,456)
(13,456)
63
(13,393)
184,851
–
202,711
Clawback and cancellation of own shares
(479)
479
(5,015)
(479)
(5,494)
(8,857)
8,857
–
(100,650)
(100,650)
1,015
(365)
650
–
–
–
–
–
–
8
–
–
(37,996)
(37,996)
–
–
(5,846)
(5,846)
62,804
9,636
227,920
376,309
676,669
–
–
–
–
202,711
(5,494)
(100,650)
650
–
–
(37,996)
676,669
Purchase and cancellation of own shares
following Tender Offer
Share-based awards
Distribution paid to non controlling interest
Dividends paid
At 31 March 2013
The notes on pages 96 to 115 form part of these financial statements.
94
LondonMetric Property Plc Annual report and accounts 2014
Group statement of changes in equity
For the year ended 31 March
Group cash flow statement
For the year ended 31 March
At 1 April 2013
income
Profit for the year and total comprehensive
Share-based awards
Dividends paid
At 31 March 2014
Note
Share
redemption
Capital
reserve
£000
capital
£000
62,804
Other
reserve
£000
Retained
earnings
£000
Subtotal
£000
Non
controlling
interest
£000
9,636
227,920
376,309
676,669
125,337
125,337
–
311
(2,500)
311
(43,963)
(43,963)
62,804
9,636
225,420
457,994
755,854
Purchase of shares held in trust
(2,500)
8
Note
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share
redemption
Capital
reserve
£000
capital
£000
54,280
Other
reserve
£000
Retained
earnings
£000
Subtotal
£000
Non
controlling
interest
£000
Total
£000
At 1 April 2012 (as previously reported)
300
47,069
531,905
633,554
5,783
639,337
Restatement
(2,650)
(2,650)
(2,650)
At 1 April 2012 (after restatement)
54,280
300
47,069
529,255
630,904
5,783
636,687
Loss for the year and total comprehensive
income
(13,456)
(13,456)
63
(13,393)
Share issue on merger with Metric
17,860
184,851
–
202,711
Clawback and cancellation of own shares
(479)
479
(5,015)
(479)
(5,494)
Purchase and cancellation of own shares
following Tender Offer
Share-based awards
Distribution paid to non controlling interest
Dividends paid
At 31 March 2013
(8,857)
8,857
(100,650)
(100,650)
1,015
(365)
650
–
–
(5,846)
(5,846)
8
(37,996)
(37,996)
62,804
9,636
227,920
376,309
676,669
Total
£000
676,669
125,337
(2,500)
311
(43,963)
755,854
202,711
(5,494)
(100,650)
650
(37,996)
676,669
–
–
–
–
–
–
–
–
–
–
–
–
–
Cash flows from operating activities
Profit/(loss) before tax
Adjustments for non cash items:
Profit on revaluation of investment properties
Profit on sale of investment properties and subsidiaries
Share of post-tax profit of associates and joint ventures
Share-based payment
Impairment of investment
Write down of intangible asset
Write down of positive goodwill on acquisition of subsidiary
Net finance costs
Cash flows from operations before changes in working capital
Change in trade and other receivables
Movement in lease incentives
Change in trade and other payables
Disposal of trading properties
Cash flows from operations
Interest received
Interest paid
Tax (received)/paid
Financial arrangement fees and break costs
Cash flows from operating activities
Investing activities
Purchase of investment properties and subsidiaries
Purchase of other tangible assets
Capital expenditure on investment properties
Sale of investment properties and subsidiaries
Investments in associates and joint ventures
Distributions from associates and joint ventures
Cash flow from investing activities
Financing activities
Dividends paid
(Purchase)/sale of shares held in trust
Purchase of own shares
New borrowings
Repayment of loan facilities
Cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
The notes on pages 96 to 115 form part of these financial statements.
The notes on pages 96 to 115 form part of these financial statements.
2014
£000
2013
£000
126,689
(8,952)
(87,519)
(11,682)
(8,394)
(1,076)
(14,424)
(15,969)
3,790
–
8,794
–
13,249
38,897
10,484
23,178
3,954
6,251
13,527
23,003
777
(2,774)
(7,881)
(2,610)
3,837
33,020
162
(604)
1,304
–
20,929
743
(12,722)
(9,775)
(114)
454
(10,436)
(2,682)
9,910
9,669
(263,871)
(315,614)
(257)
(26,157)
–
(712)
422,171
73,044
(52,597)
(44,297)
46,829
101,449
126,118
(186,130)
(43,963)
(37,996)
(2,190)
650
–
(100,650)
292,870
215,095
(341,960)
–
(95,243)
77,099
40,785
37,572
78,357
(99,362)
136,934
37,572
95
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
1 Accounting policies
a) General information
ii) Adoption of new and revised standards
Standards and interpretations effective in the current period
In 2013 the Company (previously named London & Stamford
Property Plc) merged with Metric Property Investments plc
(“Metric”) by way of a Scheme of Arrangement under Part 26
of the Companies Act 2006.
During the year the following new and revised Standards and
Interpretations have been adopted and have not had a
material impact on the amounts reported in these financial
statements:
b) Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union.
Name
Description
IFRS 13
Fair value measurement
IFRS 7
Amendments to IFRS 7 disclosures
IAS 1
Amendments to IAS 1 presentation
c) Basis of preparation
Various
Annual improvements to IFRSs (2009–2011 cycle)
Standards and interpretations in issue not yet adopted
The IASB and the International Financial Reporting
Interpretations Committee have issued the following
standards and interpretations that are mandatory for later
accounting periods and which have not been adopted
early. These are:
Name
Description
IAS 36
Amendments to IAS 36
IAS 39
Financial instruments
IFRS 10 Consolidated financial statements
IFRS 11
Joint arrangements
Effective date
1 January 2014
1 January 2014
1 January 2014
1 January 2014
IFRS 12
Disclosure of interests in other entities
1 January 2014
IAS 27
Separate Financial Statements
1 January 2014
IAS 28
Investments in Associates and Joint Ventures
1 January 2014
IAS 32
Amendments to IAS 32
IFRS 9
Financial instruments
1 January 2014
31 December
2017
With the exception of IFRS 9, statements and interpretations,
when applied, are not expected to have a material impact
on the financial statements, other than on presentation
and disclosure. IFRS 9 will impact the measurement and
classification of the Group’s financial assets and financial
liabilities. The Group has not yet completed its evaluation
of the effect of adoption.
The functional and presentational currency of the Company
and all subsidiaries (“the Group”) is sterling. The financial
statements are prepared on the historical cost basis except
that investment and development properties and derivative
financial instruments are stated at fair value.
The accounting policies have been applied consistently in all
material respects.
i) Estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, 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.
Significant items subject to such assumptions and estimates
include the fair value of investment properties, amortisation
of intangible assets and the fair value of derivative financial
instruments. The most critical accounting policies in
determining the financial condition and results of the Group
are those requiring the greatest degree of subjective or
complex judgements. These relate to property valuation,
intangible assets, investment in associates and joint ventures,
derivative financial instruments and taxation, and these are
discussed in the policies below. The estimates and associated
assumptions are based on historical experience and various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual
results may differ from these estimates.
Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects
only that period. If the revision affects both current and future
periods, the change is recognised over those periods.
96
LondonMetric Property Plc Annual report and accounts 2014 Notes forming part of the Group financial statements
For the year ended 31 March 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
ii) Adoption of new and revised standards
1 Accounting policies (continued)
d) Basis of consolidation
i) Subsidiaries
The consolidated financial statements include the accounts
of the Company and its subsidiaries using the purchase
method. Subsidiaries are those entities controlled by the
Group. Control is assumed when the Group has the power
to govern the financial and operating policies of an entity to
gain benefits from its activities. In the consolidated balance
sheet, the acquiree’s identifiable assets, liabilities and
contingent liabilities are initially recognised at their fair value
at the acquisition date. The results of subsidiaries are included
in the consolidated financial statements from the date that
control commences until the date that control ceases.
Where properties are acquired through corporate acquisitions
and there are no significant assets or liabilities other than
property, the acquisition is treated as an asset acquisition,
in other cases the purchase method is used.
ii) Joint ventures and associates
Joint ventures are those entities over whose activities the
Group has joint control. Associates are those entities over
whose activities the Group is in a position to exercise
significant influence but does not have the power to
jointly control.
Joint ventures and associates are accounted for under the
equity method, whereby the consolidated balance sheet
incorporates the Group’s share of the net assets of its joint
ventures and associates. The consolidated income statement
incorporates the Group’s share of joint venture and associate
profits after tax.
The Group’s joint ventures and associates adopt the
accounting policies of the Group for inclusion in the Group
financial statements.
iii) Intangible assets
Intangible assets, such as property advisory and
management agreements acquired through business
combinations, are measured initially at fair value and are
amortised on a straight-line basis over their estimated
useful lives. Intangible assets are subject to regular reviews
for impairment.
iv) Goodwill
Any excess of the purchase price of business combinations
over the fair value of the assets, liabilities and contingent
liabilities acquired and resulting deferred tax thereon is
recognised as goodwill. This is recognised as an asset and is
reviewed for impairment at least annually. Any impairment
is recognised immediately in income statement within
administration expenses and is not subsequently reversed.
1 Accounting policies
a) General information
Standards and interpretations effective in the current period
In 2013 the Company (previously named London & Stamford
During the year the following new and revised Standards and
Property Plc) merged with Metric Property Investments plc
Interpretations have been adopted and have not had a
(“Metric”) by way of a Scheme of Arrangement under Part 26
material impact on the amounts reported in these financial
of the Companies Act 2006.
b) Statement of compliance
statements:
Name
Description
The consolidated financial statements have been prepared in
IFRS 13
Fair value measurement
accordance with International Financial Reporting Standards
IFRS 7
Amendments to IFRS 7 disclosures
(“IFRS”) as adopted by the European Union.
c) Basis of preparation
IAS 1
Amendments to IAS 1 presentation
Various
Annual improvements to IFRSs (2009–2011 cycle)
The functional and presentational currency of the Company
and all subsidiaries (“the Group”) is sterling. The financial
statements are prepared on the historical cost basis except
that investment and development properties and derivative
financial instruments are stated at fair value.
The accounting policies have been applied consistently in all
Standards and interpretations in issue not yet adopted
The IASB and the International Financial Reporting
Interpretations Committee have issued the following
standards and interpretations that are mandatory for later
accounting periods and which have not been adopted
early. These are:
Name
Description
IAS 36
Amendments to IAS 36
IAS 39
Financial instruments
IFRS 10 Consolidated financial statements
IFRS 11
Joint arrangements
Effective date
1 January 2014
1 January 2014
1 January 2014
1 January 2014
IFRS 12
Disclosure of interests in other entities
1 January 2014
IAS 27
Separate Financial Statements
1 January 2014
IAS 28
Investments in Associates and Joint Ventures
1 January 2014
IAS 32
Amendments to IAS 32
IFRS 9
Financial instruments
1 January 2014
31 December
2017
With the exception of IFRS 9, statements and interpretations,
when applied, are not expected to have a material impact
on the financial statements, other than on presentation
and disclosure. IFRS 9 will impact the measurement and
classification of the Group’s financial assets and financial
liabilities. The Group has not yet completed its evaluation
of the effect of adoption.
material respects.
i) Estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, 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.
Significant items subject to such assumptions and estimates
include the fair value of investment properties, amortisation
of intangible assets and the fair value of derivative financial
instruments. The most critical accounting policies in
determining the financial condition and results of the Group
are those requiring the greatest degree of subjective or
complex judgements. These relate to property valuation,
intangible assets, investment in associates and joint ventures,
derivative financial instruments and taxation, and these are
discussed in the policies below. The estimates and associated
assumptions are based on historical experience and various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual
results may differ from these estimates.
Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects
only that period. If the revision affects both current and future
periods, the change is recognised over those periods.
Any excess of the fair value of the assets, liabilities and
contingent liabilities acquired and resulting deferred tax
thereon over the purchase price of business combinations is
recognised immediately in the income statement.
e) Property portfolio
i) Investment properties
Investment properties are properties owned or leased by the
Group which are held for long-term rental income and for
capital appreciation. Investment property includes property
that is being constructed, developed or redeveloped for
future use as an investment property. Investment property is
initially recognised at cost, including related transaction costs.
It is subsequently carried at each published balance sheet
date at fair value on an open market basis as determined
by professionally qualified independent external valuers.
Where a property held for investment is appropriated
to development property, it is transferred at fair value.
A property ceases to be treated as a development property
on practical completion.
The determination of the fair value of each property
requires, to the extent applicable, the use of estimates and
assumptions in relation to factors such as future rental income,
current market rental yields, future development costs and
the appropriate discount rate. In addition, to the extent
possible, the valuers make reference to market evidence of
transaction prices for similar properties. Gains or losses arising
from changes in the fair value of investment properties are
recognised in the income statement in the period in which
they arise.
In accordance with IAS 40 “Investment Property”, no
depreciation is provided in respect of investment properties.
Investment property is recognised as an asset when:
– It is probable that the future economic benefits that are
associated with the investment property will flow to the
Group
– There are no material conditions precedent which could
prevent completion
– The cost of the investment property can be measured
reliably
All costs directly associated with the purchase of an
investment property are capitalised. Capital expenditure that
is directly attributable to the redevelopment or refurbishment
of investment property, up to the point of it being completed
for its intended use, is capitalised in the carrying value of
the property.
97
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
1 Accounting policies (continued)
f) Financial assets and financial liabilities
ii) Assets held for sale
Non current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a
sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly
probable and the asset is available for sale in its present
condition, management expect the sale to complete within
one year from the date of its classification and are committed
to the sale.
iii) Trading properties
Trading properties are initially recognised at cost and
subsequently at the lower of cost and net realisable value.
iv) Tenant leases
Management has exercised judgement in considering the
potential transfer of the risks and rewards of ownership in
accordance with IAS 17 for all properties leased to tenants
and has determined that such leases are operating leases.
v) Net rental income
Revenue comprises rental income.
Rental income from investment property leased out under
an operating lease is recognised in the profit or loss on a
straight-line basis over the lease term.
Contingent rents, such as turnover rents, rent reviews and
indexation, are recorded as income in the periods in which
they are earned. Rent reviews are recognised when such
reviews have been agreed with tenants.
Where a rent-free period is included in a lease, the rental
income foregone is allocated evenly over the period from the
date of lease commencement to the earlier of the first break
option or the lease termination date.
Lease incentives and costs associated with entering into
tenant leases are amortised over the period from the date
of lease commencement to the earlier of the first break
option or the lease termination date.
Revenue from the sale of trading properties is recognised in
the period within which there is an unconditional exchange
of contracts.
Property operating expenses are expensed as incurred and
any property operating expenditure not recovered from
tenants through service charges is charged to profit or loss.
vi) Surplus on sale of investment properties
Surpluses on sales of investment properties are calculated by
reference to the carrying value at the previous year-end
valuation date, adjusted for subsequent capital expenditure.
Financial assets and financial liabilities are recognised in the
balance sheet when the Group becomes a party to the
contractual terms of the instrument. Unless otherwise
indicated, the carrying amounts of the financial assets and
liabilities are a reasonable approximation of their fair values.
i) Loans and receivables
These are non derivative financial assets with fixed or
determinable payments that are not quoted in an active
market. Loans and receivables comprise trade and other
receivables, intra-group loans and cash and cash
equivalents. Loans and receivables are initially recognised at
fair value, plus transaction costs that are directly attributable
to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment. Cash and cash equivalents include
cash in hand, deposits held at call with banks and other short-
term highly liquid investments with original maturities of three
months or less.
ii) Other financial assets
These comprise deposits held with banks where the original
maturity was more than three months.
iii) Equity instruments
Equity instruments issued by the Company are recorded at
the proceeds received, net of direct issue costs.
iv) Other financial liabilities
Other financial liabilities include interest bearing loans, trade
payables (including rent deposits and retentions under
construction contracts) and other short-term monetary
liabilities. Trade payables and other short-term monetary
liabilities are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Interest bearing loans are initially recorded at fair value net
of direct issue costs, and subsequently carried at amortised
cost using the effective interest method. Finance charges,
including premiums payable on settlement or redemption
and direct issue costs, are accounted for on an accruals basis
to the income statement using the effective interest method
and are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which
they arise.
v) Derivative financial instruments
The Group uses derivative financial instruments to hedge its
exposure to interest rate risks.
Derivative financial instruments are recognised initially at fair
value, which equates to cost and subsequently remeasured
at fair value, with changes in fair value being included in profit
or loss.
98
LondonMetric Property Plc Annual report and accounts 2014
1 Accounting policies (continued)
f) Financial assets and financial liabilities
ii) Assets held for sale
Non current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a
sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly
Financial assets and financial liabilities are recognised in the
balance sheet when the Group becomes a party to the
contractual terms of the instrument. Unless otherwise
indicated, the carrying amounts of the financial assets and
liabilities are a reasonable approximation of their fair values.
probable and the asset is available for sale in its present
i) Loans and receivables
condition, management expect the sale to complete within
one year from the date of its classification and are committed
to the sale.
iii) Trading properties
iv) Tenant leases
Trading properties are initially recognised at cost and
subsequently at the lower of cost and net realisable value.
Management has exercised judgement in considering the
potential transfer of the risks and rewards of ownership in
accordance with IAS 17 for all properties leased to tenants
and has determined that such leases are operating leases.
v) Net rental income
Revenue comprises rental income.
Rental income from investment property leased out under
an operating lease is recognised in the profit or loss on a
straight-line basis over the lease term.
Contingent rents, such as turnover rents, rent reviews and
they are earned. Rent reviews are recognised when such
reviews have been agreed with tenants.
These are non derivative financial assets with fixed or
determinable payments that are not quoted in an active
market. Loans and receivables comprise trade and other
receivables, intra-group loans and cash and cash
equivalents. Loans and receivables are initially recognised at
fair value, plus transaction costs that are directly attributable
to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment. Cash and cash equivalents include
cash in hand, deposits held at call with banks and other short-
term highly liquid investments with original maturities of three
months or less.
ii) Other financial assets
These comprise deposits held with banks where the original
maturity was more than three months.
iii) Equity instruments
indexation, are recorded as income in the periods in which
iv) Other financial liabilities
Other financial liabilities include interest bearing loans, trade
payables (including rent deposits and retentions under
Where a rent-free period is included in a lease, the rental
construction contracts) and other short-term monetary
income foregone is allocated evenly over the period from the
liabilities. Trade payables and other short-term monetary
date of lease commencement to the earlier of the first break
liabilities are initially recognised at fair value and subsequently
option or the lease termination date.
Lease incentives and costs associated with entering into
tenant leases are amortised over the period from the date
of lease commencement to the earlier of the first break
option or the lease termination date.
carried at amortised cost using the effective interest method.
Interest bearing loans are initially recorded at fair value net
of direct issue costs, and subsequently carried at amortised
cost using the effective interest method. Finance charges,
including premiums payable on settlement or redemption
and direct issue costs, are accounted for on an accruals basis
Revenue from the sale of trading properties is recognised in
to the income statement using the effective interest method
the period within which there is an unconditional exchange
and are added to the carrying amount of the instrument to
of contracts.
the extent that they are not settled in the period in which
Property operating expenses are expensed as incurred and
they arise.
any property operating expenditure not recovered from
v) Derivative financial instruments
tenants through service charges is charged to profit or loss.
vi) Surplus on sale of investment properties
exposure to interest rate risks.
The Group uses derivative financial instruments to hedge its
Surpluses on sales of investment properties are calculated by
Derivative financial instruments are recognised initially at fair
reference to the carrying value at the previous year-end
value, which equates to cost and subsequently remeasured
valuation date, adjusted for subsequent capital expenditure.
at fair value, with changes in fair value being included in profit
or loss.
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
1 Accounting policies (continued)
g) Finance costs
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised.
Net finance costs include interest payable on borrowings,
net of interest capitalised and finance costs amortised.
k) Share-based payments
Interest is capitalised if it is directly attributable to the
acquisition, construction or redevelopment of development
properties from the start of the development work until
practical completion of the property. Capitalised interest is
calculated with reference to the actual interest rate payable
on specific borrowings for the purposes of development or, for
that part of the borrowings financed out of general funds,
with reference to the Group’s weighted average
cost of borrowings.
h) Finance income
Finance income includes interest receivable on funds
invested, measured at the effective rate of interest on the
underlying sum invested.
i) Dividends
Dividends on equity shares are recognised when they
become legally payable. In the case of interim dividends,
this is when paid. In the case of final dividends, this is
when approved by the shareholders at the Annual
General Meeting.
Equity instruments issued by the Company are recorded at
the proceeds received, net of direct issue costs.
j) Tax
Tax is included in profit or loss except to the extent that it
relates to items recognised directly in equity, in which case
the related tax is recognised in equity.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively
enacted at the balance sheet date, together with any
adjustment in respect of previous years.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases.
The following differences are not provided for:
– The initial recognition of goodwill
– Goodwill for which amortisation is not tax deductible
– The initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the
transaction affects neither accounting or taxable profit
– Investments in subsidiaries, associates and jointly-controlled
entities where the Group is able to control the timing of the
reversal of the difference and it is probable that the
difference will not reverse in the foreseeable future
The amount of deferred tax provided is based on the
expected manner or realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
The fair value of equity-settled share-based payments to
employees is determined at the date of grant and is
expensed on a straight-line basis over the vesting period
based on the Group’s estimate of shares that will
eventually vest.
l) Shares held in Trust
The cost of the Company’s shares held by the Employee
Benefit Trust is deducted from equity in the Group balance
sheet. Any shares held by the Trust are not included in the
calculation of earnings per share.
m) Capital management policy
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while
maximising the return to stakeholders through the optimisation
of the debt and equity balance.
In managing its capital, the Group’s primary objective is to
ensure its continued ability to provide a consistent return for its
equity shareholders through a combination of capital growth
and distributions. In order to achieve this objective, the Group
seeks to maintain a gearing ratio that balances risks and
returns at an acceptable level and also maintain a sufficient
funding base to enable the Group to meet its working capital
and strategic investment needs. In making decisions to adjust
its capital structure to achieve these aims, either through
altering its dividend policy, new share issues, or the reduction
of debt, the Group considers not only its short-term position
but also its long-term operational and strategic objectives.
n) Operating lease commitments
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group, the total rentals
payable under the lease are charged to profit or loss on a
straight-line basis over the lease term. The aggregate benefit
of lease incentives is recognised as a reduction of the rental
expense over the lease term on a straight-line basis.
99
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
2 Segmental information
Property value
As at 31 March
Retail
Distribution
Offices
Residential
Development
Other
Gross rental income
For the year to 31 March
Retail
Distribution
Offices
Residential
Development
Other
Net rental income
For the year to 31 March
Retail
Distribution
Offices
Residential
Development
Other
100%
owned
£000
2014
Share
of JV
£000
2013
Total
£000
100%
owned
£000
Trading
property
£000
Share
of JV
£000
Total
£000
437,745
102,045
539,790
347,540
322,800
13,200
336,000
125,075
75,900
22,223
171,885
–
–
73,960
–
–
75,900
96,183
171,885
–
242,438
178,165
82,624
10,951
–
–
–
30,567
378,107
118,763
243,838
–
242,438
3,837
76,800
258,802
–
–
–
–
82,624
10,951
1,030,553
189,205
1,219,758
986,793
3,837
226,130
1,216,760
100%
owned
£000
27,921
10,659
12,679
2,618
184
–
2014
2013
Share
of JV
£000
2,880
2,923
–
1,970
–
–
Total
£000
30,801
13,582
12,679
4,588
184
–
100%
owned
£000
3,476
3,668
20,310
5,180
–
118
Share
of JV
£000
6,119
8,279
–
547
–
–
Total
£000
9,595
11,947
20,310
5,727
–
118
54,061
7,773
61,834
32,752
14,945
47,697
100%
owned
£000
27,044
10,180
12,499
1,383
166
–
2014
2013
Share
of JV
£000
2,876
2,929
–
1,368
–
–
Total
£000
29,920
13,109
12,499
2,751
166
–
100%
owned
£000
3,450
2,922
19,681
3,373
–
(185)
Share
of JV
£000
5,987
8,257
–
152
–
–
Total
£000
9,437
11,179
19,681
3,525
–
(185)
51,272
7,173
58,445
29,241
14,396
43,637
An operating segment is a distinguishable component of the Group that engages in business activities, earns revenue and
incurs expenses, whose results are reviewed by the Group’s chief operating decision makers and for which discrete financial
information is available. Gross rental income represents the Group’s revenues from its tenants and net rental income is the
principal profit measure used to determine the performance of each sector. Total assets are not monitored by segment.
However, property assets are reviewed on an ongoing basis. The Group operates entirely in the UK and no geographical
split is provided in information reported to the Board.
100
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
2 Segmental information
Property value
As at 31 March
Retail
Distribution
Offices
Residential
Development
Other
Gross rental income
For the year to 31 March
Retail
Distribution
Offices
Residential
Development
Other
Net rental income
For the year to 31 March
Retail
Distribution
Offices
Residential
Development
Other
100%
owned
£000
2014
Share
of JV
£000
Total
£000
100%
owned
£000
Trading
property
£000
Share
of JV
£000
Total
£000
437,745
102,045
539,790
347,540
30,567
378,107
322,800
13,200
336,000
125,075
118,763
243,838
75,900
22,223
171,885
–
73,960
–
–
–
75,900
96,183
171,885
–
242,438
178,165
82,624
10,951
3,837
76,800
258,802
2013
–
–
–
–
–
1,030,553
189,205
1,219,758
986,793
3,837
226,130
1,216,760
–
–
–
–
–
–
2013
Share
of JV
£000
6,119
8,279
Share
of JV
£000
5,987
8,257
152
–
–
–
242,438
82,624
10,951
Total
£000
9,595
11,947
20,310
5,727
–
118
Total
£000
9,437
11,179
19,681
3,525
–
(185)
5,180
547
100%
owned
£000
27,921
10,659
12,679
2,618
184
–
100%
owned
£000
27,044
10,180
12,499
1,383
166
–
2014
Share
of JV
£000
2,880
2,923
1,970
–
–
–
Share
of JV
£000
2,876
2,929
1,368
–
–
–
Total
£000
30,801
13,582
12,679
4,588
184
–
Total
£000
29,920
13,109
12,499
2,751
166
–
100%
owned
£000
3,476
3,668
20,310
–
118
100%
owned
£000
3,450
2,922
19,681
3,373
–
(185)
2014
2013
51,272
7,173
58,445
29,241
14,396
43,637
An operating segment is a distinguishable component of the Group that engages in business activities, earns revenue and
incurs expenses, whose results are reviewed by the Group’s chief operating decision makers and for which discrete financial
information is available. Gross rental income represents the Group’s revenues from its tenants and net rental income is the
principal profit measure used to determine the performance of each sector. Total assets are not monitored by segment.
However, property assets are reviewed on an ongoing basis. The Group operates entirely in the UK and no geographical
split is provided in information reported to the Board.
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
3 Net income
For the year to 31 March
Gross rental income
Property operating expenses
Proceeds from sales of trading properties
Cost of sales of trading properties
2014
£000
2013
£000
54,061
32,752
(2,789)
(3,511)
51,272
4,426
(3,927)
499
29,241
–
–
–
For the year ended 31 March 2013, 19%, 19% and 10% of the Group’s gross rental income was receivable from three tenants
included within the offices sector of the portfolio. For the year ended 31 March 2014 no single tenant contributed more than
10% of the Group’s gross rental income.
4 Profit from operations
For the year to 31 March
This has been arrived at after charging:
Share-based payments
Effect of cancellation of Consideration Shares
Operating lease expense
Auditor’s remuneration:
54,061
7,773
61,834
32,752
14,945
47,697
Fees payable to the Company’s auditor for other services to the Group:
Audit of the Group and Company financial statements, pursuant to legislation
– Statutory audit of subsidiary accounts, pursuant to legislation
– Corporate advisory services
– Other advisory services
2014
£000
2013
£000
3,790
14,759
–
3,790
663
60
118
–
45
(4,275)
10,484
674
189
32
326
30
A share-based payment prepayment was created for £39.5 million of the total purchase consideration payable under the
LSI Acquisition Agreement as reported in the 2011 financial statements. This was based on a total of 34,346,378 Consideration
Shares issued to the members of the former Property Advisor (LSI Management LLP) at the market price on the date of its
acquisition of 115p per share, of which 6,244,796 were subject to clawback provisions. In addition, bad leaver provisions and
lock-in arrangements prohibiting the disposal of such Consideration Shares applied for the three years to September 2013.
On 25 January 2013 the Company acquired and then cancelled 4,777,268 of the Consideration Shares pursuant to the terms
of the Existing Management Incentive Termination Agreement. This has resulted in the reversal of share-based payments
charged in previous periods of £4.3 million. The remaining 1,467,258 Consideration Shares were awarded to members.
Raymond Mould was deemed a good leaver on his resignation from the Company and retained 9,916,367 of the total
Consideration Shares. The remaining 19,652,743 Consideration Shares were subject to bad leaver provisions and the
reduced share-based payment prepayment of £3.8 million was charged to the profit and loss account in the current year.
101
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
5 Employee costs
For the year to 31 March
Employee costs, including those of Directors, comprise the following:
Wages and salaries
Social security costs
Other pension costs
Share-based payment
2014
£000
2013
£000
8,188
1,143
526
9,857
311
10,168
5,719
780
395
6,894
(365)
6,529
The emoluments and pension benefits of the Directors are set out in detail within the Remuneration Committee report on
pages 71 to 83.
The long-term share incentive scheme that was created following the merger in 2013 allows Executive Directors and eligible
employees to receive an award of shares, held in trust, dependent on performance conditions based on the earnings per
share and total property return of the Group over a three-year vesting period. The Group expenses the estimated number of
shares likely to vest over the three-year period based on the market price at the date of grant. In the current year the charge
was £311,000.
The Company awarded 2,247,366 shares during the year, 1,007,780 of which were awarded to Executive Directors as shown in
the Remuneration Committee report on page 81. The cost of acquiring the shares of £2,500,000 has been charged to reserves.
The average number of employees including Executive Directors during the year was:
2014
Number
2013
Number
35
27
2014
£000
162
162
12,715
9,079
21,794
(8,383)
13,411
2013
£000
730
730
11,261
1,292
12,553
1,704
14,257
Head office and property management
6 Finance income and costs
For the year to 31 March
Finance income
Interest on short-term deposits
Finance costs
Interest payable on bank loans
Loan break costs and amortisation of loan issue costs
Fair value (gain)/loss on derivative financial instruments
Interest capitalised in the year amounted to £2.2 million (2013: nil).
102
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Employee costs, including those of Directors, comprise the following:
5 Employee costs
For the year to 31 March
Wages and salaries
Social security costs
Other pension costs
Share-based payment
pages 71 to 83.
was £311,000.
The emoluments and pension benefits of the Directors are set out in detail within the Remuneration Committee report on
The long-term share incentive scheme that was created following the merger in 2013 allows Executive Directors and eligible
employees to receive an award of shares, held in trust, dependent on performance conditions based on the earnings per
share and total property return of the Group over a three-year vesting period. The Group expenses the estimated number of
shares likely to vest over the three-year period based on the market price at the date of grant. In the current year the charge
The Company awarded 2,247,366 shares during the year, 1,007,780 of which were awarded to Executive Directors as shown in
the Remuneration Committee report on page 81. The cost of acquiring the shares of £2,500,000 has been charged to reserves.
The average number of employees including Executive Directors during the year was:
Head office and property management
6 Finance income and costs
For the year to 31 March
Finance income
Interest on short-term deposits
Finance costs
Interest payable on bank loans
Loan break costs and amortisation of loan issue costs
Fair value (gain)/loss on derivative financial instruments
Interest capitalised in the year amounted to £2.2 million (2013: nil).
2014
£000
2013
£000
8,188
1,143
526
9,857
311
10,168
5,719
780
395
6,894
(365)
6,529
2014
Number
2013
Number
35
27
2014
£000
162
162
12,715
9,079
21,794
(8,383)
13,411
2013
£000
730
730
11,261
1,292
12,553
1,704
14,257
7 Taxation
For the year to 31 March
The tax charge comprises:
Current tax
UK tax (credit)/charge on profit
Deferred tax
Change in deferred tax
2014
£000
2013
£000
(130)
32
1,482
1,352
4,409
4,441
The tax assessed for the year varies from the standard rate of corporation tax in the UK. The differences are explained below:
Profit/(loss) before tax
Tax at the standard rate of corporation tax in the UK of 23% (2013: 24%)
Effects of:
Expenses not deductible for tax purposes
Tax effect of income not subject to tax
Share of post-tax profit of associates and joint ventures
Temporary differences
Utilisation of tax losses
Prior year tax adjustments
UK tax charge on profit/(loss)
Deferred tax asset
Opening balance
Charged during the year
At 31 March 2014
2014
£000
126,689
29,138
2013
£000
(8,952)
(2,148)
2,938
10,790
(28,758)
(3,318)
1,482
–
(130)
1,352
(4,809)
(3,833)
1,978
2,431
32
4,441
Intangible
assets
£000
2,311
(1,482)
829
As the Group is a UK-REIT there is no provision for deferred tax arising on the revaluation of properties or other temporary
differences.
8 Dividends
For the year to 31 March
Ordinary dividends paid
2012 Final dividend: 3.5p per share
2013 Interim dividend: 3.5p per share
2013 Final dividend: 3.5p per share
2014 Interim dividend: 3.5p per share
Proposed for approval by shareholders at Annual General Meeting
Dividend: 3.5p per share
2014
£000
2013
£000
–
–
18,998
18,998
21,982
21,982
43,964
–
–
37,996
21,982
21,982
The proposed final dividend was approved by the Board on 28 May 2014 and is subject to approval at the Annual General
Meeting on 17 July 2014. It has not been included as a liability nor deducted from retained earnings as at 31 March 2014.
The proposed final dividend of 3.5p per share, of which 1.5p per share is a Property Income Distribution, is payable on 21 July
2014 to ordinary shareholders on the register at the close of business on 13 June 2014 and will be recognised as an
appropriation of retained earnings in 2015.
103
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
9 Earnings and net assets per share
Earnings per share of 20.0p (2013: loss per share of 2.4p) is calculated on a weighted average of 626,896,563 (2013: 561,508,387)
ordinary shares of 10p each and is based on profits attributable to ordinary shareholders of £125.3 million (2013: loss of
£13.5 million). There are no potentially dilutive or anti-dilutive share options in the year.
Net assets per share is based on equity shareholders’ funds at 31 March 2014 of £755.9 million (2013: £676.7 million) and
625,796,539 ordinary shares in issue excluding those held by the Employee Benefit Trust at that date (2013: 628,043,905).
Adjusted profit and adjusted net assets per share are calculated in accordance with the Best Practice Recommendations
of the European Public Real Estate Association (EPRA) as follows:
For the year to 31 March
Basic and adjusted earnings
Basic earnings attributable to ordinary shareholders
Revaluation of investment property
Fair value of derivatives
Goodwill on acquisitions
Amortisation of intangible assets
Share-based payments1
Acquisition costs
Deferred tax
Cost on closing out derivatives
Profit on disposal2
Impairment of investments held for sale
Minority interest in respect of the above
EPRA earnings
Group
£000
Share of JV
£000
2014
£000
2013
£000
110,913
14,424
125,337
(13,456)
(87,519)
(8,360)
(95,879)
(20,320)
(8,383)
(2,838)
(11,221)
–
8,794
3,790
189
1,482
6,228
–
–
–
–
–
2,121
–
8,794
3,790
189
1,482
8,349
2,803
6,251
3,954
10,484
5,661
4,409
–
(12,181)
(2,291)
(14,472)
(1,076)
–
–
–
–
–
–
23,178
63
23,313
3,056
26,369
21,951
1 The amortisation of amounts classified as share-based payments has been reflected as an EPRA earnings adjustment as it is akin to an intangible asset and
arose alongside the intangible asset as a result of the internalisation of the London & Stamford management business in 2010
2 Profit on disposal of investment and trading property and subsidiaries
As at 31 March
Number of shares
Opening ordinary share capital
Shares held in employee trust
Issue of 178,599,912 ordinary shares (28 January 2013)
Clawback and cancellation of 4,777,268 shares (28 January 2013)
Purchase and cancellation of tender offer shares (18 February 2013)
Weighted average number of ordinary shares
Basic and diluted earnings/(loss) per share
EPRA earnings per share
2014
Number
of shares
2013
Number
of shares
628,043,905 542,795,171
(1,147,342)
(863,424)
–
–
–
30,337,519
(811,481)
(9,949,398)
626,896,563 561,508,387
20.0p
4.2p
(2.4)p
3.9p
104
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
9 Earnings and net assets per share
9 Earnings and net assets per share (continued)
Earnings per share of 20.0p (2013: loss per share of 2.4p) is calculated on a weighted average of 626,896,563 (2013: 561,508,387)
ordinary shares of 10p each and is based on profits attributable to ordinary shareholders of £125.3 million (2013: loss of
£13.5 million). There are no potentially dilutive or anti-dilutive share options in the year.
Net assets per share is based on equity shareholders’ funds at 31 March 2014 of £755.9 million (2013: £676.7 million) and
625,796,539 ordinary shares in issue excluding those held by the Employee Benefit Trust at that date (2013: 628,043,905).
Adjusted profit and adjusted net assets per share are calculated in accordance with the Best Practice Recommendations
of the European Public Real Estate Association (EPRA) as follows:
For the year to 31 March
Basic and adjusted earnings
Basic earnings attributable to ordinary shareholders
Revaluation of investment property
Fair value of derivatives
Goodwill on acquisitions
Amortisation of intangible assets
Share-based payments1
Acquisition costs
Deferred tax
Cost on closing out derivatives
Profit on disposal2
Impairment of investments held for sale
Minority interest in respect of the above
EPRA earnings
As at 31 March
Number of shares
Opening ordinary share capital
Shares held in employee trust
Issue of 178,599,912 ordinary shares (28 January 2013)
Clawback and cancellation of 4,777,268 shares (28 January 2013)
Purchase and cancellation of tender offer shares (18 February 2013)
Weighted average number of ordinary shares
Basic and diluted earnings/(loss) per share
EPRA earnings per share
Group
£000
Share of JV
£000
2014
£000
2013
£000
110,913
14,424
125,337
(13,456)
(87,519)
(8,360)
(95,879)
(20,320)
(8,383)
(2,838)
(11,221)
–
8,794
3,790
189
1,482
6,228
–
–
–
–
–
–
–
–
–
2,121
–
8,794
3,790
189
1,482
8,349
–
–
2,803
6,251
3,954
10,484
5,661
4,409
–
23,178
63
(12,181)
(2,291)
(14,472)
(1,076)
23,313
3,056
26,369
21,951
2014
Number
of shares
2013
Number
of shares
628,043,905 542,795,171
(1,147,342)
(863,424)
–
–
–
30,337,519
(811,481)
(9,949,398)
626,896,563 561,508,387
20.0p
4.2p
(2.4)p
3.9p
1 The amortisation of amounts classified as share-based payments has been reflected as an EPRA earnings adjustment as it is akin to an intangible asset and
arose alongside the intangible asset as a result of the internalisation of the London & Stamford management business in 2010
2 Profit on disposal of investment and trading property and subsidiaries
As at 31 March
Net assets per share
Equity shareholders’ funds
Fair value of derivatives
Cost of cap and swaption
Revaluation of trading properties
Fair value of associate and joint ventures’ derivatives
Deferred tax
EPRA net assets
Basic net assets per share
EPRA net assets per share
10 Investment properties
a) Investment property
As at 31 March
Opening balance
Acquisitions
Other capital expenditure
Disposals
2014
£000
2013
£000
755,854
676,669
1,443
(212)
–
9,883
(336)
633
(115)
2,723
–
(2,311)
756,970
687,261
120.8p
121.0p
107.7p
109.4p
2014
Long
leasehold
£000
Freehold
£000
Total
£000
Freehold
£000
2013
Long
leasehold
£000
Total
£000
710,864
193,305
904,169
474,435
185,587
660,022
256,795
61,518
318,313
487,979
81,319
569,298
6,900
763
7,663
857
(168)
689
(280,775)
(130,136)
(410,911)
(242,151)
(6,198)
(248,349)
Transfer to investment property under development
(25,935)
(600)
(26,535)
–
(77,000)
(77,000)
Revaluation movement
Movement in tenant incentives and rent-free uplifts
49,502
7,789
8,586
58,088
(1,606)
9,760
8,154
92
7,881
(8,650)
5
(8,645)
725,140
133,528
858,668
710,864
193,305
904,169
b) Investment property under development
As at 31 March
Opening balance
Acquisitions
Other capital expenditure
Disposals
Transfer from investment property
Revaluation movement
2014
Long
leasehold
£000
77,000
–
14,862
–
600
14,338
Freehold
£000
5,624
17,015
4,809
(3,391)
25,935
15,093
Total
£000
Freehold
£000
82,624
17,015
19,671
(3,391)
26,535
29,431
–
5,360
24
–
–
240
2013
Long
leasehold
£000
–
–
–
–
Total
£000
–
5,360
24
–
77,000
77,000
–
240
65,085
106,800
171,885
5,624
77,000
82,624
Total investment properties
790,225
240,328
1,030,553
716,488
270,305
986,793
At 31 March 2014, the Group’s freehold and leasehold investment properties were externally valued by the Royal Institution
of Chartered Surveyors (RICS) Registered Valuers of CBRE Limited (“CBRE”) and Savills Advisory Services Limited (“Savills”),
both Chartered Surveyors, at £1,030.6 million. The valuation of property held for sale at 31 March 2014 was £22.2 million
(2013: £58.8 million).
105
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
10 Investment properties (continued)
The valuations were undertaken in accordance with the RICS Valuation – Professional Standards 2012 on the basis of fair value.
Fair value represents the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date. The total fees earned by CBRE and Savills from the Company
represent less than 5% of their total UK revenues. CBRE and Savills have continuously been the signatory of valuations for the
Company since October 2007 and September 2010 respectively.
In the 2012 financial statements, investment property in the course of construction at Clerkenwell Quarter, Islington was valued
by the Directors at £10.4 million. At the request of the Financial Reporting Council the Company agreed to restate the valuation
for this property in its comparative figures for 2013.
c) Valuation technique and quantitative information
Asset type
Retail
Distribution
Office
Residential
Development
ERV
Net Initial Yield
Reversionary Yield
Fair Value
2014
£000
Valuation
Technique
Weighted
Average
(£ per sq ft)
Range
(£ per sq ft)
Weighted
Average
%
437,745 Yield capitalisation
15.21
9.96–26.73
322,800 Yield capitalisation
5.00
3.42–8.81
75,900 Yield capitalisation
19.78 17.84–20.35
22,223
Comparison
n/a
n/a
6.3
6.1
6.9
n/a
Range
%
4.7–8.1
5.2–7.3
6.7–7.4
n/a
Weighted
Average
%
5.9
6.0
6.8
n/a
Range
4.7–8.1
5.0–7.2
6.6–6.8
n/a
171,885
1,030,553
Residual
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
1 Capitalised market rental values calculated using estimated rentals and market capitalisation rates derived from prior transactions and for comparable
transactions in the market
All of the Group's properties are categorised as Level 3 in the fair value hierarchy as defined by IFRS 13 Fair Value Management.
There have been no transfers of properties between Levels 1, 2 and 3 during the year ended 31 March 2014. The fair value at
31 March 2014 represents the highest and best use.
i) Technique
The valuation techniques described below are consistent with IFRS 13 and use significant “unobservable” inputs. There have
been no changes in valuation techniques since the prior year.
Yield capitalisation – for commercial investment properties, market rental values are capitalised with a market capitalisation
rate. The resulting valuations are cross-checked against the net initial yields and the fair market values per square foot derived
from recent market transactions.
Residual – for investment properties under development, the fair value of the property is calculated by estimating the fair value
of the completed property using the yield capitalisation technique less estimated costs to completion and a risk premium.
Comparison – for residential properties the fair value is calculated by using data from recent market transactions.
ii) Sensitivity
An increase or decrease in ERV will increase or decrease the fair value of the Group’s investment properties.
An increase or decrease to the net initial yields and reversionary yields will decrease or increase the fair value of the Group’s
investment properties.
An increase or decrease in the estimated costs of development will decrease or increase the fair value of the Group's
investment properties under development.
There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in
more than one input could magnify or mitigate the impact on the valuation.
106
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
10 Investment properties (continued)
10 Investment properties (continued)
The valuations were undertaken in accordance with the RICS Valuation – Professional Standards 2012 on the basis of fair value.
iii) Process
Fair value represents the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date. The total fees earned by CBRE and Savills from the Company
represent less than 5% of their total UK revenues. CBRE and Savills have continuously been the signatory of valuations for the
Company since October 2007 and September 2010 respectively.
In the 2012 financial statements, investment property in the course of construction at Clerkenwell Quarter, Islington was valued
by the Directors at £10.4 million. At the request of the Financial Reporting Council the Company agreed to restate the valuation
for this property in its comparative figures for 2013.
c) Valuation technique and quantitative information
Asset type
Retail
Distribution
Office
Residential
Development
ERV
Net Initial Yield
Reversionary Yield
Fair Value
2014
£000
Valuation
Technique
Weighted
Average
Range
Weighted
Average
(£ per sq ft)
(£ per sq ft)
437,745 Yield capitalisation
15.21
9.96–26.73
322,800 Yield capitalisation
5.00
3.42–8.81
75,900 Yield capitalisation
19.78 17.84–20.35
22,223
Comparison
n/a
n/a
Range
%
4.7–8.1
5.2–7.3
6.7–7.4
n/a
Weighted
Average
%
5.9
6.0
6.8
n/a
%
6.3
6.1
6.9
n/a
Range
4.7–8.1
5.0–7.2
6.6–6.8
n/a
Residual
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
171,885
1,030,553
1 Capitalised market rental values calculated using estimated rentals and market capitalisation rates derived from prior transactions and for comparable
transactions in the market
All of the Group's properties are categorised as Level 3 in the fair value hierarchy as defined by IFRS 13 Fair Value Management.
There have been no transfers of properties between Levels 1, 2 and 3 during the year ended 31 March 2014. The fair value at
31 March 2014 represents the highest and best use.
i) Technique
The valuation techniques described below are consistent with IFRS 13 and use significant “unobservable” inputs. There have
been no changes in valuation techniques since the prior year.
Yield capitalisation – for commercial investment properties, market rental values are capitalised with a market capitalisation
rate. The resulting valuations are cross-checked against the net initial yields and the fair market values per square foot derived
from recent market transactions.
Residual – for investment properties under development, the fair value of the property is calculated by estimating the fair value
of the completed property using the yield capitalisation technique less estimated costs to completion and a risk premium.
Comparison – for residential properties the fair value is calculated by using data from recent market transactions.
ii) Sensitivity
investment properties.
An increase or decrease in ERV will increase or decrease the fair value of the Group’s investment properties.
An increase or decrease to the net initial yields and reversionary yields will decrease or increase the fair value of the Group’s
An increase or decrease in the estimated costs of development will decrease or increase the fair value of the Group's
investment properties under development.
There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in
more than one input could magnify or mitigate the impact on the valuation.
The valuation reports produced by CBRE and Savills are based on:
–
Information provided by the Group, such as current rents, lease terms, capital expenditure and comparable sales
information, which is derived from the Group’s financial and property management systems and is subject to the Group’s
overall control environment
– Assumptions applied by the valuers such as ERVs and yields which are based on market observation and their professional
judgement
CBRE and Savills separately meet the Auditors and the Audit Committee semi-annually.
Included within the investment property valuation is £9.2 million (2013: £1.3 million) in respect of lease incentives and
rent-free periods.
The historical cost of all of the Group’s investment properties at 31 March 2014 was £946.7 million (2013: £934.0 million).
Capital commitments have been entered into amounting to £56.0 million (2013: £5.6 million) which have not been provided for
in the financial statements.
11 Investment in associate and joint venture
As at 31 March
Opening balance
Additions at cost
Share of profit in the year
Disposals
Profit distributions received
2014
£000
2013
£000
120,919
161,575
20,476
14,424
68,002
15,969
(43,968)
(119,165)
(2,861)
(5,462)
108,990
120,919
In July 2013 LSP Green Park Distribution Holdings Limited, in which the Group has a 50% interest, disposed of 10 out of its 11 assets
by way of a corporate disposal of three companies.
The Group’s one-third interest in Metric Income Plus Limited Partnership (MIPP) acquired nine properties for £23.4 million
(including purchase costs) in the year.
In December 2013 the Group established a new joint venture with LVS II Lux X S.a.r.l called LMP Retail Warehouse JV Property
Unit Trust, in which it has a 30.5% interest. The joint venture acquired 27 DFS assets from the administrator of Delphi Properties
Limited for £175 million (Group share £53.4 million). Simultaneously with the closing of the transaction the joint venture sold eight
of the assets for total proceeds of £43.4 million (Group share £13.2 million).
All Group interests are equity accounted for in these financial statements.
107
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
11 Investment in associate and joint venture (continued)
The Group’s share of the profit after tax and net assets of its associates and joint ventures is as follows:
LMP Retail
Warehouse
JV Holdings
LSP
Green Park
Distribution
Holdings
£000
£000
LSP
London
Residential
Investments
£000
Metric
Income
Plus
£000
LSP
Green
Park
Property
Trust
£000
2014
£000
LSP
Green Park
Distribution
Holdings
£000
LSP
London
Residential
Investments
£000
Metric
Income
Plus
£000
2013
£000
Summarised income
statement
Net rental income
Administration expenses
Management fees
84
(64)
(54)
2,929
1,368
2,792
7,173
5,628
8,257
152
359
14,396
(99)
(307)
(268)
(232)
(25)
(163)
(456)
(756)
(396)
(513)
(182)
(713)
(141)
(138)
Revaluation gain/(loss)
3,639
475
1,173
3,073
8,360
–
(2,075)
13,948
Net interest payable
Movement in derivatives
Profit on disposal
Tax
–
–
1,675
–
(3,130)
(1,082)
(814)
(5,026)
(3,938)
(3,179)
2,429
243
326
–
3
–
166
287
–
2,838
2,291
–
(544)
(329)
–
485
(634)
(151)
–
–
(4)
(21)
53
(723)
(1,385)
11,926
(106)
(7,857)
(75)
(1,099)
–
–
–
711
–
226
463
–
544
–
–
2,264
13,036
206
15,969
2,075
(13,948)
(53)
(11,926)
329
151
75
1,099
–
–
–
–
–
–
–
–
Profit after tax
5,280
2,623
1,205
5,316
14,424
EPRA adjustments
Revaluation gain/(loss)
(3,639)
(475)
(1,173)
(3,073)
(8,360)
Movement in derivatives
–
(2,429)
(243)
Profit on disposal
(1,675)
(326)
Cost of closing out
derivatives
EPRA earnings
–
(34)
2,121
1,514
Summarised balance
sheet
(3)
–
(166)
(287)
(2,838)
(2,291)
–
2,121
3,056
(214)
1,790
1,007
4,668
(761)
228
5,142
Investment properties
48,495
13,200
73,960
53,550
189,205
Other current assets
Cash
4,697
3,949
10
620
879
3,389
51
1,104
5,637
9,062
Current liabilities
(36,297)
(347)
(529)
(1,008)
(38,181)
Bank debt
Unamortised finance
costs
Derivative financial
instruments
–
–
–
(7,445)
(25,106)
(25,000)
(57,551)
69
282
352
(63)
91
87
703
115
Net assets
20,844
6,044
52,966
29,136
108,990
–
–
–
–
–
–
–
–
118,763
76,800
30,567
226,130
358
4,209
310
–
668
1,970
2,085
8,264
(3,251)
(487)
(544)
(4,282)
(74,040)
(26,000)
(8,433)
(108,473)
621
399
315
1,335
(2,493)
(151)
(79)
(2,723)
44,167
52,841
23,911
120,919
At 31 March 2014, the freehold and leasehold investment properties were externally valued by Royal Institution of Chartered
Surveyors (RICS) Registered Valuers of CBRE Limited and Savills Advisory Services Limited.
108
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
11 Investment in associate and joint venture (continued)
The Group’s share of the profit after tax and net assets of its associates and joint ventures is as follows:
LMP Retail
Green Park
LSP
LSP
London
Warehouse
JV Holdings
Distribution
Residential
Holdings
Investments
£000
£000
£000
Metric
Income
Plus
£000
LSP
Green
LSP
LSP
Park
Green Park
London
Property
Distribution
Residential
Trust
£000
Holdings
Investments
£000
£000
Metric
Income
Plus
£000
2014
£000
2013
£000
2,929
1,368
2,792
7,173
5,628
8,257
152
359
14,396
(99)
(307)
(268)
(232)
(25)
(163)
(456)
(756)
(396)
(513)
(182)
(713)
Revaluation gain/(loss)
3,639
475
1,173
3,073
8,360
(2,075)
13,948
Net interest payable
(3,130)
(1,082)
(814)
(5,026)
(3,938)
(3,179)
Movement in derivatives
2,429
243
(544)
(329)
(141)
(138)
(634)
(151)
–
–
–
–
(4)
(21)
53
(723)
(1,385)
11,926
(106)
(7,857)
(75)
(1,099)
–
–
–
–
–
711
–
–
3
–
(3)
–
166
287
–
2,838
2,291
–
226
463
(166)
(287)
(2,838)
(2,291)
–
2,121
3,056
–
485
–
–
(214)
1,790
1,007
4,668
(761)
228
5,142
Summarised income
statement
Net rental income
Administration expenses
Management fees
84
(64)
(54)
–
–
–
Profit on disposal
1,675
326
–
Tax
EPRA adjustments
Profit on disposal
(1,675)
(326)
Cost of closing out
derivatives
EPRA earnings
–
(34)
2,121
1,514
Summarised balance
sheet
Profit after tax
5,280
2,623
1,205
5,316
14,424
2,264
13,036
206
15,969
Revaluation gain/(loss)
(3,639)
(475)
(1,173)
(3,073)
(8,360)
2,075
(13,948)
(53)
(11,926)
Investment properties
48,495
13,200
73,960
53,550
189,205
118,763
76,800
30,567
226,130
Other current assets
Cash
4,697
3,949
10
620
879
3,389
51
1,104
5,637
9,062
358
4,209
310
–
1,970
2,085
668
8,264
Current liabilities
(36,297)
(347)
(529)
(1,008)
(38,181)
(3,251)
(487)
(544)
(4,282)
(7,445)
(25,106)
(25,000)
(57,551)
(74,040)
(26,000)
(8,433)
(108,473)
Bank debt
Unamortised finance
costs
Derivative financial
instruments
Net assets
–
–
–
69
282
352
621
399
315
1,335
(63)
91
87
(2,493)
(151)
(79)
(2,723)
20,844
6,044
52,966
29,136
108,990
44,167
52,841
23,911
120,919
703
115
Surveyors (RICS) Registered Valuers of CBRE Limited and Savills Advisory Services Limited.
–
–
–
–
–
–
–
–
–
–
–
–
–
12 Intangible assets
As at 31 March
Cost
Opening balance
Additions
Amortisation
Opening balance
Amortisation during the year
Net carrying amount
2014
£000
2013
£000
54,428
–
54,428
44,790
8,794
53,584
844
53,260
1,168
54,428
40,836
3,954
44,790
9,638
An intangible asset of £53.3 million was created on the acquisition by the Company of the LSP Green Park Property Trust
Property Advisory Agreement on 1 October 2010 and was being amortised on a straight-line basis over the contract period
to May 2015. However this asset was fully impaired in the year to 31 March 2014 following the sale of assets and reduction in
fees receivable.
As part of the merger with Metric the Group created a further intangible asset of £1.2 million, representing the fair valuation of
the Management Agreement with Metric Income Plus Limited Partnership. This is being amortised on a straight-line basis over
the remaining period of the contract to November 2016.
Movement in derivatives
–
(2,429)
(243)
544
329
151
75
1,099
13 Trade and other receivables
As at 31 March
Trade receivables
Performance fees receivable
Amounts receivable from property sales
Share-based payment prepayment
Taxation
Prepayments and accrued income
Other receivables
2014
£000
2,386
2,712
4,420
–
227
1,556
32,749
44,050
2013
£000
1,942
3,457
–
3,789
–
1,057
1,486
11,731
All amounts fall due for payment in less than one year.
Trade receivables comprise rental income which is due on contractual quarter days with no credit period.
At 31 March 2014 there were trade receivables of £405,000 which were overdue and considered at risk. A full provision has
been made against these trade receivables.
Included within other debtors is a short-term loan to the LMP Retail Warehouse Holdings Limited joint venture of £32.1 million
which is repayable on demand.
At 31 March 2014, the freehold and leasehold investment properties were externally valued by Royal Institution of Chartered
14 Cash and cash equivalents
Cash and cash equivalents include £30.7 million (2013: £9.6 million) retained in rent and restricted accounts which are not
readily available to the Group for day to day commercial purposes.
109
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
15 Trade and other payables
As at 31 March
Trade payables
Amounts payable on property acquisitions and disposals
Rent received in advance
Accrued interest
Other payables
Other accruals
2014
£000
1,139
77,740
8,577
2,732
996
5,655
2013
£000
2,096
4,499
8,051
2,739
1,263
7,584
96,839
26,232
The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
16 Borrowings and financial instruments
a) Non current financial liabilities
As at 31 March
Secured bank loans
Unamortised finance costs
2014
£000
2013
£000
415,474
464,564
(5,536)
(4,236)
409,938
460,328
The bank loans are secured by fixed charges over certain of the Group’s investment properties with a carrying value
of £778 million and are repayable within five years of the balance sheet date.
b) Financial risk management
Financial risk factors
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance. The Group’s financial risk management objectives are to
minimise the effect of risks it is exposed to through its operations and the use of debt financing.
The principal financial risks to the Group and the policies it has in place to manage these risks are summarised below:
i) Credit risk
Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its
contractual obligations.
The Group’s principal financial assets are cash balances and deposits and trade and other receivables. The Group’s credit risk
is primarily attributable to its cash deposits and trade receivables.
The Group mitigates financial loss from tenant defaults by dealing with only creditworthy tenants. The trade receivable amounts
presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where
there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the
receivables concerned. The balance is low relative to the scale of the balance sheet and therefore the credit risk of trade
receivables is considered to be low.
Cash is placed on deposit with a diverse mix of institutions with suitable credit ratings and rates of return and for varying periods
of time. The credit ratings of the banks are monitored and changes are made where necessary to manage risk.
The credit risk on liquid funds and derivative financial instruments is limited due to the Group’s policy of monitoring counterparty
exposures with a maximum exposure equal to the carrying amount of these instruments. The Group has no significant
concentration of credit risk, with exposure spread over a large number of counterparties.
110
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
15 Trade and other payables
Amounts payable on property acquisitions and disposals
As at 31 March
Trade payables
Rent received in advance
Accrued interest
Other payables
Other accruals
16 Borrowings and financial instruments
a) Non current financial liabilities
As at 31 March
Secured bank loans
Unamortised finance costs
2014
£000
1,139
77,740
8,577
2,732
996
5,655
2013
£000
2,096
4,499
8,051
2,739
1,263
7,584
96,839
26,232
2014
£000
2013
£000
415,474
464,564
(5,536)
(4,236)
409,938
460,328
The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
The bank loans are secured by fixed charges over certain of the Group’s investment properties with a carrying value
of £778 million and are repayable within five years of the balance sheet date.
b) Financial risk management
Financial risk factors
i) Credit risk
contractual obligations.
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance. The Group’s financial risk management objectives are to
minimise the effect of risks it is exposed to through its operations and the use of debt financing.
The principal financial risks to the Group and the policies it has in place to manage these risks are summarised below:
Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its
The Group’s principal financial assets are cash balances and deposits and trade and other receivables. The Group’s credit risk
is primarily attributable to its cash deposits and trade receivables.
The Group mitigates financial loss from tenant defaults by dealing with only creditworthy tenants. The trade receivable amounts
presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where
there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the
receivables concerned. The balance is low relative to the scale of the balance sheet and therefore the credit risk of trade
receivables is considered to be low.
Cash is placed on deposit with a diverse mix of institutions with suitable credit ratings and rates of return and for varying periods
of time. The credit ratings of the banks are monitored and changes are made where necessary to manage risk.
The credit risk on liquid funds and derivative financial instruments is limited due to the Group’s policy of monitoring counterparty
exposures with a maximum exposure equal to the carrying amount of these instruments. The Group has no significant
concentration of credit risk, with exposure spread over a large number of counterparties.
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
16 Borrowings and financial instruments (continued)
ii) Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on
its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group actively maintains a mixture of long-term and short-term committed facilities that are designed to ensure that the
Group has sufficient available funds for operations and committed investments. The Group’s funding sources are diversified
across a range of banks. Weekly cash flow forecasts are prepared for the Executive Committee to ensure sufficient resources
of cash and undrawn borrowing facilities are in place to meet liabilities as they fall due.
The Group had cash reserves of £78.4 million (2013: £37.6 million) and available and undrawn bank loan facilities at
31 March 2014 of £96.0 million (2013: £37.0 million).
The following table shows the contractual maturity profile of the Group’s financial liabilities on an undiscounted cash flow basis
and assuming settlement on the earliest repayment date.
At 31 March 2014
Bank loans
Derivative financial instruments
At 31 March 2013
Bank loans
Derivative financial instruments
iii) Market risk – interest rate risk
Less than
one year
£000
One to two
years
£000
Two to five
years
£000
Total
£000
12,531
12,566
437,550
462,647
2,997
3,005
6,528
12,530
15,528
15,571
444,078
475,177
Less than
one year
£000
One to two
years
£000
Two to five
years
£000
Total
£000
41,622
41,243
420,708
503,573
4,507
3,750
2,792
11,049
46,129
44,993
423,500
514,622
The Group is exposed to interest rate risk from the use of debt financing at a variable rate. It is the risk that future cash flows of
a financial instrument will fluctuate because of changes in interest rates. It is Group policy that a reasonable portion of external
borrowings are at a fixed interest rate in order to manage this risk.
The Group uses interest rate swaps and caps to manage its interest rate exposure and hedge future interest rate risk for the
term of the bank loan. Although the Board accepts that this policy neither protects the Group entirely from the risk of paying
rates in excess of current market rates nor eliminates fully the cash flow risk associated with interest payments, it considers that it
achieves an appropriate balance of exposure to these risks.
At 31 March 2014 the Group (excluding share of joint ventures) had £358 million (2013: £370 million) of hedges in place, and its
debt of £415.5 million was 86% (2013: 80%) hedged by way of interest rate swaps and caps. Consequently, based on year-end
debt levels, a 1% change in interest rates would decrease or increase the Group’s annual loss before tax by £2.4 million and
£1.2 million respectively. Including its share of joint ventures the Group had £401 million (2013: £454 million) of hedges in place
and its debt of £473.0 million (2013: £573.0 million) was 85% (2013: 79%) fixed.
The average interest rate payable by the Group (excluding share of joint ventures) on all bank borrowings at 31 March 2014
excluding undrawn facility commitment fees and the amortisation of finance arrangement fees was 3.51% (2013: 3.59%).
Including its share of joint ventures the average interest rate at 31 March 2014 excluding undrawn facility commitment fees and
the amortisation of finance arrangement fees was 3.54% (2013: 3.62%). The average borrowing rate including the amortisation
of finance costs was 3.89% (2013: 3.97%) for the Group and 3.93% (2013: 4.00%) for the Group and its share of joint ventures.
111
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
16 Borrowings and financial instruments (continued)
iv) Capital risk management
The Group’s objectives when maintaining capital are to safeguard the entity’s ability to continue as a going concern so that
it can provide returns to shareholders and as such it seeks to maintain an appropriate mix of debt and equity. The capital
structure of the Group consists of debt, which includes long-term borrowings and undrawn debt facilities, and equity
comprising issued capital, reserves and retained earnings. The Group balances its overall capital structure through the
payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt.
c) Financial instruments
i) Categories of financial instruments
As at 31 March
Current assets
Cash and cash equivalents
Trade receivables (note 13)
Performance fees receivable (note 13)
Taxation receivable (note 13)
Other receivables (note 13)
As at 31 March
Non current liabilities
Borrowings (note 16a)
Current liabilities
Trade payables (note 15)
Accrued interest (note 15)
Other accruals (note 15)
Other payables (note 15)
Derivative financial instruments (see 16c(iii))
ii) Fair values
Loans and receivables
2014
£000
2013
£000
78,357
37,572
2,386
2,712
227
628
84,310
1,942
3,457
–
1,486
44,457
Measured at
amortised cost
Measured at fair value
2014
£000
2013
£000
2014
£000
2013
£000
409,938
460,328
1,139
2,732
5,655
996
–
2,096
2,739
7,584
1,263
–
420,460
474,010
–
–
–
–
–
–
–
–
–
–
1,443
1,443
9,883
9,883
To the extent financial assets and liabilities are not carried at fair value in the Consolidated Balance Sheet, the Directors are of
the opinion that book value approximates to fair value at 31 March 2014.
112
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
16 Borrowings and financial instruments (continued)
iv) Capital risk management
it can provide returns to shareholders and as such it seeks to maintain an appropriate mix of debt and equity. The capital
structure of the Group consists of debt, which includes long-term borrowings and undrawn debt facilities, and equity
comprising issued capital, reserves and retained earnings. The Group balances its overall capital structure through the
payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt.
c) Financial instruments
i) Categories of financial instruments
As at 31 March
Current assets
Cash and cash equivalents
Trade receivables (note 13)
Performance fees receivable (note 13)
Taxation receivable (note 13)
Other receivables (note 13)
As at 31 March
Non current liabilities
Borrowings (note 16a)
Current liabilities
Trade payables (note 15)
Accrued interest (note 15)
Other accruals (note 15)
Other payables (note 15)
ii) Fair values
Derivative financial instruments (see 16c(iii))
Loans and receivables
2014
£000
2013
£000
78,357
37,572
2,386
2,712
227
628
84,310
1,942
3,457
–
1,486
44,457
Measured at
amortised cost
Measured at fair value
2014
£000
2013
£000
2014
£000
2013
£000
409,938
460,328
1,139
2,732
5,655
996
–
2,096
2,739
7,584
1,263
–
–
–
–
–
–
–
–
–
–
–
420,460
474,010
1,443
1,443
9,883
9,883
The Group’s objectives when maintaining capital are to safeguard the entity’s ability to continue as a going concern so that
Details of the fair value of the Group’s derivative financial instruments that were in place at 31 March 2014 are provided below:
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
16 Borrowings and financial instruments (continued)
iii) Derivative financial instruments
Interest rate caps – expiry
Less than one year
One to two years
Two to five years
Interest rate swaps – expiry
Less than one year
One to two years
Two to five years
Total fair value
Average rate
2013
%
0.0
4.0
2.6
3.1
Average rate
2013
%
0.0
3.3
2.3
2.5
2014
%
4.0
4.0
2.2
2.4
2014
%
0.0
0.0
2.2
2.2
Notional
amount
2013
£000
–
2014
£000
26,500
4,000
26,500
167,313
45,000
197,813
71,500
Notional
amount
2013
£000
–
93,368
2014
£000
–
–
2014
£000
–
–
2,660
2,660
2014
£000
–
–
221,504
325,543
(4,103)
Fair value
2013
£000
–
–
117
117
Fair value
2013
£000
–
(4,352)
(5,648)
221,504
418,911
(4,103)
(10,000)
(1,443)
(9,883)
All derivative financial instruments are non current interest rate derivatives, and are carried at fair value following a valuation
as at 31 March 2014 by J C Rathbone Associates Limited.
The market values of hedging products change with interest rate fluctuations, but the exposure of the Group to movements
in interest rates is protected by way of the hedging products listed above. In accordance with accounting standards, fair value is
estimated by calculating the present value of future cash flows, using appropriate market discount rates. For all derivative financial
instruments this equates to a Level 2 fair value measurement as defined by IFRS 13 Fair Value Measurement. The valuation
therefore does not reflect the cost or gain to the Group of cancelling its interest rate protection at the balance sheet date, which is
generally a marginally higher cost (or smaller gain) than a market valuation.
17 Commitments under operating leases
The Group’s minimum lease rentals receivable under non cancellable operating leases, excluding associates and joint
ventures, are as follows:
To the extent financial assets and liabilities are not carried at fair value in the Consolidated Balance Sheet, the Directors are of
the opinion that book value approximates to fair value at 31 March 2014.
Less than one year
Between one and five years
Between six and ten years
Between 11 and 15 years
Between 16 and 20 years
Over 20 years
2014
£000
2013
£000
57,114
49,728
246,218
186,337
247,872
182,679
139,369
75,802
50,438
76,158
22,716
–
816,813
517,618
113
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
17 Commitments under operating leases (continued)
The Group’s minimum lease payments under non cancellable operating leases, excluding associates and joint ventures,
are as follows:
Less than one year
Between one and five years
After five years
18 Share capital
As at 31 March
Authorised
Ordinary shares of 10p each
As at 31 March
Issued, called up and fully paid
Ordinary shares of 10p each
19 Reserves
2014
£000
810
2,770
–
3,580
2013
£000
213
3,240
339
3,792
2014
Number
2014
£000
2013
Number
2013
£000
Unlimited
Unlimited
Unlimited
Unlimited
2014
Number
2014
£000
2013
Number
2013
£000
628,043,905
62,804 628,043,905
62,804
The Statement of changes in equity is shown on page 94.
The following describes the nature and purpose of each reserve within equity:
Share capital
The nominal value of shares issued.
Capital redemption reserve
Amounts transferred from share capital on redemption of issued ordinary shares.
Other reserve
A reserve relating to the application of merger relief in the acquisition of LSI Management Limited and Metric Property
Investments plc by the Company, the cost of the Company’s shares held in treasury and the cost of shares held in trust to
provide for the Company’s future obligations under share award schemes.
Retained earnings
The cumulative profits and losses after the payment of dividends.
20 Related party transactions and balances
Management fees receivable from the Group’s joint venture arrangements in which it has an equity interest were as follows:
LSP Green Park Property Trust
LPS Green Park Distribution Holdings
LSP London Residential Investments
Metric Income Plus Partnership
LMP Retail Warehouse
Group non recoverable VAT
Group
interest
31.4%
50.0%
40.0%
33.3%
30.5%
Year to
31 March
2014
£000
Year to
31 March
2013
£000
(745)
614
483
489
177
(219)
799
6,731
1,426
344
62
–
(97)
8,466
Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation.
114
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
Notes forming part of the Group financial statements
For the year ended 31 March 2014
continued
17 Commitments under operating leases (continued)
21 Events after the balance sheet date
On 25 April 2014 the Group’s LMP Retail Warehouse joint venture completed a further two DFS sales for £3.7 million (£1.1 million
at share).
On 30 April 2014 the Group completed the acquisition of the Marks & Spencer Distribution Centre in Sheffield for £32.2 million
(excluding acquisition costs). This acquisition was accrued in the financial statements at 31 March 2014.
On 13 May 2014 the Group completed the acquisition of Magna 34, Business Park, Rotherham for £10.3 million
(excluding acquisition costs).
On 29 May 2014 the Group completed the acquisition of the Oak Furniture Land Distribution Centre in South Marston Park,
Swindon for £22.1 million (excluding acquisition costs) funded by additional debt of £14.5 million and equity. This acquisition was
accrued in the financial statements at 31 March 2014.
On 30 May 2014 the Group completed the sale of its development at Berkhamsted for £12.3 million.
On 2 June the Group extended its MIPP joint venture with partner USS for a further two years and agreed to increase its
ownership to 50% through further investment of £28.5 million.
On 2 June 2014 the Group extended its £80 million revolving credit facility with RBS by a further 2.5 years.
The Group’s minimum lease payments under non cancellable operating leases, excluding associates and joint ventures,
are as follows:
Less than one year
Between one and five years
After five years
18 Share capital
As at 31 March
Authorised
Ordinary shares of 10p each
As at 31 March
Issued, called up and fully paid
Ordinary shares of 10p each
19 Reserves
LSP Green Park Property Trust
LPS Green Park Distribution Holdings
LSP London Residential Investments
Metric Income Plus Partnership
LMP Retail Warehouse
Group non recoverable VAT
2014
£000
810
2,770
–
3,580
2013
£000
213
3,240
339
3,792
2014
Number
2014
£000
2013
Number
2013
£000
Unlimited
Unlimited
Unlimited
Unlimited
2014
Number
2014
£000
2013
Number
2013
£000
628,043,905
62,804 628,043,905
62,804
Group
interest
31.4%
50.0%
40.0%
33.3%
30.5%
Year to
31 March
Year to
31 March
2014
£000
(745)
614
483
489
177
(219)
799
2013
£000
6,731
1,426
344
62
–
(97)
8,466
The Statement of changes in equity is shown on page 94.
The following describes the nature and purpose of each reserve within equity:
Share capital
The nominal value of shares issued.
Capital redemption reserve
Amounts transferred from share capital on redemption of issued ordinary shares.
Other reserve
A reserve relating to the application of merger relief in the acquisition of LSI Management Limited and Metric Property
Investments plc by the Company, the cost of the Company’s shares held in treasury and the cost of shares held in trust to
provide for the Company’s future obligations under share award schemes.
Retained earnings
The cumulative profits and losses after the payment of dividends.
20 Related party transactions and balances
Management fees receivable from the Group’s joint venture arrangements in which it has an equity interest were as follows:
Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation.
115
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Company Balance Sheet
As at 31 March
Fixed assets
Investment in subsidiaries
Current assets
Debtors
Cash at bank
Current liabilities
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Capital redemption reserve
Other reserve
Retained earnings
Shareholders’ funds
Note
2014
£000
2013
£000
iii
743,943
667,628
743,943
667,628
iv
193
42,225
42,418
669
15,555
16,224
v
95,347
3,683
(52,929)
12,541
691,014
680,169
691,014
680,169
vi
vi
vi
vi
62,804
9,636
62,804
9,636
114,484
403,356
504,090
204,373
691,014
680,169
The financial statements were approved and authorised for issue by the Board of Directors on 3 June 2014 and were signed
on its behalf by:
Martin McGann
Finance Director
Registered in England, No 7124797
The notes on pages 117 to 119 form part of these financial statements.
116
LondonMetric Property Plc Annual report and accounts 2014
Fixed assets
Investment in subsidiaries
Current assets
Debtors
Cash at bank
Current liabilities
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Capital redemption reserve
Other reserve
Retained earnings
Shareholders’ funds
on its behalf by:
Martin McGann
Finance Director
Registered in England, No 7124797
iii
743,943
667,628
743,943
667,628
iv
193
42,225
42,418
669
15,555
16,224
v
95,347
3,683
(52,929)
12,541
691,014
680,169
691,014
680,169
vi
vi
vi
vi
62,804
9,636
62,804
9,636
114,484
403,356
504,090
204,373
691,014
680,169
The financial statements were approved and authorised for issue by the Board of Directors on 3 June 2014 and were signed
Company Balance Sheet
As at 31 March
Notes forming part of the Company financial statements
For the year ended 31 March 2014
Note
2014
£000
2013
£000
i Accounting policies
Accounting convention
Although the consolidated Group accounts are prepared under IFRS the Company financial statements are prepared under
UK GAAP.
The accounting policies relevant to the Company are the same as those set out in the accounting policies for the Group,
except as noted below.
Subsidiary undertakings
Investments in subsidiary companies are stated at cost less any provision for impairment.
ii Profit attributable to members of the parent undertaking
As permitted by Section 408 Companies Act 2006, the income statement of the Company is not presented as part of these
financial statements. The profit dealt within the accounts of the Company was £57.0 million (2013: loss of £33.5 million).
Audit fees in relation to the Company only were £60,000 in the year (2013: £189,000).
iii Fixed asset investments
At 1 April 2013
Additions to cost
Impairment of investment
At 31 March 2014
Subsidiary
undertakings
£000
667,628
362,688
(286,373)
743,943
The Company is incorporated in England and is the ultimate holding company of the Group and has the following principal
subsidiary undertakings:
Country of
incorporation or
registration
Proportion of voting rights
held (by way of share
capital or units held)
London & Stamford Property Limited
LondonMetric Management Limited
LSI (Investments) Limited
LondonMetric Saturn Limited
Metric Property Investments plc
London & Stamford Investments Limited*
LSI Developments Limited*
London & Stamford Property Subsidiary Limited*
L&S Business Space Limited*
L&S Highbury Limited*
L&S Battersea Limited*
L&S Clapham Road Limited*
London & Stamford Offices II Limited*
LSP Marlow Limited*
Guernsey
Guernsey
England
England
England
England
England
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Intermediate holding company
Management company
Property investment
Property investment
Property investment
Intermediate holding company
Property investment and development
Intermediate holding company
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
The notes on pages 117 to 119 form part of these financial statements.
117
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Notes forming part of the Company financial statements
For the year ended 31 March 2014
continued
iii Fixed asset investments (continued)
Country of
incorporation or
registration
Proportion of voting rights
held (by way of share
capital or units held)
Metric Property Newry Limited*
Metric Property Launceston Limited*
Metric Property Loughborough Limited*
Metric Property Coventry Limited*
Wick Retail Limited*
Metric Property Bedford Limited*
Metric Property Milford Haven Limited*
Metric Property Bristol Limited*
Metric Property Hove Limited*
Metric Property Kirkstall Limited*
Metric Property Inverness Limited*
Metric Property Bishop Auckland Limited*
Metric Property Kings Lynn Limited*
Metric Property Finance 1 Limited*
Metric Property Finance 2 Limited*
Metric Property Berkhamsted Limited*
LondonMetric Retail Distribution I Limited
LondonMetric Saturn II Limited
LondonMetric Retail Finance Limited
LondonMetric Retail Distribution II Limited
LondonMetric Retail Distribution III Limited
England
England
England
England
Scotland
England
England
England
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
LMP Green Park Cinemas Limited*
Guernsey
LMP Chelmsford Limited*
LMP Derby Limited*
LMP Taunton Limited*
LMP Telford Limited*
LMP Warrington Limited*
LMP Huddersfield Limited*
LMP Lee Valley Limited*
LMP Preston Limited*
LMP Tamworth Limited*
LMP Thrapston Limited*
Metric Property Launceston 3 Limited*
Metric Property St Albans Limited*
Metric Property Cannock Limited*
* Undertakings held indirectly by the Company
England
England
England
England
England
England
England
England
England
Guernsey
England
England
England
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Intermediate holding company
Intermediate holding company
Property investment
Property investment
Property investment
Intermediate holding company
Property investment
Property investment
Intermediate holding company
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
The principal subsidiaries are those undertakings whose results or financial position, in the opinion of the Directors, principally
affect the Group results. To avoid a statement of excessive length, details of investments which are not significant have been
omitted. All of the undertakings listed above operate in their country of incorporation except those who are tax resident in
the UK. All shares held are ordinary shares.
118
LondonMetric Property Plc Annual report and accounts 2014
Notes forming part of the Company financial statements
For the year ended 31 March 2014
continued
iii Fixed asset investments (continued)
Country of
Proportion of voting rights
incorporation or
registration
held (by way of share
capital or units held)
Metric Property Newry Limited*
Metric Property Launceston Limited*
Metric Property Loughborough Limited*
Metric Property Coventry Limited*
Wick Retail Limited*
Metric Property Bedford Limited*
Metric Property Milford Haven Limited*
Metric Property Bristol Limited*
Metric Property Hove Limited*
Metric Property Kirkstall Limited*
Metric Property Inverness Limited*
Metric Property Bishop Auckland Limited*
Metric Property Kings Lynn Limited*
Metric Property Finance 1 Limited*
Metric Property Finance 2 Limited*
Metric Property Berkhamsted Limited*
LondonMetric Retail Distribution I Limited
LondonMetric Saturn II Limited
LondonMetric Retail Finance Limited
LondonMetric Retail Distribution II Limited
LondonMetric Retail Distribution III Limited
LMP Chelmsford Limited*
LMP Derby Limited*
LMP Taunton Limited*
LMP Telford Limited*
LMP Warrington Limited*
LMP Huddersfield Limited*
LMP Lee Valley Limited*
LMP Preston Limited*
LMP Tamworth Limited*
LMP Thrapston Limited*
Metric Property Launceston 3 Limited*
Metric Property St Albans Limited*
Metric Property Cannock Limited*
* Undertakings held indirectly by the Company
England
England
England
England
Scotland
England
England
England
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Guernsey
England
England
England
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Intermediate holding company
Intermediate holding company
Intermediate holding company
Nature of business
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
LMP Green Park Cinemas Limited*
Guernsey
100%
Intermediate holding company
The principal subsidiaries are those undertakings whose results or financial position, in the opinion of the Directors, principally
affect the Group results. To avoid a statement of excessive length, details of investments which are not significant have been
omitted. All of the undertakings listed above operate in their country of incorporation except those who are tax resident in
the UK. All shares held are ordinary shares.
Notes forming part of the Company financial statements
For the year ended 31 March 2014
continued
iv Debtors
As at 31 March
Trade debtors
Prepayments and accrued income
Other receivables
All amounts under receivables fall due for payment in less than one year.
v Creditors: amounts falling due within one year
As at 31 March
Trade payables
Other payables
Other accruals and deferred income
Amounts due to subsidiary undertakings
vi Reserves
At 1 April 2013
Retained profit for the year
Share-based awards
Reserve transfer of impairment in subsidiary
Dividends paid
At 31 March 2014
vii Related party transactions
2014
£000
4
32
157
193
2014
£000
972
–
1,000
93,375
95,347
2013
£000
516
23
130
669
2013
£000
58
105
597
2,923
3,683
Share
capital
£000
62,804
Capital
redemption
reserve
£000
Other
reserve
£000
Retained
earnings
£000
9,636
403,356
204,373
–
–
–
–
–
–
–
–
–
56,997
(2,500)
311
(286,372)
286,372
–
(43,963)
62,804
9,636
114,484
504,090
The Company has received short-term non interest bearing loans from subsidiaries in the year and £53.4 million is outstanding as
at 31 March 2014 (2013: £2.9 million).
Other related party transactions for the Company are as noted for the Group in note 20 to the Group financial statements.
119
LondonMetric Property Plc Annual report and accounts 2014Strategic reportGovernanceFinancial statements
Financial calendar
Announcement of results
Financial dividend
– Ex dividend date
– Record date
– Payable on
Annual General Meeting
3 June 2014
11 June 2014
13 June 2014
21 July 2014
17 July 2014
Anticipated 2014 Interim dividend
December 2014
Shareholder information
Advisors to the Company
Joint Financial Advisors and Brokers
Tax Advisors
Registrar
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
JP Morgan Securities Limited
25 Bank Street
Canary Wharf
London E14 5JP
Auditors
Deloitte LLP
2 New Street Square
London, EC4A 3BZ
Property Valuers
CBRE Limited
St Martin’s Court
10 Paternoster Row
London EC4M 7HP
Savills Advisory Services Limited
33 Margaret Street
London W1G 0JD
REIT status and taxation
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Solicitors to the Company
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Secretary and Registered Address
Jadzia Duzniak
One Curzon Street
London W1J 5HB
londonmetric.com
Jones Day
21 Tudor Street
London EC4Y 0DJ
Nabarro LLP
Lacon House
84 Theobald’s Road
London WC1X 8RW
Travers Smith LLP
10 Snow Hill
London EC1A 2AL
Mourant Ozannes
PO Box 186
1 Le Marchant Street
St Peter Port
Guernsey
Channel Islands GY1 4HP
As a UK REIT, the Group is exempt from corporation tax on rental income and UK property gains. Dividend payments to
shareholders are split between Property Income Distributions (PIDs) and non PIDs.
For most shareholders, PIDs will be paid after deducting withholding tax at the basic rate. However, certain categories of
shareholder are entitled to receive PIDs without withholding tax, principally UK resident companies, UK public bodies,
UK pension funds and managers of ISAs, PEPs and Child Trust Funds. There is a form on the Company’s website for shareholders
to certify that they qualify to receive PIDs without withholding tax.
Payment of dividends
Shareholders who would like their dividends paid direct to a bank or building society account should notify Capita Registrars.
Tax vouchers will continue to be sent to the shareholder’s registered address.
120
LondonMetric Property Plc Annual report and accounts 2014
Design and production
Radley Yeldar – www.ry.com
Paper
The report is printed on Amadeus 50% Silk
which is FSC® certified and contains
50% recycled waste and 50% virgin fibre
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LondonMetric Property Plc
One Curzon Street
London
W1J 5HB
United Kingdom
Telephone: +44 (0) 20 7484 9000
Fax: +44 (0) 20 7484 9001
www.londonmetric.com