Londonmetric Property
Annual Report 2013

Plain-text annual report

Annual report and accounts 2013 L o n d o n M e t r i c P r o p e r t y P c l A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 3 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 Overview Introduction to LondonMetric Property Plc LondonMetric brings together two outstanding property companies to become top 10 UK REIT with a broader and complementary asset base. Front cover image Moore House, London 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 Net income Underlying profit (1) Revaluation surplus (1) Adjusted profit before tax (2) Portfolio value (1) Net assets Net debt (1) Loan to value (1) EPRA earnings per share Dividend per share NAV per share EPRA NAV per share Adjusted NAV per share (2) 2013 £39.6m £21.3m £20.3m £39.9m As restated 2012 £42.2m £24.3m £3.0m £19.5m £1,216.8m £1,022.4m £676.7m £630.9m £527.2m £353.6m 35% 4.4p 7.0p 116p 119p 119p 43% 3.9p 7.0p 108p 109p 116p (1) Includes share of joint ventures and associates (2) After adjusting for exceptional costs of the merger, 2010 mangement internalisation and impairment of investments Inside this report Overview 01–21 Inside this report Chairman’s statement Multi-channel approach How we’ve performed Key performance indicators Our business today Our strategy and business model Chief Executive’s review What makes us different Our core strengths Performance review 22–39 Investment Asset management and development Sustainability report Finance report Risk management Governance 40–55 Board of Directors Report of the Directors Statement of Directors’ responsibilities Corporate governance Audit Committee report Remuneration Committee report Financial statements 56–95 Independent auditor’s report on the Group accounts Group financial statements Notes forming part of the Group financial statements Independent auditor’s report on the Company accounts Company financial statements Notes forming part of the Company financial statements Notice of Annual General Meeting Financial calendar Shareholder information 01 02 04 06 07 08 09 10 14 17 22 25 29 34 37 40 42 44 45 50 51 56 57 61 81 82 83 86 94 95 Occupier-led strategy + Income + Asset management Short-cycle development = Desirable real estate Occupier contentment Shareholder value Income growth Capital growth Our strategy and business model Find out more on page 09 Sustainability report Find out more on page 29 Remuneration Committee report Find out more on page 51 Notice of Annual General Meeting Find out more on page 86 01 Annual report and accounts 2013 LondonMetric Property PlcChairman’s statement Patrick Vaughan Chairman I believe it is time to be bolder... the changes underway in the balance and mix of our business will provide the Company with a strong and exciting future 02 The year to 31 March 2013 fell into two distinct halves. In the first half, we were still seeing an environment where caution was required while, in the second half, we began to see signs of improvement, which augur well for the coming year. In my predecessor’s statement for the half year to September, he highlighted his belief that one must remain patient in our investment approach. While we will certainly remain cautious going forward, I believe it is also time to be bolder. The second half of the year was very significant, because it involved a merger with Metric Property Investments plc (“Metric”). Since the year end, the merged business, renamed LondonMetric Property Plc, has come together in a single office at One Curzon Street with a dynamic “can do” approach. I have known and worked for many years with Andrew Jones, Valentine Beresford and Mark Stirling. I believe the addition to our business of the Metric team will generate great progress. It was also the moment Raymond Mould decided it was time to retire, given this strengthening of the team. After working with him as my close business partner and friend for 44 years, that represents a big change, but one which I know from the early dynamics of the merger will nonetheless allow us to move ahead very successfully. On behalf of all of us, I offer him our very best wishes and thanks. Results The income statement on page 57 of this report reflects the activity of London & Stamford for the period from 1 April 2012 until the merger and then shows the combined activity of the enlarged Group for the two months to 31 March 2013. These results have been impacted over the year by an unusual weight of exceptional items which together amount to £49.5 million and are largely not recurring. These include the net loss on the sale of our investment in the Meadowhall Shopping Centre as a result of a debt mark to market adjustment which amounted to £23.2 million. It also includes a further £26.3 million of exceptional items, in respect of the amortisation of part of the purchase consideration paid for the acquisition and internalisation of LSI Management in 2010, the amortisation of the cost of the Green Park Property Advisory Agreement, and the merger costs. The bonds and merger costs are non-recurring items. One more half year of amortisation of the purchase consideration will occur this September, then that is finished. The Green Park intangible asset of £9.6 million will remain and will continue to be amortised to March 2015. LondonMetric Property Plc Annual report and accounts 2013OverviewProfit before the deduction of these exceptional items and tax amounted to £39.9 million, which is an increase of £20.4 million, or +105% on last year. If that was adjusted to include the full year’s activity of Metric to give a real year-on-year comparison, the total for the year would have been £45.6 million, a 39% increase in the proforma profits of the combined business over 2012. With the exceptional costs falling away and the combined business operating at full steam, I believe you will see real progress in our current year. Net assets at 31 March 2013 were £676.7 million for the combined business, after our return of £100 million of capital to shareholders, compared to £630.9 million in 2012. This is equivalent to 108p per share on our enlarged capital compared to 116p per share in 2012. The reduction of 8p in net asset value includes the deduction of 9p of exceptional items, as referred to above, and after the payment of 7p in dividend for the year. At property level, the total return was +8.0%, compared to the IPD return of +3.0%. A further breakdown shows our income return was +5.6% versus +6.0% for IPD and our capital performance was +2.4% against –2.8% for IPD. The Board has proposed a final dividend of 3.5p per share, to be paid on 12 July 2013 which, when taken with the interim dividend of the same amount paid on 7 December 2012, will give a total dividend in respect of the year of 7p. The portfolio In addition to our merger, the year has been an extremely active one. We made a number of well reported disposals, including Meadowhall and the Triangle distribution portfolio which delivered returns on equity of 129% and 33% respectively. The two businesses made acquisitions totalling £522 million (LondonMetric share: £397 million), the most significant of which include the Saturn out-of-town retail park portfolio, the Leatherhead offices of Unilever, a major office scheme at Globe Park, Marlow, and a large Primark distribution centre. The average yield of these acquisitions was 7.4% with a WAULT of 12.9 years. In the current year we expect to be busier. It is our primary objective to achieve a run rate of recurring net rents at the level of our current dividend, so we can move on from there. We shall be undertaking major reductions in our residential portfolio, which has grown strongly in value, but does not support our dividend policy. The time is also fast approaching when our business plan calls for a reduction in our City of London investments. These are not sector or market calls; they are the result of the planned evolution of those assets. We shall continue to focus on out-of-town retail to take full advantage of our expertise in the sector and we shall also concentrate on distribution, with emphasis, such as our Primark purchase, on where that distribution involves retail and the internet, so we can fully deploy our sector skills. The Board Following the retirement of Richard Crowder at the merger, Andrew Huntley has decided not to stand for re-election to the Board at the AGM and Mark Burton has decided to retire. This is obviously very sad, as they have been very strong Non-Executive Directors and they will be much missed. It takes us from eight to six Non-Executive Directors, alongside our three Executive Directors. On behalf of all parties involved with the Company, I give them our thanks. I believe the enlarged management team together with the changes underway in the balance and mix of our business will provide the Company with a strong and exciting future. Patrick Vaughan Chairman 31 May 2013 03 Annual report and accounts 2013 LondonMetric Property PlcMulti-channel approach We aim to rebalance the portfolio towards out of town retail and retailer distribution, what we call our ‘multi-channel approach’. We believe as e-tailing continues to grow and retailers’ multi-channel strategies evolve, there will be an increased emphasis towards distribution as an integral part of the supply chain. Both our Saturn portfolio acquisition and the Primark Distribution centre in Thrapston embody this approach. Retail Christchurch Retail Park Christchurch B&Q Leicester Dunstable Rd Retail Park Luton Mountbatten Retail Park Southampton Cairngorm Retail Park Milton Keynes B&Q/Halfords units Tonbridge Saturn portfolio February 2013 Cost: £92.4m Other activities London Residential London Residential Offices Moore House, Chelsea July 2012 Cost: £147.1m (1) (1) LondonMetric 40.0% share £58.9m 04 Clerkenwell Quarter, Islington December 2012 Cost: £45.7m Unilever, Leatherhead June 2012 Cost: £61.2m LondonMetric Property Plc Annual report and accounts 2013OverviewLondonMetric invests in Retail and Distribution real estate across the UK as well as Office & Residential opportunities in London & the South East, with a £1,217 million portfolio across 6.2 million sq ft (578,600 m2). Distribution Other activities Primark Distribution Centre, Thrapston March 2013 Key: Acquisition Disposal Cost: £60.5m Offices Retail – MIPP JV (1) Retail Marlow International, Marlow July 2012 Cost: £50.2m (1) Image of Faustina Retail Park, Londonderry (3) LondonMetric 33.3% share £18.1m Portfolio of six assets (2) Cost: £54.3m (3) Meadowhall Shopping Centre, Sheffield October 2012 Gross proceeds: £1,525m (4) (2) Includes acquisitions in Londonderry, Camborne, Lichfield, Nottingham, Haverhill & Ashford (4) LondonMetric 15.7% share £239.4m 05 Annual report and accounts 2013 LondonMetric Property Plc How we’ve performed Our customer-centric approach ensures that we invest in and develop properties with enduring occupier appeal, that over time deliver superior income and capital growth opportunities for the benefits of our shareholders. 2013 LondonMetric £21.3m £39.9m £20.3m 7.0p 43% 3.5% 8.0% 2.4% 95% 2013 LondonMetric 3.9p 109p 6.3% 6.3% 5% As restated 2012 London & Stamford £24.3m £19.5m £3.0m 7.0p 35% –6.1% 6.6% –6.8% 94% As restated 2012 London & Stamford 4.4p 119p 5.6% 5.6% 6% How we’ve performed Underlying profit (1) Adjusted profit before tax (1) Portfolio revaluation surplus (1) Dividend per share Loan to value (1) Like-for-like income growth (2,3) Total portfolio return (2) Total shareholder return Occupancy (3) EPRA performance measures EPRA earnings per share EPRA NAV per share EPRA net initial yield EPRA topped up net initial yield EPRA vacancy rate (1) Including share of joint ventures and associates (2) Includes Metric for the full year to March 2013 (3) Calculated for commercial investment portfolio excluding properties under development 06 LondonMetric Property Plc Annual report and accounts 2013OverviewKey performance indicators We use five principal measures against which we benchmark and monitor the performance of the Group and our Joint Ventures. Like-for-like income growth (%) Total shareholder return (%) 3.5% 2012 2013 2.4% 2013 2012 –6.1% –6.8% Total shareholder return measures share price growth, with dividends deemed to be reinvested on the ex-dividend date. The Company’s total shareholder return in 2013 was 2.4%, compared to –6.8% in 2012. This measures contracted rental income growth on commercial properties, excluding those under development, which have been consistently owned throughout the current and previous periods. Being the key contributor to sustainable income, growth in like-for-like income measures the success of our asset management initiatives to retain tenants and add value. Like-for-like income in the year increased by 3.5% (2012 decreased by 6.1%). Total portfolio return (%) Occupancy (%) Underlying profit (£m) 8.0% 6.6% 95% 94% £24.3m £21.3m 2013 2012 2013 2012 2013 2012 This measures the overall return generated by our investment portfolio on a leveraged basis calculated in accordance with and benchmarked against IPD All Property Quarterly Index of 3.0%. Total property returns were 8.0% (2012 6.6%) outperforming IPD by 5.0%. Our income return was 5.6% and capital return 2.4%. By investing in high quality, well located assets with strong tenant covenants we are in a strong position to continue the trend of outperforming the market and our competitors. This measures the contracted rental income of the commercial portfolio space currently let as a percentage of the total portfolio. It is a key measure of performance as it has a direct impact on profitability and dividend cover. A small amount of vacant space is considered necessary to obtain the optimal tenant mix and maximise future income. This measures the level of recurring profit available for distribution to shareholders and is the key support for the Group’s dividend payments. Underlying profit in the year including our share of joint ventures and associates was £21.3 million, a decrease of 12%. 07 Annual report and accounts 2013 LondonMetric Property PlcOur business today The combined portfolio provides a broader and complimentary asset base with greater opportunities to leverage existing relationships and skills particularly in the retail and distribution sectors. A broader portfolio Portfolio split 5 Regional split 1. Retail 29% £349m 4 2. Distribution 20% £244m 3. Office 20% £242m 4. Residential 21% £259m 5. Developments 10% £123m Portfolio value: £1,217m 1 3 2 1. London 18% £11.1m 2. South East 42% £26.3m 3. Midlands 24% £15.1m 3. North 5. Rest of UK 5% £3.1m 11% £6.9m 5 4 3 1 Total rent roll: £62.5m(1) 2 (1) Includes a deduction of £1.5 million for residential running costs Investment strategy Income Asset management Short-cycle development Retail Retailer led Distribution Strong cashflow London Opportunity driven 08 Leicester Coventry Bishop Auckland In solicitor’s hands Primark Distribution Centre, Thrapston Tesco, Harlow Unilever HQ, Leatherhead Clerkenwell Quarter, London Carter Lane, City of London OverviewLondonMetric Property Plc Annual report and accounts 2013 Our strategy and business model We employ an occupier led approach to property investments across our acquisitions, asset management initiatives and short-cycle developments. This improves our ability to generate a superior return, and provide us with an attractive margin of safety that compensates us for risk. Our strategic priorities 1. Continued focus on income, asset management and developments: – Out of town retail – Retailer distribution 3. Continue to leverage strong joint venture relationships 4. Emphasis on growing income and underlying profits to cover the dividend 2. Divestment of low yielding assets: 5. Exploit enlarged group synergies, both – Wholly-owned residential investments – City offices value creation and costs Our approach to creating value Occupier-led strategy + Income + Asset management Short-cycle development = Desirable real estate Occupier contentment Shareholder value Income growth Capital growth 09 Annual report and accounts 2013 LondonMetric Property PlcChief Executive’s review Andrew Jones Chief Executive The merger has led to transformational change both in respect of the newly integrated LondonMetric and in reshaping the portfolio to meet our new strategic priorities. Bringing together capital and complementary skill sets One of the key objectives of the merger was to capitalise on the combined skill sets across both organisations to allow LondonMetric to execute on opportunities that neither predecessor could have achieved on its own. Retail and retailer distribution… a multi-channel approach to asset allocation Shortly after completing the merger we acquired a portfolio of six retail parks, the “Saturn” portfolio, for £92.4 million, at a net initial yield of 7.8%. We are expanding our presence in the retailer-led distribution market where we believe there are considerable opportunities for growth as retailers look to satisfy consumers’ insatiable demand for multi-channel shopping. We acquired Primark’s main distribution centre in Thrapston for £60.5 million in March, at a net initial yield of 6.4% and expect to make further investments in this sector over the next few months. 10 We are more focused yet remain opportunistic, operating in areas where we have a high level of expertise, that help create key points of difference Significant capital recycling and reducing our exposure to lower yielding, shorter lease length income We have a divestment programme across selected assets which allows us to release relatively low yielding capital and recycle the proceeds into higher yielding, stronger covenant assets where we have an exciting pipeline of retail and retailer- led distribution opportunities. This is evidenced by the spread between our disposals and acquisitions where we have generated a positive yield spread of 150bps, improved the portfolio’s average lease length by 6.1 years and occupancy by 7 percentage points. Across our residential portfolio, terms have been agreed for the sale of 116 units for £59.6 million, releasing c. £48 million of equity. We have recently begun formal marketing of One Fleet Place, EC4 at an asking yield of 5.25% and are pleased by the strong interest from overseas buyers. Positive momentum on residential lettings and unit sales Our prime central London residential portfolio comprises 520 units with a capital value of £374 million (LondonMetric share: £259 million) and generates net rents of £4.9 million. Seward Street (rebranded the Clerkenwell Quarter), our 107 unit development in Islington, was acquired in December 2012 for £45.7 million. We have recently launched a successful marketing programme in both Asia and London and to date have agreed 57 sales for £32.1 million at a premium over book value of 2.7%. We remain on target to release over £60 million of equity from this investment over the next six months. OverviewLondonMetric Property Plc Annual report and accounts 2013Deals since merger £171m(1) Like-for-like rental growth +3.5% Our residential investment portfolio is 98% let having agreed 141 new lettings for £3 million, at rents 1.1% ahead of previous passing and concluding 147 lease renewals, 4.3% ahead of previous passing rents securing £2.8 million. We have commenced a divestment programme of individual unit sales within this wholly-owned residential portfolio and expect to have largely monetised this investment over the next year. To date we have agreed 59 sales generating £27.5 million. In July 2012 we acquired Moore House, Chelsea for £147.1 million (LondonMetric share: £58.9 million) on behalf of our joint venture with Green Park Investments and the Public Sector Pension Investment Board. We continue our letting programme and have let 81 units over the period, increasing occupancy to 54%. Valuation surplus +1.7% or £20.3 million The portfolio was valued at £1,217 million delivering a valuation surplus (net of acquisition costs) for the year of £20.3 million, up from the £3.0 million surplus delivered last year. Asset management actions made a considerable valuation contribution of +2.0% which was partly offset by an outward movement in market yields of 6bps, or –0.3%. By sector, the largest contributor to the valuation movement was residential, in particular Moore House. Total return of 8.0% = 500bps outperformance We outperformed the IPD All Property Quarterly Index by 500bps, delivering a property level total return of 8.0% compared with IPD at 3.0%. We generated a capital return of 2.4% against the IPD index which witnessed capital declines of 2.8% overall. On a total return basis we are pleased to have outperformed at each sector level, with retail generating the largest outperformance of 500bps followed by residential at 490bps. Robust portfolio metrics Our occupancy at the end of the period was 95% (2) rising to 98% post period end. The average unexpired lease term is 11.6 years (10.8 years to first break). There are no temporary lettings and 19% of portfolio income benefits from fixed rental uplifts. Like-for-like rental growth of 3.5% (2) We are a total return business and, as a REIT, income forms an important component. In a year of tremendous activity we have continued to focus on income growth and delivered like-for-like rental growth of 3.5%. The retail portfolio delivered like-for-like rental growth of 5.7% with the office and industrial portfolio delivering 1.7% and the residential portfolio 2.6%. (1) London Metric share £166 million (2) For the commercial investment portfolio excluding properties under development (3) Includes a deduction of £1.5 million for residential running costs Our contracted rent roll as at 31 March 2013 was £62.5 million (3) with the investment portfolio contributing £55.5 million in annualised rents and the development and residential portfolio the remaining £7 million. Net rental income for the year is £29.2 million, which includes two months of Metric’s contribution. Proforma net income for the full year is £39.4 million when combining both businesses for the full 12 months. Looking forward our financial position next year will reflect the full-year’s contribution for acquisitions in the last two months of this year. EPRA EPS of 3.9p includes two months of Metric’s contribution and is down 11.4% year-on-year. Stable dividend of 7.0p We have announced a final dividend of 3.5p per share to be paid on 12 July 2013, bringing total dividends for the year to 7.0p, flat over the previous year. The Board have agreed to pursue a stable dividend policy which will be reviewed once the dividend is sufficiently covered. Path to achieving dividend cover We aim to achieve an attractive spread between the lower yields on disposal and higher reinvestment yields to grow income. We will also generate additional income from new lettings and the letting up of our developments. We expect each to contribute meaningfully to our cumulative income to ensure that our recurring profits cover the dividend. £100 million tender offer taken up The share capital has changed substantially as a result of the merger, adding 178.6 million shares to the register on 28 January, representing the 190 million Metric shares at the agreed exchange ratio of 0.94. As part of the merger in February, we offered shareholders a £100 million tender offer which was taken up in full and reduced the register by 88.6 million shares, resulting in a position at the year end of 628.0 million shares. The full take-up of the tender offer allowed us to right-size our balance sheet and start LondonMetric in a more financially efficient position. EPRA NAV of 109p, NAV adjusted for exceptional items of 116p ERPA NAV per share of 109p is 10p or –8.4% lower than last year’s 119p. The EPRA NAV is reduced by dividends paid, the merger costs and exceptional items of which the impairment recognised on the sale of Meadowhall Shopping Centre was the largest. 11 Annual report and accounts 2013 LondonMetric Property PlcChief Executive’s review continued Tender offer £100m Annualised rent roll £62.5m Excluding the exceptional items, the NAV would have been 116p compared to the previous year’s NAV per share. The EPRA NAV movement is driven by positive movements in valuation surplus of 3.7p, underlying profits of 3.8p offset by dividends paid of –7.0p, the impairment recognised on the sale of Meadowhall Shopping Centre of –4.1p and other exceptional items of –4.7p and other items of –0.9p. LTV of 43% with undrawn facilities of £54 million As at 31 March 2013, the LTV ratio was 43% with committed undrawn facilities of £53.6 million. Our average cost of debt over the year was 3.62%. Going forward, assuming the facilities were fully drawn, our all-in cost of debt today based on current LIBOR swap rates would be 3.58%. Market outlook Over the last few months we have seen a noticeable increase in both the number of parties and quantum of money looking across all sectors of the real estate market. Rising investor appetite The outward yield shift that we witnessed in the first half of our financial year was not repeated in the second half and the depth and breadth of investor interest today is now beginning to put downward pressure on yields across the various sectors. This is partly owing to an increased appetite for risk across most sectors with more investors moving up the risk curve in search of higher income returns. As a result, the divergence between prime and good secondary assets is widely expected to contract, although conversely the yield gap to poorer secondary assets will continue to widen. We continue to believe that assets with long and strong income offer good value relative to the low cost of borrowing; especially where there is high occupier contentment, limited asset obsolescence, sustainable rental levels and no income “leakage”. These disciplines continue to drive our approach to new opportunities, as we focus our capital on higher yielding, sustainable income opportunities and new short-cycle redevelopments which offer us a margin of safety. This will ensure that we will only invest in assets that we are happy to own, even if the market were to shut down for many years. Retailers are reassessing the extent of their store portfolios and distribution warehouse requirements Retailers’ real estate portfolios are coming under ever increasing focus as the retail market continues to evolve with polarisation of shopping habits and a drive towards a multi- channel strategy. The impact is not only on retailers’ shop networks but also significantly affects their distribution requirements which will play an increasing role within their supply chains. This evolution will continue over the next few years as many occupational leases expire, allowing retailers to reduce the number of existing shops. We expect retail vacancies to increase putting downward pressure on rental values, particularly in-town, as impending lease expiries allow retailers to vacate poorly performing shop units. A number of the weaker retailers have already failed, so we anticipate the rate of failures will start to decline and the retailers who have survived will continue to benefit from the reduced capacity and grow their market share. We believe that lease expiries rather than administrations are now the chief risk to rental income. Retailers have a clear vision of the right size and shape of their store portfolios, however, distribution strategies are continuing to evolve. These will be increasingly driven by the needs of e-tailing as retailers reconfigure supply chains to cater for multi-channel retailing. Understanding these occupier trends is critical to succeeding in the real estate sector today. The dynamic nature of the retail market is such that increased occupier mobility will undoubtedly create opportunities for those able to build and deliver modern space that is fit for purpose in today’s market. We continue to try to position ourselves as the preferred real estate provider of choice and will continue to stay close to our customers across these asset classes. Andrew Jones Chief Executive 31 May 2013 12 OverviewLondonMetric Property Plc Annual report and accounts 2013We are a customer- focused business and aim to be the partner of choice across the retail and distribution sector. We have a bottom up approach to selecting our investments. We build first-class relationships and leverage this knowledge to ensure our properties have enduring occupier appeal. Annual report and accounts 2013 LondonMetric Property Plc 1313 Annual report and accounts 2013 LondonMetric Property PlcWhat makes us different Capitalising on strong retail relationships Our deep long-standing relationship with Next, not previously represented in Bishop Auckland, allowed us to partner with them at our development scheme Bishop Auckland Shopping Park and secure a corner-stone pre-letting and assist us in securing an Open A1 retail planning consent. 14 Developed by Metric Property Opened for trade January 2013 Bishop Auckland Shopping Park Location: Bishop Auckland LondonMetric Property Plc Annual report and accounts 2013Overview15 Annual report and accounts 2013 LondonMetric Property PlcCongleton Retail Park Congleton Dunelm Unit Alban Park St Albans French Connection Distribution Unit Dolphin Park, Thurrock Kuehne & Nagel Distribution Unit Greenford High Street Berkhamsted Dunstable Retail Park Luton Next Distribution Unit Eastman Way, Hemel Hempstead Alban Retail Park Bedford 16 LondonMetric Property Plc Annual report and accounts 2013Overview Our core strengths Rebalance towards retail and retailer distribution Our portfolio is broadly split between distribution, office and residential with retail making up an increasingly larger proportion and developments generally comprising about 10% of the mix. We aim a rebalance with an increased focus on retail and retailer distribution, whilst remaining opportunistic. A disciplined approach of focusing on assets that are well let with high occupier contentment Portfolio value: £1,217 million We are extending our breadth of experience and deep occupier relationships into retailer-led distribution, which is benefiting from strong occupier interest as retailers’ multi-channel strategies continue to evolve. 17 Annual report and accounts 2013 LondonMetric Property PlcOur core strengths Crystallising our residential investments We have commenced a divestment programme of our wholly-owned residential investments, in London comprising our income-producing portfolio at Battersea, Stockwell and Highbury and recent acquisition at Clerkenwell Quarter, Islington. We expect to monetise our holdings over the next year. 18 Buying wholesale and selling retail Wholly-owned London residential portfolio value £182 million We have agreed the sale of 116 units for £59.6 million LondonMetric Property Plc Annual report and accounts 2013OverviewBridges Wharf Battersea Clerkenwell Quarter Islington Clapham Road Stockwell North Stand at Highbury Islington 19 Annual report and accounts 2013 LondonMetric Property PlcBefore... and after... 20 LondonMetric Property Plc Annual report and accounts 2013Overview Our core strengths Creating occupier appeal Longwell Green, Bristol was acquired within our MIPP joint venture and provided an exciting partnership opportunity with the existing tenant, Carpetright, to refurbish and extend its unit and create a new DFS store. We agreed new 15 and 20-year leases, respectively. The new design facilitated the construction of two pod units let to Costa and Subway, which in turn has increased footfall. Partnering with our customers means we can enter a deal that is profitable to both parties and maximises the value of the scheme Developed by Metric Property Opened for trade March 2013 Longwell Green Retail Park Location: Bristol 21 Annual report and accounts 2013 LondonMetric Property PlcNine assets acquired since completion of the merger To date we have made 20 acquisitions (19 during the period) across the retail, distribution, residential and office sectors for £532 million (LondonMetric share: £408 million) at average yields of 7.4%. We were also actively recycling capital divesting 18 assets which generated total sales proceeds of £1,028 million (LondonMetric share: £489 million) at average disposal yields of 5.9%. The table summarises our activity over the year, including post-period end transactions. We have consciously worked towards improving the portfolio metrics by divesting across selected assets that allow us to release relatively low yielding capital and recycle the proceeds into higher yielding, stronger covenant schemes. The 150bps positive yield spread between our disposals and acquisitions, improved lease length of 6.1 years and improved occupancy spread of 7 percentage points are all evidence that we are creating a stronger platform to grow income. Since the merger we have spent £170.6 million (LondonMetric share: £165.7 million) acquiring nine properties in the retail and retailer distribution sectors at average yields of 7.2% with unexpired lease terms of 13.9 years and occupancy of 98%. Shortly after completing the merger we acquired a portfolio of six retail parks, the Saturn portfolio, for £92.4 million, at a net initial yield of 7.8%. Five of the parks are fully occupied with Luton at 89% occupancy. The purchase offers secure, well-let income with additional asset management opportunities and the ability to add value. Investment Valentine Beresford Investment Director Reshaping the portfolio and monetising selected assets will generate a strong platform to grow the portfolio and its income potential 22 Performance reviewLondonMetric Property Plc Annual report and accounts 2013Average acquisition yield Average disposal yield 7.4% 5.9% Investment activity Acquisitions Ipswich – post year end Thrapston Saturn portfolio Clerkenwell Quarter Marlow International MIPP JV Leatherhead Retail parks Moore House Subtotal Disposals Meadowhall Shopping Centre Triangle portfolio Subtotal Saturn portfolio 1. 2. 3. 4. 5. 6. Christchurch Leicester Luton Milton Keynes Southampton Tonbridge Sector Retail Distribution Retail No. of assets 1 1 6 Date May 2013 Mar 2013 Feb 2013 Residential 107 units Dec 2012 Office Retail Office Retail 1 6 1 2 Residential 149 units Sector Retail Distribution 20 No. of assets 1 17 18 Jul 2012 Various Jun 2012 Various Jul 2012 Date Oct 2012 Apr 2012 Cost £m 10.4 60.5 92.4 45.7 50.2 54.5 61.2 10.3 147.1 532.3 Proceeds £m 762.5 (1) 265.0 1,027.5 NIY 7.1% 7.2% 8.5% 8.4% 9.4% 7.3% Occupancy 100% 100% 89% 100% 100% 100% WAULT years 7.9 14.4 9.2 9.4 8.8 10.1 Area 101,700 sq ft 77,300 sq ft 47,100 sq ft 57,400 sq ft 52,300 sq ft 57,400 sq ft 6 1 Cost: £92.4m 2 5 4 3 (1) Represents 50% of the gross sales proceeds of £1.525 billion; LondonMetric 15.7% Share £239.4 million NIY % 6.5 6.4 7.8 – 8.9 7.1 6.9 7.4 – 7.4 NIY % 5.1 6.6 5.9 23 Annual report and accounts 2013 LondonMetric Property PlcInvestment continued Extending our occupier relationships The occupier is at the centre of our business model impacting every investment decision we make. As such, we are extending our breadth of experience and deep occupier relationships into retailer-led distribution, which is benefiting from strong occupier interest as retailers’ multi-channel strategies continue to evolve. Our investment activity since completion of the merger illustrates our desire to grow both the retail and retailer- led distribution segments of the portfolio, where we have an attractive pipeline of opportunities. We are primarily targeting retailer-led distribution where we have a competitive advantage as a result of our strong retailer relationships. Our acquisition of the Primark Distribution Centre, Thrapston, which we accquired for £60.5 million at a net initial yield of 6.4%, illustrates the attractive lease terms afforded by retailers. The lease term is just under 20 years with annual fixed uplifts of 1.5% and upward only open market rent reviews every five years. We have recently begun formal marketing of One Fleet Place, EC4 and are pleased by the strong interest from overseas buyers. The property comprises 170,000 sq ft and is primarily let to the law firm SNR Denton LLP with 12.3 years unexpired. We acquired the asset in January 2009 for £74 million and are marketing at a disposal yield of 5.25% reflecting a price of £109.3 million. The investment market appears to be receptive to this prime offering and we aim to conclude the sale in the summer. Positive momentum on residential unit sales Our prime Central London residential portfolio comprises 520 units with a capital value of £374 million (LondonMetric share: £259 million) and generates net rents of £6.3 million (LondonMetric share: £4.9 million). We have commenced a divestment programme with terms agreed for the sale of 116 units for £59.6 million, at 1% over book values. We expect to monetise our residential investments over the next year. 24 Residential portfolio 1. Moore House, 149 units 30% 2. Clerkenwell Quarter, 23% 107 units 3. Bridges Wharf, 56 units 4. Clapham Road, 74 units 12% 11% 5 Value: 4 £259m(1) 1 5. Highbury Stadium 24% 3 Square, 134 units 2 (1) LondonMetric net share Our residential investment portfolio comprising Bridges Wharf, Battersea, Highbury Stadium Square, Islington and Clapham Road, Stockwell is 98% let having agreed 141 new lettings for £3 million, at rents 1.1% ahead of previous passing and concluding 147 lease renewals, 4.3% ahead of previous passing rents securing £2.8 million. We commenced a programme of individual unit sales in February 2013 and to date have agreed 59 sales generating £27.5 million. In July 2012 we acquired Moore House, Chelsea for £147.1 million (LondonMetric’s 40% share: £58.9 million) on behalf of the joint venture with Green Park Investments and Public Sector Pension Investment Board. We continue our letting programme and have let 81 units over the period, increasing occupancy to 54%. In December 2012 we acquired the Clerkenwell Quarter development in Islington for £45.7 million. We launched a successful marketing programme in April in both Asia and London and to date have agreed 57 sales for £32.1 million at a premium over book value of 2.6%. We remain on target to release over £60 million of equity from this investment over the next six months. Deep pipeline of opportunities Our acquisitions have predominantly been off market and we continue to find this a good source of product, particularly for retailer partnering deals in both the retail and distribution sectors. We are seeing a strong pipeline of opportunities primarily from institutions and bank “motivated” vendors. We have a good pipeline of product for both our wholly owned and joint venture portfolios and are in a position to quickly reinvest the proceeds from the residential sales. We are already undertaking due diligence on a pipeline of c. £100 million at average yields in excess of 7%. Performance reviewLondonMetric Property Plc Annual report and accounts 2013Asset management and development Mark Stirling Asset Director The commercial investment portfolio generates a rent roll of £55.5 million, has a capital value of £834.7 million and benefits from unexpired lease terms of 11.6 years (10.8 years to first break) and occupancy of 95%. A significant level of activity has been generated across all asset management fronts, having completed 14 new lettings across 526,000 sq ft securing £1.7 million, 4.8% ahead of anticipated levels. We concluded new lettings on average lease terms of 11.8 years (10 years to first break). We have also completed 12 rent reviews and re-gears over the same time period across 236,300 sq ft securing £2.7 million, 7.5% ahead of previous passing rents. Post-period end an additional seven deals were contracted across 670,000 sq ft securing £3.9 million of rental income on average lease lengths of 10.0 years (7.8 years to first break). At Carter Lane we have agreed pre-lets on 58% of the building by income. Encouragingly, all rents agreed to date have been at levels in excess of £60 psf. Valuation uplift of £20.3 million The portfolio was valued at £1,217 million at 31 March 2013, reflecting a valuation uplift of 1.7% over the 12 month period. Our weighted capital return for the period was 2.4% which compares to –2.8% for the IPD All Property Quarterly Index. Asset management actions made a considerable valuation contribution of +2.0% which was only partly offset by an outward movement in market yields of 6bps, or –0.3%. Asset management actions include occupier transactions (new lettings, re-gears and lease renewals), development of new space and improving the quality of the lease, by extending the lease length, enhancing the terms of the lease or improving the lease covenant. Asset management yield shift, or improving the quality of the lease, generated 15bps of inward yield shift. By sector, the largest contributor to the valuation movement was residential, in particular Moore House. The largest valuation declines came from our legacy portfolio, primarily of land, and our distribution joint venture. 25 Creating desirable real estate is fundamental to our business model and drives our leasing, planning and development strategies Occupancy – Investment portfolio (%) 95 99 100 98 86 Investment portfolio Retail Office Distibution Residential Annual report and accounts 2013 LondonMetric Property PlcAsset management and development continued Retail Distribution No. of assets: 32 Occupancy: 99% No. of assets: 15 Occupancy: 86% Capital value: £409.6m (LondonMetric share: £348.4m) WAULT: 11.1 years (10.3 years to first break) Capital value: £362.6m (LondonMetric share: £243.8m) WAULT: 12.9 years (12.8 years to first break) The distribution portfolio comprises 15 warehouses with a retail focus, 11 of which are owned in joint venture with Green Park Investments. Tenants include Tesco (Harlow), Hillary’s Blinds (Nottingham), Primark (Thrapston) and Co-op (Wellingborough). We expect to execute on an attractive pipeline of opportunities to grow this sector over the near term. The portfolio continues to perform well with an intense level of activity. There are a number of future opportunities on the existing portfolio and the newly added six retail warehouses acquired towards the end of the financial year in the Saturn portfolio. • 23 occupier transactions (12 lettings and 11 rent reviews) securing £3.4 million of rental income, at terms 8.3% ahead of existing rental levels on average WAULT of 13.7 years (11.2 years to first break) • Additional three lettings currently in solicitors’ hands securing a further £0.6 million of rental income • 11 rent reviews agreed at terms 9.1% ahead of previous passing • 26% of income subject to fixed uplift • Like-for-like rental income growth of 5.7% • Planning gains of 161,500 sq ft with a further 205,000 sq ft of retail planning consents submitted Valuation contributors Offices Contributors Occupational deals New space Asset management yield shift Market yield shift Valuation surplus Valuation change £m % contribution to valuation uplift 10.7 4.2 9.4 –4.0 20.3 52.6 20.7 46.3 –19.6 100.0 No. of assets: 4 Occupancy: 100% Capital value: £242.4m WAULT: 11.1 years (9.9 years to first break) • At One Fleet Place, EC4 we are targeting a yield on disposal of 5.25% and have received early positive interest from mainly overseas buyers. • At Leatherhead, Unilever have received a planning consent for a decked car park providing an additional 136 car parking spaces. We have now agreed to contribute to developing the car park in exchange for a re-geared lease and a rental increase. This initiative delivers a return on marginal capex of almost 15%. 26 Performance reviewLondonMetric Property Plc Annual report and accounts 2013 Total return outperformance against IPD (1) Valuation surplus £20.3m 500 bps (1) IPD All Property Quarterly Universe Residential No. of assets: 5 Occupancy: 82% No. of assets: 5 Developments Level of pre-lets on retail assets under development: 78% Capital value: £374m (LondonMetric share: £258.8m) Number of units: 520 Capital value: £112.2m Occupancy across the residential investment portfolio (Highbury, Clapham Road and Battersea) remains robust at 98% and reflects a period of intense activity. • At Clerkenwell Quarter, post-period end we have launched The development portfolio comprises of five schemes (Berkhamsted, Bristol – Channons Hill, Bishop Auckland Phases II and III, Leeds and One Carter Lane, EC3). Achievements over the period include: the sales of individual units both in London and Asia. We have now agreed sales on 57 units for £32.1 million at 2.6% over book value • Completed developments at Sheffield, Bristol (Longwell Green), Bishop Auckland Phase I and Cannock, delivering a return on capital expenditure of 16% • Sales agreed for £27.5 million on 59 units, in line with book • Onsite retail development portfolio (comprising Berkhamsted value and Bristol) is now 78% pre-let securing £1.0 million of rent • Concluded 147 lease renewals securing £2.8 million of rental • Invested £14.5 million across seven retail assets in income at 4.3% ahead of previous passing rents • Agreed 141 new lettings, securing rental income of £3.0 million, 1.1% ahead of previous passing rents Moore House, held in a joint venture, represents an opportunistic hold as we believe further capital appreciation is to come owing to its prime location and proximity to the Chelsea Barracks, where we expect a future luxury residential development to be valued significantly higher. We have let 81 of the available flats bringing occupancy to 54% and generating a net rent of £2.4 million (LondonMetric share: £1.0 million). development and asset management capital expenditure delivering a return of 15.7% • At One Carter Lane, EC3 the building remains vacant and is undergoing a substantial refurbishment and leasing exercise. 58% of the space has now been agreed at rents in excess of £60 psf and on average lease lengths of 15 years • Planned capital expenditure pipeline of £36.8 million across four assets (Berkhamsted, Bristol – Channon Hill, Leatherhead and One Carter Lane) • Conditional capital expenditure pipeline across three schemes (Bishop Auckland Phases II and III, Leeds and St Austell) for £57.2 million • Planning gains achieved over 161,500 sq ft with a further 205,000 sq ft of planning applications submitted 27 Annual report and accounts 2013 LondonMetric Property PlcAsset management and development continued Legacy Lease expiry profile (% of contracted rental income) 1. 2. 3. 4. 0–5 years 5–10 years 10–15 years 15 years + 4 31 52 13 4 1 3 2 Tenant exposure (% of contracted rental income) Tenant SNR Denton Unilever UK Primark B&Q DSG Allergan Somerfield DFS Next Dun & Bradstreet Total top ten tenants Other Total income Rent £m 5.9 4.4 3.9 3.8 3.2 2.4 1.8 1.8 1.7 1.6 30.4 32.1 62.5 % 9.4 7.1 6.2 6.0 5.1 3.8 2.9 2.8 2.7 2.5 48.5 51.5 100.0 No. of assets: 5 Income producing: 2 Capital value: £10.95m Plots of land: 3 The legacy portfolio comprises of a retail park in Newcastle, a distribution warehouse in Stoke on Trent and parcels of land in Gillingham, Nottingham and Yeovil. We will look to monetise the value of this portfolio over the near term. • Post-year-end we have conditionally exchanged to sell Gillingham for £3.4 million, reflecting March 2013 book value • At Newcastle, we let the former Cannons Fitness unit (previously vacant for four years) on a new 15 year lease to xercise4less, at a rental of £175,000 per annum • At Stoke on Trent we have let the former Michelin Factory to WRS Ltd on a two year lease at a rental of £297,000 to generate income whilst we pursue planning Diverse tenant mix and robust portfolio metrics The merger has dramatically improved the level of tenant diversity across the portfolio; with our top ten tenants accounting for only 49% of total contracted rent and 19% of rental income is subject to fixed rental uplifts. Our lease expiry profile is well staggered with only 4% of rental income due to expire over the next five years. Sector exposure (% of contracted rental income) 1. Professional Services 19 2. DIY 3. Residential 4. 3PL 5. Government 6. General Merchandise 7. 8. Furniture Food 9. Consumer Goods 10. Electrical 11. Other Retailers 9 8 5 2 15 12 11 9 6 4 11 10 9 Retail tenants 57 6 8 7 1 3 2 4 5 28 Performance reviewLondonMetric Property Plc Annual report and accounts 2013 Sustainability report Andrew Jones Chief Executive Bringing together London & Stamford and Metric Property has given us the opportunity to rebase our environmental and social policies and draw out best practices from both organisations We are committed to establishing best practice targets and improving our performance measurements, including setting out sustainability KPIs. We will aim to implement clear and transparent targets for the benefit and accountability to all our stakeholders – our investors, customers, employees, suppliers and communities we operate in. Committed to sustainable business practices as key elements of our operations and performance measurements The formation of LondonMetric brings together a range of property types, challenges and opportunities from an environmental and sustainability perspective. As part of our commitment to improving our processes and enhancing the reporting for the Group, WSP Environmental were appointed to undertake an environmental appraisal. Business case for sustainability There are strong alignments between sustainable business practices and our aim to deliver attractive returns to our shareholders. Committing to responsible business practices, both socially and which respect the environments of the communities we operate in, allows us to work in partnership with all stakeholders. Aligning our principles to those of our occupiers, employees, partners and local communities enhance the occupier appeal of our properties, and in turn our economic success, by contributing to both the income and capital growth returns across our portfolio and creating sustainable shareholder value. Addressing the key issues Key issues include health and safety; a commitment to people – be it our occupiers, employees, partners or the communities we serve; land contamination and climate change. 29 Annual report and accounts 2013 LondonMetric Property PlcSustainability report continued Health and safety We recognise the importance of health and safety and look to promote a level of awareness allowing health and safety matters to be addressed through all our business activities, from design and construction, ongoing management of our properties and at our head office. Our partners Our joint venture partners have strong sustainability credentials. Both Universities Superannuation Scheme (USS) and Public Sector Pension (PSP) Investments are members and signatories in various leading institutional organisations focused on sustainability and good governance. Our occupiers Our occupier-led approach is at the centre of our strategy and meeting their needs so that they choose to lease, stay and recommend us to others is paramount. This places us in a stronger position to improve the rental values across our portfolio and improve occupancy levels, all maximising rental income and improving property values. We continue to be committed to addressing issues identified by our occupiers. Our staff Employing staff who are engaged, motivated and add value across the business underpins our success. We employ the best candidates available in every position, regardless of gender, ethnic group or background. Training is provided to all employees to help them develop their skills and reach their potential. Strong supplier relationships are paramount to our ability to deliver our business model as we have a small corporate head office and outsource a significant portion of our property management. We manage our relationships with our suppliers in a fair, consistent and transparent manner. We manage our property portfolio through managing agents. This is both cost-efficient and effective, enabling us to adapt the level of management provided, as appropriate, to respond quickly to the purchase and sale of properties. We work closely with our managing agents to deliver consistently high performance. Our portfolio is managed by Savills Advisory Services Limited, Osborne King CBRE Limited and Montagu Evans. Our communities We have sponsored the Kirkstall Festival at our development in Leeds and the Mayor of Milford Haven Christmas charity fund in support of the community around our investment at Havens Head Retail Park in Milford Haven. Our charitable donations include the Wheelpower Charity, Animal Lifeline and the Jewish Care Business breakfast. Land contamination Environmental audits are carried out prior to the acquisition of new properties to identify any potential contamination and if present, agree any measures required to control or reduce. 30 Performance reviewLondonMetric Property Plc Annual report and accounts 2013Addressing climate change We believe a significant impact can be made to address climate change by working towards improving the energy efficiency of existing buildings as the annual replacement rates across the UK are very low. We have made the improvement of existing building energy efficiency and sustainability alongside the short-term redevelopment of brownfield sites a priority in our portfolio. Better use of existing building stock rather than replacement provides greater reduction in construction waste and use of natural resources and we aim to engage down this route where possible. Integrating sustainable decision-making into our redevelopment programme Sustainable decision-making is core to the regeneration and refurbishment of existing building stock whereby we identify outmoded and well located older properties and refurbish where appropriate or redevelop brownfield sites, see case study on Bishop Auckland Shopping Park on pages 32 and 33. We have adopted industry-recognised assessment methods (such as BREEAM) to evaluate and promote environmental awareness across our delivery teams, occupiers and end users where appropriate. We will continue to work closely with all our stakeholders to take a proactive approach and promote environmental awareness on an ongoing basis, including waste and recycling initiatives and encouraging and promoting the use of public transport. Meeting our commitment for enhanced disclosure We are already engaged in undertaking an environmental audit across the former London & Stamford and Metric portfolios to harmonise the environmental reporting procedures in order to comply with all relevant local, national and international legislation and regulation and where possible seek to implement environmental best practices and achieve enhanced environmental reporting. Whilst it is early days and we recognise it will take time to achieve our ambitions, we aim to establish systems for real time data collection for reporting and benchmarking the entire portfolio. We will evaluate the use of an “energy use dashboard” split into sub-sectors to properly understand and be able to report on the Group’s position. We are committed to completing the annual Global Real Estate Sustainability Benchmark (GRESB) Survey and intend to identify a corporate environmental policy and set benchmarking and performance targets once we have completed our audit and harmonised portfolio reporting. Andrew Jones, Chief Executive, is the Board Director responsible for sustainability. The Board reviews the sustainability policy annually as part of its continuing corporate governance procedures. 31 Annual report and accounts 2013 LondonMetric Property PlcSustainability report continued Environmental and social successes Case study: Bishop Auckland Phase I Before... and after... 32 Performance reviewLondonMetric Property Plc Annual report and accounts 2013Environmental and social successes Case study: Bishop Auckland Phase I Highlights • BREEAM Very Good rating • Requirement for a minimum 10% reduction in carbon (CO2) emissions or provide onsite renewable energy sources to a minimum 10% of the total energy demand from the development – 14% reduction in CO2 emissions achieved from low or zero carbon (LZC) energy technology – 5% reduction in CO2 emissions achieved from installation of most up to date M&E systems • EPC rating of A exceeding rating of C for equivalent stock • 7,500 sq m of re-used existing building materials • Highly efficient external light fittings controlled by daylight sensors • All timber sourced from recognised sustainable suppliers • Inclusion of sustainable travel planning • Improved amenities for local residents • Added 120 local jobs Bishop Auckland Shopping Park is located to the south-west of Bishop Auckland town centre, County Durham. LondonMetric conditionally acquired the brownfield site in June 2011 which originally was a single, large retail warehouse built in the 1970s and formerly occupied by Focus DIY but stood vacant and became unsightly and a problem for the local community, having been vandalised numerous times. On successfully achieving a revised planning consent for Open A1 retail use in December 2011, LondonMetric acquired the site in March 2012 when construction commenced for a five-unit retail terrace of 49,225 sq ft and associated car parking for Phase I. Improving sustainability and social aspects were key considerations in the design and development of the property, which included: • Targets for energy, water and environmental materials, achieving a score of 57.11% against BREEAM Retail 2008 Issue 4.0 SD 5056, achieving a BREEAM rating of Very Good • All timber was from suppliers certified to Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) standards • The sub base (layer of aggregate material used for load bearing) for external hard landscaping was made up of at least 80% recycled materials generated from the existing buildings and hard landscaping which was crushed and re-used onsite • The use of highly efficient sensor-controlled light fittings reduces operation during daylight hours and significantly reduces both replacement and maintenance costs • Pulsed-output water meters were installed in all tenanted areas, common areas and service areas and connected to the Building Management System to encourage reductions in water consumption • Contractor signatory to Considerate Contractors Scheme complying with best practice in construction and site management including Waste & Resource Action Programme (WRAP) Good Practice • Tenants are obliged to comply with the requirements of Green Building User Guide through the terms of their lease, with the guide providing recommendations on how to minimise the environmental impacts of the building’s use and how the tenant should fit out its unit • The development is pedestrian and cycle friendly through the provision of amenities including cycle lanes, safe crossing points, direct routes and cycle storage has been provided for at least 10% of staff; the shopping park is in good proximity to public transport networks and local amenities • Wider economic benefits include the creation of 120 full-time equivalent jobs, increased economic expenditure and enhanced retail choice for the catchment area 33 Annual report and accounts 2013 LondonMetric Property PlcFinance report Martin McGann Finance Director The Group’s total adjusted profit before tax and exceptional items in 2013 was £39.9 million (2012: £19.5 million) representing a 105% increase in the year The results for the year ended 31 March 2013 reflect ten months of London & Stamford and two months of the enlarged Group. Income statement Net income Corporate costs Net finance costs Underlying profit Revaluation surplus Derivative movement Profit on sales Adjusted profit before tax Group £m 39.6 (11.0) (11.7) 16.9 8.4 (1.7) 1.1 24.7 Share of JV £m 14.4 (2.1) (7.9) 4.4 11.9 (1.1) – 15.2 2013 Total £m 54.0 (13.1) (19.6) 21.3 20.3 (2.8) 1.1 39.9 Group £m Share of JV £m 41.9(1) (9.5) (13.4) 19.0 3.2 (5.2) 1.1 18.1 19.2 (2.8) (11.1) 5.3 (0.2) (3.7) – 1.4 2012 Total £m 61.1 (12.3) (24.5) 24.3 3.0 (8.9) 1.1 19.5 (1) Excludes profit on sale of trading properties of £0.3 million 34 Performance reviewLondonMetric Property Plc Annual report and accounts 2013Adjusted profit before tax £39.9m Portfolio value £1,217m The Group’s total adjusted profit before tax and exceptional items in 2013 was £39.9 million (2012: £19.5 million), representing a 105% increase in the year. A key component of this increase was the valuation surplus of £20.3 million (2012: £3.0 million), which included £11.9 million (2012: deficit of £0.2 million) from our share of joint ventures and associates. Of most significance was the Group’s share of the uplift at Moore House, London of £13.9 million. In addition, the movement in the fair value of derivatives decreased by £6 million compared with the previous year as new borrowings were increasingly hedged by way of interest rate caps replacing expensive interest rate swaps. Underlying profit, being an important focus for management to support the Group’s dividend payment, was £21.3 million, a fall of £3.0 million or 12% compared to 2012. The underlying profit is identified as the sustainable net income after net finance costs and overheads. It excludes, in particular, the accounting impact of the internalisation of the management of London & Stamford in 2010, goodwill and costs associated with the merger with Metric, the impairment of Meadowhall and property and derivative valuations. Underlying profit has fallen primarily as a result of the sale of the Triangle portfolio of 17 distribution warehouses in April 2012 and associated loss of net income after interest of c. £13 million pa, which was replaced in July 2012 with c. £6.8 million of net income after interest following the acquisition of the office portfolio at Leatherhead and Marlow. Like-for-like rental income reported on a statutory basis increased by £1.76 million or 8% due to a full year of income at Carter Lane and Clapham Road. The acquisitions of the Saturn portfolio of six retail warehouses in February 2013 and the Primark Distribution Unit at Thrapston in March 2013 have added a further £11.4 million to the Group’s contracted rent roll, which at 31 March 2013 was £62.5 million. Dividend cover, expressed as a percentage of underlying profit, was 52% compared with 64% in the previous year. Management fee income has increased by £2.1 million or 33% to £8.5 million in 2013 with the establishment of the residential joint venture with Green Park and The Public Sector Pension Investment Board and following the sale of the Group’s interest in the Meadowhall Shopping Centre in October 2012 which generated performance fees. Corporate overheads have increased to £11 million from £9.5 million in the previous year, reflecting the two months of increased post-merger overhead. Careful consideration is given to the management of our interest exposure across the various debt arrangements we have. Currently our hedging arrangements are a combination of interest rate swaps, caps and fixed interest borrowings. In managing our interest rate risk, we take independent advice from J C Rathbone Associates, details of which are regularly discussed at Board meetings. Exceptional one-off costs in the year were £49.5 million (2012: £14.5 million) categorised as follows: Merger with Metric Internalisation of management in 2010 Impairment of Meadowhall Goodwill on other acquisitions Total exceptional items 2013 £m 11.9 14.4 23.2 – 49.5 2012 £m – 17.4 – (2.9) 14.5 The merger with Metric has resulted in £11.9 million of costs in the year that are not expected to recur and comprise goodwill written off of £6.3 million, as the fair value of the assets acquired was less than the fair value of the consideration paid, and professional fees of £5.7 million. The merger was implemented by way of a Scheme of Arrangement under Part 26 of the Companies Act 2006 whereby each Metric shareholder received 0.94 ordinary shares in the Company in exchange for every share held in Metric. The goodwill arising was fully impaired and charged to the profit and loss account in the year as it was due in large part to the £4.1 million of professional fees incurred by Metric and which did not form part of the pricing negotiations, which was based on a share exchange ratio and was subject to movements in the Company’s share price between the date of announcement of the merger to its effective date of 25 January 2013. The costs of the internalisation of management in 2010 reflect a share-based payment charge of £10.5 million and the amortisation of the Property Advisory Agreement acquired of £4.0 million. In October 2012 the Group disposed of its 15.7% investment in the Meadowhall Shopping Centre held in joint venture with Green Park Investments. The carrying value of the Group’s investment was impaired at the half year by £23.2 million as a result of a debt mark to market adjustment that was recognised on sale. The asset was sold at a gross price of £1,525 million (LondonMetric share: £239.4 million) which represented its market value at the half year and generated a return on equity of 129%. 35 Annual report and accounts 2013 LondonMetric Property PlcFinance report continued Balance sheet Investment property (1) Gross debt Cash Net gearing Cost of debt Undrawn facilities Group £m 990.6 464.6 37.6 43% 3.59% 37.0 Share of JV £m 226.1 108.5 8.3 44% 3.75% 16.7 2013 Total £m 1,216.7 573.1 45.9 43% 3.62% 53.7 Group £m 663.9 322.8 136.9 28% 4.12% 22.3 Share of JV £m 358.5 176.3 8.5 47% 4.63% – 2012 Total £m 1,022.4 499.1 145.4 35% 4.28% 22.3 The Group’s portfolio was valued at 31 March 2013 at £1,217 million including its share of joint ventures and associates and assets held for sale (2012: £1,022 million). This included a restatement to decrease the 2012 valuation of Clerkenwell Quarter by £2.7 million. The Group spent £575 million on acquisitions including the Metric portfolio of assets valued on acquisition at £255.5 million and reduced its holding in joint ventures by £132 million as a result of the disposal of its interest in Meadowhall offset in part by the acquisition of a 40% interest in apartments at Moore House, London. The net asset value per share at 31 March 2013 was 108p (2012: 116p). The movement in net assets in the year can be summarised as follows: Net asset value At 1 April 2012 Loss for the year Share issue on merger with Metric Tender offer share awards Clawback and share awards Dividends paid At 31 March 2013 £m 630.9 (13.5) 202.7 (100.7) (4.7) (38.0) 676.7 (1) Includes assets held for sale and trading property 36 Debt Our on balance sheet debt amounts to £464.5 million including £76.7 million acquired on merger. Net of cash of £37.6 million, the LTV is 43%. On a look-through basis, taking account of our joint venture banking arrangements, gross debt is £573.0 million and the LTV is 43%. We have been successful in raising new debt finance in the year as follows: • £61.8 million with Dekabank and Deutsche Postback AG in July 2012 to finance the acquisition of our offices at Leatherhead and Marlow. • £65 million (LondonMetric share £26 million) in August 2012 with the Royal Bank of Scotland to finance the acquisition of Moore House through our residential joint venture. • £130 million amendment of our revolving credit facility with Bank of Scotland of which £122.3 million was drawn to finance the acquisitions of the Saturn portfolio and the Primark Distribution Unit at Thrapston. The average interest rate payable by the Group was 3.59% (2012: 4.12%) and including its share of joint ventures was 3.62% (2012: 4.28%). The Group has hedged 80% (2012: 84%) of its exposure to interest rate fluctuations and has complied throughout the year with its loan covenants. Liquidity and cash management During the year we obtained third party advice on the management of our cash resources in terms of liquidity, returns and counterparty risk which is taken into consideration at each meeting of the Board. Deposits are placed with a diverse mix of institutions subject to credit rating, rates of return and overall exposure. The year-end cash position is £37.6 million. Following the planned disposals of our residential assets our ungeared firepower is expected to be c. £160 million. Performance reviewLondonMetric Property Plc Annual report and accounts 2013Risk management Board Overall responsibility for risk management and internal controls Audit Committee Reviews and evaluates risk register and internal financial controls. Reports findings to the Board Executive Committee and senior management team Prepares risk register and Internal Control Evaluation Questionnaire Risk management is an integral part of our financial, operational and governance activities. The Board acknowledges the importance of identifying and managing risks in reducing the likelihood of financial loss and in optimising shareholder returns. By close Executive Director involvement in all significant business decisions, this is effectively communicated throughout the management team. Whilst overall responsibility for identifying and managing risk rests with the Board, it has delegated responsibility to the Audit Committee for reviewing and monitoring the risk management and internal control framework designed, implemented and maintained by the Executive management team. A key part of this process is the Group’s risk register, prepared by the Executive Committee and the senior management team. This identified each category of risk faced by the business and assesses the severity of each risk, the likelihood of it occurring, the controls and strategy in place to mitigate it and the responsibility thereof. The register was updated in March 2013 and will be reviewed and updated on an annual basis. The principal risks and uncertainties facing the Group and the controls in place to mitigate them are set out overleaf. 37 Annual report and accounts 2013 LondonMetric Property PlcRisk management continued Strategic risks Risk and uncertainty Controls and mitigation The Group’s strategy is unclear or unrealistic given the economic climate and market within which it operates, leading to suboptimal returns for shareholders and poor investment decisions. Property markets, particularly Retail and Distribution, and economic conditions are outside the Board’s control. Operating only in the UK minimises exposure to financial uncertainty and instability in the Eurozone. Commission of research into the economic and occupation markets highlights modifications required to strategy to minimise risk. Financial forecasts are prepared and presented to the Board quarterly aligning current strategy and the achievement of shareholder returns. Close involvement of the Executive Directors in transactions and day to day management includes the regular review and update of financial forecasts in light of strategy changes. Transactional risks Risk and uncertainty Investment opportunities are missed and acquisitions underperform financial objectives. Controls and mitigation Extensive experience and network of connections of the Directors and Executive Committee provide a privileged insight into the property market and opportunities within, evidenced by the recent investment activity undertaken (Saturn portfolio and Primark distribution acquisitions) to deploy the Group’s cash. Acquisitions are thoroughly evaluated by undertaking a detailed financial, legal and operational appraisal process prior to Board approval. Property valuations are snapshots in time with no certainty that they will be realised given uncertain market conditions. The property portfolio performance is regularly reviewed and benchmarked on an individual basis and assets that have achieved target returns are identified for sale. Focus on secure income, let to high quality tenants, from well-located assets with increasing weighted average lease lengths reduces the risk of negative movements. Development projects fail to deliver expected returns due to increased costs, planning or construction delays or adverse letting conditions. 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. 38 Performance reviewLondonMetric Property Plc Annual report and accounts 2013Financial risks Risk and uncertainty Controls and mitigation Adverse interest rate movements can significantly increase interest charged on bank borrowings and reduce profitability. A high proportion of debt is hedged with fixed or capped interest rates through derivative products. At 31 March 2013 the Group had £370 million of hedges in place and its debt was 80% fixed. Inability to raise finance could prohibit the Group’s investment strategy or significantly increase borrowing costs. Failure to comply with financial loan covenants could result from a substantial decline in property values or a material loss of rental income or increased borrowing costs. The Group has undrawn bank loan facilities of £37 million at 31 March 2013 and significant equity investment commitment from joint venture partners. Cash flow requirements are reviewed by the Executive Board on a weekly basis and excellent relationships have been built with a diversified range of key lending banks. Loan covenants are actively monitored and are carefully considered and stress tested before entering into new arrangements. Compliance is considered as part of the Group’s financial forecasting to enable the detection of potential problems at an early stage and allow corrective action to be taken. The Group has a modest level of gearing and has complied comfortably during 2013 with its financial loan covenants. Operational risks Risk and uncertainty Tenant defaults and failure to let vacant units leads to a loss of recurring net income and dividend cover. A key risk to a small management team is the ability to attract, motivate and retain talented staff with the appropriate skillsets to execute the Company’s strategic plans. Executive succession planning is vital to ensure the long-term success of the business. Controls and mitigation Tenant covenant strength and concentration is assessed for all acquisitions and leasing transactions. The Group’s dedicated and experienced property management teamwork closely with tenants and consider appropriate action for slow payers. Rent collection is closely monitored and reported to the property management team to quickly identify slow payers. The merger with Metric Property Investments plc brought together two very experienced and complementary management teams. Succession planning was a key focus of the Nomination Committee and their recommendation for the composition of the new Board. The remuneration structure for all staff has been reviewed and is being aligned to the long-term key performance targets of the business by the introduction of new long-term share based incentive arrangements. The Executive Directors have a substantial equity investment in the Company. Annual staff appraisals are undertaken to identify training requirements and assess performance. 39 Annual report and accounts 2013 LondonMetric Property PlcBoard of Directors 1. 2. 3. 4. 5. 6. 1. Patrick Vaughan (1) Executive Chairman Patrick has been involved in the UK property market since 1970. He was a co-founder and CEO of Arlington, formed in 1976; of Pillar, formed in 1991; and of London & Stamford, formed in 2005, leading all three of the companies to successful flotations 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 The British Land Company plc between 2005 to 2006, following its acquisition of Pillar. 3. Martin McGann Finance Director 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. Martin is a qualified chartered accountant having trained and qualified with Deloitte. 2. Andrew Jones Chief Executive 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. 4. Mark Burton (2) Non-Executive Director Mark joined the board of London & Stamford in July 2010. He currently holds a range of real estate focused non-executive directorships and advisory roles following his retirement in June 2010 as the chief investment officer for real estate for the Abu Dhabi Investment Council. A chartered surveyor and banker during his career, Mark started working at London-based Cluttons in 1967 and has worked at a variety of leading institutions including the United Bank of Kuwait, AXA Investment Managers, and AIG Global Real Estate Investment (Europe). Mark is stepping down from the Board at the AGM. 40 5. Charles Cayzer (1,2,3) Senior Independent Director, Chairman of Nomination Committee 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. 6. James Dean Non-Executive Director, Chairman of the Remuneration Committee James was appointed to the board of London & Stamford in July 2010. He is a chartered surveyor and has worked for Savills plc since 1973, serving as a main Board Director from 1988 to 1999. He is Chairman of Pearlcrown Ltd, London & Lincoln Properties Ltd and Patrick Dean Ltd and also a Non- Executive Director of Branston Holdings Ltd. LondonMetric Property Plc Annual report and accounts 2013Governance7. 8. 7. Andrew Huntley Non-Executive Director Andrew joined the board of Metric as Chairman at the company’s inception in March 2010. He is a former Chairman of CBRE and a former Non-Executive Director of Pillar. He is currently a Non-Executive Director of Capital Shopping Centres plc and Capital & Counties plc, a Non-Executive Director of Miller Group, and a Non-Executive Director of AIM-listed Real Office Group plc. Andrew is one of the UK’s most experienced property advisers, serving as Chairman and as a Director on a variety of boards including New Sadlers Well Development and Beckwith Property Fund Management. Andrew is stepping down from the Board at the AGM. 8. Alec Pelmore (1,2) Non-Executive Director 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. 9. 11. 10. 9. Humphrey Price Non-Executive Director, Chairman of the Audit Committee Humphrey was Finance Director of Arlington from 1982 to 1992, he then became a Director of Pillar from its formation and Finance Director from 1993 to 2004, resigning from the board in 2005 upon its sale to The British Land Company plc. He was a Non-Executive Director of London & Stamford Property Limited from incorporation until April 2009 and was appointed to the Board of London & Stamford Property Plc in July 2010. He was appointed as a Non-Executive Director of Hansteen Holdings Plc in October 2010. He is a qualified chartered accountant. 10. Andrew Varley (2,3) Non-Executive Director Andrew joined the board of Metric at the company’s inception in March 2010. He is Group Property Director and an Executive Director of NEXT Plc, 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. 11. Philip Watson (1,3) Non-Executive Director Philip joined the board of Metric at the company’s inception in March 2010. He is group chief investment officer of Mirabaud Asset Management. Philip joined Hill Samuel in 1971 and then Robert Fleming in 1972, where he worked as an investment analyst and fund manager. He left Robert Fleming in 1982 to found TWH Management Limited, in which he and his partners sold a controlling interest to Mirabaud Pereire Holdings Limited in 1991. (1) Member of the Nomination Committee (2) Member of the Audit Committee (3) Member of the Remuneration Committee 41 Annual report and accounts 2013 LondonMetric Property PlcReport of the Directors The Directors present their report together with the audited financial statements for the year ended 31 March 2013. Principal activities and business review The principal activity of the Group continues to be property investment and development, both directly and through unit trusts and joint venture arrangements. A detailed review of the Group’s business during the year, position at year-end, future prospects, key performance indicators, sustainability and risk management is contained in the Overview and Performance Review sections of the Report and Accounts on pages 02 to 39 and should be read as part of this report. The purpose of the Annual Report is to provide information to the members of the Company. 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 losses for the year of £13.5 million (2012: profits of £2.7 million) as shown on page 57. An interim dividend for 2013 of 3.5p per share was paid on 7 December 2012 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 2013 (2012: 7.0p per share). The final dividend will be paid following approval at the Annual General Meeting on 10 July 2013 to ordinary shareholders on the register at the close of business on 14 June 2013. 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. Investment properties A valuation of the Group’s investment properties at 31 March 2013 was undertaken by CBRE Limited and Savills Advisory Services Limited on the basis of fair value which amounted to £928 million as reflected in note 10 to these accounts. Share capital On 31 March 2013 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. 42 There were no persons with significant direct or indirect holdings in the Company other than those listed as substantial shareholders below. There have been no changes to the issued share capital since the year-end. The London & Stamford Property Plc Employee Benefit Trust was terminated in the year following the merger with Metric Property Investments plc (“Metric”). A total of 178,716 shares were awarded to staff and the remaining 763,533 shares held by the Trust were sold. 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 2012 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 and a resolution will be proposed for its renewal. On 25 January 2013, the Company issued 178,599,912 new ordinary shares in exchange for the entire issued share capital of Metric pursuant to the merger of the two organisations. In addition, 4,777,268 ordinary shares were acquired by the Company from the former LSI Management LLP members (the former property advisor to the Group) and were subsequently cancelled. The Company acquired 88,573,910 ordinary shares on 18 February 2013 from shareholders following a tender offer as set out in a circular published on 31 January 2013. The tender offer was taken up in full at a price of 112.9p per ordinary share. Directors The present membership of the Board and biographical details of Directors are set out on pages 40 to 41. The interests of the Directors and their families in the shares of the Company are set out in the Remuneration report. The Company’s Articles of Association require each Director to retire from office and be subject to re-election at the first Annual General Meeting after appointment and thereafter at no more than three-yearly intervals. Accordingly, Andrew Jones, Andrew Varley, Alec Pelmore and Philip Watson retire by rotation and offer themselves for re-election at the forthcoming Annual General Meeting. Andrew Huntley has informed the Board that he does not intend to stand for re-election at the forthcoming AGM and Mark Burton has decided to retire. The Company has not followed the provisions of the UK Corporate Governance Code which requires all Directors to retire and offer themselves for re-election, as the Board believes this provision to be potentially LondonMetric Property Plc Annual report and accounts 2013Governancedetrimental to the effective and ongoing management of the Company. 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. Corporate governance statement A statement on Corporate governance is set out on pages 45 to 49. 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: Number of shares Caledonia Investments Plc Rothschild Wealth Management Rathbone Investment Management 33,497,094 31,834,086 28,399,043 Blackrock Investment Management Ltd 27,746,932 Electra Partners Europe Ltd 26,292,000 Cohen & Steers Capital Management Inc 25,253,471 Legal & General Investment Management Ltd APG Investments (NL) 20,068,741 19,956,454 % 5.33 5.07 4.52 4.42 4.19 4.02 3.20 3.18 Suppliers 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 2013 was 22 days (2012: 19 days). Provisions on change of control Under the Group’s credit facilities, the lending banks may require repayment of the outstanding amounts on any change of control. Essential contracts The Company has no contractual or other arrangements which are considered essential to the business. 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 pages 37 to 39. Post-balance sheet events On 14 May 2013 the Company completed the acquisition of Martlesham Heath Retail Park, Ipswich for £10.35 million. Charitable and political contributions During the year the Group made charitable donations of £40,900 (2012: £69,000). No political donations were made during the year (2012: £nil). Going concern 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. 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. Disclosure of information to auditors 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 ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. Auditors A resolution to reappoint BDO LLP as auditors of the Company will be proposed at the Annual General Meeting. Annual General Meeting The Annual General Meeting of the Company will be held at the Connaught, Carlos Place, Mayfair, London, W1K 2AL at 10 am on 10 July 2013. The Notice of Meeting on pages 86 to 93 sets out the proposed resolutions and voting details. On behalf of the Board Martin McGann Finance Director 31 May 2013 43 Annual report and accounts 2013 LondonMetric Property PlcStatement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have elected to prepare the 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 financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that period. In preparing these 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 they have been prepared in accordance with IFRSs as adopted by the European Union, 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; and • prepare a Directors’ report and Directors’ remuneration report which comply with the requirements of the Companies Act 2006. 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 and, as regards the Group financial statements, Article 4 of the IAS Regulation. 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. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Directors’ responsibilities pursuant to DTR4 The Directors confirm to the best of their knowledge: • the Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and • the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the Parent Company, together with a description or the principal risks and uncertainties that they face. Approved by the Board and signed on its behalf by Martin McGann Finance Director 31 May 2013 44 LondonMetric Property Plc Annual report and accounts 2013GovernanceCorporate governance The Board is committed to maintaining high standards of corporate governance which it considers underpins the delivery of its strategic objectives and the successful management of the business. The Board has considered the Company’s compliance with the main principles and provisions of the 2010 UK Corporate Governance Code and the revisions made in 2012 and has sought to put in place practices to enable full compliance. The Board considers that the Company has complied with the provisions of the UK Corporate Governance Code, except for Provision B1.1 which addresses the independence of Non-Executive Directors, Provision A.3.1 which addresses the independence of the Chairman and Provision B.7.1 which addresses re-election of Directors. These are discussed below. The Company’s principal governance policies and practices are set out below. The Board of Directors Composition The Board comprises the Executive Chairman, two other Executive Directors and eight Non-Executive Directors. The biographies of all members of the Board are set out on pages 40 to 41. The composition of the Board changed on 25 January 2013 following the merger of the Company with Metric Property Investments plc (“Metric”). Raymond Mould retired as Chairman and Patrick Vaughan was appointed to undertake the role in an executive capacity. Andrew Jones was appointed as Chief Executive. Although this does not comply with Provision A.3.1, which discourages a chief executive becoming chairman of the same company, the Board considers this appointment as an appropriate exception to the rule and a critical element of the merger, maintaining continuity of leadership for both companies and in order to facilitate the combination of the two businesses given his excellent prior working relationship with the Chief Executive of Metric, Andrew Jones. His experience as a founder of London & Stamford and his relationship with key joint venture partners is considered to be crucial to maintaining their continued support and to providing shareholders with a balanced and effective Board. Leading shareholders of both former companies were consulted and the reasons for his appointment explained to them. Patrick Vaughan will retain his executive capacity representing a commitment given to the shareholders on the acquisition of LSI Management LLP. All four of Metric’s Non-Executive Directors were appointed to the Non-Executive Board and Richard Crowder decided to retire from his role. Andrew Huntley has informed the Board that he does not intend to stand for re-election at the forthcoming Annual General Meeting of the Company and Mark Burton has decided to retire. There are clearly-defined roles for the Executive Chairman and Chief Executive which have 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 delivery of its strategic objectives. 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 the Company’s strategy and the delivery of enhanced shareholder returns. The following table shows Directors’ attendance at Board meetings they were eligible to attend during the period: Board Audit Committee Remuneration Committee Nominations Committee Number of meetings Raymond Mould (1) Patrick Vaughan Andrew Jones (2) Martin McGann Charles Cayzer James Dean (4) Humphrey Price Mark Burton (3) Richard Crowder (1) Andrew Huntley (2, 5) Andrew Varley (2, 6) Alec Pelmore (2) Philip Watson (2) 8 3/4 8/8 4/4 8/8 8/8 7/8 7/8 8/8 3/4 3/4 4/4 3/4 4/4 3 n/a n/a n/a n/a 3/3 n/a 3/3 3/3 1/2 n/a 1/1 1/1 n/a 3 n/a n/a n/a n/a 3/3 3/3 n/a 3/3 2/3 n/a n/a n/a n/a (1) Stepped down from the Board on 25 January 2013. Any non-attendance was the result of ill-health (2) Appointed to the Board and relevant committees on 25 January 2013 (3) Stepped down from Remuneration and Nomination Committees on 25 January 2013 (4) Stepped down from Nomination Committee on 25 January 2013 (5) Stepped down from Remuneration Committee on 3 May 2013 (6) Appointed to Remuneration Committee on 30 May 2013 1 n/a 1/1 n/a n/a 1/1 0/1 n/a 1/1 n/a n/a n/a n/a n/a 45 Annual report and accounts 2013 LondonMetric Property PlcCorporate governance continued 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 operations 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, including: • approval of interim and annual financial statements and dividends; • setting and monitoring of overall strategy; • ensuring there are adequate resources to meet objectives; • reviewing property valuations; • acquisitions and disposals; • approval of major capital expenditure projects; • treasury and financing arrangements; and • internal control, risk management and Board evaluation. This schedule of matters is reviewed and agreed by the Board on an annual basis. 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), former Executive Directors of Metric. The Executive Committee meets monthly to discuss property investment, 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 heavily involved in significant business discussions and decisions due to the size of the organisation. 46 The Board receives comprehensive reports and briefing papers one week prior to Board and Committee meetings to enable them to fulfil their responsibilities. Presentations on current and prospective property portfolios are made regularly to the Board by senior management and property visits are regularly arranged. 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. 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. Taking all factors into account, the Directors believe that the Board has an appropriate balance of skills, experience, knowledge and independence to satisfy the requirements of good corporate governance. Re-election of Directors In accordance with the Company’s Articles of Association, all Directors are required to submit themselves for election at the first opportunity following their appointment by the Board and thereafter for re-election at least every three years. Accordingly, Andrew Jones, Andrew Varley, Alec Pelmore and Philip Watson are proposed for re-election at the forthcoming Annual General Meeting. Andrew Huntley has informed the Board that he does not intend to stand for re-election at the AGM and Mark Burton has decided to retire. The Board considers this departure from the requirements of the UK Corporate Governance Code that all Directors are submitted for re-election annually is necessary to ensure the effective and ongoing management of the business. Continuity of Board leadership is considered to be essential to the survival and success of the business and this provision would allow the whole Board to be discharged simultaneously, leaving the company in a most vulnerable position with potentially no continuity of the required knowledge, skills and understanding to lead the Company. LondonMetric Property Plc Annual report and accounts 2013GovernanceBoard performance and evaluation At the end of the previous year, in March 2012, the Board undertook its first formal evaluation of its own performance and that of its Committees and individual Directors. As the composition and leadership of the Board and its Committees changed significantly following the merger with Metric in January 2013, it was considered more appropriate to give the new Board and Chairman sufficient time to settle into their new roles before a subsequent self-evaluation took place. It is the Board’s intention to carry out a further evaluation later in the year. The process will be led by the Nomination Committee. The process will require each Director to complete a questionnaire based on the components of good governance focusing on the objectives, strategy and remit for the Board, performance measurement, relationships with shareholders, effectiveness of risk management and corporate reporting and the effectiveness of the Board, individual Directors and Committees. In addition, it will consider the balance of skills, independence, knowledge and diversity of the Board and how it works together as a unit. Consideration will be given to the external facilitation of this process every three years. 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 is secretary to each Committee. The Chairman of each Committee reports the outcome of meetings to the Board. Non-Executive Directors The Board is a diverse group, the majority of whom are independent. Humphrey Price and Charles Cayzer do not qualify to be deemed independent using the criteria set out in Provision B.1.1 of the Code. The Board has therefore specifically considered their independence. Humphrey Price has a long working relationship with the Executive Directors at Arlington Securities, Pillar Property Plc and London & Stamford. The Board nevertheless considers that the knowledge and experience he brings, having been the Finance Director of these very successful listed property companies, and his ability to act independently, make him a most qualified and appropriate Non-Executive Director and Chairman of the Audit Committee. Charles Cayzer is a Non-Executive Director of Caledonia Investments Plc, a shareholder of the Company holding a 5.33% interest as at 30 May 2013. Caledonia Investments have put in place procedures to ensure that Charles Cayzer does not participate in investment decision making procedures relating to the Company to address this potential conflict and Charles Cayzer himself is not a shareholder in the Company. 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, chaired by the Senior Independent Director, Charles Cayzer, have met separately from the Board and will continue to meet as necessary, but at least annually, without the Executive Directors present 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 to the Executive Directors for the Non-Executive Directors and shareholders as required. Positions held by the Non-Executive Directors are set out in their biographies on pages 40 and 41. The Board is satisfied that each of the Non-Executive Directors is able to devote sufficient time to the Company’s business. On appointment they are advised of the time required to fulfil the role and are asked to confirm that they can make the required commitment. On their appointment, Non-Executive Directors are provided with a comprehensive Board pack and are briefed on the Group’s assets, finances, risks and strategy. 47 Annual report and accounts 2013 LondonMetric Property PlcCorporate governance continued Nomination Committee The Board established a Nomination Committee in November 2012. The Committee is chaired by Charles Cayzer and its current membership is set out on pages 40 and 41. 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. It also considers succession planning for Directors and other senior executive positions, and reviews the leadership needs of the Company and is responsible for identifying and approving candidates to fill Board vacancies. If appropriate, external search consultants are used to assist the process. The Committee met once in the year, to consider the appointment of Andrew Jones as Chief Executive, Patrick Vaughan as Chairman and Andrew Huntley, Andrew Varley, Alec Pelmore and Philip Watson as Non-Executive Directors following the merger with Metric. It met once post year end to consider changes to the Remuneration Committee composition following the notification of Andrew Huntley’s intention not to stand for re-election at the forthcoming AGM and his resignation from the Remuneration Committee. The Committee considered the need to maintain the appropriate balance of skills, experience and knowledge of both companies regarding these appointments and will review the balance of the Board on an annual basis. It did not believe it was necessary to engage an external search agency in this process and was mindful of ensuring successful integration of the two businesses. Succession planning was a key consideration with the appointment of Andrew Jones as Chief Executive and the retirement of Raymond Mould as Chairman. However, at the same time in order to maintain consistent and effective leadership, the Committee felt it most appropriate to appoint Patrick Vaughan as Chairman and in an Executive capacity, given his wealth of experience, knowledge and understanding of the property market. The Nomination Committee is conscious of the increased focus on Board diversity and acknowledges all aspects of diversity including gender, ethnic origin, age, business skills and experience throughout the Company. Within the Company there is significant gender diversity with the male:female ratio of staff excluding the Non-Executive Directors being 17:18. Audit Committee The Audit Committee is chaired by Humphrey Price and its current membership is set out on pages 40 and 41. BDO 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. The Audit Committee’s role is described further in its report on page 50. The Audit Committee met three times last year. Remuneration Committee The Remuneration Committee is chaired by James Dean and its current membership is set out on pages 40 and 41. Its responsibilities include recommending to the Board the remuneration and other benefits of the Executive Directors and other senior executives, and determining awards and targets under share-based incentive schemes. The Remuneration Committee’s role is described further in the Remuneration report on pages 51 to 55. The Remuneration Committee met three times last year. Relations with shareholders Communication with shareholders is given high priority and the Company undertakes a regular dialogue with major shareholders and fund managers. The Executive Directors are the Group’s principal representatives with investors, analysts, fund managers and other interested parties, assisted by 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 and met a number of significant shareholders during the year. 48 LondonMetric Property Plc Annual report and accounts 2013GovernanceFollowing the announcement of interim and year-end results, the Executive Directors host a series of roadshows and presentations with shareholders and investors. Meetings are arranged as requested with at least the top twenty shareholders of the Company. Ad hoc meetings are held outside of the roadshow process at the request of shareholders or on the advice of the Company’s brokers. During the last six months alone more than fifty material shareholders of the Group have been visited by two or more of the Executive Directors. The Board receives reports of meetings with institutional shareholders together with regular market and brokers’ reports. The Company’s website has been updated following the merger to provide a more functional source of information for shareholders and the presentations made to analysts following the announcement of the Group’s results are made available on the website. Shareholders are kept informed of the Company’s progress though results statements and other announcements released through the London Stock Exchange. Company announcements are made available on our website affording all shareholders full access to material information. Shareholders can raise questions directly with the Company or 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 and details of the resolutions to be proposed at the Annual General Meeting on 10 July 2013 can be found in the Notice of Meeting on pages 86 to 93. Details of the number of proxy votes for, against and withheld for each resolution will be disclosed at the meeting and posted to the Company’s website. Internal controls 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 system is designed to manage rather than eliminate the risk of failure to achieve the Group’s objectives. The system can only provide reasonable but not absolute assurance against material misstatement or loss. The main elements of the internal control framework are: • a defined schedule of matters reserved for the Board’s attention; • a comprehensive and documented system of financial budgeting and forecasting; • measurement of the Group’s quarterly financial performance against budget and long-term financial plans; • short-term cashflow 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 and responsibilities that enables effective and efficient decision making; • close involvement of the Executive Directors in day to day operations; • monthly meetings of the Executive Committee, which assesses and monitors 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; and • a documented appraisal and approval process for all significant capital expenditure. The Group’s internal control processes accord with the Turnbull guidance. Report and Accounts 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. Jadzia Duzniak Company Secretary 31 May 2013 49 Annual report and accounts 2013 LondonMetric Property PlcAudit Committee report Humphrey Price Chairman of the Audit Committee The Audit Committee’s focus has been to assist the Board by reviewing financial information provided to shareholders including interim and annual financial statements, reviewing and assessing the effectiveness of the Company’s internal controls and risk management systems and overseeing the Company’s relationship with its external auditor. Membership Humphrey Price is Chairman of the Audit Committee and together with Charles Cayzer and Mark Burton has served as a member of the Committee throughout the year. Andrew Varley and Alec Pelmore joined the Committee in January 2013 on their appointment to the Board. All members have no day to day involvement with the Company. Humphrey Price brings recent and relevant financial experience to the Committee as a former Finance Director, chartered accountant and Non-Executive Director and Chairman of the Audit Committee of Hansteen Holdings Plc Mark Burton has informed the Committee that he will be retiring from the Board and Committee at the forthcoming AGM. Meetings The Committee met three times last year, with meetings aligned to the Company’s financial reporting timetable. Meetings are attended by the Group’s external auditor, independent property valuers (CBRE Ltd and Savills Advisory Services Limited), the Finance Director and senior management when invited. 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. There has been a focus on the valuation process for the Group’s investment properties, as they are a significant part of the Group’s reported performance. The Committee met with the external valuers to assess the integrity of the valuation process and to determine the key areas of judgement surrounding the valuations themselves. The external auditor and external valuer also meet as part of the year-end process and have full access to one another and an open dialogue and exchange of information that is independent of management. Activities During the year the work of the Committee undertaken to discharge its responsibilities to the Board has included the following: • considered proposed accounting treatments for major transactions and significant reporting judgements in advance of interim and annual results at audit planning meetings. • reviewed interim and annual financial statements including consideration of key areas of judgement, compliance with statutory obligations and accounting standards and consistency throughout the report. 50 • met with the independent property valuers to discuss the year-end portfolio valuation on a property by property basis. • assessed the effectiveness of the external auditor which included reviewing their independence, objectivity, terms of engagement and the scope of their audit, as well as their results. The Committee considered the length of tenure of BDO LLP, being Group auditor for the last six years and the fact that last year there was a rotation of audit partner to further their independence. • considered and reviewed the level of non-audit fees and the nature of non-audit services provided before recommending their reappointment. The Committee is satisfied that the level of non-audit fees paid to the external auditors in the year (£356,000) did not put their independence and objectivity at risk. It took into account the fact that taxation services and advice is provided separately by PricewaterhouseCoopers and that a significant portion of the non-audit fees (£305,000) were an exceptional cost of the merger with Metric and will not recur. The Company’s policy governing the provision of non-audit services considers each appointment on a case by case basis. Taxation, valuation and remuneration services are provided by other professions but due diligence, VAT and other advisory services can and have been undertaken by the external auditor. 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. BDO 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. • 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 and whistle-blowing arrangements. A detailed internal control evaluation questionnaire was completed by management which was reviewed by the Committee along with the risk register, which identified key risks and the management and operational framework in place to address, monitor and minimise the key risks. The Committee received an annual update and review of the risk register and control evaluation questionnaire and reported their findings to the Board. Humphrey Price Chairman of the Audit Committee 31 May 2013 LondonMetric Property Plc Annual report and accounts 2013GovernanceRemuneration Committee report James Dean Chairman of the Remuneration Committee The Remuneration Committee (the “Committee”) has prepared this report in accordance with the requirements of the UK Corporate Governance Code, the Companies Act 2006 and the listing rules of the Financial Conduct Authority. A resolution will be proposed for its approval at the Annual General Meeting of the Company on 10 July 2013. The report deals with remuneration arrangements for the periods pre and post the merger and with the Committee’s proposals for remuneration going forward. This report is the first report by the new Remuneration Committee of LondonMetric. Immediately following the merger, Andrew Huntley was appointed as Chairman of the new Remuneration Committee. Richard Crowder, following his retirement from the Board after completion of the merger, and Mark Burton stepped down from Remuneration Committee. However, following Andrew Huntley’s decision not to stand for re-election to the Board at the AGM, he stepped down from the Remuneration Committee with effect from 3 May 2013. The Committee now comprises Charles Cayzer, Philip Watson and Andrew Varley and is chaired by James Dean who was appointed on 3 May 2013. All of the members of the Committee are independent Non-Executive Directors of the Company. Andrew Varley joined the Remuneration Committee following the Board Meeting on 30 May 2013. The Committee’s responsibilities are set out in its terms of reference which have been reviewed following the merger and which will be reviewed annually by the Board, and which are available to shareholders on request and on the Company’s website: www.londonmetric.com. The Committee recommends to the Board the remuneration policy and packages of the Executive Directors and other senior Executives, and determines awards and targets under management incentive schemes. The Committee will meet at least twice a year. It will review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness, as well as review and approve remuneration awards. The Chairman of the Committee reports to the Board on proceedings following each meeting. During the year the Committee has met on three occasions. Remuneration policy The Committee’s overriding objective in determining the Company’s remuneration policy is to ensure it continues to attract, motivate and retain individuals of the highest calibre who individually and collectively contribute to the long-term success of the Group, and which is competitive in relation to other comparable property companies. It seeks to provide incentives to encourage and reward individual performance and success as well as aligning interests with shareholders by implementing rewards and incentives that are dependent on the overall performance and growth of the Group. The Committee considers annual performance bonuses and long-term share-based incentive plans to be the most effective means of achieving these aims. No Executive Director is involved in the determination of his own remuneration and fees for Non-Executive Directors are determined and reviewed by the Board as a whole. In setting the Executive Directors’ remuneration, the Committee takes into account pay and employment conditions applicable across the Group and most particularly remuneration arrangements in other comparable property companies. Revised remuneration proposals for the enlarged Group In the circular issued to shareholders dated 27 November 2012, it was confirmed that following completion of the merger and the termination of incentive plans for the management of Metric and the clawback of certain incentive shares for London & Stamford management, it would be a priority for the new Remuneration Committee to put in place revised salary and bonus arrangements and new long-term arrangements for senior Executives of the enlarged Group, in line with the market. The objectives of the new arrangements will be: • The motivation and retention of the existing team and the attraction of the highest calibre new individuals as required. • The provision of material rewards for optimising shareholder returns and delivering the business strategy. • Alignment with shareholders through continuing high levels of share ownership. It was confirmed in the circular that Patrick Vaughan and Martin McGann would not participate in any revised bonus or long-term incentive arrangements until 30 September 2013, in accordance with lock-in arrangements in connection with the Company’s acquisition of LSI Management LLP on October 2010. Accordingly, the Remuneration Committee has met and formulated a new arrangement for the Company going forward. The Committee has taken advice from New Bridge Street and has sought the views of the Company’s largest shareholders. The remuneration packages for Executive Directors of the Group consist of the following: Basic salary and benefits Basic salary and benefit arrangements which apply from 1 February 2013 are as follows; Basic salary £ Pension allowance £ Car allowance £ Total £ Patrick Vaughan 400,000 60,000 20,000 480,000 Andrew Jones 480,000 72,000 20,000 572,000 Martin McGann 315,000 47,250 20,000 382,250 51 Annual report and accounts 2013 LondonMetric Property PlcRemuneration Committee report continued The pension allowance is a 15% monthly contribution to Executive Directors’ individual personal pension plans, with the option to elect to receive the pension contributions as a cash allowance. In addition, Executive Directors will be entitled to a car allowance of £20,000 per annum, private medical insurance and permanent health and life assurance. There will be no payment in respect of TPR if TPR is negative. Full payment in respect of TPR will be made only if TPR is at least 120% of the IPD composite index TPR. Standard clawback provisions will be applied by the Remuneration Committee to share-based elements of the bonus in respect of fraud, material misstatement or gross misconduct. Basic salaries will be reviewed annually by the Committee at the same time and on the same basis as the review by the Executive Directors of all other staff salaries. Salary increments will be approximately linked to inflation, save for increases justifiable on the basis of exceptional merit or material increase in scope or scale of responsibilities. Their assessment will have regard to individual and corporate performance, individual roles and responsibilities and comparable salary levels in other similar companies. Benefits for all employees include and are restricted to medical insurance and life assurance cover. All staff will receive a monthly contribution to their individual personal pension plans. Annual discretionary bonus The Committee will consider on an annual basis the award of Executive Directors’ bonuses. These are non-pensionable awards which are discretionary and dependent upon the performance of the Group, as well as the individual contribution made by each Director. Any annual bonus will be subject to the following caps: Patrick Vaughan* Andrew Jones Martin McGann* 100% of basic salary to be paid in cash 150% of basic salary 125% of basic salary *With effect from 1 October 2013, 100% of basic salary until then The bonuses for Andrew Jones and Martin McGann will be paid 50% in cash and 50% in shares. Shares will vest in three equal instalments over three years and will be subject to good/ bad leaver provisions. The bonus payable will be based upon the following measures and targets, agreed with the Remuneration Committee ahead of the start of the financial year. Patrick Vaughan Andrew Jones Martin McGann EPRA Earnings per share 35% 35% 35% Total Property Return (TPR) Portfolio management Management objectives 35% 35% 35% 10% 15% – 20% 15% 30% The Committee will set challenging targets consistent with the Group’s business strategy for the other components of the bonus award. Long-term incentives (LTIs) The Company wishes to align the long-term interests of Executive Directors and members of the Executive Committee with those of shareholders and to reward and encourage continued and sustained growth. Except for Patrick Vaughan, who has a very significant interest in the shares of the Company and a very direct alignment with the interests of other shareholders, the Executive Directors will be subject to a single, straightforward, long-term incentive arrangement. Grants made under the LTI plan will be made at the discretion of the Remuneration Committee, within an overall limit of 200% of basic salary. Grants will be made up to the following caps: Andrew Jones 175% of basic salary Martin McGann 140% of basic salary Awards may vest three years after grant on the basis of performance over those three years against the following tests: • 75% of any award will be subject to total shareholder return (TSR) exceeding the index of FTSE 350 Real Estate Companies TSR. A full payout in respect of TSR would be made if TSR exceeds the benchmark index by 0.5 times over three years. A 25% payout would be made if TSR equals the benchmark index over three years, with straight-line interpolation between 25% and 100%. • 25% of any award will be on the basis of EPRA EPS (“EPS”) growth versus RPI. • Full vesting would occur if EPS equals RPI plus 8% over three years. For 25% vesting, EPS would have to equal RPI plus 3% over three years. There will be straight-line interpolation between 25% and 100%. For LTI grants to be made in 2013, the Committee will set a base EPS materially higher than the EPS for the year ended 31 March 2013. 52 LondonMetric Property Plc Annual report and accounts 2013Governance Approval to these proposals in respect of LTIs will be sought at the AGM on 10 July 2013. A summary of the LTI plan is shown in the Appendix to the Notice of AGM on pages 88 to 91. Staff incentive plan An LTI scheme is being established to align the interests of staff who are not party to the arrangements noted on page 52, thereby attracting and retaining high calibre individuals throughout the organisation. All current and future employees of the Group will be eligible to participate in the plan at the Company’s discretion. The scheme will operate on the same basis as the Executive Directors’ scheme. Members of the Executive Committee will be invited to participate in the Executive Directors’ scheme. The intention is that awards will be made annually and will be a function of basic salary. Non-Executive Directors’ remuneration The fees payable to the Non-Executive Directors are determined and reviewed by the Board annually and reflect the time commitment and responsibility taken by them. Each Non-Executive Director is paid a basic fee of £50,000 per annum. In addition, Charles Cayzer, James Dean and Humphrey Price receive a fee of £10,000 per annum to act as Chairmen of the Nomination Committee, Remuneration Committee and Audit Committee respectively. Non-Executive Directors’ fees remain unchanged from last year. Non-Executive Directors are not eligible for performance- related bonuses, participation in the staff incentive plan, pensions or any other benefits from the Company. Service arrangements Following the merger, the service contracts for Executive Directors have been reviewed and revised contracts put in place. Notice periods are terminable by either party with notice of twelve months. Apart from salary and benefits in the notice period, there are no other contractual terms which would give rise to compensation payable for early termination. The Non-Executive Directors have letters of appointment effective from 1 October 2010 or their date of appointment, if later, for an initial term of three years, which are subject to a notice period of three months by either party. Remuneration for the year ended 31 March 2013 Following the completion of the merger on 25 January 2013, Raymond Mould retired from his position as Executive Chairman and was replaced by Patrick Vaughan, formerly the Chief Executive. No payment was made to Raymond Mould as compensation or in lieu of notice on his retirement. Richard Crowder resigned as a Non-Executive Director and Andrew Huntley, Philip Watson, Alec Pelmore and Andrew Varley joined the Board as Non-Executive Directors. The new Directors’ remuneration disclosed in this report is in respect of the period from the merger until the year-end. For those Directors who sat on the Board of London & Stamford Property Plc before the merger, the remuneration disclosed in this report is in respect of the whole of the year ended 31 March 2013. All staff are entitled to receive a monthly contribution of between 10% and 15% to their individual personal pension plans. Martin McGann has a salary sacrifice arrangement with the Company whereby additional pension contributions are paid in lieu of salary. The Committee has approved cash bonuses of 100% of gross salary for Patrick Vaughan and Martin McGann and a 50% bonus for Raymond Mould for the year. A bonus of £90,000 has been awarded to Andrew Jones for the post-merger period. Consideration has been given to the considerable business achievements in a challenging business environment in determining such awards and to the relativity of remuneration of the Executive Directors within the Real Estate sector. The Executive Directors have significant interests in the shares of the Company, the performance of which creates direct alignment for the Executive Directors with other shareholders. Under the terms of the merger, a certain number of the shares held by Raymond Mould, Patrick Vaughan and Martin McGann as consideration for the sale to the Company of LSI Management LLP were clawed back. 76.5% of the incentive shares (3,534,233 shares) were clawed back. The staff incentive plan which was established in January 2011 was also terminated as part of the merger arrangements. A total of 178,716 shares were awarded to employees who had not previously been partners in LSI Management LLP. 53 Annual report and accounts 2013 LondonMetric Property PlcRemuneration Committee report continued None of the Executive Directors are subject to any long-term incentive arrangements for the period post the merger until the year end. Audited information Directors’ emoluments Executive Raymond Mould Patrick Vaughan Martin McGann Andrew Jones (1) Non-Executive Mark Burton Charles Cayzer Richard Crowder James Dean Humphrey Price Andrew Huntley (1) Alec Pelmore (1) Andrew Varley (1) Philip Watson (1) Salary and fees £ Bonus £ Total excluding pension contributions 2013 £ Total excluding pension contributions 2012 £ Benefits in kind £ Pension 2013 £ Pension 2012 £ 262,833 334,585 257,683 58,541 50,000 54,167 41,667 58,333 60,000 11,154 9,295 9,295 9,295 162,250 324,500 270,500 90,000 16,287 8,435 5,777 5,009 – – – – – – – – – – – – – – – – – – 441,370 667,520 533,960 153,550 50,000 54,167 41,667 58,333 60,000 11,154 9,295 9,295 9,295 629,962 629,305 514,444 – 50,000 50,000 75,000 60,000 60,000 – – – – – 35,568 50,000 11,708 – – – – – – – – – – 34,800 48,125 – – – – – – – – – – (1) Represents cost for the two months post merger Salary and fees paid to Raymond Mould relate to the period up until the merger, at which point he retired from the Board. A bonus was paid in respect of his contribution to the Company until that point. As disclosed in the merger circular, Raymond Mould has agreed to make himself available under a consultancy arrangement with the Company to continue to contribute to its future success. The consultancy arrangement is for £100,000 per annum payable on a monthly basis. It is terminable by either party with six months’ notice. 54 LondonMetric Property Plc Annual report and accounts 2013GovernanceInterests of Directors in Company’s shares The beneficial interests of the Directors and their families in the shares of the Company are as follows: Raymond Mould Patrick Vaughan Andrew Jones Martin McGann Mark Burton Charles Cayzer Richard Crowder James Dean Humphrey Price Andrew Huntley Alec Pelmore Andrew Varley Philip Watson Ordinary shares of 10p each 31 March 2013 Ordinary shares of 10p each 31 March 2012 14,473,987 16,000,000 16,619,997 18,146,010 2,178,979 – 3,341,585 3,823,795 – – – – 100,000 100,000 – – 2,015,733 2,143,127 114,000 120,500 47,000 94,000 20,000 50,000 – – Movements in the shareholdings of Raymond Mould, Patrick Vaughan and Martin McGann during the year are due to the clawback of incentive shares relating to the sale of LSI Management LLP. There were no movements in Directors’ shareholdings between 31 March 2013 and the date of this report. No Director had any interest in or contract with the Company or any subsidiary undertaking during the year. Total Shareholder Return 180 160 140 120 100 80 60 40 20 0 Nov ‘07 May ‘08 Nov ‘08 May ‘09 Nov ‘09 May ‘10 Nov ‘10 May ‘11 Nov ‘11 May ‘12 Nov ‘12 May ‘13 LMP FTSE 100 (rebased) FTSE 250 (rebased) FTSE REITs Index (rebased) FTSE Real Estate Index (rebased) The graph above shows the Company’s total shareholder return from November 2007 to May 2013, compared to a composite measure of the FTSE All-Share Real Estate Investment Trusts Index and the FTSE All-Share Real Estate Investment and Services Index and also to the FTSE 250 and FTSE 100 Indexes. These indices have been chosen by the Committee as they are considered the most appropriate benchmarks against which to assess the relative performance of the Company. Total shareholder return measures price growth, with dividends deemed to be reinvested on the ex-dividend date. The period from 7 November 2007 to 30 September 2010 relates to the performance of the Group headed by London & Stamford Property Limited. The period from 1 October 2010 to 25 January 2013 relates to the performance of the Group headed by London & Stamford Property Plc, and since that date relates to the performance of the LondonMetric Property Plc. James Dean Chairman of the Remuneration Committee 31 May 2013 55 Annual report and accounts 2013 LondonMetric Property PlcIndependent auditor’s report to the members of LondonMetric Property Plc We have audited the Group financial statements of LondonMetric Property Plc for the year ended 31 March 2013 which comprise the Group Income Statement, the Group Balance Sheet, the Group Statement of Changes in Equity, the Group Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the Group 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 Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion the Group financial statements: Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: – certain disclosures of Directors’ remuneration specified by law are not made; or – we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: – the Directors’ statement in relation to going concern; – the part of the corporate governance statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and – certain elements of the report to shareholders by the Board on Directors’ remuneration. Other matters We have reported separately on the Parent Company financial statements of LondonMetric Property Plc for the year ended 31 March 2013 and on the information in the Directors’ remuneration report that is described as having been audited. David Eagle Senior Statutory Auditor For and on behalf of BDO LLP, statutory auditor London United Kingdom – give a true and fair view of the state of the Group’s affairs as at 31 March 2013 and its loss for the year then ended; 31 May 2013 – have been properly prepared in accordance with IFRSs as adopted by the European Union; and – have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 56 LondonMetric Property Plc Annual report and accounts 2013Financial statements Independent auditor’s report to the members of LondonMetric Property Plc Group Income Statement For the year ended 31 March In our opinion the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception Gross rental income Property operating expenses Net rental income Property advisory fee income We have nothing to report in respect of the following: Net proceeds from sales of trading properties Other operating income Net income General corporate 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 (Loss)/profit on sale of investment properties Profit on sale of 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 (Loss)/profit before tax Taxation (Loss)/profit after tax (Loss)/profit for the year and total comprehensive income attributable to: Equity shareholders Non-controlling interest (Loss)/earnings per share Basic and diluted All amounts relate to continuing activities. We have audited the Group financial statements of Opinion on other matter prescribed by the Companies LondonMetric Property Plc for the year ended 31 March 2013 Act 2006 which comprise the Group Income Statement, the Group Balance Sheet, the Group Statement of Changes in Equity, the Group Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the to you if, in our opinion: Under the Companies Act 2006 we are required to report Companies Act 2006. Our audit work has been undertaken so – certain disclosures of Directors’ remuneration specified that we might state to the Company’s members those matters by law are not made; or 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. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the Group 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 Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion the Group financial statements: – we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: – the Directors’ statement in relation to going concern; – the part of the corporate governance statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; – certain elements of the report to shareholders by the Board on Directors’ remuneration. and Other matters We have reported separately on the Parent Company financial statements of LondonMetric Property Plc for the year ended 31 March 2013 and on the information in the Directors’ remuneration report that is described as having been audited. David Eagle Senior Statutory Auditor London United Kingdom For and on behalf of BDO LLP, statutory auditor – give a true and fair view of the state of the Group’s affairs 31 May 2013 as at 31 March 2013 and its loss for the year then ended; – have been properly prepared in accordance with IFRSs as adopted by the European Union; and – have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Note 2013 £000 As restated 2012 £000 3 32,752 38,526 (3,511) (2,982) 29,241 35,544 8,466 6,360 3 – 1,913 333 – 39,620 42,237 (10,956) (9,515) 4 (10,484) (13,450) 17 (6,251) – (3,954) (3,965) 17 (5,661) – (37,306) (26,930) 10 8,394 3,260 (10) 1,086 (23,178) 56 646 – 15,969 4,346 4,575 23,615 730 684 (12,553) (14,113) (1,704) (8,952) (5,171) 5,015 11 11 4 6 6 6 7 (4,441) (1,131) (13,393) 3,884 (13,456) 63 (13,393) 2,689 1,195 3,884 9 (2.4)p 0.5p The notes on pages 61 to 80 form part of these financial statements. 57 Annual report and accounts 2013 LondonMetric Property Plc Group Balance Sheet As at 31 March Non current assets Investment properties Investment in equity accounted associates and joint ventures Assets held for sale 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 Non-controlling interest Total equity Net asset value per share Note 2013 £000 As restated 2012 £000 10 927,983 660,022 11 120,919 161,575 10 12 58,810 – 9,638 12,424 311 7 2,311 383 6,097 1,119,972 840,501 3,837 3,837 13 14 11,731 22,739 37,572 136,934 53,140 163,510 1,173,112 1,004,011 15 26,232 26,232 35,217 35,217 16 460,328 319,833 16 9,883 12,274 470,211 332,107 496,443 367,324 676,669 636,687 19 62,804 54,280 9,636 300 227,920 47,069 376,309 529,255 676,669 630,904 – 5,783 676,669 636,687 9 107.7p 116.2p The financial statements were approved and authorised for issue by the Board of Directors on 31 May 2013 and were signed on its behalf by: Martin McGann Finance Director The notes on pages 61 to 80 form part of these financial statements. 58 LondonMetric Property Plc Annual report and accounts 2013Financial statements Group Balance Sheet As at 31 March Group Statement of Changes in Equity For the year ended 31 March Investment in equity accounted associates and joint ventures Non current assets Investment properties Assets held for sale 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 Non-controlling interest Total equity Net asset value per share on its behalf by: Martin McGann Finance Director Note 2013 £000 As restated 2012 £000 10 927,983 660,022 11 120,919 161,575 10 12 58,810 – 9,638 12,424 311 7 2,311 383 6,097 1,119,972 840,501 3,837 3,837 13 14 11,731 22,739 37,572 136,934 53,140 163,510 1,173,112 1,004,011 15 26,232 26,232 35,217 35,217 16 460,328 319,833 16 9,883 12,274 470,211 332,107 496,443 367,324 676,669 636,687 19 62,804 54,280 9,636 300 227,920 47,069 376,309 529,255 676,669 630,904 – 5,783 676,669 636,687 9 107.7p 116.2p The financial statements were approved and authorised for issue by the Board of Directors on 31 May 2013 and were signed At 1 April 2012 (as previously reported) Restatement At 1 April 2012 (after restatement) Profit for the year and total comprehensive income Share issue on merger with Metric Clawback and cancellation of own shares Purchase and cancellation of own shares following Tender Offer Share-based awards Distribution paid to non-controlling interest Dividends paid At 31 March 2013 Note 10 8 Note At 1 April 2011 (as previously reported) Profit for the year and total comprehensive income as restated Purchase and cancellation of own shares Purchase of shares held in trust Share-based payments Distribution paid to non-controlling interest Dividends paid 8 Capital redemption reserve £000 Other reserve £000 Retained earnings £000 Subtotal £000 Non- controlling interest £000 Total £000 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) Share capital £000 54,280 – 54,280 – 17,860 (479) 300 – 300 – – 184,851 – 202,711 479 (5,015) (479) (5,494) (8,857) 8,857 – (100,650) (100,650) 1,015 (365) 650 – – – – – – – – (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 Share capital £000 54,580 – (300) – – – – Capital redemption reserve £000 Other reserve £000 Retained earnings £000 Subtotal £000 Non- controlling interest £000 Total £000 – – 300 – – – – 47,551 566,589 668,720 4,987 673,707 – – (482) – – – 2,689 2,689 1,195 (3,157) (3,157) (482) 248 – 248 – – (399) – – – 3,884 (3,157) (482) 248 (399) (37,114) (37,114) – (37,114) At 31 March 2012 (as restated) 54,280 300 47,069 529,255 630,904 5,783 636,687 The notes on pages 61 to 80 form part of these financial statements. The notes on pages 61 to 80 form part of these financial statements. 59 Annual report and accounts 2013 LondonMetric Property Plc Group Cash Flow Statement For the year ended 31 March Cash flows from operating activities (Loss)/profit before tax Adjustments for non-cash items: Profit on revaluation of investment properties Loss/(profit) on sale of investment properties Profit on sale of 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 subsidiary undertakings net of cash acquired Purchase of investment properties Purchase of other tangible assets Capital expenditure on investment properties Sale of investment property Sale of subsidiary undertakings net of cash disposed Investments in associates and joint ventures Distributions from associates and joint ventures Cash flow from investing activities Financing activities Dividends paid Purchase of shares held in trust Sale of shares held in trust Purchase of own shares New borrowings Repayment of loan facilities Cash flows from financing activities Net decrease in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents The notes on pages 61 to 80 form part of these financial statements. 60 2013 £000 As restated 2012 £000 (8,952) 5,015 (8,394) (3,260) 10 (1,086) (56) (646) (15,969) (4,346) 10,484 23,178 3,954 6,251 13,527 23,003 (2,774) (604) 1,304 – 13,450 – 3,965 – 18,600 32,722 6,828 63 21,273 1,923 20,929 62,809 743 680 (9,775) (12,687) 454 (10,489) (2,682) (2,359) 9,669 37,954 3,610 – (319,224) (115,732) – (136) (712) (3,034) 900 2,254 72,144 34,411 (44,297) (9,341) 101,449 5,575 (186,130) (86,003) (37,996) (37,513) – 650 (482) – (100,650) (3,157) 215,095 142,980 – (73,630) 77,099 28,198 (99,362) (19,851) 136,934 156,785 37,572 136,934 LondonMetric Property Plc Annual report and accounts 2013Financial statements Group Cash Flow Statement For the year ended 31 March Notes forming part of the Group financial statements For the year ended 31 March Share of post tax profit of associates and joint ventures (15,969) (4,346) Cash flows from operating activities (Loss)/profit before tax Adjustments for non-cash items: Profit on revaluation of investment properties Loss/(profit) on sale of investment properties Profit on sale of subsidiaries 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 subsidiary undertakings net of cash acquired Purchase of investment properties Purchase of other tangible assets Capital expenditure on investment properties Sale of investment property Sale of subsidiary undertakings net of cash disposed Investments in associates and joint ventures Distributions from associates and joint ventures Cash flow from investing activities Financing activities Dividends paid Purchase of shares held in trust Sale of shares held in trust Purchase of own shares New borrowings Repayment of loan facilities Cash flows from financing activities Net decrease in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents The notes on pages 61 to 80 form part of these financial statements. 2013 £000 As restated 2012 £000 (8,952) 5,015 (8,394) (3,260) 10 (1,086) 10,484 23,178 3,954 6,251 13,527 23,003 (2,774) (604) 1,304 – (56) (646) 13,450 3,965 – – 18,600 32,722 6,828 63 21,273 1,923 20,929 62,809 743 680 (9,775) (12,687) 454 (10,489) (2,682) (2,359) 9,669 37,954 3,610 – (319,224) (115,732) – (136) (712) (3,034) 900 2,254 72,144 34,411 (44,297) (9,341) 101,449 5,575 (186,130) (86,003) (37,996) (37,513) – 650 (482) – (100,650) (3,157) 215,095 142,980 – (73,630) 77,099 28,198 (99,362) (19,851) 136,934 156,785 37,572 136,934 1 Accounting policies a) General information On 25 January 2013 the merger between London & Stamford Property Plc and Metric Property Investments plc (“Metric”) became effective by way of a Scheme of Arrangement under Part 26 of the Companies Act 2006. The Company issued 178,599,912 New Ordinary Shares in exchange for the entire issued share capital of Metric. The Company changed its name to LondonMetric Property plc and the New Ordinary Shares were admitted to the premium segment of The Official List to trade on the Main Market of the London Stock Exchange on 28 January 2013. 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. c) Basis of preparation At the request of the Financial Reporting Council, the Company has agreed to restate the valuation of its property at Clerkenwell Quarter, Islington in the 31 March 2012 financial statements. As this relates to the year ended 31 March 2012, there is no restatement required to any financial information for the year ended 31 March 2011 or earlier. While the Directors consider that the valuation of investment property assets in the Group Balance Sheet was materially accurate, they have acknowledged that because of the specific circumstances surrounding the property concerned, it had not been valued in accordance with IFRS or valuation standards. The Directors have accordingly restated the figures previously reported, including the profit on revaluation shown in the Group Income Statement. 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, the recognition of deferred tax assets and liabilities for potential corporation tax, amortisation of intangible assets and the fair value of derivative financial instruments. The most critical accounting polices 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, business combinations and goodwill, 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. ii) Adoption of new and revised standards Standards and interpretations effective in the current period No new standards or interpretations issued by the International Accounting Standards Board (“IASB”) or the International Financial Reporting Interpretations Committee (“IFRIC”) have led to any material changes in the Group’s accounting policies or disclosures during the year. 61 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 1 Accounting policies (continued) 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 IAS 1 IFRS 7 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 27 IAS 28 IAS 32 Description Amendments to IAS 1 Amendments to IFRS 7 Consolidated financial statements Joint arrangements Disclosure of interests in other entities Fair value measurement Amendments to IAS 27 Amendments to IAS 28 Amendments to IAS 32 Annual improvements to IFRSs (2009–2011 cycle) IFRS 9 Financial instruments Effective date 1 July 2012 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2015 The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application, other than on presentation and disclosure. 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 profit or loss within administration expenses and is not subsequently reversed. 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 profit or loss. 62 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements 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: continued For the year ended 31 March 1 Accounting policies (continued) Standards and interpretations in issue not yet adopted Name IAS 1 IFRS 7 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 27 IAS 28 IAS 32 Description Amendments to IAS 1 Amendments to IFRS 7 Consolidated financial statements Joint arrangements Disclosure of interests in other entities Fair value measurement Amendments to IAS 27 Amendments to IAS 28 Amendments to IAS 32 Annual improvements to IFRSs (2009–2011 cycle) IFRS 9 Financial instruments 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. 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 iv) Goodwill 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. 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 profit or loss within administration expenses and is not subsequently reversed. 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 profit or loss. 1 Accounting policies (continued) e) Property portfolio i) Investment properties Effective date 1 July 2012 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2015 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. They are 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; The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application, other than on presentation and disclosure. – there are no material conditions precedent which could prevent completion; and – the cost of the investment property can be measured reliably. 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. iii) Trading properties 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. 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 with one year from the date of its classification and are committed to the sale. Investment properties classified as held for sale are transferred from investment properties and carried at fair value. 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 lease termination date. Lease incentives and costs associated with entering into tenant leases are amortised over the lease term. 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. 63 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 1 Accounting policies (continued) vi) Surplus on sale of investment properties Surpluses on sales of investment properties are calculated by reference to the carrying value at the previous valuation date, adjusted for subsequent capital expenditure. f) Financial assets and financial liabilities 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 profit and loss account 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. g) Finance costs Net finance costs include interest payable on borrowings, net of interest capitalised and finance costs amortised. 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. 64 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements continued For the year ended 31 March 1 Accounting policies (continued) vi) Surplus on sale of investment properties adjusted for subsequent capital expenditure. f) Financial assets and financial liabilities Surpluses on sales of investment properties are calculated by reference to the carrying value at the previous valuation date, 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 cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with These comprise deposits held with banks where the original maturity was more than three months. original maturities of three months or less. ii) Other financial assets iii) Equity instruments 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 profit and loss account 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. Net finance costs include interest payable on borrowings, net of interest capitalised and finance costs amortised. Finance income includes interest receivable on funds invested, measured at the effective rate of interest on the underlying g) Finance costs h) Finance income 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. 1 Accounting policies (continued) 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; and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Cash transaction affects neither accounting or taxable profit; and – the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the – 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. 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. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. k) Share-based payments 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. 65 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 2 Segmental information Property value Retail Distribution Offices Residential Development Other 100% owned £000 Assets held for sale £000 Trading property £000 Share of JV £000 2013 Total £000 As restated 2012 100% owned £000 Trading property £000 Share of JV £000 Total £000 347,540 125,075 242,438 – – – – – – 30,567 378,107 – – 237,667 237,667 118,763 243,838 320,784 – 120,849 441,633 – 242,438 203,905 – 119,355 58,810 3,837 76,800 258,802 122,718 3,837 82,624 10,951 – – – – – – 82,624 10,951 – 12,615 – – – – – – 203,905 126,555 – 12,615 At 31 March valuation 927,983 58,810 3,837 226,130 1,216,760 660,022 3,837 358,516 1,022,375 Gross property income Retail Distribution Offices Residential Development Other At 31 March 100% owned £000 3,476 3,668 20,310 5,180 – 118 32,752 Assets held for sale £000 – – – – – – – 2013 Total £000 9,595 100% owned £000 Share of JV £000 – 12,643 11,947 22,107 7,210 20,310 12,132 5,727 4,225 – 118 – 62 – – – – 2012 Total £000 12,643 29,317 12,132 4,225 – 62 Share of JV £000 6,119 8,279 – 547 – – 14,945 47,697 38,526 19,853 58,379 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. The Group operates entirely in the United Kingdom and no geographical split is provided in information reported to the Board. 3 Net income Gross rental income Property operating expenses Proceeds from sales of trading properties Cost of sales of trading properties 2013 £000 2012 £000 32,752 38,526 (3,511) (2,982) 29,241 35,544 – – – 2,300 (1,967) 333 For the year ended 31 March 2013 19%, 19% and 10% (2012: 15% and 12%) of the Group’s gross rental income was receivable from three tenants (2012: two tenants). Property outgoings of £0.8 million (2012: £1.1 million) related to investment properties that did not generate rental income in the year. 66 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements continued For the year ended 31 March 2 Segmental information Property value Retail Distribution Offices Residential Development Other 100% owned £000 Assets held for sale £000 Trading property £000 Share of JV £000 100% owned £000 Trading property £000 Share of JV £000 Total £000 30,567 378,107 – – 237,667 237,667 118,763 243,838 320,784 – 120,849 441,633 347,540 125,075 242,438 82,624 10,951 – – – – – – – – – – 119,355 58,810 3,837 76,800 258,802 122,718 3,837 242,438 203,905 82,624 10,951 – 12,615 – – – At 31 March valuation 927,983 58,810 3,837 226,130 1,216,760 660,022 3,837 358,516 1,022,375 2013 Total £000 Share of JV £000 6,119 8,279 – – – Assets held for sale £000 – – – – – – – – – – 100% owned £000 3,476 3,668 20,310 5,180 – 118 32,752 2013 Total £000 9,595 100% owned £000 Share of JV £000 – 12,643 11,947 22,107 7,210 20,310 12,132 547 5,727 4,225 – 118 – 62 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. The Group operates entirely in the United Kingdom and no geographical split is provided in information 14,945 47,697 38,526 19,853 58,379 As restated 2012 – – – – – – – – 203,905 126,555 – 12,615 2012 Total £000 12,643 29,317 12,132 4,225 – 62 2013 £000 2012 £000 32,752 38,526 (3,511) (2,982) 29,241 35,544 – – – 2,300 (1,967) 333 Gross property income Retail Distribution Offices Residential Development Other At 31 March reported to the Board. 3 Net income Gross rental income Property operating expenses Proceeds from sales of trading properties Cost of sales of trading properties from three tenants (2012: two tenants). in the year. For the year ended 31 March 2013 19%, 19% and 10% (2012: 15% and 12%) of the Group’s gross rental income was receivable Property outgoings of £0.8 million (2012: £1.1 million) related to investment properties that did not generate rental income 4 Profit from operations This has been arrived at after charging: Share-based payments Effect of cancellation of Consideration Shares Operating lease expense Auditors’ remuneration: Audit of the Group and Company financial statements, pursuant to legislation Fees payable to the Company’s auditors for other services to the Group: – Statutory audit of subsidiary accounts, pursuant to legislation – Corporate advisory services – Other advisory services 2013 £000 2012 £000 14,759 (4,275) 10,484 674 13,450 – 13,450 664 189 32 326 30 155 32 – – 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 apply 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 remain subject to bad leaver provisions and the reduced share-based payment prepayment of £3.8 million is being charged evenly to the profit and loss account over the period to 30 September 2013. In the year to 31 March 2013 £10.5 million (2012: £13.5 million) has been charged to the profit and loss and £5.5 million has been charged to reserves, reducing the share-based payment prepayment to £3.8 million (2012: £19.8 million). 5 Employee costs Employee costs, including those of Directors, comprise the following: Wages and salaries Social security costs Other pension costs Share-based payment 2013 £000 2012 £000 5,719 4,499 780 395 6,894 (365) 6,529 622 333 5,454 248 5,702 The emoluments and pension benefits of the Directors are set out in detail within the Directors’ remuneration report on pages 51 to 55. The staff share incentive scheme that was in place throughout the current and previous years allowed eligible employees to receive an award of shares, held in trust, dependent on performance conditions based on the net asset value of the Group over a three-year 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. The scheme was terminated following the merger with Metric and 178,716 shares were awarded to staff. The remaining 763,533 shares held by the Company’s Employee Benefit Trust were sold. The average number of employees including Executive Directors during the year was: Head office and property management 2013 Number 2012 Number 27 22 67 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 6 Finance income and costs 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 loss on derivative financial instruments 7 Taxation The tax charge comprises: Current tax UK tax charge/(credit) on profit Deferred tax Change in deferred tax 2013 £000 730 730 2012 £000 684 684 11,261 12,800 1,292 1,313 12,553 14,113 1,704 5,171 14,257 19,284 2013 £000 As restated 2012 £000 32 (655) 4,409 4,441 1,786 1,131 The tax assessed for the year varies from the standard rate of corporation tax in the UK. The differences are explained below: (Loss)/profit before tax (Loss)/profit at the standard rate of corporation tax in the UK of 24% (2012: 26%) 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 Deferred tax asset At 31 March 2012 Acquisition of subsidiary Charged during the year At 31 March 2013 2013 £000 (8,952) (2,148) 10,790 (4,809) (3,833) 1,978 2,431 32 4,441 Losses £000 Intangible assets £000 1,808 4,289 623 – 2012 £000 5,015 1,304 4,842 (4,876) (1,130) 1,786 – (795) 1,131 Total £000 6,097 623 (2,431) (1,978) (4,409) – 2,311 2,311 As the Group is a UK-REIT there is no provision for deferred tax arising on the revaluation of properties. The Group has unprovided deferred tax assets in respect of trading losses of £3.2 million (2012: £nil). 68 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements continued For the year ended 31 March 6 Finance income and costs 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 loss on derivative financial instruments 7 Taxation The tax charge comprises: Current tax UK tax charge/(credit) on profit Deferred tax Change in deferred tax Temporary differences Utilisation of tax losses Prior year tax adjustments UK tax charge on profit Deferred tax asset At 31 March 2012 Acquisition of subsidiary Charged during the year At 31 March 2013 The tax assessed for the year varies from the standard rate of corporation tax in the UK. The differences are explained below: (Loss)/profit before tax (Loss)/profit at the standard rate of corporation tax in the UK of 24% (2012: 26%) 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 As the Group is a UK-REIT there is no provision for deferred tax arising on the revaluation of properties. The Group has unprovided deferred tax assets in respect of trading losses of £3.2 million (2012: £nil). 2013 £000 730 730 2012 £000 684 684 11,261 12,800 1,292 1,313 12,553 14,113 1,704 5,171 14,257 19,284 2013 £000 As restated 2012 £000 32 (655) 4,409 4,441 2013 £000 (8,952) (2,148) 10,790 (4,809) (3,833) 1,978 2,431 32 4,441 1,786 1,131 2012 £000 5,015 1,304 4,842 (4,876) (1,130) 1,786 – (795) 1,131 Total £000 6,097 623 Losses £000 Intangible assets £000 1,808 4,289 623 – (2,431) (1,978) (4,409) – 2,311 2,311 8 Dividends For the year to 31 March Ordinary dividends paid 2011 Final dividend: 3.3p per share 2012 Interim dividend: 3.5p per share 2012 Final dividend: 3.5p per share 2013 Interim dividend: 3.5p per share Proposed for approval by shareholders at Annual General Meeting Final dividend: 3.5p per share 2013 £000 2012 £000 – – 18,011 19,103 18,998 18,998 37,996 – – 37,114 21,982 18,998 The proposed final dividend was approved by the Board on 30 May 2013 and is subject to approval at the Annual General Meeting on 10 July 2013. It has not been included as a liability or deducted from retained earnings as at 31 March 2013. The proposed final dividend of 3.5p per share, of which 1.5p per share is a Property Income Distribution, is payable on 12 July 2013 to ordinary shareholders on the register at the close of business on 14 June 2013 and will be recognised as an appropriation of retained earnings in 2014. 9 Earnings and net assets per share The loss per share of 2.4p (2012: Earnings per share of 0.5p) is calculated on a weighted average of 561,508,387 (2012: 544,775,895) ordinary shares of 10p each and is based on losses attributable to ordinary shareholders of £13.5 million (2012: profit of £2.7 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 2013 of £676.7 million (2012: £630.9 million) and 628,043,905 ordinary shares in issue at that date (2012: 542,795,171). Adjusted earnings 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(1) Fair value of derivatives(1) Goodwill on acquisitions(1) Write down of intangible assets Share-based payments Acquisition costs Deferred tax Cost on closing out of derivatives Profit on disposal of investment and trading property and subsidiaries Impairment of investments held for sale Minority interest in respect of the above EPRA adjusted earnings Cost on closing out of derivatives Minority interest Current tax credit(1) Underlying profit (1) Including share of associates and joint ventures. 2013 £000 As restated 2012 £000 (13,456) 2,689 (20,320) (3,038) 2,803 6,251 3,954 8,859 (2,876) 3,965 10,484 13,450 5,661 4,409 – – 1,786 111 (1,076) (1,035) 23,178 63 – 50 21,951 23,961 – – (679) (111) 1,145 (704) 21,272 24,291 69 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 9 Earnings and net assets per share (continued) As at 31 March Number of shares Opening ordinary share capital Purchase and cancellation of own shares 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 (loss)/earnings per share EPRA adjusted earnings per share 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 adjusted net assets Basic net assets per share EPRA adjusted net assets per share 10 Investment properties As at 31 March Investment properties Opening balance Reclassifications Acquisitions Other capital expenditure Disposals Transfer to development properties Transfer to assets held for sale Revaluation movement Movement in tenant incentives and rent free uplifts At 31 March valuation 70 2013 Number of shares 2012 Number of shares 542,795,171 545,795,171 – (863,424) 30,337,519 (811,481) (9,949,398) (501,370) (517,906) – – – 561,508,387 544,775,895 (2.4)p 3.9p 0.5p 4.4p 2013 £000 As restated 2012 £000 676,669 9,883 (336) 633 2,723 (2,311) 687,261 107.7p 109.4p 630,904 12,274 – 408 4,272 (4,289) 643,569 116.2p 118.6p 2013 As restated 2012 Freehold £000 Long leasehold £000 Total £000 Freehold £000 Long leasehold £000 Total £000 474,435 185,587 660,022 583,553 164,722 748,275 – – – 67,225 (67,225) – 487,979 81,319 569,298 34,039 81,625 115,664 857 (168) 689 1,932 1,102 3,034 (242,151) (6,198) (248,349) (207,896) (2,252) (210,148) – – (77,000) (77,000) (58,810) (58,810) – – – – – – (1,606) (8,650) 9,760 8,154 (4,393) 7,653 3,260 5 (8,645) (25) (38) (63) 710,864 134,495 845,359 474,435 185,587 660,022 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements continued For the year ended 31 March As at 31 March Number of shares Opening ordinary share capital Purchase and cancellation of own shares Shares held in employee trust Basic (loss)/earnings per share EPRA adjusted earnings per share As at 31 March Net assets per share Equity shareholders’ funds Fair value of derivatives Cost of cap and swaption Deferred tax EPRA adjusted net assets Basic net assets per share EPRA adjusted net assets per share 10 Investment properties As at 31 March Investment properties Opening balance Reclassifications Acquisitions Other capital expenditure Disposals Transfer to development properties Transfer to assets held for sale Revaluation movement Revaluation of trading properties Fair value of associate and joint ventures’ derivatives Movement in tenant incentives and rent free uplifts At 31 March valuation 2013 £000 As restated 2012 £000 – (863,424) 30,337,519 (811,481) (9,949,398) (2.4)p 3.9p 676,669 9,883 (336) 633 2,723 (2,311) 687,261 107.7p 109.4p (501,370) (517,906) – – – 0.5p 4.4p 630,904 12,274 – 408 4,272 (4,289) 643,569 116.2p 118.6p As restated 2012 Freehold leasehold £000 Long £000 Freehold leasehold £000 Long £000 Total £000 2013 Total £000 – – – 474,435 185,587 660,022 583,553 164,722 748,275 – – 67,225 (67,225) 487,979 81,319 569,298 34,039 81,625 115,664 857 (168) 689 1,932 1,102 3,034 (242,151) (6,198) (248,349) (207,896) (2,252) (210,148) (77,000) (77,000) (58,810) (58,810) – – – – (1,606) (8,650) 9,760 8,154 (4,393) 7,653 3,260 5 (8,645) (25) (38) (63) 710,864 134,495 845,359 474,435 185,587 660,022 – – – 9 Earnings and net assets per share (continued) 10 Investment properties (continued) 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 561,508,387 544,775,895 2013 2012 Number of shares Number of shares 542,795,171 545,795,171 As at 31 March Investment properties under development Opening balance Acquisitions Other capital expenditure Transfer from investment properties Revaluation movement At 31 March valuation Total investment properties 2013 As restated 2012 Freehold £000 Long leasehold £000 Total £000 Freehold £000 Long leasehold £000 Total £000 – 5,360 24 – 240 – – – – 5,360 24 77,000 77,000 – 240 5,624 77,000 82,624 – – – – – – – – – – – – – – – – – – 716,488 211,495 927,983 474,435 185,587 660,022 At 31 March 2013, 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 £928.0 million. Apartments held at Clerkenwell Quarter, Islington were valued by RICS Registered Valuers of Savills at £58.8 million and have been transferred at valuation as held for sale at the year-end as the property was being actively marketed for sale. Investment property in the course of construction at Clerkenwell Quarter, Islington in the previous year was valued by the Directors at £10.4 million. At the request of the Financial Reporting Council, the Company has agreed to restate the valuation for this property in the 31 March 2012 financial statements reducing its value by £2.65 million. While the Directors consider that the valuation of investment property assets in the Group Balance Sheet was materially accurate, they have acknowledged that because of the specific circumstances surrounding the property concerned, it had not been valued in accordance with IFRS or valuation standards. The Directors have accordingly restated the figures previously reported including the profit on revaluation shown in the Group Income Statement. The valuations were undertaken in accordance with the RICS Valuation – Professional Standards 2012 on the basis of fair value and were primarily derived using comparable recent market transactions on arm’s length terms. 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. Included within the investment property valuation is £0.8 million (2012: £9.6 million) in respect of lease incentives and rent free periods. The historical cost of all of the Group’s investment properties at 31 March 2013 was £885.3 million (2012: £599.5 million). Capital commitments have been entered into amounting to £5.6 million (2012: £nil) 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 At 31 March 2013 £000 2012 £000 161,575 115,345 68,002 15,969 (119,165) 47,459 4,346 – (5,462) (5,575) 120,919 161,575 In February 2009 the Group established the LSP Green Park Property Trust with Green Park Investments, a wholly-owned subsidiary of a major Gulf institution, in which it held a 31.4% interest. The Trust acquired a 50% interest in the Meadowhall Shopping Centre in February 2009, which was equity accounted for the Group as an associate in the financial statements to 31 March 2012. The investment was transferred to current assets and classified as an investment held for sale at 30 September 2012 in accordance with IFRS 5 at its fair value less costs of disposal, of £95.8 million. An impairment loss of £23.2 million is reflected in the income statement. The disposal of the Group’s interest in the Meadowhall Shopping Centre completed on 6 October 2012. 71 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 11 Investment in associate and joint venture (continued) In May 2011 the Group disposed of a 50% interest in its distribution portfolio of ten prime assets acquired in November 2010 to Green Park. It retained a 50% interest in the joint venture company, LSP Green Park Distribution Holdings Limited. In June 2012, the Group entered into a joint venture arrangement with Green Park Investments and the Public Sector Pension Investment Board to invest in residential property. On 19 July 2012, the joint venture arrangement, LSP London Residential Investments Limited, in which the Group has a 40% interest, acquired 149 apartments at Moore House, London, for £147.1 million. As part of the merger with Metric, the Group acquired a one-third interest in Metric Income Plus Limited Partnership (MIPP). The Universities Superannuation Scheme Limited holds the remaining two-third stake. All Group interests are equity accounted for in these financial statements. The Group’s share of the profit after tax and net assets of its associates and joint ventures is as follows: Summarised income statement Net rental income Administration expenses Movement in fair value of net assets acquired over consideration paid Surplus/(deficit) on revaluation of investment properties Net interest payable Movement in fair value of derivatives Tax Profit after tax Summarised balance sheet Investment properties Other current assets Cash Current liabilities Bank debt Unamortised finance costs Derivative financial instruments Other non current liabilities Net assets LSP Green Park Property Trust (Meadowhall) £000 LSP Green Park Distribution Holdings £000 LSP London Residential Investments £000 Metric Income Plus £000 LSP Green Park Property Trust (Meadowhall) £000 LSP Green Park Distribution Holdings £000 2013 £000 2012 £000 5,628 (909) 8,257 (895) 152 (279) 359 (25) 14,396 (2,108) 11,980 (1,871) 7,189 (914) 19,169 (2,785) – – – – (2,075) 13,948 – 53 (3,938) (3,179) (634) (106) – 2,876 – 2,876 11,926 (7,857) (4,952) 4,730 (222) (8,330) (2,723) (11,053) (544) 226 463 (329) 485 (151) – 2,264 13,036 (75) – 206 (1,099) (1,294) (2,394) (3,688) 711 15,969 49 – (1,542) 5,888 49 4,346 – – – – – – – – – 118,763 76,800 30,567 226,130 237,667 120,849 358,516 358 4,209 (3,251) 310 1,970 (487) – 2,085 (544) 668 8,264 491 4,116 298 4,430 789 8,546 (4,282) (10,971) (3,800) (14,771) (74,040) (26,000) (8,433) (108,473) (102,243) (74,040) (176,283) 621 (2,493) – 399 (151) – 315 (79) – 1,335 (2,723) – 848 848 (2,109) (2,163) (4,272) – (11,798) – (11,798) 44,167 52,841 23,911 120,919 115,153 46,422 161,575 At 31 March 2013, 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. 72 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements continued For the year ended 31 March 11 Investment in associate and joint venture (continued) In May 2011 the Group disposed of a 50% interest in its distribution portfolio of ten prime assets acquired in November 2010 to Green Park. It retained a 50% interest in the joint venture company, LSP Green Park Distribution Holdings Limited. In June 2012, the Group entered into a joint venture arrangement with Green Park Investments and the Public Sector Pension Investment Board to invest in residential property. On 19 July 2012, the joint venture arrangement, LSP London Residential Investments Limited, in which the Group has a 40% interest, acquired 149 apartments at Moore House, London, for £147.1 million. As part of the merger with Metric, the Group acquired a one-third interest in Metric Income Plus Limited Partnership (MIPP). The Universities Superannuation Scheme Limited holds the remaining two-third stake. All Group interests are equity accounted for in these financial statements. The Group’s share of the profit after tax and net assets of its associates and joint ventures is as follows: LSP Green Park Property Trust (Meadowhall) £000 LSP Green Park Distribution Holdings £000 LSP London Residential Investments £000 Metric Income Plus £000 LSP Green Park Property Trust (Meadowhall) £000 LSP Green Park Distribution Holdings £000 2013 £000 2012 £000 5,628 (909) 8,257 (895) 152 (279) 359 (25) 14,396 (2,108) 11,980 (1,871) 7,189 (914) 19,169 (2,785) Summarised income statement Net rental income Administration expenses Movement in fair value of net assets acquired over consideration paid Surplus/(deficit) on revaluation of investment properties Net interest payable Movement in fair value of derivatives Tax Profit after tax Summarised balance sheet Investment properties Other current assets Cash Current liabilities Bank debt Unamortised finance costs Derivative financial instruments Other non current liabilities Net assets – 53 (75) – 206 – 2,085 (544) 315 (79) – (544) 226 463 (329) 485 (151) – 2,264 13,036 (1,099) (1,294) (2,394) (3,688) 711 15,969 49 – (1,542) 5,888 49 4,346 118,763 76,800 30,567 226,130 237,667 120,849 358,516 (74,040) (26,000) (8,433) (108,473) (102,243) (74,040) (176,283) 358 4,209 (3,251) 621 (2,493) – 310 1,970 (487) 399 (151) – 668 8,264 491 4,116 298 4,430 789 8,546 (4,282) (10,971) (3,800) (14,771) 1,335 (2,723) – 848 848 (2,109) (2,163) (4,272) – (11,798) – (11,798) – – – – – – – – – – – 12 Intangible assets As at 31 March Cost Opening balance Additions At 31 March Amortisation Opening balance Amortisation during the year At 31 March Net carrying amount 2013 £000 2012 £000 53,260 53,260 1,168 – 54,428 53,260 40,836 36,871 3,954 44,790 9,638 3,965 40,836 12,424 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 and is being amortised on a straight-line basis over the remaining period of the contract to May 2015. 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. – – – 2,876 – 2,876 13 Trade and other receivables (2,075) 13,948 (3,938) (3,179) (634) (106) 11,926 (7,857) (4,952) 4,730 (222) (8,330) (2,723) (11,053) As at 31 March Trade receivables Performance fees receivable Amounts receivable from income guarantees Share-based payment prepayment Corporation tax debtor Prepayments and accrued income Other receivables 2013 £000 1,942 3,457 – 2012 £000 288 – 557 3,789 19,767 – 1,057 1,486 752 1,068 307 11,731 22,739 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. All trade receivables are considered recoverable at the balance sheet date and as such no allowance for doubtful debts has been made. Since the year end all trade receivables have been collected. At 31 March 2013 there were no trade receivables which were overdue or impaired. There is no provision for impairment of trade receivables as at 31 March 2013 as the risk of impairment of the amounts outstanding is not considered to be significant. At 31 March 2013, 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. Cash and cash equivalents include £9.6 million (2012: £29.1 million) retained in rent and restricted accounts which are not readily available to the Group for day to day commercial purposes. 44,167 52,841 23,911 120,919 115,153 46,422 161,575 14 Cash and cash equivalents 73 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 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 Deferred income 2013 £000 2,096 4,499 8,051 2,739 1,263 7,584 – 26,232 2012 £000 775 51 8,156 2,239 2,009 1,971 20,016 35,217 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 2013 £000 2012 £000 464,564 322,769 (4,236) (2,936) 460,328 319,833 The bank loans are secured by fixed charges over certain of the Group’s investment properties with a carrying value of £884 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. At the year-end deposits were spread across eight different banks. The credit ratings of the banks are monitored by J C Rathbone Associates Limited and reported to the Board at least quarterly in order to make necessary changes and 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. 74 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements 2013 £000 2,096 4,499 8,051 2,739 1,263 7,584 – 26,232 2012 £000 775 51 8,156 2,239 2,009 1,971 20,016 35,217 2013 £000 2012 £000 464,564 322,769 (4,236) (2,936) 460,328 319,833 continued For the year ended 31 March 15 Trade and other payables Amounts payable on property acquisitions and disposals Rent received in advance As at 31 March Trade payables Accrued interest Other payables Other accruals Deferred income 16 Borrowings and financial instruments a) Non current financial liabilities As at 31 March Secured bank loans Unamortised finance costs b) Financial risk management Financial risk factors 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 £884 million and are repayable within five years of the balance sheet date. 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 obligations. 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 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. At the year-end deposits were spread across eight different banks. The credit ratings of the banks are monitored by J C Rathbone Associates Limited and reported to the Board at least quarterly in order to make necessary changes and 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. 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. Quarterly cash flow forecasts are prepared for the Board in order to ensure sufficient resources of cash and undrawn borrowing facilities are in place to meet liabilities as they fall due. The Group deposits surplus cash with a number of banks and for varying periods of time to ensure diversification, liquidity of resources and so as to deliver appropriate returns. The Group had cash reserves of £37.6 million (2012: £136.9 million) and available and undrawn bank loan facilities at 31 March 2013 of £37.0 million (2012: £22.3 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 2013 Bank loans Derivative financial instruments At 31 March 2012 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 41,622 41,243 420,708 503,573 4,507 3,750 2,792 11,049 46,129 44,993 423,500 514,622 Less than one year £000 One to two years £000 Two to five years £000 Total £000 8,553 5,272 8,553 335,134 352,240 5,346 4,493 15,111 13,825 13,899 339,627 367,351 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 2013 the Group had £370 million (2012: £289 million) of hedges in place, and its debt was 80% (2012: 84%) fixed. 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 £1.9 million and £1.0 million respectively. The average interest rate payable by the Group on all bank borrowings at 31 March 2013 excluding undrawn facility commitment fees was 3.59% (31 March 2012: 4.12%). 75 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 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) Amounts receivable from income guarantees (note 13) Performance fees receivable (note 13) Corporation tax receivable 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) Deferred income (note 15) Other payables (note 15) Derivative financial instruments (see 16c(iii)) ii) Fair values Loans and receivables 2013 £000 2012 £000 37,572 136,934 1,942 – 3,457 – 1,486 288 557 – 752 307 44,457 138,838 Measured at amortised cost Measured at fair value 2013 £000 2012 £000 2013 £000 2012 £000 460,328 319,833 2,096 2,739 7,584 775 2,239 1,971 – 20,016 1,263 2,009 – – 474,010 346,843 – – – – – – – – – – – – 9,883 9,883 12,274 12,274 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 2013. 76 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Group financial statements 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. continued For the year ended 31 March 16 Borrowings and financial instruments (continued) iv) Capital risk management c) Financial instruments i) Categories of financial instruments As at 31 March Current assets Cash and cash equivalents Trade receivables (note 13) Amounts receivable from income guarantees (note 13) Performance fees receivable (note 13) Corporation tax receivable 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) Deferred income (note 15) Other payables (note 15) ii) Fair values Derivative financial instruments (see 16c(iii)) Loans and receivables 2013 £000 2012 £000 37,572 136,934 1,942 – – 3,457 1,486 288 557 – 752 307 44,457 138,838 Measured at amortised cost Measured at fair value 2013 £000 2012 £000 2013 £000 2012 £000 460,328 319,833 2,096 2,739 7,584 775 2,239 1,971 – 20,016 1,263 2,009 – – 474,010 346,843 – – – – – – – – – – – – 9,883 9,883 12,274 12,274 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 2013. 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 2013 are provided below: 16 Borrowings and financial instruments (continued) iii) Derivative financial instruments Protected rate % Market value 31 March 2012 £000 Acquired in the period £000 Expiry 3.68 1.88 2.35 4.00 2.69 3.77 2.03 1.31 1.07 4.00 4.00 1.19 2.00 2.00 1.48 2.03 1.56 1.19 1.20 3.34 3.00 October 2014 (5,689) October 2012 (213) March 2016 October 2014 January 2015 October 2014 July 2016 July 2016 July 2017 March 2016 July 2015 July 2015 June 2016 June 2016 October 2015 October 2016 October 2016 October 2016 October 2016 April 2016 April 2016 25 20 (1,796) (3,840) (767) (14) – – – – – – – – – – – – – – – – – – – – – – 172 9 – 47 108 (424) (161) (266) (126) (119) (861) 27 Disposed in the period £000 5,689 – – – – – – – – – – – – – – – – – – – – Movement recognised in income statement £000 Market value 31 March 2013 £000 – 213 (25) (20) 309 975 (417) (400) (874) (149) (8) (879) (11) (45) (53) (74) (63) (73) (80) (20) (10) – – – – (1,487) (2,865) (1,184) (414) (874) 23 1 (879) 36 63 (477) (235) (329) (199) (199) (881) 17 (12,274) (1,594) 5,689 (1,704) (9,883) £85 million swap(1) £40.7 million swap(1) £40.7 million swaption(1) £26.5 million cap(2) £38.1 million swap(3) £55.3 million swap £25.0 million fixed rate £17.6 million fixed rate £61.8 million swap £100.0 million swaption(4) £4.0 million cap £40.7 million swap(5) £17.7 million cap £5.8 million cap £20.0 million swap £20.0 million swap £10.0 million swap £10.0 million swap £10.0 million swap £10.5 million fixed rate £17.5 million cap (1) (2) (3) (4) (5) Derivatives disposed or lapsed in the period. Increased from £17.5 million in October 2012. Decreased from £48.1 million in October 2012. Exercisable in July 2015. Increases to £96 million in October 2014. All derivative financial instruments are non current interest rate derivatives, and are carried at fair value following a valuation as at 31 March 2013 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 calculated on a replacement basis using mid-market rates. For all derivative financial instruments this equates to a Level 2 fair value measurement as defined by IFRS 7 Financial Instruments: Disclosures. 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. 77 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 17 Acquisitions On 25 January 2013 the Company issued 178,599,912 ordinary shares as consideration in exchange for the entire share capital of Metric Property Investments plc (“Metric”). The merger was implemented by way of a Scheme of Arrangement under Part 26 of the Companies Act 2006. Each Metric shareholder received 0.94 ordinary shares in the Company for each ordinary share held in Metric. The fair value of the consideration payable by the Company was £202.7 million, being 178,599,912 ordinary shares at 113.5p, the closing share price of the Company at 25 January 2013. The fair value of assets acquired was £196.5 million and the goodwill arising of £6.3 million has been fully impaired and charged to the profit and loss. Exceptional administration costs associated with the merger and integration of £5.7 million have been charged to the profit and loss in the year. The fair value of assets and liabilities acquired is set out in the table below: Assets Investment properties Investment in joint ventures Intangible asset Tangible assets Deferred tax Trade and other receivables Cash and cash equivalents Total assets Liabilities Trade and other payables Borrowings Derivative financial instruments Total liabilities Net assets Fair value of consideration paid Goodwill on acquisition of subsidiaries Book value of net assets acquired £000 255,502 23,705 – 45 – 2,867 3,610 Intangible asset £000 Deferred tax £000 – – 1,168 – – – – – – – – 623 – – Fair value of net assets acquired £000 255,502 23,705 1,168 45 623 2,867 3,610 285,729 1,168 623 287,520 (13,501) (75,629) (1,930) (91,060) 194,669 – – – – – – – – 1,168 623 (13,501) (75,629) (1,930) (91,060) 196,460 202,711 6,251 A detailed review of the existence of intangible assets other than goodwill was undertaken and an intangible asset was recognised representing the fair value of the Metric Income Plus Partnership Management Agreement acquired by the Group. The value attributed to the contract of £1.2 million will be amortised over the remaining period of the contract to November 2016. In addition, tax losses available to the Group of £2.7 million have given rise to a deferred tax asset of £0.6 million. The properties acquired complement the existing portfolio and an adjustment was made to the carrying value of two investment properties at Bishop Auckland and Cannock which had completed development and refurbishment work in the period prior to acquisition, giving rise to a revaluation uplift of £1.5 million. It is anticipated that the Group will benefit from proposed asset management, refurbishment and development enhancements within the acquired portfolio which has not been incorporated into the fair value of the assets in accordance with IAS 36. The acquisition has contributed £2.6 million to gross rental income and £0.1 million to profit before tax since acquisition. If the acquisition had occurred on 1 April 2012, the contribution to gross rental income and profit before tax would have been £13.2 million and £1.7 million respectively. The goodwill arising on acquisition of £6.3 million has been fully impaired and charged to the profit and loss account in the year. It primarily reflects exceptional costs associated with the merger of £4.1 million which were committed to and charged by Metric in the pre-acquisition period and which did not form part of the pricing negotiations for the merger which was based on a share exchange ratio and was subject to movements in the Company’s share price between the date of announcement of the merger to its effective date of 25 January 2013. 78 LondonMetric Property Plc Annual report and accounts 2013Financial statements continued For the year ended 31 March 17 Acquisitions held in Metric. Assets Investment properties Investment in joint ventures Intangible asset Tangible assets Deferred tax Trade and other receivables Cash and cash equivalents Total assets Liabilities Borrowings Total liabilities Net assets Trade and other payables Derivative financial instruments Fair value of consideration paid Goodwill on acquisition of subsidiaries Notes forming part of the Group financial statements On 25 January 2013 the Company issued 178,599,912 ordinary shares as consideration in exchange for the entire share capital of Metric Property Investments plc (“Metric”). The merger was implemented by way of a Scheme of Arrangement under Part 26 of the Companies Act 2006. Each Metric shareholder received 0.94 ordinary shares in the Company for each ordinary share The fair value of the consideration payable by the Company was £202.7 million, being 178,599,912 ordinary shares at 113.5p, the closing share price of the Company at 25 January 2013. The fair value of assets acquired was £196.5 million and the goodwill arising of £6.3 million has been fully impaired and charged to the profit and loss. Exceptional administration costs associated with the merger and integration of £5.7 million have been charged to the profit and loss in the year. The fair value of assets and liabilities acquired is set out in the table below: Less than one year Between one and five years Between six and ten years Between 11 and 15 years Between 16 and 20 years 2013 £000 49,728 186,337 182,679 76,158 22,716 2012 £000 37,190 98,579 81,679 41,273 2,094 517,618 260,815 18 Commitments under operating leases The Group’s minimum lease rentals receivable under non-cancellable operating leases, excluding associates and joint ventures, are as follows: Book value of net assets acquired £000 255,502 23,705 45 – – 2,867 3,610 (13,501) (75,629) (1,930) (91,060) 194,669 1,168 – – – – – – – – – – 623 – – – – – – – – – – Fair value of net assets acquired £000 255,502 23,705 1,168 45 623 2,867 3,610 (13,501) (75,629) (1,930) (91,060) 196,460 202,711 6,251 285,729 1,168 623 287,520 Intangible asset £000 Deferred tax £000 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 19 Share capital As at 31 March Authorised 2013 £000 213 3,240 339 3,792 2012 £000 673 1,682 – 2,355 2012 £000 2013 Number 2013 £000 2012 Number Ordinary shares of 10p each Unlimited Unlimited Unlimited Unlimited 1,168 623 As at 31 March Issued, called up and fully paid Ordinary shares of 10p each 2013 Number 2013 £000 2012 Number 2012 £000 628,043,905 62,804 542,795,171 54,280 A detailed review of the existence of intangible assets other than goodwill was undertaken and an intangible asset was recognised representing the fair value of the Metric Income Plus Partnership Management Agreement acquired by the Group. The value attributed to the contract of £1.2 million will be amortised over the remaining period of the contract to November 2016. In addition, tax losses available to the Group of £2.7 million have given rise to a deferred tax asset of £0.6 million. The properties acquired complement the existing portfolio and an adjustment was made to the carrying value of two investment properties at Bishop Auckland and Cannock which had completed development and refurbishment work in the period prior to acquisition, giving rise to a revaluation uplift of £1.5 million. It is anticipated that the Group will benefit from proposed asset management, refurbishment and development enhancements within the acquired portfolio which has not been incorporated into the fair value of the assets in accordance with IAS 36. The acquisition has contributed £2.6 million to gross rental income and £0.1 million to profit before tax since acquisition. If the acquisition had occurred on 1 April 2012, the contribution to gross rental income and profit before tax would have been £13.2 million and £1.7 million respectively. The goodwill arising on acquisition of £6.3 million has been fully impaired and charged to the profit and loss account in the year. It primarily reflects exceptional costs associated with the merger of £4.1 million which were committed to and charged by Metric in the pre-acquisition period and which did not form part of the pricing negotiations for the merger which was based on a share exchange ratio and was subject to movements in the Company’s share price between the date of announcement of the merger to its effective date of 25 January 2013. On 25 January 2013, the Company issued 178,599,912 New Ordinary Shares in exchange for the entire issued share capital of Metric Property Investments plc pursuant to the merger of the two organisations. In addition 4,777,268 ordinary shares were acquired by the Company from the former LSI Management LLP members (the former Property Advisor to the Group) and subsequently cancelled. The Company acquired 88,573,910 ordinary shares on 18 February 2013 from shareholders following a Tender Offer as set out in a Circular published on 31 January 2013. The Tender Offer was taken up in full at a price of 112.9p per ordinary share. 20 Reserves The Statement of Changes in Equity is shown on page 59. The following describes the nature and purpose of each reserve within equity: Share capital The nominal value of shares issued. Capital redemption reserve Other reserve Amounts transferred from share capital on redemption of issued ordinary shares. 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. 79 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Group financial statements continued For the year ended 31 March 21 Related party transactions and balances Details of Directors’ remuneration and interests are given in the Remuneration report on pages 51 to 55. During the year the Group received property advisory fees of £6.6 million (2012: £5.5 million) from LSP Green Park Property Trust, in which it has a 31.4% interest. It also received £1.4 million (2012: £1.1 million) from LSP Green Park Distribution Holdings Limited, in which it has a 50% interest and £0.4 million (2012: £nil) from LSP London Residential Investments Limited, in which it has a 40% interest. In the post-merger period the Group received fees of £0.1 million form Metric Income Plus Partnership, in which it has a one-third interest. None of the fees were outstanding at 31 March 2013 (2012: £nil). Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation. 22 Events after the balance sheet date On 14 May 2013 the Group completed the acquisition of Martlesham Heath Retail Park, Ipswich for £10.35 million. 80 LondonMetric Property Plc Annual report and accounts 2013Financial statements continued For the year ended 31 March 21 Related party transactions and balances Details of Directors’ remuneration and interests are given in the Remuneration report on pages 51 to 55. During the year the Group received property advisory fees of £6.6 million (2012: £5.5 million) from LSP Green Park Property Trust, in which it has a 31.4% interest. It also received £1.4 million (2012: £1.1 million) from LSP Green Park Distribution Holdings Limited, in which it has a 50% interest and £0.4 million (2012: £nil) from LSP London Residential Investments Limited, in which it has a 40% interest. a one-third interest. In the post-merger period the Group received fees of £0.1 million form Metric Income Plus Partnership, in which it has None of the fees were outstanding at 31 March 2013 (2012: £nil). Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation. 22 Events after the balance sheet date On 14 May 2013 the Group completed the acquisition of Martlesham Heath Retail Park, Ipswich for £10.35 million. Notes forming part of the Group financial statements Independent auditor’s report to the members of LondonMetric Property Plc We have audited the Parent Company financial statements of LondonMetric Property Plc for the year ended 31 March 2013 which comprise the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the Parent Company 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 Parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: – the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and – the information given in the Directors’ report for the financial period for which the financial statements are prepared is consistent with the Parent Company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion; – adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or – the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or – certain disclosures of Directors’ remuneration specified by law are not made; or – we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Group financial statements of LondonMetric Property Plc for the year ended 31 March 2013. Opinion on financial statements In our opinion the Parent Company financial statements: – give a true and fair view of the state of the Company’s affairs as at 31 March 2013; David Eagle Senior Statutory Auditor For and on behalf of BDO LLP, statutory auditor London United Kingdom – have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and 31 May 2013 – have been prepared in accordance with the requirements of the Companies Act 2006. BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 81 Annual report and accounts 2013 LondonMetric Property Plc 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 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 2013 £000 2012 £000 iii 667,628 524,265 667,628 524,265 iv 669 35,880 15,555 91,431 16,224 127,311 v 3,683 2,623 12,541 124,688 680,169 648,953 680,169 648,953 vi vi 62,804 54,280 9,636 300 vi 403,356 434,946 vi 204,373 159,427 680,169 648,953 The financial statements were approved and authorised for issue by the Board of Directors on 31 May 2013 and were signed on its behalf by: Martin McGann Finance Director The notes on pages 83 to 85 form part of these financial statements. 82 LondonMetric Property Plc Annual report and accounts 2013Financial statements Company Balance Sheet As at 31 March Notes forming part of the Company financial statements For the year ended 31 March 2013 Note 2013 £000 2012 £000 i Accounting policies Accounting convention The Company financial statements are prepared under UK GAAP and the historical cost convention. The Company has prepared its financial statements on a going concern basis. 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 loss dealt within the accounts of the Company was £33.5 million (2012: profit of £61.1 million). Audit fees in relation to the Company only were £189,000 in the year (2012: £155,000). iii Fixed asset investments At 1 April 2012 Additions to cost Impairment of investment At 31 March 2013 Subsidiary undertakings £000 524,265 360,819 (217,456) 667,628 The Company 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) Creditors: amounts falling due within one year Fixed assets Investment in subsidiaries Current assets Debtors Cash at bank Current liabilities Net current 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 iii 667,628 524,265 667,628 524,265 iv 669 35,880 15,555 91,431 16,224 127,311 v 3,683 2,623 12,541 124,688 680,169 648,953 680,169 648,953 vi vi 62,804 54,280 9,636 300 vi 403,356 434,946 vi 204,373 159,427 680,169 648,953 The financial statements were approved and authorised for issue by the Board of Directors on 31 May 2013 and were signed The notes on pages 83 to 85 form part of these financial statements. London & Stamford Property Limited LSI Management Limited LSI (Investments) Limited LondonMetric Saturn Limited Metric Property Investments plc MREF II PM Limited London & Stamford Investments Limited* LSI Developments Limited* London & Stamford Property Subsidiary Limited* London & Stamford Offices Trust* L&S Business Space Limited* L&S Highbury Limited* L&S Business Space II Limited* L&S Battersea Limited* L&S Clapham Road Limited* L&S Seward St. Limited* London & Stamford Offices II Limited* LSP Leatherhead Limited* LSP Marlow Limited* Guernsey Guernsey England England England Jersey England England Guernsey Guernsey Guernsey Guernsey Guernsey Guernsey Guernsey Guernsey Guernsey Guernsey Guernsey 100% 100% 100% 100% 100% 100% 100% Nature of business Intermediate holding company Management company Property investment Property investment Property investment Property investment Intermediate holding company 100% Property investment and development 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Intermediate holding company Property investment Property investment Property investment Property investment Property investment Property investment Property investment Property investment Property investment Property investment 83 Annual report and accounts 2013 LondonMetric Property Plc Notes forming part of the Company financial statements continued For the year ended 31 March 2013 iii Fixed asset investments (continued) Metric Property Newry Limited* Metric Property Launceston Limited* Metric Property Loughborough Limited* Metric Property Coventry Limited* Metric Property Mansfield Limited* Metric Property Congleton 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 Sheffield Limited* Metric Property Kings Lynn Limited* Metric Property Finance 1 Limited* Metric Property Finance 2 Limited* Metric Property Berkhamsted Limited* * Undertakings held indirectly by the Company. Country of incorporation or registration Proportion of voting rights held (by way of share capital or units held) England England England England England England Scotland England England England England England Scotland England England England England England England 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 Property investment Property investment Property investment Intermediate holding company Intermediate holding company Property investment All of the undertakings listed above operate in their country of incorporation except those who are tax resident in the United Kingdom. All shares held are ordinary shares. iv Debtors As at 31 March Trade debtors Dividend receivable from subsidiary undertakings 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 84 2013 £000 516 – 23 130 669 2012 £000 – 33,445 2,435 – 35,880 2013 £000 58 105 597 2,923 3,683 2012 £000 2,319 – 304 – 2,623 LondonMetric Property Plc Annual report and accounts 2013Financial statements Notes forming part of the Company financial statements continued For the year ended 31 March 2013 iii Fixed asset investments (continued) vi Reserves Country of Proportion of voting rights incorporation or registration held (by way of share capital or units held) At 1 April 2012 Retained loss for the year Share issue on merger with Metric Clawback and cancellation of own shares Share capital £000 Capital redemption reserve £000 Other reserve £000 Retained earnings £000 54,280 300 434,946 159,427 – – – (33,499) 17,860 (479) – 184,851 479 – – (100,650) – – Purchase and cancellation of own shares following Tender offer (8,857) 8,857 Share-based awards Reserve transfer of impairment in subsidiary Dividends paid At 31 March 2013 vii Related party transactions – – – – 1,015 (365) – (217,456) 217,456 – – (37,996) 62,804 9,636 403,356 204,373 The Company has received short-term non-interest bearing loans from subsidiaries in the year and £2.9 million is outstanding as at 31 March 2013. In the previous year a dividend of £33.4 million was due to the Company from subsidiaries. This was paid in full in the year. Other related party transactions for the Company are as noted for the Group in note 21 to the Group financial statements. 85 Metric Property Newry Limited* Metric Property Launceston Limited* Metric Property Loughborough Limited* Metric Property Coventry Limited* Metric Property Mansfield Limited* Metric Property Congleton 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 Sheffield Limited* Metric Property Kings Lynn Limited* Metric Property Finance 1 Limited* Metric Property Finance 2 Limited* Metric Property Berkhamsted Limited* * Undertakings held indirectly by the Company. England England England England England England Scotland England England England England England Scotland England England England England England England iv Debtors As at 31 March Trade debtors Dividend receivable from subsidiary undertakings 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 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 Property investment Property investment Property investment Intermediate holding company Intermediate holding company Property investment 2013 £000 516 – 23 130 669 2012 £000 33,445 2,435 – – 35,880 2013 £000 58 105 597 2,923 3,683 2012 £000 2,319 304 – – 2,623 All of the undertakings listed above operate in their country of incorporation except those who are tax resident in the United Kingdom. All shares held are ordinary shares. Annual report and accounts 2013 LondonMetric Property Plc Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of the members of LondonMetric Property Plc (Registered number 7124797) will be held at The Connaught, Carlos Place, Mayfair, London W1K 2AL, on 10 July 2013 at 10 am. Resolutions 1 to 12 will be proposed as ordinary resolutions and resolutions 13 to 15 will be proposed as special resolutions. 1. To consider and receive the Annual Report and Audited Financial Statements for the year to 31 March 2013. 2. To approve the Remuneration Committee report for the year ended 31 March 2013. 3. To approve the final dividend for the year to 31 March 2013 of 3.5p per share. 4. To reappoint BDO LLP as auditors of the Company, to hold office until the conclusion of the next general meeting at which accounts are laid before the Company. 5. To authorise the Board to determine the remuneration of the auditors. 6. To consider the election of Mr Andrew Jones as a Director of the Company. 7. To consider the election of Mr Andrew Varley as a Director of the Company. 8. To consider the election of Mr Alec Pelmore as a Director of the Company. 9. To consider the election of Mr Philip Watson as a Director of the Company. 10. That the Directors be and they are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the “2006 Act”) in substitution for all existing authorities: a. to exercise all the powers of the Company to allot shares and to make offers or agreements to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company (together “relevant securities”) up to an aggregate nominal amount of £20,934,797; and b. to exercise all the powers of the Company to allot equity securities (within the meaning of Section 560 of the 2006 Act) up to an additional aggregate nominal amount of £20,934,797 provided that this authority may only be used in connection with a rights issue in favour of holders of ordinary shares and other persons entitled to participate therein where the equity securities respectively attributable to the interests of all those persons at such record dates as the Directors may determine are proportionate (as nearly as may be) to the respective numbers of equity securities held or deemed to be held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or legal difficulties under the laws of any territory or the requirements of a regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatsoever, provided that the authorities in 10a and 10b shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or if earlier on the date which is 15 months after the date of the Annual General Meeting, except that the Company may before such expiry make an offer or agreement which would or might require Relevant Securities or equity securities as the case may be to be allotted after such expiry and the Directors may allot Relevant Securities or equity securities in pursuance of any such offer or agreement as if the authority in question had not expired. 11. That the rules of the Company’s Long Term Incentive Plan (the principal terms of which are summarised in the attached Appendix to this Notice on pages 88 to 91 and the draft rules for which will be produced at the meeting and initialled by the Chairman for purposes of identification) be and are hereby approved (with such immaterial modifications (if any) as the Directors consider necessary or desirable) and the Directors be and are hereby authorised to do all such acts and things as they consider necessary or desirable for the purposes of implementing and carry the same into effect. 12. That the LondonMetric Property Employee Benefit Trust (the principal terms of which are summarised in the attached Appendix to this Notice on pages 88 to 91 and the draft trust deed for which will be produced at the meeting and initialled by the Chairman for the purpose of identification) be and it is hereby approved (with such immaterial modifications (if any) as the Directors or the trustee consider necessary or desirable) and the Directors be and are hereby authorised to do all such acts and things as they consider necessary or desirable for the purposes of implementing and carry the same into effect. 86 LondonMetric Property Plc Annual report and accounts 2013 Notice of Annual General Meeting 7124797) will be held at The Connaught, Carlos Place, Mayfair, London W1K 2AL, on 10 July 2013 at 10 am. Resolutions 1 to 12 will be proposed as ordinary resolutions and resolutions 13 to 15 will be proposed as special resolutions. 1. To consider and receive the Annual Report and Audited Financial Statements for the year to 31 March 2013. 2. To approve the Remuneration Committee report for the year ended 31 March 2013. 3. To approve the final dividend for the year to 31 March 2013 of 3.5p per share. 4. To reappoint BDO LLP as auditors of the Company, to hold office until the conclusion of the next general meeting at which accounts are laid before the Company. 5. To authorise the Board to determine the remuneration of the auditors. 6. To consider the election of Mr Andrew Jones as a Director of the Company. 7. To consider the election of Mr Andrew Varley as a Director of the Company. 8. To consider the election of Mr Alec Pelmore as a Director of the Company. 9. To consider the election of Mr Philip Watson as a Director of the Company. 10. That the Directors be and they are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the “2006 Act”) in substitution for all existing authorities: a. to exercise all the powers of the Company to allot shares and to make offers or agreements to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company (together “relevant securities”) up to an aggregate nominal amount of £20,934,797; and b. to exercise all the powers of the Company to allot equity securities (within the meaning of Section 560 of the 2006 Act) up to an additional aggregate nominal amount of £20,934,797 provided that this authority may only be used in connection with a rights issue in favour of holders of ordinary shares and other persons entitled to participate therein where the equity securities respectively attributable to the interests of all those persons at such record dates as the Directors may determine are proportionate (as nearly as may be) to the respective numbers of equity securities held or deemed to be held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or legal difficulties under the laws of any territory or the requirements of a regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatsoever, provided that the authorities in 10a and 10b shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or if earlier on the date which is 15 months after the date of the Annual General Meeting, except that the Company may before such expiry make an offer or agreement which would or might require Relevant Securities or equity securities as the case may be to be allotted after such expiry and the Directors may allot Relevant Securities or equity securities in pursuance of any such offer or agreement as if the authority in question had not expired. 11. That the rules of the Company’s Long Term Incentive Plan (the principal terms of which are summarised in the attached Appendix to this Notice on pages 88 to 91 and the draft rules for which will be produced at the meeting and initialled by the Chairman for purposes of identification) be and are hereby approved (with such immaterial modifications (if any) as the Directors consider necessary or desirable) and the Directors be and are hereby authorised to do all such acts and things as they consider necessary or desirable for the purposes of implementing and carry the same into effect. 12. That the LondonMetric Property Employee Benefit Trust (the principal terms of which are summarised in the attached Appendix to this Notice on pages 88 to 91 and the draft trust deed for which will be produced at the meeting and initialled by the Chairman for the purpose of identification) be and it is hereby approved (with such immaterial modifications (if any) as the Directors or the trustee consider necessary or desirable) and the Directors be and are hereby authorised to do all such acts and things as they consider necessary or desirable for the purposes of implementing and carry the same into effect. Notice is hereby given that the Annual General Meeting of the members of LondonMetric Property Plc (Registered number 13. That the Directors be and are empowered, in accordance with Section 570 of the 2006 Act, to allot equity securities (as defined in Section 560(1) of the 2006 Act) for cash pursuant to the authority conferred by resolution number 10 or by way of a sale of treasury shares as if Section 561(1) of the 2006 Act did not apply to any such allotment, provided that this power shall be limited to: a. the allotment of equity securities in connection with a rights issue or other pro rata offer (but, in the case of the authority granted conferred by paragraph 10b, by way of a rights issue only) in favour of holders of ordinary shares and other persons entitled to participate therein where the equity securities respectively attributable to the interests of all those persons at such record dates as the Directors may determine are proportionate (as nearly as may be) to the respective numbers of equity securities held or deemed to be held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject in each case to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or legal difficulties under the laws of any territory or the requirements of a regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatsoever; b. and the allotment (otherwise than pursuant to paragraph 10a above) of equity securities up to an aggregate nominal amount of £3,140,220. and shall expire upon the expiry of the general authority conferred by Resolution 10 above, except that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted and/or shares held by the Company in treasury to be sold or transferred after such expiry and the Directors may allot equity securities and/or sell or transfer shares held by the Company in treasury in pursuance of such offer or agreement as if the power conferred by this resolution had not expired. 14. That the Company be and is hereby generally and unconditionally authorised, in accordance with Section 701 of the 2006 Act, to make market purchases (within the meaning of Section 693(4) of the 2006 Act) of ordinary shares of 10p each in the capital of the Company (“ordinary shares”) on such terms and in such manner as the Directors may from time to time determine provided that: a. the maximum number of ordinary shares authorised to be purchased is 62,804,391; b. the minimum price which may be paid for an ordinary share is 10p (exclusive of expenses payable by the Company); c. the maximum price which may be paid for an ordinary share (exclusive of expenses payable by the Company) cannot be more than the higher of: (i) 105% of the average market value of an ordinary share for the five business days prior to the day on which the ordinary share is contracted to be purchased; and (ii) the value of an ordinary share calculated on the basis of the higher of: (A) the last independent trade of; or (B) the highest current independent bid for, any number of ordinary shares on the trading venue where the market purchase by the Company will be carried out; and the authority conferred shall expire at the conclusion of the next Annual General Meeting of the Company except that the Company may before such expiry make a contract to purchase its own shares which will or may be completed or executed wholly or partly after such expiry. 15. That the Company is authorised to call any general meeting of the Company other than the Annual General Meeting by notice of at least 14 clear days during the period beginning on the date of the passing of this resolution and ending on the conclusion of the next Annual General Meeting of the Company. By order of the Board Jadzia Duzniak Company Secretary 31 May 2013 87 Annual report and accounts 2013 LondonMetric Property Plc Appendix Long Term Incentive Plan Resolution 11 seeks shareholder approval for the adoption of the Company’s Long Term Incentive Plan (“Plan”). The principal purpose of the plan is to provide a long-term incentive to senior management which is aligned as closely possible to the interests of shareholders. Copies of the draft rules of the proposed Plan are available for inspection at the Company’s Registered Office during normal business hours on any weekday up to and including 10 July 2013 and at the Annual General Meeting convened for that day from at least 15 minutes prior to the appointed time for the meeting until the meeting is concluded or adjourned. (a) Eligibility All employees of the Company and its subsidiaries from time to time (the “Group”), including Executive Directors, are eligible to participate in the Plan at the discretion of the Remuneration Committee. However, those Executive Directors of the Company appointed prior to its merger with Metric Property Investments plc will not participate in the Plan until 1 October 2013. (b) Grant of awards The Plan provides for the grant of nil cost options (“Awards”) over ordinary shares in the capital of the Company (“Shares”). Awards may also be structured as conditional rights to acquire Shares, or to receive a cash payment. The price (if any) at which a participant may acquire shares on the exercise or vesting of an Award under the Plan will be determined by the Remuneration Committee on the date of grant and may, if the Remuneration Committee sees fit, be nil or equal to the nominal value of a Share. Awards may be granted during the period of (i) 42 days following shareholder approval of the Plan or an amendment to the Plan, (ii) 42 days following the announcement of the Company's final or interim results for any financial period, or (iii) within 42 days following the occurrence of an event which the Remuneration Committee considers to be exceptional. If any of the above periods is a “close period” as a result of the application of the Listing Rules, then Awards may be granted within 42 days of the end of the close period. No Awards may be granted more than ten years after the adoption of the Plan. Awards may be granted over newly issued Shares, treasury shares or Shares purchased in the market. Except to the extent required by foreign laws, Awards will not form part of a participant’s pensionable earnings. Awards are not transferable (other than on death) without the consent of the Remuneration Committee. No payment will be required for the grant of an Award. (c) Vesting The Remuneration Committee will determine at the date of grant when and how Awards will vest. Ordinarily, Awards will vest on the third anniversary of grant subject to (i) the participant remaining an employee or director of a Group company, and (ii) the satisfaction of performance targets measured over three consecutive financial years. The period from the date of grant until the date of vesting shall be known as the “Vesting Period”. It is proposed that the first tranche of Awards to be granted under the Plan will vest subject to the following performance conditions: 1. Total shareholder return (“TSR”) Rights to acquire three-quarters (75%) of the Shares subject to an Award will be subject to a TSR based condition. TSR, or movement in the share price plus the dividend in the year, is an effective measure of the change in shareholder returns during a Financial Year or performance period. The Company’s TSR will be benchmarked against the TSR of the FTSE 350 Real Estate index the (“Index”) over the performance period. Vesting of the TSR portion of an Award will be based on the following table: Company’s TSR performance measured against that of the Index Percentage of the TSR part of the Award vesting Company performance is less than the Index Company performance is equal to the Index 0% 25% Company performance is 50% or greater than that of the Index 100% Straight-line vesting will occur if the Company’s TSR relative percentage is between the 25% and 100% vesting levels. In addition, the Company must have a positive TSR over the performance period for vesting to occur. 88 LondonMetric Property Plc Annual report and accounts 2013 Appendix of shareholders. (a) Eligibility 1 October 2013. (b) Grant of awards Resolution 11 seeks shareholder approval for the adoption of the Company’s Long Term Incentive Plan (“Plan”). The principal purpose of the plan is to provide a long-term incentive to senior management which is aligned as closely possible to the interests Copies of the draft rules of the proposed Plan are available for inspection at the Company’s Registered Office during normal business hours on any weekday up to and including 10 July 2013 and at the Annual General Meeting convened for that day from at least 15 minutes prior to the appointed time for the meeting until the meeting is concluded or adjourned. All employees of the Company and its subsidiaries from time to time (the “Group”), including Executive Directors, are eligible to participate in the Plan at the discretion of the Remuneration Committee. However, those Executive Directors of the Company appointed prior to its merger with Metric Property Investments plc will not participate in the Plan until The Plan provides for the grant of nil cost options (“Awards”) over ordinary shares in the capital of the Company (“Shares”). Awards may also be structured as conditional rights to acquire Shares, or to receive a cash payment. The price (if any) at which a participant may acquire shares on the exercise or vesting of an Award under the Plan will be determined by the Remuneration Committee on the date of grant and may, if the Remuneration Committee sees fit, be nil or equal to the nominal value of a Share. Awards may be granted during the period of (i) 42 days following shareholder approval of the Plan or an amendment to the Plan, (ii) 42 days following the announcement of the Company's final or interim results for any financial period, or (iii) within 42 days following the occurrence of an event which the Remuneration Committee considers to be exceptional. If any of the above periods is a “close period” as a result of the application of the Listing Rules, then Awards may be granted within 42 No Awards may be granted more than ten years after the adoption of the Plan. Awards may be granted over newly issued Shares, treasury shares or Shares purchased in the market. Except to the extent required by foreign laws, Awards will not form part of a participant’s pensionable earnings. Awards are not transferable (other than on death) without the consent of the Remuneration Committee. No payment will be required for the grant of an Award. (c) Vesting The Remuneration Committee will determine at the date of grant when and how Awards will vest. Ordinarily, Awards will vest on the third anniversary of grant subject to (i) the participant remaining an employee or director of a Group company, and (ii) the satisfaction of performance targets measured over three consecutive financial years. The period from the date of grant until the date of vesting shall be known as the “Vesting Period”. It is proposed that the first tranche of Awards to be granted under the Plan will vest subject to the following performance conditions: 1. Total shareholder return (“TSR”) Rights to acquire three-quarters (75%) of the Shares subject to an Award will be subject to a TSR based condition. TSR, or movement in the share price plus the dividend in the year, is an effective measure of the change in shareholder returns during a Financial Year or performance period. The Company’s TSR will be benchmarked against the TSR of the FTSE 350 Real Estate index the (“Index”) over the performance period. Vesting of the TSR portion of an Award will be based on the following table: of the Index Company’s TSR performance measured against that Company performance is less than the Index Company performance is equal to the Index 0% 25% Company performance is 50% or greater than that of the Index 100% Percentage of the TSR part of the Award vesting Straight-line vesting will occur if the Company’s TSR relative percentage is between the 25% and 100% vesting levels. In addition, the Company must have a positive TSR over the performance period for vesting to occur. Long Term Incentive Plan 2. Earnings Per Share Rights to acquire one-quarter (25%) of the Shares subject to an Award will be subject to an “Earnings Per Share” based condition whereby the Company's Earnings (calculated on the European Public Real Estate Association Basis) Per Share (“EPS”) performance over the performance period is measured against the Retail Prices Index (“RPI”) performance over the same period. Vesting of this portion of an Award will be based on the following table: Company’s EPS performance Percentage of the EPS part of the Award vesting EPS is less than RPI + 3% EPS is equal to RPI + 3% EPS is equal to RPI + 8% 0% 25% 100% Straight-line vesting will occur if the Company’s EPS performance is between the 25% and 100% vesting levels. Failure to meet these targets will result in the relevant part of the Award lapsing. Subsequent Awards may be subject to different performance conditions, which will be determined at the time of their grant at the Remuneration Committee's discretion. If events occur which cause the Remuneration Committee to reasonably believe that the original performance conditions are no longer a fair measure of performance, then the conditions may be amended or waived in such manner as may be fair and reasonable in the Remuneration Committee's discretion. (d) Dividends If the Remuneration Committee so determines (in its absolute discretion) participants will be entitled to receive additional Shares (or cash) representing the value of dividends declared during the Vesting Period on the number of Shares subject to the participant's Award which have vested. Any Shares so awarded will not count towards the individual limits summarised in paragraph (f) nor the company limits summarised in paragraph (g) below. days of the end of the close period. (e) Clawback Awards will be granted subject to clawback conditions requiring any Shares acquired (or proceeds acquired thereon) in connection with the Award to be forfeited for nil consideration in the event of gross misconduct or material misstatement in the accounts. (f) Individual limits The aggregate market value of Shares subject to Awards granted to an eligible employee under the Plan in any financial year will not exceed 200% of that person's gross annual salary (as at the date of grant). The Remuneration Committee has discretion to determine the size of an Award granted to any individual under the Plan within this maximum limit. In applying the above limit, no account will be taken of Shares which are issued and which represent the value of dividends declared during the Vesting Period on the number of Shares which are subject to a participant's Award and which have vested. In order to calculate the size of an Award for the purposes of this limit, market value will be determined by reference to the Company's share price averaged over five dealing days from (and including) the announcement of the Company's annual results for the financial year ended 31 March 2013, in respect of initial grants under the Plan. Alternatively, the Remuneration Committee has discretion to refer to the Company's share price averaged over five dealing days prior to (but not including) the relevant date of grant, or such other basis as it (in its absolute discretion) sees fit. (g) Scheme limits The number of Shares in respect of which Awards to subscribe for Shares may be granted on any date shall be limited so that the total number of Shares issued and issuable in respect of Awards granted under the Plan (and any other executive (discretionary) share scheme operated by the Company) in any ten-year period is restricted to 5% of the Company’s issued ordinary shares, calculated at the relevant time. The number of Shares in respect of which Awards to subscribe for Shares may be granted on any date shall be limited so that the total number of Shares issued and issuable in respect of Awards granted under the Plan (and any other share scheme operated by the Company) in any ten-year period is restricted to 10% of the Company's issued ordinary shares, calculated at the relevant time. For the purposes of these limits, no account will be taken of options or awards which have lapsed, been surrendered or otherwise become incapable of exercise or vesting. Treasury shares will be treated as newly issued Shares for the purposes of this limit, but (for the avoidance of doubt) Shares acquired in the market will not. In addition, no account will be taken of Shares which are issued and which represent the value of dividends declared during the Vesting Period on the number of Shares subject to the participant's Award which have vested. 89 Annual report and accounts 2013 LondonMetric Property Plc Appendix continued (h) Manner of exercise/allotment Within 30 days of vesting and/or the receipt of a notice of exercise (or “call”) of an Award, together with a payment (or arrangements to pay) for the aggregate exercise price due (if any) and a payment (or arrangements to pay) for any income tax and employee social security contributions (or similar liabilities) due, the Shares in respect of which the Award has vested or been exercised must be issued by the Company or the Company must procure their transfer (which for the purposes of the Plan includes the transfer of Shares out of treasury) to the participant and shall issue a definitive certificate in respect of the Shares allotted or transferred. Shares issued or transferred by the Company on the exercise and/or vesting of Awards will rank pari passu with existing Shares. (i) Termination of employment Unvested Awards granted under the Plan will normally lapse on cessation of employment. However, if a participant is a “good leaver” i.e. if he or she dies or leaves employment through illness, injury or disability, retirement or because his or her employing company or business in which he or she works is sold out of the Company's group or for any other reason approved by the Remuneration Committee (in its absolute discretion), then the Remuneration Committee may permit that participant (or his or her personal representatives as the case may be) to retain the unvested Award and permit vesting/exercise subject to the satisfaction of the performance conditions and a pro-rata reduction for the time that has elapsed since the relevant date of cessation. The Remuneration Committee also reserves the right to permit vesting/exercise subject to a lesser reduction (or none at all) than that calculated by applying a pro-rata reduction. Alternatively, the Remuneration Committee may, in its discretion, permit some or all of the unvested Awards held by a “good leaver” to immediately vest and/or be exercised during a limited period following cessation, having regard to the achievement of the performance conditions and the period of time that has passed since the relevant date of grant. If a participant ceases employment in any circumstances other than the “good leaver” circumstances described above then all his or her Awards (vested and unvested) will lapse on such cessation. (j) Change of control If a change of control event occurs, such as a takeover, or other capital event, the Remuneration Committee will determine the extent to which subsisting unvested Awards will vest and, in the case of options, become exercisable, by reference to the extent to which performance conditions have been satisfied (taking into account the reduced performance period) and pro-rating Awards to take into account the period which has elapsed since the date of grant. The Remuneration Committee may, if it sees fit, permit vesting on an alternative basis, including, but not limited to, full vesting. (k) Variation of Share capital In the event of a capitalisation issue or offer by way of rights (including an open offer), a special dividend or a demerger, or upon any consolidation, subdivision or reduction or other variation of the Company's capital, the number of Shares subject to an Award and/or the exercise price (if any) may be adjusted in such manner as the Remuneration Committee shall, in its opinion, consider fair and reasonable. (l) Amendments and general The Plan may be amended by the Board in any way provided that: (i) no amendment, addition or deletion may be made to the Plan which would materially prejudice the interests of participants in relation to Awards already granted to them unless the sanction of at least 75% of the participants (by value of subsisting Awards) has been obtained; and (ii) all amendments to the advantage of participants to the provisions relating to the definition of eligible employee, limits on the number of Shares subject to the Plan, the maximum entitlement for any one participant or the basis for determining a participant's entitlement to and the terms of Shares to be provided and adjustment thereof, if any, in the event of a capitalisation issue, rights issue, subdivision or consolidation of Shares or reduction of capital or any other variation of capital will require the prior consent of the Company in general meeting unless they are minor amendments to benefit the administration of the scheme or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants, the Company or a member of the Group. The Board may amend the Plan by way of separate schedules to enable it to be operated overseas, provided that the terms of the separate schedules are not overall more favourable than the terms of the Plan. 90 LondonMetric Property Plc Annual report and accounts 2013 Appendix continued Within 30 days of vesting and/or the receipt of a notice of exercise (or “call”) of an Award, together with a payment (or arrangements to pay) for the aggregate exercise price due (if any) and a payment (or arrangements to pay) for any income tax and employee social security contributions (or similar liabilities) due, the Shares in respect of which the Award has vested or been exercised must be issued by the Company or the Company must procure their transfer (which for the purposes of the Plan includes the transfer of Shares out of treasury) to the participant and shall issue a definitive certificate in respect of the Shares allotted or transferred. Shares issued or transferred by the Company on the exercise and/or vesting of Awards will rank pari passu with existing Shares. (i) Termination of employment Unvested Awards granted under the Plan will normally lapse on cessation of employment. However, if a participant is a “good leaver” i.e. if he or she dies or leaves employment through illness, injury or disability, retirement or because his or her employing company or business in which he or she works is sold out of the Company's group or for any other reason approved by the Remuneration Committee (in its absolute discretion), then the Remuneration Committee may permit that participant (or his or her personal representatives as the case may be) to retain the unvested Award and permit vesting/exercise subject to the satisfaction of the performance conditions and a pro-rata reduction for the time that has elapsed since the relevant date of cessation. The Remuneration Committee also reserves the right to permit vesting/exercise subject to a lesser reduction (or none at all) than that calculated by applying a pro-rata reduction. Alternatively, the Remuneration Committee may, in its discretion, permit some or all of the unvested Awards held by a “good leaver” to immediately vest and/or be exercised during a limited period following cessation, having regard to the achievement of the performance conditions and the period of time that has passed since the relevant date of grant. If a participant ceases employment in any circumstances other than the “good leaver” circumstances described above then all his or her Awards (vested and unvested) will lapse on such cessation. (j) Change of control If a change of control event occurs, such as a takeover, or other capital event, the Remuneration Committee will determine the extent to which subsisting unvested Awards will vest and, in the case of options, become exercisable, by reference to the extent to which performance conditions have been satisfied (taking into account the reduced performance period) and pro-rating Awards to take into account the period which has elapsed since the date of grant. The Remuneration Committee may, if it sees fit, permit vesting on an alternative basis, including, but not limited to, full vesting. (k) Variation of Share capital In the event of a capitalisation issue or offer by way of rights (including an open offer), a special dividend or a demerger, or upon any consolidation, subdivision or reduction or other variation of the Company's capital, the number of Shares subject to an Award and/or the exercise price (if any) may be adjusted in such manner as the Remuneration Committee shall, in its opinion, consider fair and reasonable. (l) Amendments and general The Plan may be amended by the Board in any way provided that: (i) no amendment, addition or deletion may be made to the Plan which would materially prejudice the interests of participants in relation to Awards already granted to them unless the sanction of at least 75% of the participants (by value of subsisting Awards) has been obtained; and (ii) all amendments to the advantage of participants to the provisions relating to the definition of eligible employee, limits on the number of Shares subject to the Plan, the maximum entitlement for any one participant or the basis for determining a participant's entitlement to and the terms of Shares to be provided and adjustment thereof, if any, in the event of a capitalisation issue, rights issue, subdivision or consolidation of Shares or reduction of capital or any other variation of capital will require the prior consent of the Company in general meeting unless they are minor amendments to benefit the administration of the scheme or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants, the Company or a member of the Group. The Board may amend the Plan by way of separate schedules to enable it to be operated overseas, provided that the terms of the separate schedules are not overall more favourable than the terms of the Plan. (h) Manner of exercise/allotment (m) Proposed Awards for the financial year ended 31 March 2013 Subject to shareholder approval of the Plan, it is proposed that Awards for the financial year ended 31 March 2013, will be granted as soon as possible following such shareholder approval (the “2013 Awards”). The 2013 Awards will be granted subject to the vesting criteria summarised at paragraph (c) above. The size of the 2013 Awards for the purposes of the limits summarised at paragraphs (f) and (g) above, will be calculated by reference to the Company's share price averaged over five dealing days from (and including) the announcement of the Company's results for the year ended 31 March 2013. Those Executive Directors of the Company appointed prior to its merger with Metric Property Investments plc will not be eligible to participate in the Plan until 1 October 2013, at which point, it is proposed that they will be granted an Award equal to 50% of what would otherwise have been their annual grant for 2013 (as determined by the Remuneration Committee in its absolute discretion). Employee Benefit Trust Resolution 12 seeks shareholder approval for the adoption of an Employee Benefit Trust (“EBT”), details of which are set out below. The full draft trust deed for the proposed EBT is available for inspection at the Company’s Registered Office during normal business hours on any weekday up to and including 10 July 2013 and at the Annual General Meeting itself from at least 15 minutes prior to the appointed time for the meeting until the meeting is concluded or adjourned. (a) Constitution The EBT will be a discretionary trust constituted by a trust deed between the Company and an independent off-shore professional trustee company (the “Trustees”). The EBT will be constituted as an employees’ share scheme within the meaning of Section 1166 of the Companies Act 2006, with the purpose which includes but is not limited to encouraging and facilitating the holding of shares by bona fide employees of the Company (which, for these purposes includes Executive Directors) and its subsidiaries, former employees and certain of their relatives or for their benefit. (b) Power and funding The Trustees will have full discretion with regard to the application of the trust fund. The Trustees will have the power to acquire Shares and any Shares so acquired may be used for the purposes of the grant of Awards under the Plan and/or any other employees' share scheme adopted by the Company. The EBT may be funded by way of loan or gift to acquire Shares either by market purchase or by subscription. (c) Limits to holdings and dividend waiver Any shares issued to the EBT in order to satisfy Awards it has granted will be treated as counting towards the dilution limits that apply to the Plan. For the avoidance of doubt, any shares acquired by the EBT in the market in order to satisfy Awards will not count towards these limits. Unless directed otherwise, the Trustees will waive any dividends paid on the Shares settled in the EBT. 91 Annual report and accounts 2013 LondonMetric Property Plc Notes to Annual General Meeting Notice (i) (ii) Shareholders entitled to attend and vote at the meeting may appoint one or more proxies (who need not be shareholders) to attend and vote on their behalf, provided that each proxy is appointed to exercise the rights attaching to different shares held by him or her. Your proxy could be the Chairman, another Director of the Company or another person who has agreed to attend to represent you. Your proxy will vote as you instruct and must attend the meeting for your vote to be counted. Details of how to appoint the Chairman or another person as your proxy using the proxy form are set out in the notes to the proxy form. (iii) Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. The statement of the rights of shareholders in relation to the appointment of proxies in paragraph (i) above does not apply to Nominated Persons. The rights described in that paragraph can only be exercised by shareholders of the Company. (iv) (v) To have the right to attend and vote at the meeting you must hold ordinary shares in the Company and your name must be entered on the share register of the Company in accordance with note (vi) below. To be valid, Forms of Proxy (and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof) must be received by Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU as soon as possible but, in any event, so as to arrive no later than 10 am on 8 July 2013. A Form of Proxy accompanies this notice. Completion and return of a Form of Proxy will not preclude members from attending and voting at the meeting should they wish to do so. Where you have appointed a proxy using the hard copy proxy form and would like to change the instructions using another hard copy proxy form, please contact Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. The deadline for receipt of proxy appointments (see above) also applies in relation to amended instructions. Any attempt to terminate or amend a proxy appointment received after the relevant deadline will be disregarded. Where two or more valid separate appointments of proxy are received in respect of the same share in respect of the same meeting, the one which is last sent shall be treated as replacing and revoking the other or others. (vi) The time by which a person must be entered on the register of members in order to have the right to attend or vote at the meeting is 6 pm on 8 July 2013. If the meeting is adjourned, the time by which a person must be entered on the register of members in order to have the right to attend or vote at the adjourned meeting is 6 pm on the day that is two days before the date fixed for the adjourned meeting. Changes to entries on the register of members after such times shall be disregarded in determining the rights of any person to attend or vote at the meeting. (vii) CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by utilising the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. (viii) In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID number RA10) by 10 am on 8 July 2013. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. (ix) The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. (x) CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 92 LondonMetric Property Plc Annual report and accounts 2013 Notes to Annual General Meeting Notice (i) Shareholders entitled to attend and vote at the meeting may appoint one or more proxies (who need not be shareholders) to attend and vote (xi) Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers on their behalf, provided that each proxy is appointed to exercise the rights attaching to different shares held by him or her. as a member provided that they do not do so in relation to the same shares. (ii) Your proxy could be the Chairman, another Director of the Company or another person who has agreed to attend to represent you. Your proxy will (xii) You may not use any electronic address provided either in this notice of Annual General Meeting or any related documents (including the form vote as you instruct and must attend the meeting for your vote to be counted. Details of how to appoint the Chairman or another person as your of proxy) to communicate with the Company for any purposes other than those expressly stated. proxy using the proxy form are set out in the notes to the proxy form. (xiii) As at 28 May 2013 (being the closest practical business day before the publication of this Notice), the Company’s issued share capital consisted (iii) Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights of 628,043,905 ordinary shares carrying one vote each. (a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. The statement of the rights of shareholders in relation to the appointment of proxies in paragraph (i) above does not apply to Nominated Persons. The rights described in that paragraph can only be exercised by shareholders of the Company. (xiv) Members satisfying the thresholds in Section 527 of the Companies Act 2006 can require the Company to publish a statement on its website setting out any matter relating to: (a) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the meeting; or (b) any circumstances connected with an auditor of the Company ceasing to hold office since the last Annual General Meeting, that the members (iv) To have the right to attend and vote at the meeting you must hold ordinary shares in the Company and your name must be entered on the share propose to raise at the meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement placed on the website must also be sent to the Company’s auditors no later than the time it makes its statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required to publish on its website. (xv) Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if: (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; (b) the answer has already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. (xvi) A copy of this notice, and other information required by Section 311A of the Companies Act 2006, can be found at www.londonmetric.com (xvii) The following documents are available for inspection at the registered office of the Company during normal business hours on each weekday (public holidays excluded) and at the place of the Annual General Meeting for 15 minutes prior to and during the meeting: (a) copies of the Executive Directors’ service contracts with the Company; and (b) copies of letters of appointment of Non-Executive Directors. register of the Company in accordance with note (vi) below. (v) To be valid, Forms of Proxy (and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof) must be received by Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU as soon as possible but, in any event, so as to arrive no later than 10 am on 8 July 2013. A Form of Proxy accompanies this notice. Completion and return of a Form of Proxy will not preclude members from attending and voting at the meeting should they wish to do so. Where you have appointed a proxy using the hard copy proxy form and would like to change the instructions using another hard copy proxy form, please contact Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. The deadline for receipt of proxy appointments (see above) also applies in relation to amended instructions. Any attempt to terminate or amend a proxy appointment received after the relevant deadline will be disregarded. Where two or more valid separate appointments of proxy are received in respect of the same share in respect of the same meeting, the one which is last sent shall be treated as replacing and revoking the other or others. (vi) The time by which a person must be entered on the register of members in order to have the right to attend or vote at the meeting is 6 pm on 8 July 2013. If the meeting is adjourned, the time by which a person must be entered on the register of members in order to have the right to attend or vote at the adjourned meeting is 6 pm on the day that is two days before the date fixed for the adjourned meeting. Changes to entries on the register of members after such times shall be disregarded in determining the rights of any person to attend or vote at the meeting. (vii) CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by utilising the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. (viii) In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID number RA10) by 10 am on 8 July 2013. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. (ix) The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. (x) CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 93 Annual report and accounts 2013 LondonMetric Property Plc Financial calendar Announcement of results Financial dividend – Ex dividend date – Record date – Payable on Annual General Meeting Anticipated 2014 Interim dividend 31 May 2013 12 June 2013 14 June 2013 12 July 2013 10 July 2013 December 2013 94 LondonMetric Property Plc Annual report and accounts 2013Additional information Financial calendar Shareholder information Announcement of results Financial dividend – Ex dividend date – Record date – Payable on Annual General Meeting Anticipated 2014 Interim dividend 31 May 2013 12 June 2013 14 June 2013 12 July 2013 10 July 2013 December 2013 Registrar 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 Advisors to the Company Joint Financial Advisors and Brokers Tax Advisors Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET JP Morgan Securities Limited 125 London Wall London EC2Y 5AJ Auditors BDO LLP 55 Baker Street London W1U 7EU Property Valuers CBRE Limited St Martin’s Court 10 Paternoster Row London EC4M 7HP Savills Advisory Services Limited 20 Grosvenor Hill London W1K 3HQ REIT status and taxation PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH Solicitors to the Company 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. 95 Annual report and accounts 2013 LondonMetric Property Plc Notes 96 LondonMetric Property Plc Annual report and accounts 2013Additional information Overview Introduction to LondonMetric Property Plc LondonMetric brings together two outstanding property companies to become top 10 UK REIT with a broader and complementary asset base. Front cover image Moore House, London 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 Net income Underlying profit (1) Revaluation surplus (1) Adjusted profit before tax (2) Portfolio value (1) Net assets Net debt (1) Loan to value (1) EPRA earnings per share Dividend per share NAV per share EPRA NAV per share Adjusted NAV per share (2) 2013 £39.6m £21.3m £20.3m £39.9m As restated 2012 £42.2m £24.3m £3.0m £19.5m £1,216.8m £1,022.4m £676.7m £630.9m £527.2m £353.6m 35% 4.4p 7.0p 116p 119p 119p 43% 3.9p 7.0p 108p 109p 116p (1) Includes share of joint ventures and associates (2) After adjusting for exceptional costs of the merger, 2010 mangement internalisation and impairment of investments Annual report and accounts 2013 L o n d o n M e t r i c P r o p e r t y P c l A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 3 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 

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