REAL ESTATE
FOR MODERN
SHOPPING
Annual Report and Accounts 2019
We have built up
an ‘all weather’
portfolio of fit
for purpose
distribution and
long income
assets that can
deliver reliable
and growing
income.
Andrew Jones
Chief Executive
HOW OUR PURPOSE WORKS
PAGE 02
CHIEF EXECUTIVE’S REVIEW
PAGE 15
PROPERTY REVIEW
PAGE 24
CONTENTS
STRATEGIC REPORT
Overview
Our purpose ...................................................................................01
How our purpose works ...............................................................02
Performance highlights ...............................................................10
Chairman’s statement ................................................................ 11
At a glance .....................................................................................12
Our strategy
Our strategic priorities ..................................................................14
Chief Executive’s review ..............................................................15
Our markets ....................................................................................18
Our business model ......................................................................20
Performance review
Key performance indicators ......................................................22
Property review ..............................................................................24
Our responsible development at Bedford .............................32
Financial review .............................................................................34
Responsible Business
Responsible Business review .......................................................40
Risk
Risk management .........................................................................50
Viability statement ........................................................................64
GOVERNANCE
Introduction from the Chairman ............................................... 66
Board of Directors .........................................................................68
Governance framework ............................................................. 70
Division of responsibilities ............................................................. 71
Governance in action ................................................................. 72
Governance statement .............................................................. 74
Stakeholder engagement .......................................................... 77
Nomination Committee report ................................................. 80
Audit Committee report .............................................................. 86
Remuneration Committee report ............................................ 93
Report of the Directors ................................................................110
Directors’ Responsibility statement ..........................................113
FINANCIAL STATEMENTS
Independent Auditor’s report .................................................. 115
Group financial statements ......................................................122
Notes forming part of the Group financial statements .....126
Company financial statements ..............................................144
Notes forming part of the Company
financial statements ...................................................................146
Supplementary information .....................................................150
Glossary .........................................................................................155
Notice of Annual General Meeting .......................................156
Financial calendar .....................................................................160
Shareholder information ...........................................................160
RESPONSIBLE BUSINESS
REVIEW PAGE 40
LondonMetric Property Plc
Annual Report and Accounts 2019
OUR PURPOSE
To own and manage
desirable real estate
that meets occupiers’
demands, delivers
reliable, repetitive and
growing income-led
returns and outperforms
over the long term.
FINANCIAL
PERFORMANCE
IFRS reported profit
£119.7m
2018: £186.0m
Total accounting return¹
10.7%
2018: 15.4%
EPRA EPS1
8.8p
2018: 8.5p
Dividend per share
8.2p
2018: 7.9p
1 Alternative performance
measures are financial
measures which are not
specified under IFRS but are
used as they highlight the
performance of the Group’s
property rental business.
They are described in further
detail in the Performance
Highlights section on page 10
and in the Financial Review
on page 34. Definitions can
be found in the Glossary on
page 155.
READ MORE ABOUT HOW
OUR PURPOSE WORKS
OVER THE FOLLOWING PAGES
01
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 HOW OUR PURPOSE
WORKS
Own desirable real estate
Own real estate that
meets occupiers’ needs
Manage & enhance responsibly
Manage & enhance our assets
responsibly and help
occupiers thrive
Expertise & relationships
Maximise our expertise and
build relationships to make us
the partner of choice
Generate income growth
Deliver reliable, repetitive
and growing income-led
total returns
SEE OUR BUSINESS MODEL TO FIND
OUT ABOUT HOW THIS CREATES VALUE
PAGE 20
02
LondonMetric Property PlcAnnual Report and Accounts 2019 OWN DESIRABLE REAL ESTATE
Our focus is on fit for purpose logistics, long income
and convenience assets that can deliver reliable,
repetitive and growing income.
PORTFOLIO ALIGNED
TO STRUCTURALLY
SUPPORTED SECTORS
Logistics and convenience sectors continue
to perform strongly, supported by changes
in consumer shopping habits. As retail
sales have moved further online, we have
responded by growing our distribution
exposure to 72.5% of our portfolio. Our
particular focus on supply constrained urban
logistics has seen this segment grow to 27.3%
of our portfolio, our largest sector weighting.
UK ONLINE
RETAIL¹
GROWTH IN DISTRIBUTION
ASSETS OVER FIVE YEARS
£1,339m
23%
of non food retail sales today
+31%
growth in online non food spend
over next 5 years
o
i
l
o
f
t
r
o
p
f
o
%
100
90
80
70
60
50
40
30
20
10
0
SEE MARKET REVIEW
PAGE 18
1 Source: Global Data
Urban logistics
Mega & regional
2014
2015
2016
2017
2018
2019
ASSET SELECTION
INCREASINGLY CRUCIAL
We have continued to sell down our
multi-let retail parks which now account
for under 5% of the portfolio. We have
also taken advantage of strong investor
appetite to sell selective distribution
assets, particularly larger and shorter
let distribution warehousing located in
weaker geographies where rental growth
is less certain.
Our reinvestment has concentrated on
urban logistics in superior geographies,
as well as long income and convenience
assets, where we see better rental
growth prospects.
DISPOSALS
ACQUISITIONS
£238m
of disposals
9 years
WAULT
14%
with guaranteed rental uplifts
£163m
of acquisitions
14 years
WAULT
63%
with guaranteed rental uplifts
DISPOSAL OF 335,000 SQ FT DISTRIBUTION,
SHEFFIELD
ACQUISITION OF ROYAL MAIL DISTRIBUTION,
MILTON KEYNES
SEE PROPERTY REVIEW
PAGE 24
03
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019
MANAGE & ENHANCE RESPONSIBLY
We constantly look to improve the quality and desirability
of our assets. We work closely with our occupiers to deliver
real estate solutions that will help their businesses thrive.
Our asset management and short cycle developments
are undertaken responsibly with both local communities
and the environment in mind.
HIGHLIGHTS
50
occupier transactions
+5.7%
like for like income growth
11 years
average lease length
on lettings
+11.7%
income growth from rent reviews
(5 year equivalent basis)
67%
GRESB sustainability score
(increased from 34% in 2014)
Distribution
development
During the year, we
built 188,000 sq ft at
our Bedford distribution
development.
Two of the three
units have been let,
representing 73% of
anticipated income
from phase 1.
The full development
is expected to total just
under 700,000 sq ft and
deliver a yield on cost
of 7.0%.
We have worked
closely with the local
community throughout
the development.
SEE FULL CASE STUDY
PAGES 32 – 33
04
Phase 1 development at our Bedford Link site
LondonMetric Property PlcAnnual Report and Accounts 2019
4 convenience store
developments underway
or in pipeline
Convenience food is performing well as
internet penetration rates for food remain low
and top-up food shopping gains in popularity.
Along with occupier-led acquisitions in the
year, our convenience portfolio has grown
to 22 assets let mainly to Aldi, Lidl, M&S
and the Co-op on long leases.
Our convenience store developments are
being built at attractive yields, most of which
are BREEAM Very Good.
Representation of our Aldi development at Weymouth
SEE PROPERTY REVIEW
PAGE 24
Lettings across
1.9m sq ft
We signed 19 lettings with our
occupiers in the year on long
leases on average of between
10-15 years.
Distribution lettings added
£1.6 million of income and
achieved significant rental
uplifts against previous passing
rent. The WAULT on regeared
assets increased from four years
to 11 years.
On some of these lettings,
we are working with our occupiers
to improve the energy efficiency
of our buildings.
SEE RESPONSIBLE BUSINESS
REVIEW PAGE 40
05
Our DPD warehouse at Frimley let during the year
BREEAM –
‘Very Good’
75% of our developments completed
in the year were certified BREEAM
Very Good.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019
EXPERTISE & RELATIONSHIPS
The key to the Company’s success is our highly talented and
motivated team. We promote a culture of empowerment,
inclusion and collaboration across our teams. It is their skills
and the relationships they build with both occupiers and our
wider stakeholders that make us a partner of choice.
HIGHLIGHTS
28
highly skilled employees
+9.0%
total property return
98%
occupancy
9.0
out of 10 in the 2019
occupier contentment survey
SEE RESPONSIBLE BUSINESS
REVIEW PAGE 40
OUR OCCUPIERS
Our occupier-led approach provides
us with market knowledge to better
understand future trends and make
the right asset decisions.
Our high occupancy rate and customer
satisfaction score demonstrate the
strength and depth of these relationships.
Extending existing relationships and
developing new contacts continue to be
a key area of focus for us.
In the year, our customer satisfaction
score improved from 8.5 to 9.0 out of 10.0
based on how well we compared against
other landlords.
06
OUR STAKEHOLDERS
S
R
O
T
IN V E S
S
E
I
T
I
N
U
M
M
O
C
OUR P
E
O
P
L
E
O
C
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P
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R
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S
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NTRACTORS & S U P P L I E
LondonMetric
has a track record
of supporting us.
They understand
our needs and
seek solutions
that work for both
of us and them.
Their open and
honest approach
is refreshing.
Property Director
at a key occupier
LondonMetric Property PlcAnnual Report and Accounts 2019
LOCAL COMMUNITIES
We recognise the importance of
supporting our local communities and
engaging with all local stakeholders.
We aim to maximise the local
benefits from our activities and work
hard to develop relationships with
local authorities, schools, charities,
residents and businesses.
OUR CONTRACTORS &
SUPPLIERS
Delivering developments and asset
services on time, on budget and in
adherence with our high standards
is a key priority.
We select high quality and robust
contractors, work closely with them
throughout the project, monitor their
compliance with our requirements and
promote a strong focus on developing
good local community relationships.
Community engagement is
a high priority for Winvic and we
work hard to deliver projects in
a considerate way. It was great to
work with LondonMetric who share
these values and who are equally
committed to building relationships
with the local community.
Sam Vickers
Project Manager,
Winvic Construction Ltd
OUR INVESTORS
OUR PEOPLE
We value our good relationships with investors and debt
providers to ensure full access to capital markets.
Over the year, we saw over 230 equity investors and a number
of debt investors at meetings, site visits and conferences.
We also continue to enjoy strong relationships with our
joint venture partners.
We have a highly skilled team of 28. Our future success is reliant
on a diverse team with strong expertise and we continue to work
to improve our approach to managing our people.
In the year, we undertook a significant refit of the office
as well as other initiatives to improve the wellbeing of
our employees.
07
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 08
LondonMetric Property PlcAnnual Report and Accounts 2019 GENERATE INCOME GROWTH
Income is central to our investment approach in a low
return environment. Our ultimate priority is to pass on
income generated from our assets to our shareholders in
the form of a well covered and progressive dividend.
PORTFOLIO DELIVERING
DIVIDEND PROGRESSION
The extended period of low economic
growth and low interest rates continues
to create a strong demand for yield that
is being intensified by the increase in
numbers entering retirement age and
improved life expectancy.
Some real estate sectors are ideally suited
to meet this demand for yield. We believe
strongly in the compounding attractions
of sustainable, repetitive and growing
income streams from real estate to deliver
long term consistent outperformance.
SECURITY OF INCOME WITH
INCOME GROWTH
We have sector leading portfolio metrics
with 12.5 years average lease lengths, 98%
occupancy and only 3.5% of income expiring
over three years. The portfolio is focused on
operationally light assets, mostly single let.
This keeps our property costs very low with
only 1.8% gross to net income leakage.
We have certainty of income growth with
63% of income subject to contractual uplifts.
We are also capturing strong open
market rental uplifts across the portfolio.
Our development and other asset
management activities provide further
income growth potential.
SEE OUR MARKETS
PAGE 18
SEE PROPERTY REVIEW
PAGE 24
INCOME AS %
OF UK REAL ESTATE TOTAL
RETURNS ¹
EPRA EPS GROWTH OF 126%
SINCE 2013, ALLOWING
DIVIDEND PROGRESSION
130%
Average for UK property
(next 5 years)
+126%
8.8
8.5
8.2
7.8
6.6
3.9
4.2
1 Source: Capital Economics
Dividend per share
2013
2014
2015
2016
2017
2018
2019
INCOME METRICS
LEASE EXPIRY PROFILE
of portfolio with contractual uplifts
63%
>4.5%
average like for like income
growth over last 3 years
12.5 years
WAULT
37.7%
34.1%
40
30
20
10
0
3.5%
11.3%
13.4%
0–3yrs
4–10yrs 11–15yrs 16–20yrs >20yrs
09
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019
PERFORMANCE
HIGHLIGHTS
IFRS net assets
IFRS reported profit
1,006.9
898.2
1,216.8
1,149.5
186.0
£1,216.8m
+5.9%
82.7
63.0
119.7
£119.7m
35.6%
2016
2017
2018
2019
2016
2017
2018
2019
EPRA net asset value per share
EPRA EPS
174.9
165.2
147.7
149.8
174.9p
+5.9%
(IFRS NAV/share 174.7p)
8.8
8.5
8.2
7.8
8.8p
+3.5%
(IFRS EPS 17.2p)
2016
2017
2018
2019
2016
2017
2018
2019
Dividend per share
Debt maturity
7.25
7.50
7.90
8.20
8.2p
+3.8%
6.4
5.6
5.2
4.8
6.4 years
1.6 years
Alternative performance measures
The Group financial statements are
prepared in accordance with IFRS
where the Group’s interests in joint
ventures are shown as a single line
item on the income statement and
balance sheet and all subsidiaries
are consolidated at 100%.
Management reviews the
performance of the business
principally on a proportionately
consolidated basis which includes
the Group’s share of joint ventures
on a line by line basis. The key
financial performance indicators
are also presented on this basis.
Alternative performance measures
are financial measures which are not
specified under IFRS but are used
by management as they highlight
the underlying performance of the
Group’s property rental business
and are based on the EPRA Best
Practice Recommendations (BPR)
reporting framework which is widely
recognised and used by public real
estate companies.
Therefore, unless specifically stated,
the performance metrics and financial
results reflected in the Strategic
Report and on this page, reflect the
Group’s wholly owned assets and its
share of joint venture assets and the
EPRA BPR reporting framework.
Further details and reconciliations
between EPRA measures and IFRS
equivalents can be found in the
Financial review on page 34 and
in note 8 to the Group financial
statements.
2016
2017
2018
2019
2016
2017
2018
2019
Total property return
13.7
10.5
7.4
9.0
9.0%
WAULT
12.8
12.8
12.5
12.4
2016
2017
2018
2019
2016
2017
2018
2019
10
12.5 years
0.1 years
THE DEFINITION OF EACH
EPRA MEASURE CAN BE
FOUND IN THE GLOSSARY ON
PAGE 155
LondonMetric Property PlcAnnual Report and Accounts 2019 CHAIRMAN’S
STATEMENT
The Company’s
actions and strong
performance
continue to reflect
its focus on owning
long let logistics
and convenience
assets that can
deliver reliable and
growing income.
Patrick Vaughan
Chairman
Total shareholder
return over six years
since merger
156%
Significantly outperformed
FTSE 350 Real Estate
Super Sector average
of 57%
Dividend increase
in the year
+4%
Fourth year of progression
It’s now ten years since we emerged from
the Global Financial Crisis and history would
suggest that we are in late cycle territory
and that a correction is overdue. But looking
ahead to the next decade, mitigating factors
point to an extension of the current cycle.
Firstly, annual growth rates over the last decade have
been relatively constrained and markets have remained
largely rational. Secondly, interest rates have barely moved
from their unprecedented low levels and, with a relatively
modest outlook for wage inflation and the global economy,
are unlikely to change significantly in the medium term.
Finally, we live in a world where technological and political
disruption is challenging long established principles
and an ageing population is creating an unprecedented
demand for income.
This backdrop has wide ranging consequences for real
estate. Whilst many continue to see property as a trading
commodity and an opportunity to reposition and crystallise
capital appreciation, we believe that the most attractive
characteristic of property is its income compounding
quality over the longer term. The ability to generate
reliable, repetitive and growing income returns makes
certain property sectors a perfect asset class in which to
deploy capital in the current investment environment.
However, we are acutely aware that this doesn’t apply to all
property. History would suggest that downward repricing
is caused by serious imbalances in supply and demand.
The real estate market is not seeing such imbalances but
some real estate sectors are facing disruption in demand
from structural change that is material, permanent and
unrelated to a property cycle downturn. In particular,
the migration to online shopping is causing a serious
downturn in traditional retail property and this disruption
will continue to cause a downward trajectory in income
and have a destructive impact on valuations.
The Company’s actions and strong performance continue
to reflect its focus on owning good assets, in structurally
supported sectors of logistics and convenience-led retail,
that are let to strong occupiers, on long leases and that
can deliver reliable and growing income.
During the year, the Company increased EPRA earnings per
share by 3.5% and dividends per share by 3.8%, a fourth year
of progression. It significantly outperformed IPD All Property,
increased EPRA NAV per share by 5.9% and reported a profit
of £119.7 million. Further debt arrangements have also
been put in place to lengthen our debt maturity and provide
flexibility whilst maintaining a prudent level of gearing.
As a measure of our longer term progress and performance,
over the six years since our merger, we have delivered a total
shareholder return of 156% and significantly outperformed
the FTSE 350 Real Estate Super Sector average of 57%.
Despite much uncertainty, we look forward to building on this
performance knowing that our decisions put us in a strong
position to outperform and further progress the dividend.
We recognise that the success of the Company is reliant
on our people and I would like to thank the Board and all
of our employees for their continued hard work. We have
reviewed the structure of the Board during the year in
the light of changes to the Corporate Governance Code.
As a consequence, Alec Pelmore and Philip Watson
retired as Non Executive Directors at the end of the year.
I thank them both for their dedication over nine years and
I warmly welcome Robert Fowlds, who joined the Board
on 31 January 2019.
To ensure a balance between Executive and Non Executive
Directors, both Valentine Beresford and Mark Stirling will
step down at the AGM in July, but will remain an integral
part of the senior executive team in their respective roles
as Investment Director and Asset Director.
I am also pleased that we have agreed a £414.7 million
recommended offer to acquire A&J Mucklow Group plc.
The combination of their assets, approximately 70% of which
is in distribution and industrial property, is consistent with
our strategy of increasing our urban logistics exposure.
The combination has compelling strategic and portfolio
rationale with strong operational and financial benefits. I am
delighted to say that we think this deal will be immediately
earnings enhancing for shareholders. There will be work
to do, but we are excited by the reversionary and asset
management potential of their assets which will underpin
and further support our progressive dividend policy.
Patrick Vaughan
Chairman
23 May 2019
11
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS AT A
GLANCE
We own real estate that has structural support from changing consumer
shopping habits. Our distribution exposure has increased to 72.5% of the portfolio
and the Company is delivering sustainable and growing income.
Our focus on distribution, long income & convenience-led retail1
6
17
1 Urban Logistics ................................................................. 27.3%
5
2 Mega Distribution .............................................................. 23.1%
Distribution
3 Regional Distribution ........................................................ 22.1%
4
72.5%
2
4 Long Income ...................................................................... 12.9%
5 Convenience & Leisure ..................................................... 9.0%
6 Retail Parks ....................................................................... 4.7%
7 Residential ......................................................................... 0.9%
3
1 Including developments, based on value
Where our assets are located
Distribution
Long Income &
Convenience-led retail
Assets by geography1
16
5
4
London & South East
3
43.6%
2
1 London & South East....... 43.6%
2 Midlands ........................... 31.6%
3 North East & Yorkshire ... 10.3%
4 North West ....................... 6.8%
5 South West ....................... 4.2%
6 Other ................................. 3.5%
12
Top occupiers by contracted income
10.9%
8.8%
5.2%
4.7%
4.6%
4.3%
3.5%
3.3%
2.8%
2.6%
2.4%
2.3%
2.1%
LondonMetric Property PlcAnnual Report and Accounts 2019
Our portfolio
MEGA & REGIONAL DISTRIBUTION
URBAN DISTRIBUTION
LONG INCOME & CONVENIENCE-LED RETAIL
Mega Distribution
Large scale modern
distribution units, greater
than 500,000 sq ft and
located close to major
arterial routes.
Regional Distribution
Mid size units between
100,000 sq ft and 500,000
sq ft serving as regional
hubs and creating the
connecting link in any
modern supply chain.
17 ASSETS,
6.6M SQ FT
VALUE:
£835 MILLION
RENT:
£37.5M (£5.80 PSF)
WAULT:
15 YEARS
CONTRACTUAL UPLIFTS:
88%
Urban Distribution
Smaller logistics units,
strategically located in
or close to dense areas
of population to meet
increasing consumer
demands for next and
same day delivery.
55 ASSETS,
3.3M SQ FT
VALUE:
£504 MILLION
RENT:
£21.5M (£6.70 PSF)
WAULT:
10 YEARS
CONTRACTUAL UPLIFTS:
44%
Convenience & Leisure
Convenience-led stores let
to M&S, Aldi and Lidl and
several Odeon cinemas.
Long Income
Properties held within
our DFS and MIPP joint
ventures and several
wholly owned properties.
Retail Parks
Consists of three
remaining multi-let
retail parks.
63 ASSETS,
2.2M SQ FT
VALUE:
£490 MILLION
RENT:
£30.5M (£17.90 PSF)
WAULT:
12 YEARS
CONTRACTUAL UPLIFTS:
46%
Portfolio value
£1,846m
2018: £1,842m
Total property return
+9.0%
2018: +13.7%
WAULT
12.5 years
2018: 12.4 years
Occupancy
97.8%
2018: 97.5%
Contractual rental uplifts
63%
2018: 50%
13
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR STRATEGIC
PRIORITIES
Own desirable
real estate
Own real estate
that meets
occupiers’ needs
1. Focus alignment to sectors that
have structural support from changing
shopping habits, principally online and
convenience shopping
2. Focus on long let property in good
locations with strong intrinsic value
and rental growth prospects
Manage
& enhance
responsibly
Manage & enhance
our assets
responsibly and help
occupiers thrive
Experience
& relationships
Maximise our
expertise and build
relationships to make
us the partner
of choice
3. Improve the quality and sustainability
of our assets
4. Add income and value from asset
management and development
actions
5. Remain disciplined in our
investment approach
6. Build on the team’s expertise and
relationships to maintain strong
portfolio metrics and make better
informed decisions
Generate
income growth
Deliver reliable,
repetitive and
growing income-led
total returns
7. Generate reliable income with
income growth potential from
financially secure occupiers
8. Minimise operational, financial
and frictional costs of managing
the portfolio
READ MORE ON
PAGE 03
READ MORE ON
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READ MORE ON
PAGE 06
READ MORE ON
PAGE 09
14
LondonMetric Property PlcAnnual Report and Accounts 2019 CHIEF EXECUTIVE’S
REVIEW
We have built up an ‘all
weather’ portfolio of fit for
purpose distribution and
long income assets that
can deliver reliable and
growing income.
Andrew Jones
Chief Executive
Record UK distribution take up in 2018
31.5m sq ft
Distribution rental growth over next 4 years
+2.1% per annum
Overview
The Company’s purpose is to own
and manage UK real estate that
can deliver reliable, repetitive
and growing income-led returns
and that will outperform over the
long term. In summary, we aim to
behave as a true REIT.
We continue to operate within a market
framed by political and economic uncertainty
combined with ongoing structural changes
and technological disruption. Whilst it’s not
always easy to predict outcomes, the direction
of travel is clear so we continue to prepare
and adapt.
The property market appears to be broadly in
a state of equilibrium and this period of yield
tranquillity is set to continue. As I commented
at the half year, however, we continue to see a
further polarisation across certain real estate
subsectors as yields adjust further to more
realistically reflect the anticipated trajectory,
certainty and timing of future rental cashflows.
‘Beds, sheds & meds’ continue to be clear
winners whilst operational shopping centres,
department stores and retail parks have been
the undeniable losers.
I also stated previously that I didn’t think that
the market was properly discriminating and
that it was time to own not only the winning
sectors but also the right assets in those
sectors. Today, we believe these principles
are more important than ever to delivering
attractive long term returns.
It is this focus that frames our capital
allocation and has created what we believe
is an ‘all weather’ portfolio of fit for purpose
distribution and long income assets where we
can take a longer term investment view and
collect, compound and grow our income.
Logistics continuing to benefit from
online adoption
Despite the gloomy headlines for retail, it’s not
necessarily a case of consumers shopping less
but more about how they are choosing to shop.
The internet continues to change consumer
shopping patterns with sales continually
moving away from physical stores towards
online. The percentage of non-food retail sales
that are now online has grown to an estimated
23% and is expected to increase further to 28%
by 2023. Indeed we believe that these profound
changes will be of greater significance over the
next 5–10 years than what ultimately happens
with the UK’s relationship with the EU.
These shifts in consumer shopping patterns
are causing significant challenges for many
established retailer business models.
Those retailers that adapt quickly enough will
ultimately win, probably at the expense of
those who cling to the old ways, who will likely
fail and disappear. The survivors are already
inheriting unprecedented pricing power on
lease renewal negotiations which will further
compound this advantage. This shift is firmly
underway and it continues to influence
our sectoral choices, asset selections and
credit decisions.
It is clear that the ecommerce revolution is
continuing to drive sustained demand for
logistics and warehouse space with CBRE
reporting record logistics take up in 2018
of 31.5 million sq ft, driven in particular by
demand from online retailers. Whilst supply
levels and speculative development has
responded, vacancy rates continue to remain
at historically low levels. Furthermore, after
several years of consistent rental growth,
JLL is still forecasting further rental growth
in logistics of 2.1% per annum over the next
four years, outperforming most other real
estate subsectors.
Interestingly rental growth is expected to
vary significantly by region. One of the top
performing regions over the next five years
is expected to be London and the South East,
with JLL forecasting growth of 4.6% per
annum. Other regions that are expected by
Gerald Eve to outperform include the North
West and the West Midlands. Urban logistics
‘last mile’ is expected to benefit in particular
with this subsector witnessing ever reducing
levels of supply as urbanisation leads to
stronger competition from more valuable
alternative land uses.
15
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE’S REVIEW
CONTINUED
Our portfolio is aligned to distribution
assets that will outperform
Our exposure to distribution has grown over
the year to represent 72.5% of our portfolio.
Whilst we look to grow our logistics exposure
further, our overwhelming focus is to own the
right assets that can provide reliable, repetitive
and growing income.
The positive momentum in logistics is clear
and we expect it to continue to outperform
other real estate sectors as investors remain
attracted by the sector’s strong fundamentals,
as well as a need to further re-weight
real estate allocations away from legacy
sectors, primarily retail. However, one of the
consequences of elevated levels of investor
demand is that we quite often see too much
optimism factored into pricing as investors
exuberantly extrapolate the sector’s strong
fundamentals. We have seen this particularly
in larger box distribution and shorter let assets
located in weaker geographies.
As a result, we are increasingly rejecting
many new opportunities that come across
our desks and have taken advantage of
market strength to sell our weaker assets
for good prices. Over the year, we sold
£155.1 million of distribution assets, of
which £115.6 million was mega and regional
distribution warehouses. Two thirds of the
sales were in Yorkshire and half were non
income producing, the majority of which
related to the sale of a 527,000 sq ft warehouse
formerly let to Poundworld and a 335,000 sq ft
warehouse let to Marks & Spencer but sold on
a vacant basis. The WAULT to first break on the
remaining assets sold was just four years.
Our reinvestment has continued to focus on
urban logistics where we see superior rental
growth prospects. In the year, we acquired
£106.6 million of urban assets which, together
with further expenditure on developments,
has helped to increase our urban logistics
platform over the year from £366.5 million
to £503.9 million, representing 38% of our total
distribution portfolio. Our focus on long income
and strong locations, has increased the WAULT
on our urban logistics to 10 years and its
London and South East weighting to 64%.
Long income and convenience-led retail
continues to deliver
There are still many weak parts of the retail
property market where assets are materially
over-rented, let to distressed occupiers, in
increasingly marginal locations, with impending
capex liabilities and shortening lease lengths.
Whilst the operational-led retail real estate
market has already seen material valuation falls,
we expect values to weaken further.
We have continued to divest our multi-let
operational retail parks and disposed of two
parks, both at book value. Three retail parks
remain and they account for less than 5%
of our portfolio, down from 20% four years
ago. Whilst they are modern fit for purpose
assets, 98.8% let on an average lease length
of 10 years, across the board price reductions
by valuers, who are increasingly sentiment
driven, resulted in these parks delivering a
total property return over the year of -3.2%
and these assets are now valued at a blended
NIY of 6.3%. However, despite these falls, our
shareholders have still made good profits
compared to historic cost.
Despite the well publicised challenges, we
do not think that all retail assets are heading
into history and that some of the pessimism
is overdone. Indeed our long let assets
continue to successfully navigate the retail
disruption and, whilst not immune from
the challenges, delivered a total property
return over the year of 4.8%. In particular,
convenience food is performing well as
internet penetration rates for food remain
low and top up shopping continues to grow
in popularity.
We spotted this trend a number of years ago
when we acquired our first standalone Aldi
store and have grown this to 22 convenience
stores let to occupiers such as Aldi, Lidl, M&S
and the Co-op. We have been able to acquire
and build these assets at attractive prices,
often in conjunction with our occupiers, well
before the market fully appreciates their true
intrinsic values.
In the year, we selectively acquired
£56.7 million of further long let income
opportunities, with average lease lengths of
18 years and 67% of the income benefiting
from contractual rental uplifts. As well as
convenience stores, some of these acquisitions
related to service-led opportunities and
roadside assets.
Overall, our retail and leisure portfolio is well
located and has strong income characteristics
with 99.8% occupancy, a WAULT of 12 years let
to good occupiers at sustainable rents, with
low operational requirements and average
lot sizes of under £10 million.
Own desirable
real estate
Experience
& relationships
Urban logistics acquisitions
£106.6m
Mega & regional distribution disposals
£115.6m
16
LondonMetric Property PlcAnnual Report and Accounts 2019 Generate
income growth
Manage
& enhance responsibly
We have highlighted on previous occasions
our view that income and income growth
would be the defining characteristics of the
next decade’s investment environment.
Growth rates across the world continue to
moderate and 10 year government bond
yields have returned to historically low levels.
This benign economic environment coincides
with the impending demographic explosion in
the number of retirees across the globe. In the
UK, the old age dependency ratio (pensioners
per 1,000 people of working age) is expected
to rise from 280 to 364 in 20 years’ time, a
30% increase.
Therefore, we believe that well located
property, that is let on long leases to strong
credits, delivering a return that is 400-500 bps
higher than government bonds, is increasingly
attractive. If you overlay an inflation hedge then
the margin over bond yields becomes even
more attractive.
Our portfolio’s income metrics remain strong
Income and income growth remain a key
priority, which allows us to be a little less
obsessed about predicting exact market
movements or timing of cycles.
Our portfolio’s income metrics remain strong
with 98% occupancy, long leases averaging
12.5 years and only 3.5% of income expiring
within three years. Our focus on single let
properties with very limited defensive capex
requirements, something we refer to as
‘Triple net income’, continues to contain our
gross to net income leakage at under 2%.
We are strongly of the view that delivering
income growth will be crucial for future
outperformance. Therefore, our portfolio has
consciously been constructed to deliver this
growth in three ways:
1. Contractual uplifts in the form of RPI,
CPI or fixed increases – 63% of our rental
income benefits from some form of
contractual uplift (up from 50% 12 months
ago) and this dominates our mega and
regional logistics assets as well as our
convenience and leisure assets;
2. Organic growth through the five yearly rent
review cycles – this predominantly relates
to our urban logistics portfolio, where we are
settling material uplifts on open market rent
reviews; and
3. Asset management and development
initiatives – historically this was focused
across our retail park assets but now
is increasingly being undertaken within
our urban logistics portfolio where we look
to invest alongside our occupiers to deliver
fit for purpose real estate.
During the year, our lettings and rent reviews
helped to deliver £3.2 million of additional
income. We signed 11 distribution lettings
and regears across 1.9 million sq ft which
significantly increased rents and extended
the lease lengths on regeared properties from
four years to 11 years. Rent reviews were
settled at 11.7% ahead of passing on a five
yearly equivalent basis. These deals helped to
grow like for like income by 5.7% over the year.
Average lease lengths
12.5 years
Percentage of portfolio with
contractual income uplifts
63%
Income and income
growth remain a key priority
and our metrics are strong.
Our asset management
and development activity
continues to improve the
quality of our income.
OUTLOOK
The decision to pivot the portfolio a
number of years ago to align with the
structural changes in shopping habits
continues to bear fruit and we expect
further outperformance as real estate
assets continue to polarise. Our strategic
repositioning since 2013 means that
we increasingly like what we own and
expect it to deliver strong income and
income growth.
We have exited assets and sectors that we
regard as less attractive and have invested
in stronger assets within the winning
sectors. We can’t always predict, but we can
prepare, and so we will continue to evolve
to ensure that our portfolio remains fit for
purpose. If we avoid the losers, the winners
will look after themselves.
We will stay rational, unemotional and
above all patient. We will move forward
using our experience and expertise to
help guide us and accepting that, amongst
uncertainty, we cannot be so optimistic
that we want to bid on everything, but
neither are we so bearish that we want to
sell everything; remembering that when
the dust settles and all the uncertainty has
disappeared, there will be no bargains left.
Our long term ‘all weather’ approach,
combined with our belief in the merits
of behaving as a ‘true REIT’ and full
shareholder alignment, will ensure that
we continue to progress the dividend and
deliver compounding returns.
17
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR
MARKETS
Real estate remains an attractive investment class supported by an economic backdrop
of low interest rates and an increasing need for real income returns. However, there
has been a significant polarisation in performances across the commercial subsectors
and real estate has to be fit for purpose to navigate a rapidly evolving environment.
ECONOMIC BACKGROUND REMAINS
SUPPORTIVE OF REAL ESTATE
INCREASING NEED FOR RELIABLE, REPETITIVE
AND GROWING INCOME
The UK economy remains relatively robust. GDP growth
remains resilient and is forecast to be around c.2% per
annum over the next few years. Interest rates remain
at historic lows and inflation is set to average c.3% per
annum over the next year. With evidence of real wage
inflation and continued low unemployment, consumer
spending is picking up.
UK real estate remains attractive in this environment,
delivering a positive yield arbitrage and positive
real returns. Whilst the sector has delivered strong
returns, property returns over the next five years are
expected to average c.4% per annum of which income
is expected to represent 130% of total returns.
UK GDP growth¹
UK property returns²
+2%pa
+4%pa
GDP growth remains
resilient over next
few years
look forward returns
expected over next
5 years
Income contribution2
130%
of total property
returns generated
by income over next
5 years
1 Bank of England
2 Capital Economics
As growth rates across the world
continue to moderate, this benign
economic environment is coinciding
with an impending demographic
tsunami where a significant increase
in the number of retirees is expected.
In the UK, the old age dependency
ratio is expected to rise from 280 in
2020 to 364 in 2040, a 30% increase.
These demographic shifts and greater
longevity of life are having a profound
impact on the search for income.
Pensions freedoms together with
reduction in annuity rates have led
many to seek alternative sources of
income. Real estate that is let on long
leases to strong credits, delivering
a return that is 400-500 bps higher
than government bonds is increasingly
attractive, particularly where there
are income growth prospects.
Old age dependency ratio (per 1,000 people of working age)
400
360
320
280
240
200
+30% in dependency ratio
2020
2030
2041
Source: ONS
MODERN SHOPPING HABITS AND TECHNOLOGY DRIVING ECOMMERCE
AT THE EXPENSE OF TRADITIONAL RETAIL
The internet continues to change
consumer shopping patterns with sales
continually moving away from physical
stores towards online. The percentage
of non food retail sales online has
grown to an estimated 23% and is
expected to increase further to 28%
by 2023, a 31% growth.
The growth in ecommerce has caused
significant disruption for traditional retail
property particularly shopping centres,
retail parks, high street shops and large
format food stores where there remains
over-supply, tenant defaults, falling
rents and a thin investment market.
Retailers are actively reducing their
retail property footprint and this trend
shows no signs of slowing down with
store closures, CVAs and insolvencies
continuing. Conversely, logistics and
industrial property has benefited
as companies seek to improve their
distribution infrastructure.
UK Online Retail (percentage of non food spend online)
30%
28%
26%
24%
22%
20%
+31% in value of spend online
2017 (a)
2018
2019
2020
2021
2022
2023
Source: Global Data
18
LondonMetric Property PlcAnnual Report and Accounts 2019 STRONG OCCUPATIONAL DEMAND FOR LOGISTICS & CONVENIENCE-LED RETAIL
Modern and efficient logistics and fulfilment space
is required to deliver to the consumer seamlessly
through both the store network and home delivery.
CBRE estimates that 31.5 million sq ft of distribution
space was taken up in 2018, compared to a five year
average of c.23.6 million sq ft.
CBRE expects the ecommerce revolution will continue
to drive sustained occupier demand for logistics and
industrial space. Whilst supply levels and speculative
development have responded to increased demand,
vacancy rates continue to remain at low levels.
Furthermore, after several years of sustained rental
growth, JLL forecasts further rental growth in
logistics of 2.1% per annum over the next four years,
outperforming most other real estate subsectors.
Urban logistics
Increased parcel deliveries and rising retailer promises
to deliver to your home or place of work is resulting
in heightened demand for well located and specified
logistics and fulfilment accommodation in or close to
urban centres.
Urban logistics property, however, is seeing highly
restricted and ever reducing levels of supply as
urbanisation leads to stronger competition from more
valuable land uses such as residential, self-storage
and student accommodation. This is particularly the
case around major conurbations which is leading
to strong rental growth in these areas. Over the next
five years, according to JLL, rental growth is expected
to be the strongest in London & the South East at
4.6% per annum.
Record logistics take up of 31.5m sq ft
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Grade A
Second hand
Source: CBRE
Convenience Retail and long income
Changes in shopping habits have also seen
consumers shift away from the weekly shop to
more frequent top up shopping. Convenience is set
to be one of the fastest growing channels in the UK
food and grocery market and is predicted to grow to
£47 billion by 2023. Aldi and Lidl have grown their
combined food market share significantly over the
last four years from 8% to 14%.
Similarly there is strong consumer appeal for
propositions that offer experiences, are service-led
or leisure related such as cinemas and hotels.
Property that caters for these markets is increasingly
in demand and is being bought by ‘long income’
type investors.
Rental growth for logistics
Overall
+2%pa
over next four years
London & South East
+5%pa
over next five years
Source: JLL
INVESTORS REALLOCATING REAL ESTATE WEIGHTINGS TO DISTRIBUTION AND LONG INCOME ASSETS
The supportive occupational market has meant that
the investment market for logistics in 2018 was strong
with JLL estimating £7.6 billion of investment activity,
45% ahead of the ten year average. Investor demand
continues to be underpinned by strong occupational
fundamentals, positive investor sentiment towards the
sector and the need for investors to further re-weight
their real estate allocations to logistics.
However, after a number of strong years, investors are
becoming increasingly selective with greater focus on
longer-dated secure income or assets located around
London, the South East and other major cities.
Prime retail yields v prime distribution yields (%)
9
8
7
6
5
4
2005
2007
2009
2011
2013
2015
2017
2019
Prime shops
Prime Shopping Centres
Prime Distribution Warehouses
Source: CBRE
19
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR BUSINESS
MODEL
OUR KEY STAKEHOLDERS
People
Our success is dependent on employing
a talented, motivated and diverse team
with strong property expertise.
Occupiers
We engage with occupiers across
all of our activities to provide real estate
solutions that deliver mutually beneficial
outcomes and assist them in meeting
their business needs.
Contractors and suppliers
Delivering developments and asset
management initiatives on time, on budget
and in adherence with our standards is a high
priority. We select high quality and robust
contractors who have a proven track record
and we work in collaboration with them.
Local communities
We recognise the importance of supporting
and properly engaging with local communities.
We work closely with local authorities,
residents and businesses to ensure that
our activities consider and bring benefits
to local communities.
Investors and Joint Ventures
We value our good relationships with
investors and debt providers to ensure we
have a wide access to capital markets.
We also work closely with our joint venture
partners to fulfil their business objectives.
SEE THE RESPONSIBLE BUSINESS REVIEW
PAGES 40 – 49
THE VALUE WE CREATE
Total shareholder return (6 years since merger)
Total accounting return
EPRA EPS growth
+156%
+10.7%
+3.5%
Dividend growth
Sustainable improvements
Community benefits
+3.8%
25%
of portfolio BREEAM Very Good
or Excellent
900+
permanent jobs expected to be created
by occupiers at our developments
completed in the year or underway
20
LondonMetric Property PlcAnnual Report and Accounts 2019 OUR PURPOSE DRIVES OUR ABILITY TO CREATE SUSTAINABLE INCOME, DRIVE INCOME GROWTH AND CREATE VALUE
Own desirable real estate
The correct asset selection is increasingly
critical to deliver future outperformance.
We have aligned our portfolio towards the
logistics and convenience sectors and continue
to improve the quality of our portfolio.
Total property return in 2019
9.0%
440 bps outperformance of IPD
All Property
Manage & enhance responsibly
Experience & relationships
We deliver real estate solutions that will help
occupiers’ businesses thrive. A combination
of responsible asset management and short
cycle developments help to grow and
improve the quality of our income.
Using our expertise to work closely
with occupiers and wider stakeholders
to understand their needs results
in high satisfaction
and occupancy levels.
Additional income
+£3m
from occupier transactions
in 2019
Occupancy
98%
Generate income growth
Income is central to our business model.
Growth in income from our assets is passed
to our shareholders in the form of a well
covered and progressive dividend.
Net rental income
£94m
+4%
21
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS KEY PERFORMANCE
INDICATORS
We continue to track seven key performance indicators (‘KPIs’)to monitor
the performance of the business, which includes our share of joint ventures.
The KPIs are also used to determine how Executive Directors
and senior employees are evaluated and remunerated.
OBJECTIVE
KPI MEASURE/NUMBERS
PERFORMANCE
Deliver long term
shareholder returns
Maximise long term total
accounting return
Total shareholder return (%)
2019
2018
2017
Total accounting return (%)
2019
2018
2017
Maximise property
portfolio returns
Total property return (%)
2019
2018
2017
Deliver sustainable growth
in EPRA earnings
EPRA earnings per share (p)
2019
2018
2017
Drive like for like income growth
through management actions
Like for like income growth (%)
2019
2018
2017
WAULT (years)
2019
2018
2017
EPRA vacancy (%)
2019
2018
2017
Maintain a higher than market
benchmark weighted average
unexpired lease term (WAULT)
Maintain strong occupier
contentment
22
Total Shareholder Return (‘TSR’), being the share
price movement together with the dividend, in
the six years post merger was 156%, more than
double the FTSE 350 Real Estate Super Sector
index movement of 57%.
12 month TSR delivered 17.0% compared to the
FTSE 350 Real Estate Super Sector return of -0.3%.
Total Accounting Return (‘TAR’) of EPRA NAV
movement together with dividend paid in the year.
12 month TAR delivered a return of 10.7%.
The full calculation can be found in
Supplementary note viii on page 152.
Unlevered Total Property Return (‘TPR’), including
capital and income return, of the portfolio as
calculated by IPD.
12 months TPR delivered a return of 9.0%
compared to the IPD All Property benchmark
of 4.6%.
EPRA earnings per share from operational
activities have grown by 3.5% over the last
12 months.
In the six years post merger, EPRA earnings
per share has grown by 126% from 3.9p to
8.8p per share.
The movement in the contracted rental income
on properties owned through the period
increased by 5.7%.
Additional income was generated from asset
management activity following lettings, regears
and rent reviews of £3.2 million per annum.
Weighted average unexpired lease term
across the investment portfolio (excluding
residential and development) of 12.5 years
as at 31 March 2019.
Occupancy rate of investment portfolio
at 31 March 2019 was 97.8%, an increase
of 0.3% over the year.
17.0
16.6
4.4
10.7
15.5
6.4
9.0
13.7
7.4
8.8
8.5
8.2
5.7
4.3
4.6
12.5
12.4
12.8
2.2
2.5
0.4
LondonMetric Property PlcAnnual Report and Accounts 2019 Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
REMUNERATION
Under the Remuneration Policy 37.5% of LTIP awards are subject to TSR
growth compared with the FTSE 350 Real Estate Super Sector excluding
agencies and operators.
The TSR component of the 2015 LTIP award vested in full in the year and
the TSR component of the 2016 LTIP award is expected to vest in full.
2019/20 AMBITION
Three year TSR
performance to be in
the upper quartile of the
FTSE 350 Real Estate
Super Sector, excluding
agencies and operators.
Financial performance indicators
We monitor other financial performance
indicators in respect of LTV, debt maturity
and cost of borrowing.
SEE FINANCIAL REVIEW
PAGE 34
Under the Remuneration Policy 37.5% of LTIP awards granted since 2016
are subject to TAR growth compared with the FTSE 350 Real Estate Super
Sector excluding agencies and operators.
The TAR component of the 2016 LTIP award is expected to vest in full.
Three year total accounting
return to be in the upper
quartile of FTSE 350 Real
Estate Super Sector,
excluding agencies
and operators.
Risk management
The achievement of our seven KPIs
is influenced by the identification and
management of risks which might
otherwise prevent the attainment
of our strategic priorities.
35% of the annual bonus award is subject to TPR outperforming
the IPD Quarterly Universe index.
This year TPR outperformed the IPD benchmark delivering a 100%
bonus payout.
One year TPR
outperformance
against IPD Quarterly
Universe index.
The relationship between our principal risks,
strategic priorities and KPIs is reviewed in the
Risk Management section.
SEE RISK MANAGEMENT
PAGE 50
35% of the annual bonus award is subject to an EPRA EPS growth target.
This year EPRA EPS outperformed its growth target securing a 72%
bonus payout.
25% of LTIP awards vest after three years subject to an EPRA EPS growth
target. 76% of the EPRA EPS component of the 2015 LTIP award vested
in the year and 34% of the EPRA EPS component of the 2016 LTIP award
is expected to vest.
Deliver and sustain
EPRA earnings
per share growth
and dividend progression.
Remuneration
The table on page 99 shows how our KPIs
are reflected in and therefore aligned to
remuneration and incentive arrangements.
SEE REMUNERATION COMMITTEE REPORT
PAGE 93
Forms part of EPRA earnings per share, which as noted above,
is a key financial performance measure for the Company’s variable
incentive arrangements.
Deliver like for like
income growth ahead
of inflation plus 1.5%.
Linked to individual personal objectives, representing
30% of the annual bonus performance conditions.
Maintain high weighted
average unexpired lease
term targeting >12 years.
Linked to individual personal objectives, representing
30% of the annual bonus performance conditions.
Maintain high occupancy
across the investment
portfolio, targeting in
excess of 95% or ahead
of IPD.
23
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
PROPERTY
REVIEW
We invest in real estate that can deliver
repetitive, reliable and growing
income and that offers the best prospects
for superior income-led total returns.
Our actions aim to strengthen our
portfolio’s income metrics.
Continued focus on aligning our portfolio to logistics
and convenience-led assets
Acquisitions in the year were £163.3 million and
consisted mainly of urban logistics, long income and
convenience assets. These assets had an average lease
length of 14 years with 63% of the income subject to
contractual uplifts and 45% located in London and the
South East. Consequently, together with reversionary
potential, the blended acquisition NIY of 4.6% is expected
to increase to 5.3% over the next five years.
As part of our disciplined portfolio management,
we sold £238.2 million of assets at a NIY of 3.7%
(including vacant properties) and with a WAULT of
nine years. Approximately half of the disposals were
larger distribution warehousing, the majority of which
were vacant and located predominantly in Yorkshire.
The balance of the disposals was split between assets
outside our preferred sectors, namely two retail parks
and 18 residential flats, and selective urban logistics,
convenience and leisure assets where we reacted to
strong offers for our assets.
Activity over the year significantly increased our urban
logistics exposure to over £500 million, representing
27% of the overall portfolio. Despite net disposal
activity, our total distribution exposure increased further
from 68.5% to 72.5%. Long income increased to 13%
whilst convenience and leisure reduced slightly to 9%.
Directly owned retail parks now represent less than 5%,
down from 7% at the start of the year, and residential fell
to less than 1% with 33 flats at Moore House remaining
to sell of the original 149 owned.
Investment activity in the year by subsector
Mega & Regional Distribution
Urban Logistics
Long Income, Convenience & Leisure
Retail Parks
Residential
Total
24
Portfolio split1
7
1
6
5
Distribution
4
72.5%
2
3
1 Urban Logistics ................................................... 27.3%
2 Mega Distribution ................................................ 23.1%
3 Regional Distribution .......................................... 22.1%
4 Long Income ........................................................ 12.9%
5 Convenience & Leisure .......................................
9.0%
6 Retail Parks ......................................................... 4.7%
7 Residential ........................................................... 0.9%
1 Including developments
Cost at
share
£m
–
106.6
56.7
–
–
163.3
Acquisitions
Disposals1,2,3
NIY
%
–
4.5
4.9
–
–
4.6
Proceeds
at share
£m
115.6
39.5
28.8
43.9
10.4
238.2
NIY
%
2.0
5.7
4.8
5.4
3.5
3.7
Investment activity
£402m
Urban logistics
portfolio value
£504m
Our investment
activity in the
year focused
on the urban
logistics sector
where we
see superior
rental growth
prospects.
Urban logistics
has now grown
to represent our
largest sector
weighting.
Valentine Beresford
Investment Director
1 NIY includes vacant distribution
property disposals totalling
£74.5 million, where there was
no income
2 Excludes proceeds from
disposals in Loughborough
and South Elmsall totalling
£47.5 million that exchanged
last year but completed in
the year and, as such, are
reflected in the full year
financial statements
3 Includes a £10.5 million
regional disposal in Wakefield
that exchanged in the year but
completed post year end and
will be reflected in next year’s
financial statements
LondonMetric Property PlcAnnual Report and Accounts 2019
Lease expiry profile
5
4
1
2
Income expiring
within 3yrs
3.5%
3
1 0-3 years .................................................................... 3.5%
2 4-10 years .................................................................. 34.1%
3 11-15 years ................................................................ 37.7%
4 16-20 years ................................................................ 11.3%
5 > 20 years ................................................................... 13.4%
Portfolio metrics strengthened over the year
As a result of our management and investment
activity, the portfolio’s average lease length increased
over the year to 12.5 years (11.6 years to first break).
This provides a high level of income security with only
3.5% of income expiring over three years and 37.6%
over 10 years. Occupancy increased over the year from
97.5% to 97.8% and our gross to net income ratio of
98.2% continues to compare very favourably against
our peers and reflect the low operational requirements
of our assets.
During the year, we undertook 50 occupier transactions
which generated £3.2 million of additional income.
Like for like income growth was 5.7% or 2.9% excluding
one off gains.
Urban & regional logistics continues to perform
Over the year, the portfolio delivered a total property
return of 9.0%, significantly outperforming the IPD All
Property return of 4.6%. Distribution delivered a total
return of 12.2%, long income, convenience and leisure
delivered 4.8% whilst retail parks delivered a -3.2%
total return.
The portfolio revaluation gain over the year was
£64.4 million, reflecting a 3.6% increase. This was driven
by an equivalent yield compression of 10bps on a like
for like basis and ERV growth of 0.9%. ERV growth was
highest in urban logistics, which saw a 5.0% increase,
whilst mega distribution increased by 0.8%.
Distribution delivered an £82.5 million revaluation
gain, a 7% increase, with urban and regional logistics
again outperforming. Developments delivered a 19%
increase equating to a £9.7 million uplift. Retail and
leisure values fell by 5% overall, where the valuation
uplift on convenience and leisure was offset by falls at
our retail parks. Residential saw a £1.8 million decline.
The investment portfolio’s EPRA topped up net initial
yield is 4.7% and the equivalent yield is 5.1%.
OUR 454,000 SQ FT
REGIONAL LOGISTICS
ASSET IN DAGENHAM
Dagenham is one of our
highest valued assets and,
during the year, we completed
the 180,000 sq ft extension.
It is let for 24 years at a rent
of £4.1 million, has contractual
rental uplifts and is very well
located with strong transport
links and just ten miles from
central London.
Average unexpired
lease length (years)
12.5
Occupancy
97.8%
We continue
to strengthen
our portfolio
metrics through
our activities
and our
property returns
once again
significantly
outperformed
the wider
UK property
market.
Mark Stirling
Asset Director
25
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS PROPERTY REVIEW
CONTINUED
DISTRIBUTION
We invest across the distribution subsectors and in assets
that we believe have the best return prospects.
Our distribution assets are spread across the urban, regional and
mega subsectors. Including developments, their value increased over
the year from £1,263 million to £1,339 million, representing 72.5% of
the portfolio. The average WAULT is 13 years, up from 12 years, whilst
occupancy increased to 97%. 72% of income from our distribution
assets is now subject to contractual rental uplifts.
As at 31 March 2019
Typical warehouse size
Value1
WAULT
Average Rent (psf)
Topped up NIY
ERV growth
Contractual uplifts2
Total Property Return in 2019
1 Including developments
2 Percentage of portfolio that benefits from contractual rental uplifts
Increasing our urban logistics exposure to over £500m
We have been increasingly attracted to urban logistics
where we perceive investment returns are greatest and
where, over the last three years, we have selectively
increased our exposure from £37 million to £504 million.
Urban logistics is now the largest component of both our
distribution exposure and the wider portfolio.
The restricted supply in urban logistics and strong
occupier demand continues to generate highly
favourable market dynamics, which are driving attractive
rental growth and returns. This is reflected in our urban
logistics average ERV which, at £7.70 psf, is 15% higher
than passing rent of £6.70 psf.
Our recent distribution investments have been
exclusively in urban logistics. During the year, we
acquired £106.6 million of urban logistics at a NIY of
4.5%, which is expected to increase to 5.3% over five
years as a result of organic reversion and contractual
uplifts. These acquisitions had a WAULT of 12 years
with 60% of the income subject to contractual uplifts.
These assets were also located mainly in the South
and helped to increase our urban portfolio’s London
and the South East weighting to 64%.
26
Mega
Regional
Urban
Portfolio split
500,000+ sq ft
100–500,000 sq ft Up to 100,000 sq ft
£427m
15 years
£5.70
4.4%
+0.8%
100%
+8.0%
£408m
14 years
£6.20
4.1%
+2.6%
73%
£504m
10 years
£6.70
4.3%
+5.0%
44%
1
Urban logistics
3
38%
2
+12.4%
+15.7%
1 Urban ............................. 38%
2 Mega .............................. 32%
3 Regional ........................ 30%
Focusing on the right assets within logistics
Whilst we remain focused on growing our logistics
exposure, we are more conscious than ever that asset
selection will be crucial to deliver consistent, reliable
and growing income returns.
Therefore, to ensure that our portfolio remains fit for
purpose, we sold 15 distribution assets in the year for
£155.1 million. We took advantage of the strong market
to sell three non income producing assets totalling
£74.5 million. Of the remainder, the WAULT to first break
was four years and these assets were sold at a blended
NIY of 5.7%.
Reflecting our conscious move away from larger
distribution, where we believe rental growth prospects
are weaker, 75% of disposals were mega and regional
assets. As a consequence, mega distribution exposure
has fallen from 27% to 23% of the portfolio and all of
these assets now have contractual rental uplifts.
Our greater geographic focus saw us sell a number of
assets in what we consider are less favourable locations.
Two thirds of our disposals were located in Yorkshire,
a region where we have consciously sought to reduce
our exposure, and this helped to reduce our Yorkshire
distribution exposure from 17% to 9%.
LondonMetric Property PlcAnnual Report and Accounts 2019 ACQUISITIONS (ALL URBAN)
DISPOSALS
Acquired
340,000 sq ft portfolio
Acquired for £49.1 million let to occupiers including
CEVA Logistics, DSV and Jewson for a further
eight years.
112,000 sq ft in Milton Keynes
Acquired for £12.0 million let to Royal Mail for
a further 10 years.
80,000 sq ft in Cambridgeshire
Acquired for £10.0 million let to Cambridge
Commodities for a further 20 years.
78,000 sq ft in Thorne
Acquired for £7.9 million let to Omega Plc for
20 years.
48,000 sq ft in Avonmouth
Acquired for £13.5 million let to Chep for a further
nine years.
34,000 sq ft in Basildon
Acquired for £6.3 million let to WCM for 20 years.
25,000 sq ft in Orpington
Acquired for £7.8 million let to Selco for 15 years.
527,000 sq ft in Wakefield
Disposed for £43.5 million, formerly let to Poundworld
but sold on a vacant basis.
492,000 sq ft portfolio
Disposed for £36.0 million let to occupiers including
Encon, NNR & Hillary’s Blinds for a further six years.
335,000 in Sheffield
Disposed for £23.5 million let to Marks & Spencer
until end of March 2019 and sold on a vacant basis.
137,000 sq ft in Doncaster
Disposed for £9.9 million let to Howdens for
a further two years.
128,000 sq ft in Ashby-de-la-Zouche
Disposed for £12.1 million let to United Biscuits
for a further nine years (four years to first break).
121,000 sq ft in Wakefield
Disposed for £10.5 million let to One Stop Stores
for a further four years.
103,000 sq ft in Wakefield
Disposed for £7.5 million let to Menzies for a
further seven years (two years to first break).
97,000 sq ft in Leicester
Disposed for £7.5 million, sold on a vacant basis.
54,000 sq ft in Wakefield
Disposed for £4.8 million let to Macfarlane for
a further six years.
£106.6m
NIY: 4.5% rising to 5.3%
WAULT: 11.6 years
Disposed
£155.1m
NIY: 3.0%1
WAULT: 5.5 years2
1 5.7% excluding vacant sales
2 4.1 years to first break
Post year end
Acquired two assets
for £9.9 million:
• 35,000 sq ft urban
logistics warehouse
in Dunstable for
£5.7 million let to Mega
Marble for 15 years
• 26,000 sq ft urban
logistics warehouse
in Croydon, London
for £4.2 million let
to Harrow Green for
17 years
Acquisition of 340,000 sq ft urban logistics portfolio
The modern warehouses were acquired at a
reversionary yield of 5.3%, let for eight years.
The assets are in established locations with c.50%
in London & South East, two of which are located
in Park Royal and Greenford.
Disposal of a 492,000 sq ft portfolio
Six warehouses were sold at a NIY of 5.9% with
a WAULT to first break of five years. They were
amongst the oldest within our portfolio, located in
the Midlands & North and generated an ungeared
IRR of 15% per annum.
27
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS PROPERTY REVIEW
CONTINUED
LONG INCOME
& CONVENIENCE-LED RETAIL
We focus on long income and convenience-led retail that can generate
reliable and growing income.
Our long income and convenience-led portfolio is 100% let with a WAULT of 12 years,
let to strong occupiers at affordable average rents of £17.90 psf and valued at an
attractive NIY of 5.8%. The average lot size is less than £10 million with 46% of income
subject to contractual uplifts.
Attracted by these strong characteristics, these assets continue to see strong
investment demand from low energy pension fund investors, as evidenced by our
£72.7 million of disposals at a NIY of 5.1%. Our disposals were broadly offset by
£56.7 million of acquisitions which we acquired at a NIY of 4.9% and, with contractual
uplifts on 67% of this income, this is expected to rise to 5.3% over five years.
Reflecting our long income focus, the average WAULT on acquisitions was 18 years.
Long
Income
£237m
11 years
£19.00
6.2%
34%
+1.2%
Convenience &
Leisure
£165m
15 years
£15.80
4.8%
84%
+8.7%
Retail
Parks
£87m
10 years
£18.50
6.3%
23%
-3.2%
Portfolio split
1
3
Long income,
convenience
& leisure
82%
2
1 Long income ................. 48%
2 Convenience & leisure ... 34%
3 Retail parks ................... 18%
Retail parks
Over the last four years, our direct retail park exposure
has significantly reduced from 16 assets to three today.
During the year, we sold a 70,000 sq ft retail park in
Launceston for £21.9 million at a NIY of 5.6% and our
Martlesham Heath Retail Park for £22.0 million at a
NIY of 5.2%. These disposals were sold at book value.
Retail Parks now represent under 5% of the total
portfolio and consist of assets in Tonbridge, Coventry
and Leeds that have all been recently repositioned,
are 98.8% let at sustainable rents, on average for
a further 10 years, and valued at a NIY of 6.3%.
As at 31 March 2019
Value1
WAULT
Average Rent (psf)
Topped up NIY
Contractual uplifts2
Total Property Return in 2019
Including developments
1
2 Percentage of portfolio that benefits from contractual rental uplifts
Long income
Long income represents 13% of the portfolio and
consists of properties held predominantly within
our MIPP and DFS joint ventures. These assets have
very limited operational requirements, are let on
average for 11 years, typically to single tenants such
as Dunelm, Wickes and DFS. A third of income has
contractual uplifts.
Convenience & leisure
These assets represent 9% of the portfolio, have an
average lease length of 15 years and 84% of income
is subject to contractual rental uplifts. They consist
of convenience-led stores let mainly to M&S, Aldi,
Co-op and Lidl, and five Odeon cinemas, mostly
acquired as part of a portfolio of ten cinemas in 2013.
28
LondonMetric Property PlcAnnual Report and Accounts 2019 Acquired
ACQUISITIONS
DISPOSALS
Roadside Portfolio
Disposed of two assets let to Euro Garages
for £2.2 million.
Penrith & Cowes
Disposed of two M&S convenience stores
for £10.7 million.
Warrington
Disposed of a 36,000 sq ft Odeon Cinema
for £13.7 million.
Launceston
Disposed of a 70,000 sq ft retail park
for £21.9 million.
Martlesham Heath, Ipswich
Disposed of a 48,000 sq ft retail park
for £22.0 million.
Oldham
Our MIPP JV sold a 25,000 sq ft asset let
to Wickes for a further 15 years for £4.5 million
(Group Share: £2.3 million).
£56.7m
NIY: 4.9% rising to 5.3%
WAULT: 18.4 years
MIPP Joint Venture
Acquired four assets in Aldershot, Beverley,
Newmarket and Telford for £21.4 million (Group
Share: £10.7 million) let predominantly to Wickes
and the Range. Other occupiers include Burger King,
KFC and Costa.
Derby
Acquired a 34,000 sq ft long income asset let to
Wickes for £5.9 million.
Durham
Acquired a 58,000 sq ft forward funded convenience
development for £13.6 million pre-let to Lidl and
the Range.
Roadside Portfolio
Acquired a portfolio of eight roadside convenience
assets for £12.1 million let to Euro Garages under
franchise agreements with Starbucks, Burger King,
Greggs and Subway. The assets occupy prominent
roadside locations, with the largest two in Bicester.
Hull
Acquired a 35,000 sq ft Odeon Cinema for £4.3 million.
London
Acquired two convenience assets let to the Co-op
for £10.2 million.
Disposed
£72.7m
NIY: 5.1%
WAULT: 13.8 years
Post year end
Increased our equity
holding in the DFS Joint
Venture from 45% to 82%
for £18.6 million. The
opportunistic acquisition
gives LondonMetric full
operational control, allows
it to accelerate various
asset management
initiatives and also pay
down expensive secured
bank facilities which were
due to expire imminently.
Acquired two convenience
stores in Worthing and
Bournemouth for
£6.1 million let to the
Co-op for 20 years.
Acquisition of a 35,000 sq ft cinema let to Odeon
We reinvested the proceeds of an Odeon cinema
sale in Warrington at a NIY of 4.8% into an Odeon
cinema in Hull at a NIY of 5.5% let for 20 years with
inflation linked uplifts. Subsequently, Odeon invested
significant capital into upgrading the Cinema.
Disposal of 48,000 sq ft Martlesham Heath
retail park, Ipswich
The retail park was sold at a NIY of 5.2% having
been significantly asset managed. The property
generated a profit on cost of 35% and an ungeared
return of 13% per annum since acquisition in 2013.
29
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS PROPERTY REVIEW
CONTINUED
ASSET MANAGEMENT
Our asset management activity continues to improve the quality of our real estate
as well as grow our income. We undertook 50 occupier transactions in the year,
generating £3.2 million of additional income and reducing our vacancy rate to
2%. Like for like income growth in the year was 5.7%, 2.9% excluding one off gains.
Contracted income at the year end was £89.7 million.
Distribution lettings
Distribution lettings and regears in the year were
signed across 1.9 million sq ft, adding £1.6 million
of income with an average lease length of 11 years
and tenant incentives equivalent to c.10 months
rent free. On regears, lease lengths were increased
from four to 11 years.
Post year end, we exchanged on two lettings at our
Bedford development. 15 year leases were signed
with a major US automation and technology business,
and Workstories on 107,000 sq ft and 31,000 sq ft
respectively. At our developments in Stoke and Crawley,
which completed last year, detailed discussions on letting
the remaining space are ongoing.
Occupier transactions
50
Additional income
per annum
£3.2m
Three regears were signed on mega and regional assets:
• Bedford, we signed a 15 year regear with Argos across
656,000 sq ft, increased from four years
• Swindon, we exchanged contracts with Oak Furniture
to extend its 302,000 sq ft distribution warehouse by
55,000 sq ft. The lease runs for a further nine years
following removal of the break
• Sheffield, a five year regear on 291,000 sq ft was signed
with M&S
Eight urban logistics lettings and regears were signed
with rents on regears increasing by 17% against previous
passing. Material lettings and regears included:
• Croydon, a 10 year regear was signed with Tesco
• Frimley, a new 10 year lease was signed with DPD
at our recently completed development
• Warrington, a new 15 year lease was signed
with Bonfigioli
• Solihull, a 10 year regear was signed with DHL
• Basildon, a 15 year regear was signed with
Geodis Wilson
• Havant, a 10 year regear was signed with Wartsila
Distribution rent reviews
During the year, we settled 11 distribution rent reviews
across 3.8 million sq ft adding £1.0 million of income at
10% above passing rent on a five yearly equivalent basis.
In urban logistics, we settled four reviews, including two
open market reviews in Leyton and Crawley, at an average
of 28% above previous rent on a five yearly equivalent basis,
generating £0.3 million of additional income. There is good
potential for further organic income growth from our urban
logistics assets where average ERV is 15% higher than
average passing rent.
This contrasts with the more muted rental growth that
bigger box logistics is experiencing generally and where
we settled seven rent reviews at 8% above passing on a
five yearly equivalent basis, split 7% for mega and 11% for
regional. These reviews generated an uplift of £0.7 million.
Long income and convenience-led retail lettings
and reviews
20 rent reviews were signed which generated an uplift of
£0.2 million at 18% above previous passing on a five yearly
equivalent basis. These reviews were almost exclusively
on convenience and leisure assets with RPI or fixed uplifts.
Eight lettings were signed which generated an uplift of
£0.4 million. The lettings had a WAULT of 14 years with
contractual uplifts on 37% of the income and average
incentive packages equivalent to eight months.
REGEAR AT BEDFORD
At our distribution warehouse in Bedford,
we extended the lease with Argos by a further
11 years. The warehouse generates a rent of
£4.1 million per annum with inflation linked
uplifts. An open market rent review had been
settled shortly prior to regear.
30
LondonMetric Property PlcAnnual Report and Accounts 2019 DEVELOPMENTS
During the year, we completed 0.3 million sq ft of developments, generating £2.6 million
of additional contracted rent at a yield of 5.8%, 89% of which was pre-let prior to
construction commencing. Developments under construction or in the pipeline
total 0.9 million sq ft and are expected to generate an additional £7.1 million of rent
at a yield of 6.7%.
Sector
% Pre-let prior to
construction
Area sq ft
’000
Additional
rent £m
Yield on
cost %
Practical
completion1
DEVELOPMENTS
Completed in the year
Dagenham
Frimley
Ringwood
Ipswich
Telford
Distribution
Distribution
Long income
Long income
Long income
Under construction and pipeline at year end
Bedford (Regional)2
Distribution
Bedford (Urban)2
Distribution
Durham
New Malden
Swindon
Weymouth2
Derby2
Convenience
Long income
Distribution
Convenience
Convenience
1 Based on calendar quarters and years
2 Anticipated yield on cost and rents
Completed in the year
0.3m sq ft
Under construction
and in pipeline
0.9m sq ft
100%
59%
100%
100%
100%
N/A
0%
100%
100%
100%
100%
N/A
180
62
33
39
8
322
500
188
58
57
55
27
16
901
0.9
0.7
0.2
0.7
0.1
2.6
3.3
1.3
0.8
0.4
0.3
0.6
0.4
7.1
Completed
Completed
Completed
Completed
Completed
2020/21
Q2 2019
Q3 2019
2020
Q4 2019
2020
2020
5.7
5.6
5.0
6.9
5.7
5.8
7.3
6.4
5.4
5.6
7.8
6.3
6.7
6.7
Bedford
At our 40 acre site, we have built three urban logistics
warehouses. 73% of the 188,000 sq ft development
has been let. We continue to see good interest from
occupiers for the last remaining warehouse and will look
to commence construction of the second phase totalling
500,000 sq ft upon commitment from new occupiers.
Weymouth
19,000 sq ft has been pre-let to Aldi and offers have
been received on the letting of three small pods.
The development is expected to have a WAULT
of 18 years. The site has been purchased and
construction of the Aldi unit is expected to commence
shortly with completion expected in January 2020.
Durham
The forward funded development is expected to complete
in July. The development is pre-let to Lidl and The Range
with a WAULT of 20 years.
Derby
The development has been revised for planning and
detailed discussions are ongoing with a convenience
operator. Acquisition of the development is subject
to planning.
Swindon
See the asset management review for more information.
New Malden
Extension to and modification of an existing asset to
accommodate three new convenience related occupiers.
On completion, the asset will be let for c.17 years to
occupiers including Dixons, an existing tenant who are
expected to occupy 38,000 sq ft, and Lidl, a new occupier
who has agreed a pre-let for 25 years on 11,000 sq ft.
Planning consent is expected in June 2019.
31
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
OUR RESPONSIBLE
DEVELOPMENT AT BEDFORD
Our objective is to responsibly develop a high quality sustainable
logistics park, let to strong and growing businesses that will generate
employment and opportunity for Bedford.
40 ACRE DEVELOPMENT SITE
LondonMetric in conjunction with Graftongate
was selected as the local authority’s preferred
development partner in 2013 and subsequently
agreed to acquire the site in November 2014.
The site was purchased unconditionally once
planning was approved in November 2017.
PHASE 1 TOTALLING 188,000 sq ft
Construction of three smaller warehouses
commenced in June 2018 on a speculative basis.
73% of the development was pre-let ahead of
construction works completing.
PHASE 2 POTENTIAL OF c.500,000 sq ft
Construction of two larger warehouses is
planned upon occupier commitment.
BEDFORD AS AN ATTRACTIVE
DISTRIBUTION LOCATION
NORTHAMPTON
CRANFIELD
CRANFIELD
BEDFORD
BEDFORD
A421
CAMBRIDGE
CAMBRIDGE
A1(M)
M11
M1
LUTON
LUTON
STRATEGICALLY
LINKED
Growing location
for distribution and a
premium workplace
LONDON
MILTON KEYNES
MILTON KEYNES
OXFORD
OXFORD
M40
MOTORWAYS
A ROADS - DUAL CARRIAGEWAY
RAILWAY
OXFORD-CAMBRIDGE ARC
GOLDEN TRIANGLE
32
LondonMetric recognised the potential of
Bedford early on and, in 2013, acquired the
Argos distribution centre in Marsh Leys,
adjacent to the BedfordLink site.
Bedford is an attractive distribution hub for
occupiers, providing them with quick access
to London in under an hour. It also provides
business resilience from its equidistant
location along the A421, an important and
recently upgraded link road that connects
the M1 and A1 and is at the heart of the
Oxford to Cambridge growth corridor.
Whilst Bedford is only 10 miles away from
Milton Keynes, arguably the most prestigious
distribution location in the UK, rents are
materially cheaper in Bedford and there is
a better and more cost effective availability
of labour. The town centre is just 20 minutes
by bicycle and bus, which is highly attractive
to prospective employees.
Consequently, blue chip companies such as
Sainsbury’s, Argos, Asda, Aldi, B&M and XPO
have established a significant distribution
presence in the area and there was a
particularly strong take up of warehousing
recorded in and around Bedford during 2018.
LondonMetric Property PlcAnnual Report and Accounts 2019 WORKING CLOSELY WITH
THE LOCAL AUTHORITY TO
BENEFIT THE LOCAL AREA
£66m
Investment by
LondonMetric
Bedford council has been closely involved
in the project reflecting the importance of
BedflordLink to the local area. We have formed
a strong relationship with them to ensure that
we meet their objectives of attracting local
investment, creating local jobs and providing
a balanced approach to growth for Bedford.
1,000
Permanent jobs
expected to be
created
Once completed, LondonMetric is expected to
have invested £66 million in the development,
significantly upscaled the infrastructure
of the area as well as created a number of
local construction jobs. As occupiers take
occupation, they will also spend significant
amounts fitting out their warehouses, typically
representing 0.5-2.0x the build cost.
£2m
Business rates
expected to be
generated annually
The development is expected to create
1,000 permanent jobs across a range of
careers with occupiers signing long term
leases on the warehouses, typically
10-15 years. It is also expected to generate
£2.3m per annum in business rates.
THE FUTURE
IS BRIGHT
THE FUTURE
IS BEDFORD
BEDFORD
RATED A GREAT
PLACE TO LIVE
1,750 new homes to be built
yearly in Bedfordshire
74 state schools and
10 private
APRIL, 2018
Population growth of 8%
over 5 years
Bedford has over 2,350
areas of green space
This welcome investment is further recognition
of Bedford Borough’s status as a strategic
location for business. There was a lot of
interest in this site which demonstrates
its attractiveness and its very favourable
location. I look forward to the completion
of the construction work and the many jobs
that will be created for local people.
Dave Hodgson
The Mayor of Bedford, commenting on the ceremony to mark the
start of construction on site
DEVELOPING RESPONSIBLY
TO MEET THE NEEDS OF
OUR OCCUPIERS, THEIR
WORKFORCE AND THE
LOCAL COMMUNITY
We spent three years working up the
development to design and agree a scheme
that would meet the requirements of
occupiers, local residents and planners.
Following site acquisition in 2017, six months of
enabling works were undertaken. This consisted
of a balanced cut and fill of the site, construction
of a new dedicated entrance and installation
of first phase infrastructure, principally on site
drainage, attenuation and off site power.
The contractor, Winvic, was then appointed
to deliver Phase 1 of the project totalling
188,000 sq ft of warehousing. Winvic have
performed well throughout the project and
we worked closely with them to ensure that
they met our high standards.
MODERN, EFFICIENT WORKSPACE
The development has been designed by UMC
Architects to provide varied warehousing space
by size and type to generate a softer logistics
environment with a contemporary and campus
feel, respectful of the local community.
The buildings have been designed with the
following characteristics:
• BREEAM Very Good
• EPC rating of A
• Eaves heights of between 12m to 18m
• C.10% rooflights
• Roofs designed for solar installation
• Provision of electric vehicle charge points
ATTRACTING LOCAL EMPLOYEES
Employee wellbeing is of critical consideration
for occupiers to attract workers. The site
has been designed to provide an open and
landscaped space with water features,
integrated pedestrian and cycle routes
surrounding each building.
Ease of access to work is particularly
critical and, with the majority of employees
at nearby warehouses travelling to work
by bicycle, provision of cycle routes was
essential. LondonMetric published a Health
& Wellbeing pack for occupiers to help them
in their considerations.
CONSIDERING THE LOCAL COMMUNITY
From the outset, there has been
significant consultation with residents.
During development, Winvic were praised
by Considerate Constructors for exceptional
community engagement, citing:
• Neighbourhood letter drops and satisfaction
survey, with no negative feedback
• Daily logistics meetings to minimise
disruption as well as a behaviour
programme for workers to promote courtesy
• Support of local charities and schools,
including a site visit and assistance to
improve school facilities e.g. cycle shelter
• That 75% of workers were from the local area
• Following completion of Phase 1,
LondonMetric are continuing this
good engagement
33
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS FINANCIAL
REVIEW
We continue to invest carefully
in those property sectors
that can deliver reliable and
progressive income returns
for our shareholders.
Martin McGann
Finance Director
Our strong financial performance this year
is a result of making the right strategic
decisions in the past. Our portfolio is well
positioned to benefit from the migration of
shoppers to online platforms and withstand
Brexit disruption in the short term.
Overview
IFRS reported profit for the year of £119.7 million was
predicated on EPRA earnings of £61.0 million and a
revaluation gain of £64.4 million including our share
of joint ventures. IFRS net assets increased 5.9% to
£1,216.8 million.
EPRA earnings per share has grown by 3.5% to 8.8p,
allowing us to increase our dividend for the year by
3.8% to 8.2p per share. The dividend is 1.07 times
covered by EPRA earnings and can be taken as a cash
payment or scrip share alternative. EPRA NAV per share
increased by 5.9% to 174.9p.
We entered into two new debt arrangements in the
year to improve our capital structure and lengthen our
debt maturity.
In July, we entered into a new £75 million unsecured debt
facility with Wells Fargo, of which £50 million has been
drawn on a seven year term. In December, we entered
into a £150 million private placement at a blended fixed
rate coupon of 3.5% and an average maturity of 12 years.
As a result, our average debt maturity has increased to
6.4 years from 4.8 years last year and available undrawn
facilities have increased to £373.5 million.
These financing transactions provide flexibility to
execute our property strategy and underpin our strong
financing metrics.
Following sales at the year end, our loan to value is
32% (2018: 35%) and our average cost of debt is 3.1%
(2018: 2.8%). Proceeds from sales will be used to fund
our investment plans.
Presentation of financial information
The Group financial statements on pages 122 to 143 are
prepared in accordance with IFRS where the Group’s
interests in joint ventures are shown as a single line item
on the consolidated income statement and balance sheet
and all subsidiaries are consolidated at 100%.
Management monitors the performance of the business
principally on a proportionately consolidated basis, which
includes the Group’s share of joint ventures on a line by
line basis in the financial statements.
These measures, presented on a proportionately
consolidated basis, are alternative performance
measures, as they are not defined under IFRS.
The figures and commentary in this review are consistent
with our management approach, as we believe this
provides a meaningful analysis of overall performance.
Alternative performance measures
The Group uses alternative performance measures
based on the European Public Real Estate Association
(‘EPRA’) Best Practice Recommendations (‘BPR’) to
supplement IFRS.
EPRA earnings per share is one of the Group’s KPIs and
supports the level of dividend payments. It is also one
of the financial performance targets under the variable
incentive arrangements for Executive Directors.
The EPRA measures are widely recognised and used
in our sector and seek to improve transparency,
comparability and relevance of published results,
as they highlight the underlying performance of the
Group’s property rental business.
Further details, definitions and reconciliations between
EPRA measures and the IFRS financial statements
can be found in note 8 to the financial statements,
Supplementary notes i to vii and in the Glossary
on page 155.
IFRS reported profit
£119.7m
2018: £186.0m
IFRS net assets
£1,216.8m
2018: £1,149.5m
EPRA earnings per share
8.8p
2018: 8.5p
IFRS earnings per share
17.2p
2018: 26.9p
EPRA net asset value
per share
174.9p
2018: 165.2p
IFRS net asset value
per share
174.7p
2018: 165.7p
34
LondonMetric Property PlcAnnual Report and Accounts 2019 Income statement
EPRA earnings for the Group and its share of joint ventures are detailed as follows:
For the year to 31 March
Gross rental income
Property costs
Net rental income
Management fees
Administrative costs
Net finance costs
Other1
EPRA earnings
1 Other items include taxation
Group
£m
85.1
(1.2)
83.9
1.7
(13.7)
(18.1)
0.2
54.0
JV
£m
10.4
(0.5)
9.9
(0.8)
–
(2.1)
–
7.0
2019
£m
95.5
(1.7)
93.8
0.9
(13.7)
(20.2)
0.2
61.0
Group
£m
82.0
(0.8)
81.2
1.7
(13.8)
(16.5)
–
52.6
JV
£m
9.8
(0.4)
9.4
(0.8)
(0.1)
(2.0)
–
6.5
2018
£m
91.8
(1.2)
90.6
0.9
(13.9)
(18.5)
–
59.1
The table below reconciles the movement in
EPRA earnings in the year.
EPRA earnings 2018
Net rental income
Administrative costs
Net finance costs
Other1
EPRA earnings 2019
1 Other items include taxation
£m
59.1
3.2
0.2
(1.7)
0.2
61.0
p
8.5
0.5
–
(0.2)
–
8.8
Net rental income
One of our key strategic priorities has been to
grow sustainable income to support growth
in EPRA earnings and a progressive dividend.
This year, net rental income increased by 3.5%
to £93.8 million. Movements in net rental
income are reflected in the table below.
Net rental income 2018
Existing properties1
Developments2
Acquisitions3
Disposals3
Property costs
Net rental income 2019
1 Properties held throughout 2018 and 2019
2 Developments completed in 2018 and 2019
3 Acquisitions and disposals in 2018 and 2019
£m
90.6
4.2
2.6
10.9
(14.0)
(0.5)
93.8
Income from lettings, rent reviews and regears
of our existing portfolio generated additional
income of £4.2 million, which included lease
surrender premiums of £2.5 million compared
with £1.5 million last year.
Completed developments delivered a further
£2.6 million of additional income and net
disposals reduced income by £3.1 million.
hedging arrangements on sales and
refinancing in the year, were £20.2 million,
an increase of £1.7 million over last year.
Property costs have increased by £0.5 million
due to increased costs of vacant units, however
our property cost leakage continues to be
minimal at less than 2%.
Administrative costs
Administrative costs have reduced by
£0.2 million to £13.7 million and are stated
after capitalising staff costs of £1.9 million
(2018: £1.8 million) in respect of time spent
on development projects in progress, in
accordance with our accounting policy.
Average headcount is slightly lower at 28
employees compared with 31 last year.
EPRA cost ratio
The EPRA cost ratio continues to be a key
measure of our effective cost management
and at 15.0% is one of the lowest in the sector.
The ratio, which reflects total operating costs
as a percentage of gross rental income,
has fallen by 28 bps over the year. The full
calculation is shown in Supplementary note iv
on page 151.
EPRA cost ratio including
direct vacancy costs
EPRA cost ratio excluding
direct vacancy costs
2019
%
2018
%
15
14
15
15
Net finance costs
Net finance costs, excluding the costs
associated with repaying debt and terminating
Although net debt decreased over the year,
average borrowings were actually higher in
2019 compared with 2018, which together
with higher average rates, resulted in
increased bank interest costs of £0.8 million.
Alongside this, interest capitalised on
developments fell by £0.6 million and we
incurred additional fees and interest on new
Group facilities and joint venture debt of
£0.3 million. Further detail is provided in notes
5 and 10 to the financial statements.
Share of joint ventures
EPRA earnings from joint venture investments
were £7.0 million, an increase of £0.5 million
over last year as reflected in the table below.
For the year to 31 March
MIPP
Retail Warehouse (DFS)
Residential (Moore
House)
EPRA earnings
2019
£m
4.6
2.4
–
7.0
2018
£m
3.7
2.7
0.1
6.5
Our MIPP joint venture received surrender
income net of associated costs of £0.7 million
in the year and additional net rent from
acquisitions and completed developments
of £0.2 million. Income from our 45% holding
in the DFS joint venture fell by £0.3 million
this year as a result of two disposals in the
previous year. In addition, the Group received
net management fees of £0.9 million for acting
as property advisor to each of its joint ventures
(2018: £0.9 million).
35
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS FINANCIAL REVIEW
CONTINUED
Group
£m
54.0
75.9
(4.4)
–
0.6
126.1
JV
£m
7.0
(11.5)
(0.3)
–
(1.6)
(6.4)
2019
£m
61.0
64.4
(4.7)
–
(1.0)
119.7
Group
£m
52.6
114.7
26.2
(19.0)
(2.1)
172.4
JV
£m
6.5
6.9
0.2
(0.1)
0.1
13.6
2018
£m
59.1
121.6
26.4
(19.1)
(2.0)
186.0
The tax credit in the period reflects a land
remediation receipt of £0.4 million net of a
tax provision of £0.2 million on income that
does not qualify as property income within
the REIT regulations.
The Company issued 2.8 million ordinary
shares in the year under the terms of the
Scrip Dividend Scheme, which reduced the
cash dividend payment by £5.0 million to
£50.6 million.
The Group’s tax strategy is compliance
orientated; to account for tax on an accurate
and timely basis and meet all REIT compliance
and reporting obligations.
Our strategy, which has been approved by
the Board, can be found on our website at
www.londonmetric.com.
Our responsible approach seeks to minimise
the level of tax risk and to structure our
affairs based on sound commercial principles.
We maintain an open dialogue with HMRC to
identify and resolve any issues as they arise.
We continue to monitor and comfortably
comply with the REIT balance of business
tests and distribute as a Property Income
Distribution 90% of REIT relevant earnings
to ensure our REIT status is maintained.
In accordance with REIT regulations,
£5.4 million was withheld on property income
distributions and paid directly to HMRC in
the year.
Dividend
The Company has continued to declare
quarterly dividends and has offered
shareholders a scrip alternative to
cash payments.
In the year to 31 March 2019, the Company
paid the third and fourth quarterly dividends
for 2018 and the first two quarterly dividends
for 2019 at a total cost of £55.6 million or
8.0p per share as reflected in note 7 to the
financial statements.
The first two quarterly payments for the
current year of 1.9p per share were paid
as Property Income Distributions (‘PIDs’)
in the year. The third quarterly payment of
1.9p was paid as a PID in April 2019 and the
Company has proposed a fourth quarterly
payment of 2.5p payable on 11 July 2019,
of which 0.75p per share will be a PID, to
shareholders on the register at the record
date of 7 June 2019.
The total dividend payable for 2019 has
increased 3.8% to 8.2p, comprising a PID
of 6.45p and an ordinary dividend of 1.75p.
The Board took the following into account
when considering its dividend payments:
• Its REIT obligations to distribute 90%
of property rental business profits
• Its desire to pay a sustainable and
progressive level of dividend
• Its EPRA earnings for 2019 and outlook
At the year end the Company had distributable
reserves of £748.4 million, providing substantial
cover for the dividend payable for the year.
When required and at least six monthly,
the Company receives dividends
from its subsidiaries which increase
distributable reserves.
IFRS reported profit
For the year to 31 March
EPRA earnings
Revaluation of investment property
Fair value of derivatives
Debt and hedging early close out costs
Profit/(loss) on disposal
IFRS reported profit
Management principally monitors the Group’s
underlying EPRA earnings which reflect
earnings from core operational activities and
excludes property and derivative valuation
movements, profits and losses on disposal
of properties and financing break costs.
A full reconciliation between EPRA earnings
and IFRS reported profit is given in note 8(a)
to the financial statements and is summarised
in the table above.
The Group’s reported profit for the year was
£119.7 million compared with £186.0 million
last year. The £66.3 million reduction was
primarily due to a £57.2 million lower property
revaluation gain and £12.0 million adverse
derivative movement net of break costs
this year.
Sales of 17 flats at Moore House generated
a loss on sale of £1.6 million. Other Group
sales generated a profit over book value
of £0.6 million, resulting in an overall loss
of £1.0 million compared with a loss of
£2.0 million last year. The total profit over
original cost of all sales in the period was
£40.6 million, representing a return of 17.3%.
Including one further flat sale at Moore House
post year end, we have 33 remaining flats of
the original 149 owned.
Disposals are discussed in detail in the
Property review on pages 24 to 31.
Taxation
As the Group is a UK REIT, any income and
capital gains from our qualifying property
rental business are exempt from UK
corporation tax. Any UK income that does not
qualify as property income within the REIT
regulations, principally management fees and
interest receivable, is subject to UK tax in the
normal way.
36
LondonMetric Property PlcAnnual Report and Accounts 2019 Balance sheet
EPRA net assets for the Group and its share of joint ventures are as follows:
As at 31 March
Investment property
Gross debt
Cash
Other net liabilities
EPRA net assets
Derivatives
IFRS net assets
Group
£m
1,688.0
(565.0)
20.6
(24.1)
1,119.5
(1.6)
1,117.9
JV
£m
158.2
(61.2)
3.5
(1.3)
99.2
(0.3)
98.9
2019
£m
1,846.2
(626.2)
24.1
(25.4)
Group
£m
1,677.6
(650.0)
26.2
(24.8)
1,218.7
1,029.0
(1.9)
2.8
1,216.8
1,031.8
JV
£m
164.4
(58.9)
13.1
(1.0)
117.6
0.1
117.7
2018
£m
1,842.0
(708.9)
39.3
(25.8)
1,146.6
2.9
1,149.5
EPRA net asset value is a key measure of the
Group’s overall performance, reflecting both
income and capital returns. It excludes the fair
valuation of derivative instruments that are
reported in IFRS net assets. A reconciliation
between EPRA net assets and IFRS reported
net assets is provided in the table above and
in note 8 to the financial statements.
IFRS reported net assets increased
by £67.3 million or 5.9% in the year to
£1,216.8 million.
EPRA net assets have increased £72.1 million
or 6.3% in the year to £1,218.7 million. On a per
share basis, EPRA net assets increased by 9.7p
to 174.9p. The table below summarises the
movement in the year.
The increase in both IFRS and EPRA net assets
per share was principally due to the property
revaluation gain of 9.3p. EPRA earnings per
share of 8.8p covered the 8.0p dividend paid
in the year.
Total accounting return is another important
measure of our performance as it reflects
EPRA net asset value growth plus dividends
paid in the year. Our strong return this year
of 17.7p per share, or 10.7%, although lower
than last year, compares favourably with many
of our peers. The full calculation can be found
in supplementary note viii on page 152.
Portfolio valuation
We have continued to invest in urban logistics
assets that have once again delivered
high levels of rental and valuation growth.
Our distribution exposure has increased to
72.5% including distribution developments,
up from 68.5% last year. Further sales of retail
parks have reduced our exposure in this sector
to less than 5%.
Developments in progress at the year end
included our 40 acre scheme in Bedford,
a retail development pre-let to Aldi in
Weymouth and a forward funded pre-let
scheme in Durham. Projects at Dagenham,
Frimley, Ipswich, Ringwood and Telford
completed in the year and our investment in
development assets remains at modest levels.
A breakdown of the property portfolio by sector
is reflected in the table below.
EPRA NAV at 1 April 2018
1,146.6
165.2
Distribution
£m
p
As at 31 March
EPRA earnings
Property revaluation
Dividends
Other movements1,2
61.0
64.4
(55.6)
2.3
8.8
9.3
(8.0)
(0.4)
Convenience & leisure
Long income
Retail parks
Investment portfolio
EPRA NAV at 31 March 2019
1,218.7
174.9
Residential
1 Other movements include scrip share issue savings
(£5.0 million), offset by loss on sales (£1.0 million) and
share based awards (£1.7 million)
2 Other movements in EPRA NAV per share reflect the
impact of share movements in the year
Development1
Property value
£m
1,292.6
152.1
237.4
87.0
1,769.1
17.3
59.8
2019
%
70.0
8.3
12.9
4.7
95.9
0.9
3.2
£m
1,233.1
174.7
220.8
139.8
1,768.4
30.1
43.5
2018
%
66.9
9.5
12.0
7.6
96.0
1.6
2.4
1,846.2
100.0
1,842.0
100.0
1 Represents distribution of £46.5 million (2.5%) and convenience and leisure of £13.3 million (0.7%). Split in March 2018 was
distribution of £29.4 million (1.6%), long income of £8.2 million (0.5%) and convenience and leisure of £5.9 million (0.3%)
37
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS FINANCIAL REVIEW
CONTINUED
The movement in the investment portfolio is
explained in the table below.
Portfolio
value1
£m
Portfolio
value
£m
Financing
The performance indicators used to monitor
the Group’s debt and liquidity position are
shown in the table below. The Group and joint
venture split is shown in Supplementary note
iii on page 150.
As at 31 March
2019
2018
Opening valuation
1,842.0
1,533.8
Acquisitions
Developments
Capital expenditure on
completed properties
Disposals
Revaluation
Lease incentives2
156.3
34.3
289.7
62.5
As at 31 March
Gross debt
Cash
15.0
20.4
Net debt
(258.8)
(191.0)
Loan to value1
64.4
(7.0)
121.6
5.0
Cost of debt2
Undrawn facilities
2019
£m
626.2
24.1
602.1
32%
3.1%
373.5
2018
£m
708.9
39.3
669.6
35%
2.8%
65.8
Closing valuation
1,846.2
1,842.0
Average debt maturity
6.4 years
4.8 years
1
2
Further detail on the split between Group and joint venture
movements and the EPRA capital expenditure analysis can
be found in Supplementary note vii on page 152
Comprises incentives and rent frees of £9.2 million (2018:
£13.5 million) less amounts written off on disposal of £16.2
million (2018: £8.5 million)
Property values have increased by
£64.4 million in the year, most significantly in
the distribution and development sectors and
the portfolio has delivered a total property
return of 9.0% compared to the IPD All
Property index of 4.6%.
The Group spent £156.3 million in the year
acquiring £112.5 million urban logistics,
£15.6 million long income and £28.2 million
convenience and leisure assets.
We completed 23 commercial property and
17 residential flat sales in the year generating
net proceeds of £274.0 million and reducing
the book value of property by £275.0 million
(including the cost of lease incentives written
off of £16.2 million). We exchanged to sell
our distribution centre in Wakefield let to
One Stop for £10.5 million in the year. The sale
completed in April 2019 and will be accounted
for next year.
At the year end, the Group had capital
commitments of £19.7 million as reported
in note 9 to the financial statements, relating
primarily to committed developments in
progress at Durham and Bedford.
Further detail on property acquisitions, sales,
asset management and development can be
found in the Property review on pages 24 to 31.
Hedging3
73%
73%
1
2
3
LTV at 31 March 2019 includes £10.5 million of deferred
consideration receivable on sales (2018: £47.5 million)
Cost of debt is based on gross debt and includes amortised
costs but excludes commitment fees
Based on the notional amount of existing hedges and total
debt facilities
Net debt has fallen over the year by
£67.5 million to £602.1 million.
We entered into new debt arrangements
to lengthen our debt maturity and increase
our firepower in order to provide further
operational flexibility.
In July 2018 we entered into a new unsecured
debt facility with Wells Fargo for £75 million,
of which £50 million was immediately drawn
on a seven year term. The undrawn balance
of £25 million is on a five year term and can
be extended by up to two years.
In December 2018, we entered into a
£150 million private placement with five
institutional investors, at a blended fixed rate
coupon of 3.5% and an average maturity of
12 years. Funds were drawn in March 2019
and were used to repay part of the unsecured
credit facility, which remains available to
redraw in full.
Post year end, we increased our equity holding
in the DFS joint venture to 82% and repaid its
secured debt facility which was due to expire.
Our average debt maturity has increased
to 6.4 years from 4.8 years last year and
available undrawn facilities have increased
to £373.5 million.
After deducting contracted capital
commitments at the year end of £19.7 million,
our headroom which can be used to fund our
investment plans is £353.8 million.
Our other financing metrics remain strong,
with average cost of debt of 3.1% (2018: 2.8%)
and loan to value of 32% (2018: 35%) following
sales at the year end.
The Group has comfortably complied
throughout the year with the financial
covenants contained in its debt funding
arrangements and has substantial levels of
headroom. Covenant compliance is regularly
stress tested for changes in capital values
and income.
The Group’s unsecured facilities and private
placement loan notes contain gearing
and interest cover financial covenants.
At 31 March 2019, the Group’s gearing ratio
as defined within these funding arrangements
was 46% which is significantly lower than the
maximum limit of 125%, and its interest cover
ratio was 4.7 times, comfortably higher than
the minimum level of 1.5 times.
The Group’s policy is to substantially de-risk
and limit exposure to volatility in interest rates
by entering into hedging arrangements.
At 31 March 2019, 73% of our exposure to
interest rate fluctuations was hedged by way
of swaps and caps assuming existing debt
facilities are fully drawn (2018: 73%).
As a result of the hedging in place, if interest
rates had been on average 1% higher in the
year, net finance costs would be approximately
£2.3 million higher, reducing EPRA earnings
by 3.8%.
We are advised by JCRA and continue to
monitor our hedging profile in light of forecast
interest rate movements.
38
LondonMetric Property PlcAnnual Report and Accounts 2019 Average debt maturity
1
3
6.4
years
2
1 Debt expiring within 0–5 years .............................. 37%
2 Debt expiring within 6–10 years ............................ 47%
3 Debt expiring within 11–15 years .......................... 16%
Undrawn facilities
13
2
£373m
1 Unsecured RCF ....................................................... 91%
2 Unsecured Wells Fargo facility ..............................
3 MIPP joint venture ..................................................
7%
2%
Total facilities
5
6 1
4
£1bn
3
2
1 Unsecured RCF ....................................................... 44%
2 Unsecured Wells Fargo facility ..............................
8%
3 Private placement .................................................. 28%
4 Secured term loan .................................................. 13%
5 MIPP joint venture ..................................................
6 DFS joint venture ....................................................
5%
2%
Cash flow
During the year, the Group’s cash balances
decreased by £5.6 million as reflected in the
table below.
Cost of debt
3.5
3.5
As at 31 March
Cash flows from operations
Changes in working capital
2019
£m
69.6
0.4
2018
£m
61.0
(1.1)
Finance costs and taxation
(15.8)
(16.4)
3.1
2.8
3.1%
Cash flows from operating
activities
Cash flows from investing
activities
Cash flows from financing
activities
54.2
43.5
2016
2017
2018
2019
83.2
(169.6)
Loan to value ratio
(143.0)
109.3
38
35
32
30
32%
Net decrease in cash
(5.6)
(16.8)
Cash inflows from operating activities
increased by £10.7 million to £54.2 million,
driven by increases in net rental income and
the expiry of rent free periods.
The Group received net cash proceeds
of £83.2 million during the year from
its investment activities. This included
£261.0 million from property disposals and
£12.4 million from joint ventures. The Group
spent £159.0 million acquiring property and
£31.2 million on capital expenditure for asset
management and development activities.
Cash outflows from the Group’s financing
activities reflect net debt repayments of
£85.0 million, cash dividend payments of
£50.6 million, financing costs of £2.9 million
and share purchases of £4.5 million.
2016
2017
2018
2019
Interest cover ratio
5.0
4.5
5.0
4.7
4.7x
Further detail is provided in the Group cash
flow statement on page 125.
2016
2017
2018
2019
39
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RESPONSIBLE
BUSINESS
Responsible Business addresses the three key areas of environment, people
and stakeholders. It is embedded into all of our corporate activities.
OUR KEY RESPONSIBLE BUSINESS RISKS AND POTENTIAL IMPACT
Environment
Stakeholders & Our People
• Quality, desirability and environmental
standards of our assets deteriorate,
leading to higher voids and loss of income
• Management of our supply chain is weak,
leading to business interruption, accidents,
reputational risk or breach of law
• Physical climate change risks and
wider risks from transitioning to a low
carbon economy are not successfully
mitigated which leads to a reduction in the
Company’s appeal to investors
• Investor expectations for environmentally
efficient, socially beneficial and financially
productive assets are not met which
reduces liquidity for our assets
• Reliance on a few employees, insufficient
employee development and diversity
reduces our competitive advantage
• Poor external stakeholder relations impact
negatively on our reputation and ability to
undertake business activities
• Poor Responsible Business focus reduces
our access to capital and debt markets
OUR RESPONSIBLE BUSINESS OBJECTIVES
• Minimise the environmental impact of our
business and maximise the efficiencies of
our assets in conjunction with occupiers
• Ensure full understanding of
environmental and climate change
risks relating to our assets, taking
appropriate action
• Empower, develop and increase wellbeing
and diversity of our people
• Enhance our external stakeholder
relationships, including those with
occupiers, supply chains, investors and
local communities
RESPONSIBLE BUSINESS EMBEDDED IN OUR ACTIVITIES
Responsible Investment
Generating sustainable value
S
R
O
T
OUR P
E
O
P
L
E
IN V E S
S
E
I
T
I
N
U
M
M
Responsible Business
Managing stakeholder
relationships and risk well
O
C
C
O
N
TRACTORS & S U P P
R S
L I E
O
C
C
U
P
I
E
R
S
Responsible
Asset Management
Responding to occupier
needs and enhancing
asset quality
Responsible
Development
Future-proofing
our assets
SEE FULL RESPONSIBLE
BUSINESS REPORT 2019
WWW.LONDONMETRIC.COM
We recognise the ever
increasing importance of
managing climate change
and environmental risks as
well as developing strong
stakeholder relationships.
Martin McGann
Finance Director
Overview
LondonMetric’s portfolio has changed
significantly, moving away from offices and
multi-let retail parks into single let and modern
distribution warehousing. Consequently, our
carbon footprint has fallen significantly, as has
the portfolio’s operational requirements and
our employee numbers.
However, we are committed to improving our
Responsible Business disclosure, mitigating
climate change and sustainability risks and
capturing environmental and stakeholder
related opportunities through our investment,
asset management, development and
corporate activities.
Every year, we set targets to meet
our Responsible Business objectives.
Progress is monitored at Working Group
meetings held several times a year and
attended by key business representatives,
one Board member and JLL, our
external real estate sustainability advisor.
Overall performance is reported to the
Board at regular intervals.
Performance against our 2019 targets is
detailed in the full Responsible Business
report for 2019. Our targets for 2020 have
been set and are available on our website.
40
LondonMetric Property PlcAnnual Report and Accounts 2019
KEY ACHIEVEMENTS AND FURTHER
RECOGNITION OF OUR PROGRESS
Our Responsible Business activities have delivered further improvements and
we have maintained our Green Star status in the latest GRESB assessment,
which we continue to view as our most applicable sustainability benchmark.
GLOBAL REAL ESTATE SUSTAINABILITY
BENCHMARK (‘GRESB’)
EPRA SUSTAINABILITY BEST PRACTICE
RECOMMENDATIONS (‘SBPR’)
• Achieved 67% score in the 2018 survey and
• Framework for reporting standardised
maintained our Green Star status. This score is up
from 34% in 2014
• We continue to score above our peer average which,
for 2018, was 60%
• Further actions have been undertaken to maintain
status in the upcoming 2019 survey, particularly
on stakeholder engagement and construction
environmental data
• For first time in 2015, we reported in a format
required by the EPRA sBPR and received special
commendation for improvements made
• In 2018, we maintained our Gold Award
Targets to 2019
FTSE4GOOD
NEW ISS REPORTING
• Assessment for inclusion in the FTSE4Good Index
• Our investor Responsible Business survey last year
• In 2018, our most recent assessment, we met
identified ISS as an important ESG benchmark
the required rating threshold of 3.1 out of 5.0 and,
for the first time, we were included in the index
• We responded for the first time last year and have
improved our score to above that of our peer group
• Further improvements in our score are expected
over the next year
TCFD REPORTING
We have reviewed the framework introduced by the
Task Force on Climate-related Financial Disclosures
(‘TCFD’), established by the Financial Stability Board.
It is designed to help companies report decision-useful
climate-related information and, while voluntary, it
is a clear sign of the increasing market expectations
around carbon and climate risk reporting.
During the year, as part of our initial TCFD
considerations, we started to assess the impact of
climate change on our assets, both in terms of the risk
of transitioning to a low carbon economy and also the
physical risks resulting from climate change.
Whilst we believe that we own resilient assets, we are
in the process of undertaking an enhanced and updated
review of our material assets. This is being undertaken
in conjunction with WSP, our environmental
due diligence advisor, and JLL, our Responsible
Business advisor.
We will analyse the results of this review and look to
broaden this analysis across our asset base, as well
as provide further disclosure in accordance with TCFD
guidance and report on the resilience of our business
and portfolio to climate-related risks in greater detail.
Awards
GRESB Green Star
and EPRA sBPR
Gold Award
maintained
88%
targets achieved
or in progress
EPC rating of ‘E’
or above on assets for
MEES purposes
100%
FURTHER DETAILS
PAGE 42
BREEAM Very Good
certification on completed
developments in the year
75%
of developments
Annual carbon footprint
reduction in the year
-68%
absolute
-29%
like for like
SEE FULL RESPONSIBLE
BUSINESS REPORT 2019
WWW.LONDONMETRIC.COM
41
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RESPONSIBLE BUSINESS
CONTINUED
MANAGING ENVIRONMENTAL
RISKS AND OPPORTUNITIES
Through our investment, asset management and development
activities we look to minimise the environmental impact of our business
and maximise the opportunities to improve the efficiency of our assets.
OUR ENVIRONMENTAL PERFORMANCE
Our portfolio has seen significantly reduced
levels of energy consumption and greenhouse
gas emissions.
Our landlord controlled energy consumption
for last year was 1,134 MWh compared to
9,056 MWh in 2015. Excluding void distribution
assets, consumption was 279 MWh, which
equates to the consumption of around
16 mid sized homes.
Due to vacancies, our distribution assets
registered material landlord energy consumption
for the first time. However, this is expected
to reduce significantly following the sale and
letting of several warehouses in the year.
Only c.10% of the portfolio by area has
landlord controlled energy supply and this
limits our ability to further reduce our energy
consumption. However, we continue to look at
ways of reducing our consumption, improving
the efficiency of our assets and engaging with
our occupiers to support them in reducing
their energy consumption.
Energy consumption (MWh)
8000
6000
4000
2000
0
2017
2018
2019
Distribution
Office
Retail
ESOS COMPLIANCE
In line with our regulatory compliance, we expect
to complete our planned energy audits well
ahead of the December 2019 deadline.
42
INVESTING
Our investment process involves the careful
assessment of environmental risks. Our activities
have shifted the portfolio into less operationally
intensive, single let and higher quality assets.
In respect of the Minimum Energy Efficiency
Standard (MEES), 100% of assets are rated ‘E’
or above and assets rated ‘A’-’C’ have risen
to 77% of the portfolio, up from 59% in 2015.
One asset representing 0.4% of the portfolio was
rated ‘F’ last year and related to a purchase in that
year. In conjunction with the occupier, significant
energy improvements have raised this to a ‘B’
rated asset.
As climate change risk increases, we are
reviewing our approach to environmental due
diligence and looking to, in conjunction with
our advisor, enhance our environmental risk
assessment on new acquisitions.
ASSET MANAGING
EPC Rating of Portfolio (by ERV)*
E
A
F
D
rated A-C
B
77%
C
2019
A ...................................... 17.1%
B .......................................29.8%
C .......................................30.1%
D .......................................21.3%
E .........................................1.7%
Below E or unknown .........0.0%
*for MEES purposes
2015
0.0%
25.5%
33.6%
11.7%
17.7%
11.5%
We are delivering energy efficiencies and
sourcing cleaner energy through various
asset management initiatives:
We continue to engage on progressing further
solar installations and look at ways we can
generate renewable landlord supply.
Occupier Energy Audits and LED upgrades:
We continue to undertake audits on our
distribution assets and over the last two years this
has prompted six of our occupiers to fund internal
LED lighting upgrades. Further audits are planned
or underway and we are discussing further LED
upgrades with occupiers.
Renewable energy: Following ongoing
engagement with our tenants and feasibility
studies, 1.8 MW of solar PV capacity is installed
across our assets.
Recharge points: Electric vehicle recharge
points are installed on a growing number of our
assets and we continue to look to add further
installations.
Smart metering and Green sourcing:
During the year we increased the percentage of
landlord controlled energy supply from low carbon
sources from 0% to 85% of managed assets.
Tenant Energy Data: We continue to collect data
on our occupiers’ energy consumption and have
increased our energy data capture to cover 38%
of our portfolio.
DEVELOPING
Development is an important activity for us and
we carry out our development work responsibly
and give proper consideration to environmental,
sustainable and social matters.
We continue to integrate a range of sustainable
features into our developments including solar
PVs, roof lights, electric vehicle recharge points,
water conservation and ecology.
For all large developments, we target BREEAM
Very Good as standard and our development team
ensures that, in conjunction with our external
project managers, we select high quality and
robust contractors who have a proven track record
and that can meet our high construction and
supply chain standards.
SEE PAGES 32 – 33 FOR
FURTHER INFORMATION ON
OUR BEDFORD DEVELOPMENT
LondonMetric Property PlcAnnual Report and Accounts 2019
RESPONSIBLE ASSET MANAGEMENT
AND DEVELOPMENT IN ACTION
RESPONSIBLE ASSET MANAGEMENT ACTIVITY IN THE YEAR
Distribution warehousing represents 72% of our
portfolio and our asset management activities
are predominantly focused on this sector.
During the year, environmental initiatives
commenced or were planned on 10 assets.
Most of these are improvements to lighting,
heating systems and warehouse roofing as
well as solar PV installations. We continue
to engage with our occupiers on a number
of further opportunities.
For each distribution asset, we actively look to
incorporate environmental improvements into
leasing and regear opportunities. Not only does
this reduce occupational costs for our tenants
but it also improves the quality of our buildings
and their future resilience.
HAVANT CASE STUDY
As part of a 10 year lease regear, we agreed
to undertake building works to significantly
improve the energy efficiency of the building
and the working environment.
The works included new high security
windows, installation of LED lighting
throughout the building and new A+ rated
air conditioning equipment to provide a
controllable temperature range.
DEVELOPMENT ACTIVITY IN THE YEAR
Our developments completed in the year
totalled 322,000 sq ft. Our urban logistics
development at Frimley completed in May
2018 and was certified as BREEAM Very
Good. The warehousing is let to BAE and
DPD on long leases.
BREEAM Very Good Development
in Frimley
62,000 sq ft
Urban logistics
CONTRACTOR ACHIEVEMENTS ON PROJECTS IN YEAR
Bronze award from Considerate
Constructors at our Ipswich development
Excellent Considerate Constructors site score
at our Bedford development
100% compliance with our Responsible
Business requirements
c.80% of all waste was diverted from landfill
TENANT ENERGY DATA
Energy data collected across
4,305,018 sq ft
representing 38% of the portfolio
Amounting to
40,174,493 kWh
of electricity
24,578,343 kWh
of gas
SOLAR POWER INSTALLED
Installed capacity
1.8 MW of solar PV
across portfolio
GREEN SUPPLY & AUTOMATED
METERS
Proportion of landlord supply
85% on green tariff
69% with automated metering
BREEAM VERY GOOD
Percentage of portfolio rated BREEAM
Very Good or Excellent
25%
Up from 10% in 2015
43
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RESPONSIBLE BUSINESS
CONTINUED
STAKEHOLDERS
OUR PEOPLE
We recognise the importance of retaining and attracting
a diverse and knowledgeable group of employees.
Our employees
The Company is highly focused with
24 employees, four Executive Directors and
six Non Executive Directors. Since merger
in 2013, employee and director numbers have
fallen by 32% despite a significant increase
in our assets under management. This reflects
improved efficiencies and the lower operational
requirements of our portfolio.
Culture and approach
We have successfully attracted and retained
a talented, hard working and loyal team,
something which we recognise as vital to
the business. This is reflected in our low
annual voluntary staff turnover rate which
has averaged 5% since merger.
We believe this success is a result of our:
• Culture of empowerment, inclusion,
openness and teamwork
• Fair and performance based remuneration
• Small number of staff, which allows
a flexible and individual approach to
addressing staffing needs
How we are improving
As the way people work continues to change,
we recognise the importance of continually
improving our approach to managing our
people and attracting new people.
Over recent years, we have introduced various
initiatives to focus on how we can provide more
flexible working, improve diversity and general
wellbeing. The table opposite highlights key
arrangements in place for our employees and
the improvements that we have made.
HOW WE CONTINUE TO IMPROVE OUR APPROACH TO OUR PEOPLE
Inclusion &
communication
We have a flat management structure with clear responsibilities.
We strongly encourage input on decision making from all staff and wide
participation in committee meetings. There is strong collaboration
across teams which enables good sharing of information and ideas.
Regular strategy and performance updates are provided to employees
from the Executive Directors.
Modern
working
practices
Fair
remuneration
We have implemented more flexible working arrangements covering dress
code, holiday buy back, improved systems to enable home working and a
core hours policy.
Employee remuneration is aligned to personal and company performance
with longer term incentivisation plans in place that replicate arrangements
for Executive Directors. All employees receive a pension contribution of 10%
of salary and access to advice on pensions, medical insurance, childcare
and cycle to work vouchers.
Diversity
& equal
opportunity
We promote diversity across knowledge, experience, gender, age and
ethnicity. In the year, we published a diversity and inclusion policy.
Whilst overall female employee representation is good, we recognised that
we needed to specifically promote greater gender diversity. Over the year, we
increased female board representation to 20% and this will increase to 25%
after the upcoming AGM. Recognising the significant diversity imbalance in
the real estate sector, we continue to support the Real Estate Balance group
to further our promotion of diversity both internally and externally.
An annual appraisal process is undertaken where training needs and
performance are discussed. We actively encourage training and, over the
year, our staff undertook c.800 hours of training, some of which related
to a senior employee’s MBA programme. We also undertook Responsible
Business training across our employees and continued to encourage
participation in Young Property Professionals groups. We continue to offer
secondment and work placement opportunities.
Employee
development
& training
Health & safety In 2016, we formalised a policy to provide and maintain safe and healthy
working conditions for all employees, providing appropriate equipment,
workplace assessments, operational processes and safe systems of work.
See page 48 for further details on health & safety.
Wellbeing
During the year, we significantly reduced our office space and undertook
a major refurbishment and modernisation of the office. A wellbeing review
of the physical space was undertaken and we carried out a wider employee
and office wellbeing survey to gauge overall employee satisfaction.
The results from the employee survey showed improvements against the
previous year and were presented to Andrew Livingston, the Company’s
appointed Director for employee representation. The Board will consider
the results of the survey and further improvements will be looked at
where possible.
EMPLOYEE
GENDER
DIVERSITY
DIRECTORS
The number of persons of each sex who
were Directors of the Company:
SENIOR MANAGERS
The number of persons of each sex who
were senior managers of the Company
(other than identified as Directors):
EMPLOYEES
The number of persons of each sex who
were employees of the Company:
2
8
2
6
12
16
44
LondonMetric Property PlcAnnual Report and Accounts 2019 STAKEHOLDERS
HEALTH & WELLBEING OF OUR PEOPLE
Overview
A new fit out of our office was completed
over the year. The space has been reduced by
a third to c.7,000 sq ft to accommodate our
significantly reduced headcount over recent
years. The cost effective refit was designed
to better meet the team’s needs and builds
in health, wellbeing and productivity features
that are typically promoted in good practice
standards such as the WELL Building Standard.
The refit considered ways to create a well
designed space that enable employees to
relax, collaborate and that positively impacted
their mental wellbeing from access to natural
light, good air quality, natural design features
and planting.
Our sustainability advisors undertook a
health & wellbeing review of the office post
works completing, the highlights of which
are summarised opposite. The results of an
employee wellbeing survey in respect of the
office are also shown below and there was a
significant increase in levels of satisfaction with
the office.
Wellbeing scoring change
0.0
1.0
2.0
3.0
3
4.0
4
Water
quality
Variety of
workspaces
Social
interaction
Interior
design
Artificial
light
Mental
wellbeing
Humidity
Air quality
Planting
Healthy
snacks
Internal
noise
Natural
light
Thermal
comfort
Views of
nature
Active design
features
2018 (pre office works)
2019 (post office works)
SUMMARY OF OFFICE IMPROVEMENTS BY OUR SUSTAINABILITY ADVISOR
The improved interior design in general has been appreciated by employees,
with a 50% increase in satisfaction levels. The increase in variety of workspaces
available also saw a significant increase with an 83% jump in satisfaction.
Employees reported that the design and features of the new office positively
impacted their mental wellbeing – a 24% increase in satisfaction. The level
of planting has been increased significantly throughout the office space
creating more restful views, and the newly designed break out spaces and
kitchen area have been particularly popular and helped to boost social
interaction. The Company actively encourages lunch breaks away from
desks. In the year, it also stopped delivery of all plastic water bottles and
installed a carbonated water tap.
86% of workstations are within the industry good practice distance of six
metres from external windows or within six metres of the glass window onto
the internal atrium which provides natural light. All meeting rooms also
have a window to the outside or to the atrium. The electric lighting has been
upgraded to a fully addressable LED system – each individual light can be
dimmed or turned off entirely if required – and gives a daylit effect, with a
variety of lighting designs, all with a carefully chosen colour temperature to
provide high quality illumination that is restful on the eyes.
Air quality was already considered high and improvements to the heating and
cooling system now mean that the temperature can be more easily adjusted.
To avoid bringing new sources of VOC emissions into the working areas, eco-
labelled natural fabrics were used on new seating and the carpet tiles, and
the original wooden desks were retained. The opportunity was taken to also
house the printers and copiers in a designated area with their own extracts.
Showers and cycle facilities were already available and we have incorporated
new lockers and changing rooms into their own space to support cycling,
running and gym use. During the year, the Company put in place a reduced-
cost corporate gym membership for employees.
Wool carpeting and some acoustic baffling is in place with additional baffles
being added, along with artwork to break up echo and a natural moss wall.
There are also specially designed chairs and seating areas to provide privacy
and sound-masking.
45
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RESPONSIBLE BUSINESS
CONTINUED
STAKEHOLDERS
OCCUPIERS, CONTRACTORS AND SUPPLIERS
External relationships across all of our activities
are critical to the success of our business.
Developing our occupier relationships
We engage with occupiers across all of
our activities to provide real estate solutions
that deliver mutually beneficial outcomes.
These relationships are more important than
ever and, whilst occupancy of 98% suggests
strong levels of occupier contentment,
we continue to engage regularly through
events, meetings and surveys to ensure
we keep close to our customers.
Customer satisfaction survey
In March 2019, we undertook our regular
survey across key occupiers. We received
a response from occupiers representing
over half of our contracted income, which
was similar to representation levels seen
in 2018. We scored an average of 8/10
for satisfaction with our properties and
9/10 for how well we compared against
other landlords.
OCCUPIERS
LondonMetric is a
pragmatic, approachable
and commercially aware
landlord who is always
prepared to work with its
tenants to find solutions.
Property Director
at a key occupier
Occupier score in 2019 survey
9/10
for how well we compared against
other landlords
CONTRACTORS & SUPPLIERS
Delivering developments and asset services
in adherence with our high standards
Our Responsible Procurement Policy
It outlines our approach to implementing
supply chain and procurement standards on
developments and standing investments.
This policy focuses on areas such as labour,
human rights, health and safety, resource,
pollution risk and community.
Suppliers
Whilst spend on asset services is small,
we monitor the compliance of our suppliers
against our Managing Agents’ policies.
During the year, we undertook a high level
review of one of our key suppliers totalling
c.20% of our annual spend, and were satisfied
that they complied with our requirements.
Winvic takes pride in
its record on project
delivery to industry
leading standards.
Working collaboratively
with LondonMetric, their
approach, expertise and
close involvement helped
us to deliver a high quality
development that met
their exacting standards.
Sam Vickers
Project Manager,
Winvic Construction Ltd
SEE PAGES 32 – 33 FOR LOCAL
COMMUNITY INITIATIVES AT OUR
BEDFORD DEVELOPMENT
46
Scoring methodology was consistent with our
2018 survey and the scores showed a good
improvement in occupier satisfaction.
Future plans
We will continue to undertake an annual
customer survey and, recognising that 95%
of survey responses noted a desire to work
on sustainable property solutions, we will
continue to engage with occupiers on energy
efficiency and renewable solutions.
Contractors
In conjunction with our external project
managers, our development team ensures that
we select high quality and robust contractors
with a proven track record. We regularly review
the financial robustness of our contractors and
work closely with them throughout projects.
Our development team monitors progress and
tracks all elements of the projects including
sub contracted works. We stay close to our
contractors and arrange regular visits and
undertake detailed reviews and checks of their
systems and processes.
Our Responsible Development Requirements
checklist is used on all projects and sets out the
minimum requirements for contractors, which
includes compliance with the Considerate
Constructors Scheme.
At our development in Bedford, our contractor,
Winvic, scored exceptionally in respect
of the community. Winvic implemented a
number of local community initiatives and
we will promote similar levels of community
engagement on our other projects.
SEE PAGE 48 FOR FURTHER INFORMATION ON
OUR CONTRACTOR AND SUPPLIERS REQUIREMENTS
AND OUR APPROACH TO HEALTH & SAFETY
LondonMetric Property PlcAnnual Report and Accounts 2019 STAKEHOLDERS
LOCAL COMMUNITIES, INVESTORS
AND JOINT VENTURES
LOCAL COMMUNITIES
KEMPSTON CHALLENGER ACADEMY SCHOOL VISIT
We believe that the involvement of schools during and after
development is a valuable way to promote construction
as a career and help to develop awareness of students.
At our Bedford site, in conjunction with our contractor,
we engaged closely with the Kempston Challenger Academy.
A site visit was arranged for the students and further initiatives
are being considered with the school including further visits,
work experience, workshops and contributions for school projects.
Permanent jobs expected to be created
Over 900 jobs
by occupiers at our developments
completed or underway in the year
Community spend in the year
£25k
Charitable donations and other local
community spend in 2019
INVESTORS AND JOINT VENTURES
Investors seen
234
Debt investor site visit (January 2019)
We recognise the importance of supporting
our local communities and engaging with all
local stakeholders.
Over the last few years, we have established
a Communities Policy and a Charity and
Communities Working Group. We aim to
maximise the local benefits of our
activities through:
• Investment into the infrastructure of
those communities, typically involving the
regeneration of land and derelict sites
• Creation of construction and fit out jobs
during our developments, typically using
local contractors
• Creation of modern buildings and facilities
fit for future needs
• Long term commitments from our
occupiers, who typically sign 10-15 year
leases, and create significant local jobs
We value our good relationships
with investors and debt providers
Over the year, as covered in detail on
pages 78 to 79, we saw over 230 equity
investors through meetings, site visits
and conferences. Furthermore, as part of
our debt private placement in the year, we
engaged with a number of debt investors
and, in January 2019, arranged a site visit
for them to see our Primark distribution
warehouse in Northampton and our Bedford
development site.
We continue to enjoy good relationships
across the equity and debt capital markets.
In addition, we enjoy strong relationships with
our Joint Venture partners, and continue
to work closely with them.
• Involvement of local authorities and
councils to ensure we work in partnership
with them and consider their views
• Engagement with local residents,
particularly throughout and post
developments to ensure they are informed
and involved
• Our ongoing involvement at our properties
by funding of local events and facilities
• Charitable giving, where we support a
number of local causes. We also support
other organisations such as LandAid, and
match employee charity giving and events.
In the year, charitable donations totalled
£12,252. LondonMetric encourages its
employees to participate in charitable
and local community events
Meeting investor expectations
on Responsible Business
As shareholder expectations on corporate
governance and sustainability increase,
we undertook our first Responsible Business
survey of investors in the previous year.
The survey was undertaken across half
of our shareholders with good feedback
received from 20% of our share register and
general recognition that our Responsible
Business disclosure, targets and activities
were good and of an appropriate standard.
We continue to incorporate feedback
from the survey as well as from ongoing
dialogue with shareholders into setting of
our sustainability targets and our corporate
reporting. Next year we will undertake
another survey to ensure we are meeting
investor expectations.
47
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RESPONSIBLE BUSINESS
CONTINUED
GOVERNANCE AND COMPLIANCE
The Board is committed to upholding the high standards of
corporate governance and Responsible Business is an important
part of ensuring that we deliver on those high standards.
OVERVIEW
HEALTH & SAFETY IN FOCUS
Board Representation for
Responsible Business
Martin McGann, Finance Director, represents
the Board at Responsible Business Working
Group meetings and his remuneration is linked
to the Company achieving certain Responsible
Business related objectives.
Policies & Statements
The Company’s overall Responsible Business
policy is available on its website along with
other related documents including:
• The Responsible Business Working Group’s
terms of reference
• Responsible Business targets
• Full Responsible Business Reports
• Our Approach to Health and Safety
• Compliance & Anti Corruption procedures
• Responsible Procurement Policy
• Community Policy
• Modern Slavery Act Statement
• Half yearly environmental
Performance Reports
Responsibility and procedures
The Board is responsible for ensuring that
appropriate Health and Safety procedures
are in place. Mark Stirling, Asset Director, is
responsible for overseeing implementation
of our procedures and reporting back to
the Board. RP&P Management acts as our
Corporate Health and Safety Advisor and we
meet formally with them twice a year.
H&S risks assessment & Training
Where risks need to be assessed under
a specific duty or regulation, we ensure
that an assessment is carried out and that
all necessary actions are implemented.
Health and safety training is carried out
for employees and additional training is
considered on a case by case basis.
Health and safety policy
Our policy is regularly reviewed and addresses
three key areas of:
I. Employment – The policy ensures our
employees are offered a safe and healthy
working environment.
Confirmations
The Company confirms that no human
rights concerns have arisen within its
direct operations or supply chains and that
it has not incurred any fines, penalties or
settlements in relation to corruption.
II. Construction – Procedures and processes
have been developed to ensure we comply with
current legislation with a Project Manager,
Principal Designer and Principal Contractor
appointed on all projects to oversee, manage
and monitor health and safety.
The Company continually reviews and updates
all of these documents as required.
III. Managed Properties – The majority of our
assets are let on full repairing and insuring
leases. For single occupier assets, the
occupier is responsible for managing health
and safety matters at the property and the
wider estate.
Where there are multiple occupiers on the
same estate, we appoint a Managing Agent
to manage health and safety matters relating
to common parts. The Managing Agent is
responsible for ensuring health and safety
assessments are completed and regularly
reported back to us.
HEALTH & SAFETY IN 2018/19
• Quarterly internal meetings
• Half yearly project audits:
– Projects at Ipswich and Bedford
were inspected by RP&P
– Further audits to be carried out
next year
• One reportable incident
• Zero accident rate for employees
• No health and safety prosecutions
or enforcements
• Health & Safety policy updated and
to be issued in 2019-20
OUR CONTRACTOR REQUIREMENTS
We have implemented robust processes to
ensure that our contractors uphold our high
standards and minimise the environmental
impact from developments.
All of our contractors adhere to our
Responsible Development Requirements
checklist, which sets minimum requirements
for our developments on areas including:
• Health & Safety
• Considerate Constructors
Scheme compliance
• Environmental impact monitoring
• Management and reporting of progress
• Promoting local employment opportunities
• Fair remuneration for workers
We continue to monitor compliance and
look at ways of improving our contractors’
performance. During the year, we audited one
of our key contractors to ensure that they were
adhering to our requirements. A particular
emphasis was on their compliance with our
supply chain standards, including matters
related to modern slavery.
SEE PAGES 65 – 113 OF OUR
ANNUAL REPORT FOR THE FULL
GOVERNANCE REPORT
48
LondonMetric Property PlcAnnual Report and Accounts 2019 ENVIRONMENTAL PERFORMANCE
HIGHLIGHTS FOR 2019
In 2015, we established a baseline and benchmarks for measurement of the
environmental performance of our portfolio. Since then we have significantly
reduced our energy consumption and GHG emissions, enabling us to save
c.£0.6 million in energy costs (not including our CRC cost reductions).
Energy consumption
1,134 MWh
Down 65% on an absolute basis
Greenhouse gas (GHG) emissions
334 tCO2e
Down 68% on an absolute basis (scope 1,2,3)
The large reduction has been due to a combination of energy efficiency
measures along with the sale of our Marlow office in the prior year. Our yearly
target to reduce our like for like energy consumption by 4% was also reached
with a 16% reduction compared to 2018.
Our fantastic progress to date means we have made great steps towards
our longer term target to reduce energy intensity by 20% against a 2015
baseline, by March 2022.
The large reduction was caused by a fall in our energy consumption and by
the ongoing decarbonisation of the National Grid. This reduction is expected
to result in a c.50% fall in our CRC Energy Efficiency Scheme liabilities.
Additionally, with a like-for-like GHG emissions fall of 29%, we have
significantly exceeded our annual target of a 4% reduction. This demonstrates
our good progress towards our long term target to reduce GHG emissions
intensity by 20% by March 2022 against a 2015 baseline.
MANDATORY GHG EMISSIONS REPORTING
Direct greenhouse gas emissions in tonnes of CO2e
(combustion of fuel and operation facilities)
Indirect greenhouse gas emissions in tonnes of CO2e
(purchased electricity, heat, steam and cooling)
Total carbon footprint in tonnes of CO2e
Scope 1 and 2 intensity (tonnes of CO2e
per £m net income after administration costs)
£m net income after administration costs
Scope 1
Scope 2 – location-based
Scope 2 – market-based
Total scope 1 & 2
Scope 1 and 2 intensity
2018/19
2017/18
22
287
372
309
4.29
71.94
181
777
869
957
13.86
69.08
Data qualifying notes
We have reported on all of the emission
sources required under the Companies
Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013. These include
the emissions associated with the energy
used by our corporate head office and the
landlord-controlled energy from our entire
investment portfolio.
We have used the main requirements of
ISO14064 Part 1 and the GHG Protocol
Corporate Accounting and Reporting Standard
(Revised Edition) for our methodology, using
energy consumption data from our owned
and occupied properties. We have chosen
to report greenhouse gas emissions under
our operational control. These sources fall
within our consolidated financial statements.
We do not have responsibility for any
emissions sources that are not included in our
consolidated financial statements.
The guidance on the reporting of Scope 2 GHG
emissions under the Greenhouse Gas Protocol
was updated in 2015 and we are now required
to report two different values to reflect the
‘location-based’ and ‘market-based’ emissions
resulting from purchased electricity.
The location-based method uses an average
emission factor for the entire national grid
on which electricity consumption occurs.
Location-based emissions factors are taken
from the latest UK Government (DEFRA)
conversion factors for company reporting
(2018). The market-based method uses an
emissions factor that is specific to the
electricity which has been purchased, or where
not available a national ‘residual-mix’ factor
is applied. Market-based emissions factors are
taken from the latest Association of Issuing
Bodies European Residual Mixes (2018).
The total carbon footprint and emissions
intensities have been calculated using
location-based Scope 2 emissions.
Data for the year to 31 March 2018 has been
restated, including associated intensity
metrics, as additional energy consumption
data has been obtained since the previous
report was published.
Scope 1 data does not include refrigerant
emissions as these have been determined
to not be material (represent <2% of total
emissions); owned fleet does not apply.
49
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK
MANAGEMENT
We seek to safeguard our stakeholders’ interests by
identifying and actively managing the risk inherently present
as we strive to deliver growing returns.
OUR RISK MANAGEMENT APPROACH
Our risk management structure is
illustrated below.
BOARD
AUDIT
COMMITTEE
• Overall responsibility
for risk management
and internal controls
• Consider the long
term viability of
the business
• Set strategic
objectives and
consider risk as part
of this process
• Determine the level
of risk appetite
• Set Executive
Committee delegated
authority limits
• Key oversight and
assurance function
on risk management,
internal controls
and viability
• Report to the Board
on the effectiveness
of risk management
processes
EXECUTIVE
COMMITTEE
• Identify, assess
and quantify risk
• Implement and
monitor risk
mitigation processes
• Assist the
Executive Committee
SENIOR
MANAGEMENT
The Company’s risk management procedures
reduce the negative impact of risk on the
business and are critical to the generation of
reliable and growing, income-led returns and
long term outperformance.
The Board recognises its overall responsibility
for undertaking a robust risk assessment
and for establishing the extent to which it is
willing to accept some level of risk in achieving
its strategic goals, all the while ensuring
that stakeholder interests are protected.
Although risk cannot be eliminated completely,
the Board’s risk tolerance is low where its
objectives are prejudiced.
At each meeting the Board considers risk
at a high level via a dashboard which enables
material issues to be monitored so that key
risks can be managed and emerging risks
identified early on with appropriate action
taken to remove or reduce their likelihood
and any potential negative impact.
The Audit Committee assists the Board by
playing a key oversight and assurance role.
It does so by appraising the risk management
framework in detail and seeking comfort
that the principal risks facing the Company
have been carefully identified, assessed
and mitigated. The Committee annually
reviews the Company’s risk register and
systems of internal controls, considers
their effectiveness and reports its findings
to the Board. At its March 2019 meeting the
Committee scrutinised the risk register, which
had recently been comprehensively updated,
and an internal controls evaluation report.
The Committee is satisfied that there are
appropriate procedures in place to identify
and ensure that emerging and principal risks
are robustly assessed, that evidence supports
the ongoing monitoring of risk mitigation
measures and that where control weaknesses
are identified they are acted upon.
Considered risk taking is required for all
business and investment activity and the
Executive Committee is responsible for
ongoing risk identification and the design,
implementation and maintenance of a robust
system of internal controls in light of the
risks identified. The Committee is assisted
by senior management.
Appropriate mitigation plans are developed
based on an assessment of the impact and
likelihood of a risk occurring.
Executive Committee members are closely
involved in day to day matters and the
Company has a small number of employees.
This flat management structure with all staff
operating from one office location enables
risks to be swiftly identified so appropriate
responses can be put in place.
Within the risk register, specific risks
are identified and their probability rated
by management as having either a high,
medium or low impact. A greater weighting
is applied the higher the significance and
probability of a risk. These weightings are
then mathematically combined to produce
an overall gross risk rating which is colour
coded using a traffic light system. Risk specific
safeguards are identified, detailed in the
register and rated as strong, medium or weak.
The stronger the safeguard, the greater the
weighting applied. The gross risk rating and
strength of the safeguards against that risk
are then combined to produce a resultant
overall net risk. Consideration is given to the
implementation of further action to reduce risk
where necessary. Finally, every risk is allocated
an owner and details of how the safeguards
are evidenced are noted. The risk register is
comprehensively reviewed at least once a year.
5050
LondonMetric Property Plc
Annual Report and Accounts 2019
LondonMetric Property PlcAnnual Report and Accounts 2019 Principal risks
Our principal risks and uncertainties are
identified and reported on in pages 52 to 63.
They refer to those risks with the potential
to cause material harm to the business and
impact our ability to execute our strategic
priorities or exceed the Board’s risk appetite.
Identifying emerging risk
Management have strong retailer relationships
and regularly meet with occupiers to
understand their needs and to gain insights
into their businesses. These relationships
are one of the key tools which assist us in
identifying emerging risks and were one of
the main drivers behind the decision to pivot
the portfolio away from certain subsectors
of retail six years ago. The current portfolio
is now more closely aligned with changes in
consumer shopping habits, fuelling the growth
in ecommerce and convenience-led retail.
Management also regularly meet industry
representatives, shareholders and analysts.
Reports are commissioned and briefings
arranged on wide ranging pertinent topics
to understand changes within the sector
and the wider economic outlook.
Changes in risk factors
No new principal risks have been identified
during the year.
Increasing risk
Brexit continues to dominate political and
economic risk with an increased probability
of a disruptive Brexit, a potential General
Election and an extended period of uncertainty.
This may negatively impact the investment,
capital, financial, labour and occupier markets.
To provide greater clarity on Brexit’s potential
POST MITIGATION RESIDUAL RISK
Corporate risks
1 Strategy
2 Brexit
3 Economic and political factors
4 Human resources
5 Regulatory and tax framework
6 Responsible Business approach
7 Systems, processes and financial management
Property risks
8 Investment risk
9 Development risk
10 Valuation risk
11 Transaction and tenant risk
Financing risks
12 Capital and finance risk
impact on us we have split Brexit out from
under political and economic risk into its own
category. The Board acknowledges that the
present Brexit situation is unprecedented
and current uncertainties may accelerate and
necessitate more boardroom debate about
the consequences, alternative strategies or
adjustments to the current strategy. It may
be difficult to adequately foresee emerging
risks and uncertainties arising out of Brexit
given the lack of clarity surrounding it.
Ultimately however, we believe that the
profound structural changes in the retail
landscape will be more important over the
medium and long term than what ultimately
happens with the UK’s relationship with
the EU.
Decreasing risks
Liquidity risk has decreased within the last
12 months as we have lengthened our debt
maturity and welcomed new lenders, whilst
maintaining a prudent level of gearing.
Our overall property risk has also decreased.
We have refined our portfolio to align it to
distribution assets that will outperform,
focusing reinvestment on urban logistics
where we see better valuation support and
rental growth prospects and low energy
convenience assets which benefit from the
increasing popularity of top up shopping.
Post mitigation residual risk
The chart below illustrates the probability
and post mitigation residual risk level of the
principal risks which have been identified.
They are categorised in a manner consistent
with the Board’s risk dashboard which it
considers at each meeting.
OUR THREE RISK AREAS
We consider risks under three main
headings but recognise that they are often
inextricably interlinked.
Corporate risks
These relate to the entire Group
Strategy, market, systems, employees,
wider stakeholders, regulatory, social and
environmental responsibilities
Property risks
These focus on our core business
Portfolio composition and management,
developments, valuation and occupiers
Financing risk
These focus on how we fund
our operations
Investors, joint ventures, debt and
cash management
i
m
u
d
e
m
w
o
l
y
t
i
l
i
b
a
b
o
r
P
2
3
8
10
11
9
5
5
6
6
4
4
12
7
1
2
1
12
8
3
4
10
9
6
5
7
11
t
c
a
p
m
i
l
a
i
t
n
e
t
o
P
i
m
u
d
e
m
w
o
l
51
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate risks
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Suboptimal returns
for shareholders
• Our strategy and objectives are regularly reviewed by the Board
to adapt to changes
• Missed opportunities
• We commission retail and logistics related research to assist
• Ineffective
threat management
• Wrong balance of skills
and resources for
ongoing success
Impact on strategy
strategic decision making
• Senior management have extensive financial and real estate
experience with strong, longstanding retailer relationships
• We have a predominantly UK portfolio in a world leading online
shopping market
• We undertake regular and rigorous portfolio reviews which take
into consideration sector weightings, tenant and geographical
concentrations, perceived threats and market changes, the
balance of income to non income producing assets and asset
management opportunities
• Our three year forecast is continually flexed and reported
• The Executive Directors are closely involved in day to day
management. Our organisational structure is relatively flat and we
operate from one office, making it easier to identify market changes
and monitor operations
• Management’s interests are aligned with external shareholders
through their substantial shareholdings
• A significant part of the portfolio is in the structurally supported
sectors of logistics and convenience-led retail and leisure, let
to strong occupiers, on long leases that can deliver reliable
income and income growth
• 72.5% of the portfolio is in the logistics space
• We have finessed our logistics portfolio, increasing our urban
logistics platform to £504 million with an increased weighting
in London and the South East in particular (64%) where we see
better valuation support and rental growth prospects
• A major supply chain management investigation and report
was commissioned from CBRE in the year for insight into big
box supply chain networks
• Executive Directors hold 11.8 million shares easily meeting
the Company’s high shareholding targets
The Board view the
Company’s strategic
priorities as fundamental to
its business and reputation.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
CHIEF EXECUTIVE’S REVIEW PAGE 15
READ MORE
PROPERTY REVIEW PAGE 24
READ MORE
PAGE 93
REMUNERATION COMMITTEE REPORT
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Suboptimal returns
for shareholders
• We commission economic and market research to better understand
the potential impact on our tenants and preferred sectors
• Occupier demand and
• We have strong retailer relationships which help to provide
solvency may be impacted
market intelligence
• Asset liquidity may reduce
• We regularly monitor tenant and contractor covenant strength
• Debt markets may
be impacted
Impact on strategy
• We have limited exposure to development, particularly speculative
development at present
• Although our portfolio is predominantly UK based, we
acknowledge that Brexit uncertainty could impact occupier
near term decision making
Market conditions
are outside of the
Company’s control.
• Brexit and logistics specialists from PwC led a widely attended
briefing on Brexit scenarios, the impact areas for the logistics
sector which focused on operational disruption, systems,
data and people, and the market opportunities which may
result from changing demand for logistics support and UK
warehousing specifically
• Throughout the year we have analysed the potential Brexit
impact across our top 20 tenants which account for 68% of
revenue. Each have been assessed against a set of predicted
short and long term outcomes including supply chain
disruption, economic downturn, sterling devaluation and
how these may affect their current business operations and
results. All appear to have undertaken preparations to hedge,
financially or operationally, against post Brexit events to
minimise disruption
• There is evidence of contractors excluding changes to price and
programme arising from Brexit in recent tenders. Our current
development pipeline over 0.9 million sq ft is small
Increased
The Board continue to monitor
Brexit developments and their
potential impact on the business.
It may be difficult to adequately
foresee emerging risks and
uncertainties given the lack of
clarity in the Brexit process.
We believe that the profound
structural changes in the retail
landscape will however, ultimately
be more important over the
medium to long term than what
happens with the UK’s relationship
with the EU.
READ MORE
OUR MARKETS PAGE 18
1 STRATEGY
RISK
Strategic objectives may be:
• Inappropriate for the
current economic climate
or market cycle
• Not achieved due to
poor implementation
2 BREXIT
RISK
Disruptive Brexit
52
LondonMetric Property PlcAnnual Report and Accounts 2019RISK MANAGEMENT CONTINUED
1 STRATEGY
RISK
• Inappropriate for the
current economic climate
or market cycle
• Not achieved due to
poor implementation
Strategic objectives may be:
• Suboptimal returns
• Our strategy and objectives are regularly reviewed by the Board
for shareholders
to adapt to changes
• Missed opportunities
• We commission retail and logistics related research to assist
• Ineffective
strategic decision making
threat management
• Senior management have extensive financial and real estate
• Wrong balance of skills
and resources for
ongoing success
Impact on strategy
experience with strong, longstanding retailer relationships
• We have a predominantly UK portfolio in a world leading online
shopping market
• We undertake regular and rigorous portfolio reviews which take
into consideration sector weightings, tenant and geographical
concentrations, perceived threats and market changes, the
balance of income to non income producing assets and asset
management opportunities
• Our three year forecast is continually flexed and reported
• The Executive Directors are closely involved in day to day
management. Our organisational structure is relatively flat and we
operate from one office, making it easier to identify market changes
and monitor operations
• Management’s interests are aligned with external shareholders
through their substantial shareholdings
2 BREXIT
RISK
Disruptive Brexit
• Suboptimal returns
for shareholders
• We commission economic and market research to better understand
the potential impact on our tenants and preferred sectors
• Occupier demand and
• We have strong retailer relationships which help to provide
solvency may be impacted
market intelligence
• Asset liquidity may reduce
• We regularly monitor tenant and contractor covenant strength
• We have limited exposure to development, particularly speculative
development at present
• Debt markets may
be impacted
Impact on strategy
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
• A significant part of the portfolio is in the structurally supported
sectors of logistics and convenience-led retail and leisure, let
to strong occupiers, on long leases that can deliver reliable
income and income growth
The Board view the
Company’s strategic
priorities as fundamental to
its business and reputation.
• 72.5% of the portfolio is in the logistics space
• We have finessed our logistics portfolio, increasing our urban
logistics platform to £504 million with an increased weighting
in London and the South East in particular (64%) where we see
better valuation support and rental growth prospects
• A major supply chain management investigation and report
was commissioned from CBRE in the year for insight into big
box supply chain networks
• Executive Directors hold 11.8 million shares easily meeting
the Company’s high shareholding targets
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
CHIEF EXECUTIVE’S REVIEW PAGE 15
READ MORE
PROPERTY REVIEW PAGE 24
READ MORE
REMUNERATION COMMITTEE REPORT
PAGE 93
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Although our portfolio is predominantly UK based, we
acknowledge that Brexit uncertainty could impact occupier
near term decision making
Market conditions
are outside of the
Company’s control.
• Brexit and logistics specialists from PwC led a widely attended
briefing on Brexit scenarios, the impact areas for the logistics
sector which focused on operational disruption, systems,
data and people, and the market opportunities which may
result from changing demand for logistics support and UK
warehousing specifically
• Throughout the year we have analysed the potential Brexit
impact across our top 20 tenants which account for 68% of
revenue. Each have been assessed against a set of predicted
short and long term outcomes including supply chain
disruption, economic downturn, sterling devaluation and
how these may affect their current business operations and
results. All appear to have undertaken preparations to hedge,
financially or operationally, against post Brexit events to
minimise disruption
• There is evidence of contractors excluding changes to price and
programme arising from Brexit in recent tenders. Our current
development pipeline over 0.9 million sq ft is small
Increased
The Board continue to monitor
Brexit developments and their
potential impact on the business.
It may be difficult to adequately
foresee emerging risks and
uncertainties given the lack of
clarity in the Brexit process.
We believe that the profound
structural changes in the retail
landscape will however, ultimately
be more important over the
medium to long term than what
happens with the UK’s relationship
with the EU.
READ MORE
OUR MARKETS PAGE 18
53
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
3 ECONOMIC AND POLITICAL FACTORS
Corporate risks
continued
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Economic and political
factors may lead to a
market downturn or specific
sector turbulence.
• Suboptimal returns
for shareholders
• Occupier demand and
• The majority of our portfolio is in resilient asset classes with
sustained demand for logistics and warehouse space in particular,
driven by changes in consumer shopping patterns
solvency may be impacted
• We have limited exposure to the London office and
• Asset liquidity may reduce
residential markets
• Debt markets may
be impacted
Impact on strategy
• We maintain a high weighted average unexpired lease term reducing
reletting risk
• We have a low vacancy rate
• Our occupier base is diverse
• We have flexible funding arrangements with significant headroom
within three years
in covenant levels
Market conditions
are outside of the
Company’s control.
Increased
The Board will continue to
monitor political and economic
developments which are outside of
our control.
READ MORE
PROPERTY REVIEW PAGE 24
4 HUMAN RESOURCES
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
There may be an inability to
attract, motivate and retain
high calibre employees.
The business may lack the
skill set to establish and
deliver strategy and maintain
a competitive advantage.
Impact on strategy
• We have an organisational structure with clear responsibilities and
reporting lines
• Our remuneration structure and incentive arrangements are aligned
with long term performance targets for the business
• Senior management have significant shareholdings in the business
• Annual appraisals identify training requirements and
assess performance
• Specialist support is contracted where appropriate
• Our staffing plan focuses on experience and expertise necessary
to deliver strategy
• Staff satisfaction surveys are undertaken and staff turnover levels
are low
• There is a phased refreshment plan for Non Executive Directors
The Board believes it is vitally
important that the Company
has the appropriate level
of leadership, expertise
and experience to deliver
its objectives and adapt
to change.
No significant change
There has been no significant
change in perceived risk from
2018. We have built on the flexible
working arrangements introduced
last year to further improve
staff contentment.
READ MORE
OUR PEOPLE PAGE 44
READ MORE
NOMINATION COMMITTEE REPORT PAGE 80
READ MORE
PAGE 93
REMUNERATION COMMITTEE REPORT
• We remain focused on fit for purpose distribution, long income
and convenience assets that allow us to take a longer term
investment horizon where we can collect, compound and
grow our income in an age where technological and political
disruption is challenging long established real estate principles
and an ageing population is creating an unprecedented
demand for income
• Our portfolio metrics continue to be strong. Our average
unexpired lease length is 12.5 years and occupancy is 98%,
both high within the industry. Only 3.5% of our income expires
• We have further diversified our tenant base this year.
Our top five tenants, which account for 34% of rent, are
financially strong
• Our exposure to the stagnated London residential market
through our 40% interest in Moore House has reduced.
As at today’s date only 33 units remain unsold
• This year we undertook an extensive refurbishment of
our office space which has been well received by staff.
Improved communal areas allow staff to interact more
readily which has had a positive effect on team spirit and
general wellbeing
• Executive Directors and senior managers are incentivised in
a similar manner and have significant unvested share awards
in the Company. These incentivise performance and retention,
providing stability in the management structure
• Our Board refreshment has continued with the appointment
of Robert Fowlds who brings complementary and extensive
corporate finance, investment banking, M&A and real estate
experience. Succession planning remains high on the Board’s
agenda for the coming year
• This year we also considered the size of the Board in relation
to the overall size of the organisation and took the decision to
reduce the number of Executive Directors. Valentine Beresford
and Mark Stirling will step down but remain Investment
Director and Asset Director respectively and members of the
Executive Committee responsible for running the day to day
operations and implementing strategy
54
LondonMetric Property PlcAnnual Report and Accounts 2019RISK MANAGEMENT CONTINUED
Economic and political
factors may lead to a
market downturn or specific
sector turbulence.
• Suboptimal returns
for shareholders
• Occupier demand and
• The majority of our portfolio is in resilient asset classes with
sustained demand for logistics and warehouse space in particular,
driven by changes in consumer shopping patterns
solvency may be impacted
• We have limited exposure to the London office and
• Asset liquidity may reduce
residential markets
• We maintain a high weighted average unexpired lease term reducing
• Debt markets may
be impacted
Impact on strategy
reletting risk
• We have a low vacancy rate
• Our occupier base is diverse
• We have flexible funding arrangements with significant headroom
in covenant levels
4 HUMAN RESOURCES
There may be an inability to
attract, motivate and retain
high calibre employees.
The business may lack the
skill set to establish and
deliver strategy and maintain
a competitive advantage.
Impact on strategy
• We have an organisational structure with clear responsibilities and
reporting lines
• Our remuneration structure and incentive arrangements are aligned
with long term performance targets for the business
• Senior management have significant shareholdings in the business
• Annual appraisals identify training requirements and
assess performance
• Specialist support is contracted where appropriate
• Our staffing plan focuses on experience and expertise necessary
to deliver strategy
are low
• Staff satisfaction surveys are undertaken and staff turnover levels
• There is a phased refreshment plan for Non Executive Directors
3 ECONOMIC AND POLITICAL FACTORS
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
• We remain focused on fit for purpose distribution, long income
and convenience assets that allow us to take a longer term
investment horizon where we can collect, compound and
grow our income in an age where technological and political
disruption is challenging long established real estate principles
and an ageing population is creating an unprecedented
demand for income
• Our portfolio metrics continue to be strong. Our average
unexpired lease length is 12.5 years and occupancy is 98%,
both high within the industry. Only 3.5% of our income expires
within three years
• We have further diversified our tenant base this year.
Our top five tenants, which account for 34% of rent, are
financially strong
• Our exposure to the stagnated London residential market
through our 40% interest in Moore House has reduced.
As at today’s date only 33 units remain unsold
Market conditions
are outside of the
Company’s control.
Increased
The Board will continue to
monitor political and economic
developments which are outside of
our control.
READ MORE
PROPERTY REVIEW PAGE 24
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• This year we undertook an extensive refurbishment of
our office space which has been well received by staff.
Improved communal areas allow staff to interact more
readily which has had a positive effect on team spirit and
general wellbeing
• Executive Directors and senior managers are incentivised in
a similar manner and have significant unvested share awards
in the Company. These incentivise performance and retention,
providing stability in the management structure
• Our Board refreshment has continued with the appointment
of Robert Fowlds who brings complementary and extensive
corporate finance, investment banking, M&A and real estate
experience. Succession planning remains high on the Board’s
agenda for the coming year
• This year we also considered the size of the Board in relation
to the overall size of the organisation and took the decision to
reduce the number of Executive Directors. Valentine Beresford
and Mark Stirling will step down but remain Investment
Director and Asset Director respectively and members of the
Executive Committee responsible for running the day to day
operations and implementing strategy
The Board believes it is vitally
important that the Company
has the appropriate level
of leadership, expertise
and experience to deliver
its objectives and adapt
to change.
No significant change
There has been no significant
change in perceived risk from
2018. We have built on the flexible
working arrangements introduced
last year to further improve
staff contentment.
READ MORE
OUR PEOPLE PAGE 44
READ MORE
NOMINATION COMMITTEE REPORT PAGE 80
READ MORE
REMUNERATION COMMITTEE REPORT
PAGE 93
55
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
5 REGULATORY AND TAX FRAMEWORK
Corporate risks
continued
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Non-compliance with legal
or regulatory obligations.
• Reputational damage
• We monitor regulatory changes that impact our business with
• We ran several staff training and awareness programmes
The Board has no appetite
No significant change
• Potential loss of REIT status
• Increased costs
• Reduced access to debt
and capital markets
• Fines, penalties, sanctions
Impact on strategy
specialist support from lawyers and consultants
• We have allocated responsibility for specific obligations to individuals
with Executive Committee oversight
• Our health and safety handbook is regularly updated and audits are
carried out on developments to monitor compliance
• Our procurement and supply chain policy sets standards for areas
such as labour, human rights, pollution risk and community
• Staff training is provided on wide ranging issues
• External tax specialists provide advice
• Our REIT compliance is monitored
• We consider the impact of legislative changes on strategy
during the year, including on health and safety, GDPR (through
where non compliance
Jones Day) and technical updates were received from PwC and
Deloitte LLP. Further companywide training sessions on wide
ranging issues have been scheduled
risks injury or damage to its
broad range of stakeholders,
assets and reputation.
• We continue to undertake health and safety site audits on our
developments through an external specialist consultancy.
These included our larger developments at Bedford and
Martlesham Heath this year. Feedback has been positive
and no significant issues have been identified
• Our insurers also undertook independent health and safety
and fire risk inspections on a proportion of our investments.
There are no significant issues outstanding which have not
been addressed by tenants
The Board considers this risk to
have remained broadly consistent
during the year, however as with
last year, a significant amount
of management time has been
focused on new regulations such
as GDPR, corporate governance
and evolving best practice due to
the ongoing flow of recent changes
which impact the business.
READ MORE
RESPONSIBLE BUSINESS PAGE 40
6 RESPONSIBLE BUSINESS APPROACH
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Non-compliance
with responsible
business practices.
• Reputational damage
• Suboptimal returns
for shareholders
• Asset liquidity may
be impacted
• Reduced access to debt
and capital markets
• Poor relationships
with stakeholders
• We monitor changes in law, stakeholder sentiment and best practice
in relation to responsible business practices such as sustainability,
environmental matters and our societal impact, and receive advice
and support from specialist consultants
• We consider the impact of changes on strategy
• We give proper consideration to the needs of our occupiers and
shareholders by maintaining a high degree of engagement and also
consider our impact on the environment and local communities
• Responsibility for specific obligations has been allocated to
individuals and is overseen by the Executive Committee
Impact on strategy
• A Responsible Business Working Group meets at least three times
a year and reports to the Board
• Staff training is provided
• EPC rating benchmarks are set to ensure compliance with Minimum
Energy Efficiency Standards (‘MEES’) that could otherwise impact
the quality and desirability of our assets leading to higher voids,
lost income and reduced liquidity
• We work with our occupiers to improve the resilience of our assets
to climate change and a low carbon economy
• We consider environmental and climate change risk relating to
our assets
• Sustainability targets are set, monitored and reported
• Contractors are required to conform to our responsible
development requirements
• We continue to meet with a large number of investors, seeing
The Board has a low
No significant change
tolerance for non compliance
with risks which impact
reputation and stakeholder
sentiment towards
the Company.
There has been no significant
change in perceived risk
from 2018.
READ MORE
RESPONSIBLE BUSINESS PAGE 40
READ MORE
STAKEHOLDER ENGAGEMENT PAGE 77
READ MORE
TCFD PAGE 41
over 230 in the year
• Response to our 2018 investor survey, which targeted 50% of
our register on responsible business matters, was positive.
The survey concluded that a response to the investor backed
Carbon Disclosure Project survey was not expected of us
• We have maintained our GRESB Green star and a GRESB score
of 67% (peer group average 60%) and are now included in the
FTSE4Good index
• ESOS compliance will be completed by the end of 2019 and
energy audits have commenced where required
• Our EPRA Gold star award for reporting has been maintained
• Feedback from our tenant satisfaction survey, where 51% of
our tenants by income responded, was overwhelmingly positive
with significant increases in our property satisfaction score
and landlord satisfaction scores exceeding 9/10. The survey
supplements our regular direct meetings with tenants
• We continue to increase the green credentials of our portfolio
through development and modernisation in conjunction with
our occupiers. 25% is now rated BREEAM Very Good, and 77%
has an EPC of C or above
• Our contractors are now monitored for compliance with
responsible procurement and development policies
• An action plan is in place to consider Task Force for Climate
related Financial Disclosures
56
LondonMetric Property PlcAnnual Report and Accounts 2019RISK MANAGEMENT CONTINUED
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
5 REGULATORY AND TAX FRAMEWORK
Non-compliance with legal
or regulatory obligations.
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Reputational damage
• We monitor regulatory changes that impact our business with
• Potential loss of REIT status
• Increased costs
• Reduced access to debt
and capital markets
• Fines, penalties, sanctions
Impact on strategy
specialist support from lawyers and consultants
• We have allocated responsibility for specific obligations to individuals
with Executive Committee oversight
• Our health and safety handbook is regularly updated and audits are
carried out on developments to monitor compliance
• Our procurement and supply chain policy sets standards for areas
such as labour, human rights, pollution risk and community
• Staff training is provided on wide ranging issues
• External tax specialists provide advice
• Our REIT compliance is monitored
• We consider the impact of legislative changes on strategy
• We ran several staff training and awareness programmes
during the year, including on health and safety, GDPR (through
Jones Day) and technical updates were received from PwC and
Deloitte LLP. Further companywide training sessions on wide
ranging issues have been scheduled
The Board has no appetite
where non compliance
risks injury or damage to its
broad range of stakeholders,
assets and reputation.
• We continue to undertake health and safety site audits on our
developments through an external specialist consultancy.
These included our larger developments at Bedford and
Martlesham Heath this year. Feedback has been positive
and no significant issues have been identified
• Our insurers also undertook independent health and safety
and fire risk inspections on a proportion of our investments.
There are no significant issues outstanding which have not
been addressed by tenants
No significant change
The Board considers this risk to
have remained broadly consistent
during the year, however as with
last year, a significant amount
of management time has been
focused on new regulations such
as GDPR, corporate governance
and evolving best practice due to
the ongoing flow of recent changes
which impact the business.
READ MORE
RESPONSIBLE BUSINESS PAGE 40
6 RESPONSIBLE BUSINESS APPROACH
Non-compliance
with responsible
business practices.
• Suboptimal returns
for shareholders
• Asset liquidity may
be impacted
• Reduced access to debt
and capital markets
• Poor relationships
with stakeholders
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Reputational damage
• We monitor changes in law, stakeholder sentiment and best practice
• We continue to meet with a large number of investors, seeing
Impact on strategy
• A Responsible Business Working Group meets at least three times
in relation to responsible business practices such as sustainability,
environmental matters and our societal impact, and receive advice
and support from specialist consultants
• We consider the impact of changes on strategy
• We give proper consideration to the needs of our occupiers and
shareholders by maintaining a high degree of engagement and also
consider our impact on the environment and local communities
• Responsibility for specific obligations has been allocated to
individuals and is overseen by the Executive Committee
a year and reports to the Board
• Staff training is provided
• EPC rating benchmarks are set to ensure compliance with Minimum
Energy Efficiency Standards (‘MEES’) that could otherwise impact
the quality and desirability of our assets leading to higher voids,
lost income and reduced liquidity
• We work with our occupiers to improve the resilience of our assets
to climate change and a low carbon economy
• We consider environmental and climate change risk relating to
our assets
• Sustainability targets are set, monitored and reported
• Contractors are required to conform to our responsible
development requirements
over 230 in the year
• Response to our 2018 investor survey, which targeted 50% of
our register on responsible business matters, was positive.
The survey concluded that a response to the investor backed
Carbon Disclosure Project survey was not expected of us
• We have maintained our GRESB Green star and a GRESB score
of 67% (peer group average 60%) and are now included in the
FTSE4Good index
• ESOS compliance will be completed by the end of 2019 and
energy audits have commenced where required
• Our EPRA Gold star award for reporting has been maintained
• Feedback from our tenant satisfaction survey, where 51% of
our tenants by income responded, was overwhelmingly positive
with significant increases in our property satisfaction score
and landlord satisfaction scores exceeding 9/10. The survey
supplements our regular direct meetings with tenants
• We continue to increase the green credentials of our portfolio
through development and modernisation in conjunction with
our occupiers. 25% is now rated BREEAM Very Good, and 77%
has an EPC of C or above
• Our contractors are now monitored for compliance with
responsible procurement and development policies
• An action plan is in place to consider Task Force for Climate
related Financial Disclosures
The Board has a low
tolerance for non compliance
with risks which impact
reputation and stakeholder
sentiment towards
the Company.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
RESPONSIBLE BUSINESS PAGE 40
READ MORE
STAKEHOLDER ENGAGEMENT PAGE 77
READ MORE
TCFD PAGE 41
57
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
7 SYSTEMS, PROCESSES AND FINANCIAL MANAGEMENT
RISK
Controls for safeguarding
assets and supporting
strategy may be weak.
IMPACT
• Compromised
asset security
• Suboptimal returns
for shareholders
• Decisions made on
inaccurate information
Impact on strategy
Corporate risks
continued
MITIGATION
• The Company has a strong control culture
• We have IT security systems in place with back up supported
and tested by a specialist advisor
• Our business continuity plan is regularly updated
• Our property assets are safeguarded by appropriate insurance
• We have safety and security arrangements in place on our
developments, multi-let and vacant properties
• Appropriate data capture procedures ensure the accuracy of the
property database and financial reporting systems
• We maintain appropriate segregation of duties with controls over
financial systems
• Management receive timely financial information for approval
and decision making
• Cost control procedures ensure expenditure is valid, properly
authorised and monitored
COMMENTARY
APPETITE
CHANGE
The Board’s appetite for such
risk is low and management
continually strives to monitor
and improve processes.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
AUDIT COMMITTEE REPORT PAGE 86
• We have improved our IT security as part of our
flexible working initiative with remote access requiring
multifactor authentication
• Staff training and our processes prevented financial loss when
a supplier’s email was hacked, documents intercepted and
bank details amended in August
• A real time management reporting pack, which includes an
income statement, balance sheet and supporting schedules,
has been developed utilising the interface between our
database and accounting system. Other key financial
reports such as cost summaries, investment schedules,
IRR reports, SIC 15 and historic costs can also be produced
which are quicker and easier to run and eliminate the risk of
manual error, improving efficiency and simplifying internal
review processes
• An integrated sales ledger invoicing system will be
implemented this summer as in-house billings have
increased to match the rise in single occupier buildings
within our portfolio
8 INVESTMENT RISK
Property risks
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
We may be unable
to source affordable
investment opportunities.
Ability to implement strategy
and deploy capital into value
and earnings accretive
investments is at risk.
Impact on strategy
• Management’s extensive experience and their strong network
of relationships provide insight into the property market
and opportunities
• We continue to build on our strong occupier and developer
relationships. We transacted on £402 million of investment
property over the course of the last year but remain
very selective and confident that market uncertainty will
provide opportunities
The Board aims to keep
this risk to a minimum but
matters outside of its control
may have a negative impact.
The Board continues to focus
on having the right people
and funding in place to take
advantage of opportunities
as they arise.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
PROPERTY REVIEW PAGE 24
58
LondonMetric Property PlcAnnual Report and Accounts 2019RISK MANAGEMENT CONTINUED
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
7 SYSTEMS, PROCESSES AND FINANCIAL MANAGEMENT
RISK
Controls for safeguarding
assets and supporting
strategy may be weak.
IMPACT
• Compromised
asset security
• Suboptimal returns
for shareholders
• Decisions made on
inaccurate information
Impact on strategy
MITIGATION
COMMENTARY
APPETITE
CHANGE
• The Company has a strong control culture
• We have IT security systems in place with back up supported
and tested by a specialist advisor
• Our business continuity plan is regularly updated
• Our property assets are safeguarded by appropriate insurance
• We have safety and security arrangements in place on our
developments, multi-let and vacant properties
• Appropriate data capture procedures ensure the accuracy of the
property database and financial reporting systems
• We maintain appropriate segregation of duties with controls over
financial systems
and decision making
• Management receive timely financial information for approval
• Cost control procedures ensure expenditure is valid, properly
authorised and monitored
• We have improved our IT security as part of our
flexible working initiative with remote access requiring
multifactor authentication
• Staff training and our processes prevented financial loss when
a supplier’s email was hacked, documents intercepted and
bank details amended in August
• A real time management reporting pack, which includes an
income statement, balance sheet and supporting schedules,
has been developed utilising the interface between our
database and accounting system. Other key financial
reports such as cost summaries, investment schedules,
IRR reports, SIC 15 and historic costs can also be produced
which are quicker and easier to run and eliminate the risk of
manual error, improving efficiency and simplifying internal
review processes
• An integrated sales ledger invoicing system will be
implemented this summer as in-house billings have
increased to match the rise in single occupier buildings
within our portfolio
The Board’s appetite for such
risk is low and management
continually strives to monitor
and improve processes.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
AUDIT COMMITTEE REPORT PAGE 86
8 INVESTMENT RISK
We may be unable
to source affordable
investment opportunities.
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Ability to implement strategy
and deploy capital into value
and earnings accretive
investments is at risk.
Impact on strategy
• Management’s extensive experience and their strong network
of relationships provide insight into the property market
and opportunities
• We continue to build on our strong occupier and developer
relationships. We transacted on £402 million of investment
property over the course of the last year but remain
very selective and confident that market uncertainty will
provide opportunities
The Board aims to keep
this risk to a minimum but
matters outside of its control
may have a negative impact.
The Board continues to focus
on having the right people
and funding in place to take
advantage of opportunities
as they arise.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
PROPERTY REVIEW PAGE 24
59
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
9 DEVELOPMENT RISK
Property risks
continued
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Excessive capital may be
allocated to activities with
development risk
• Developments may fail to
deliver expected returns
due to inconsistent timing
with the economic and
market cycle, adverse
letting conditions,
increased costs, planning
or construction delays
resulting from contractor
failure or supply
chain interruption
10 VALUATION RISK
• Poorer than
expected performance
• Reputational damage
• We only undertake short cycle and relatively uncomplicated
developments on a pre-let basis or where there is high
occupier demand
• Development exposure as a percentage of our total portfolio
Impact on strategy
is limited with larger projects phased
• Development sites are acquired with planning consent
where possible
• Management have significant experience of complex development
• We use standardised appraisals and cost budgets and monitor
expenditure against budget to highlight potential overruns early
• External project managers are appointed
• Our procurement processes include tendering and the use of highly
regarded firms with proven track records
• We review and monitor contractor covenant strength
RISK
IMPACT
MITIGATION
Investments may fall
in value.
Pressure on NAV growth and
potentially loan covenants.
• Our portfolio is supported by structural changes in shopping habits
with a significant supply imbalance in available distribution space
Impact on strategy
• Our focus is on sustainable income with lettings to high quality
tenants within a diversified portfolio of well located assets with
a high weighted average unexpired lease term reducing the risk
of negative movements in a downturn
• The property cycle is continually monitored with investment
and divestment decisions made strategically in anticipation
of changing conditions
• Property portfolio performance is regularly reviewed and
benchmarked on an asset by asset basis
• We monitor tenant covenants and trading performance
• Our current development exposure as a percentage of the
portfolio is very small at only 3.2%. No new speculative
development is planned for the foreseeable future
• We have been disappointed with the pace of lettings on our
completed speculative developments which has been partly
due to potential occupiers deferring major decisions in the
current political climate
• Post year end we have exchanged on two lettings at our
Bedford development over 73% of the available space,
ahead of budget and at an average rent of £7.25 psf
• No developments that completed in the year were late
or over budget
• We continue to actively review the covenant strength
of our contractors for live projects and defects periods
COMMENTARY
linked uplifts
• 63% of our income has contractually fixed or index
• A high average WAULT of 12.5 years was maintained
• We have substantial headroom under our financial loan
covenants. At 31 March 2019 the Group’s gearing ratio as
defined within its unsecured and private placement loan
facilities was 46% compared with the maximum limit of 125%
• Whilst our preferred sector assets have performed well,
certain sectors of the retail market, to which we are not overly
exposed, have already seen material valuation falls and we
expect values to weaken further. Our three retail parks, which
account for less than 5% of our portfolio, are 99% let with an
average lease length of 10 years, now yield 6.3% but are valued
above historic cost
• Income and income growth remain our key priority, which
allows us to be a little less obsessed about predicting exact
market movements or the timing of cycles
The Board is not currently
willing to take on new
speculative development.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
DEVELOPMENTS PAGE 31
READ MORE
BEDFORD DEVELOPMENT PAGE 32
APPETITE
CHANGE
There is no certainty that
property values will be
realised. This is an inherent
risk in the industry.
No significant change
There has been no significant
change in perceived risk from
2018. Our preferred asset classes
are aligned to modern shopping
habits where the prospects for
valuation preservation and growth
are significantly better than
traditional retail.
READ MORE
PROPERTY REVIEW PAGE 24
READ MORE
FINANCIAL REVIEW PAGE 34
60
LondonMetric Property PlcAnnual Report and Accounts 2019RISK MANAGEMENT CONTINUED
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
9 DEVELOPMENT RISK
development risk
• Developments may fail to
deliver expected returns
due to inconsistent timing
with the economic and
market cycle, adverse
letting conditions,
increased costs, planning
or construction delays
resulting from contractor
failure or supply
chain interruption
10 VALUATION RISK
RISK
in value.
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
• Excessive capital may be
• Poorer than
• We only undertake short cycle and relatively uncomplicated
allocated to activities with
expected performance
developments on a pre-let basis or where there is high
• Reputational damage
occupier demand
Impact on strategy
is limited with larger projects phased
• Development exposure as a percentage of our total portfolio
• Development sites are acquired with planning consent
where possible
• Management have significant experience of complex development
• We use standardised appraisals and cost budgets and monitor
expenditure against budget to highlight potential overruns early
• External project managers are appointed
• Our procurement processes include tendering and the use of highly
regarded firms with proven track records
• We review and monitor contractor covenant strength
• Our current development exposure as a percentage of the
portfolio is very small at only 3.2%. No new speculative
development is planned for the foreseeable future
• We have been disappointed with the pace of lettings on our
completed speculative developments which has been partly
due to potential occupiers deferring major decisions in the
current political climate
• Post year end we have exchanged on two lettings at our
Bedford development over 73% of the available space,
ahead of budget and at an average rent of £7.25 psf
• No developments that completed in the year were late
or over budget
• We continue to actively review the covenant strength
of our contractors for live projects and defects periods
The Board is not currently
willing to take on new
speculative development.
No significant change
There has been no significant
change in perceived risk
from 2018.
READ MORE
DEVELOPMENTS PAGE 31
READ MORE
BEDFORD DEVELOPMENT PAGE 32
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Investments may fall
Pressure on NAV growth and
• Our portfolio is supported by structural changes in shopping habits
• 63% of our income has contractually fixed or index
potentially loan covenants.
with a significant supply imbalance in available distribution space
linked uplifts
Impact on strategy
• Our focus is on sustainable income with lettings to high quality
tenants within a diversified portfolio of well located assets with
a high weighted average unexpired lease term reducing the risk
of negative movements in a downturn
• The property cycle is continually monitored with investment
and divestment decisions made strategically in anticipation
of changing conditions
• Property portfolio performance is regularly reviewed and
benchmarked on an asset by asset basis
• We monitor tenant covenants and trading performance
• A high average WAULT of 12.5 years was maintained
• We have substantial headroom under our financial loan
covenants. At 31 March 2019 the Group’s gearing ratio as
defined within its unsecured and private placement loan
facilities was 46% compared with the maximum limit of 125%
• Whilst our preferred sector assets have performed well,
certain sectors of the retail market, to which we are not overly
exposed, have already seen material valuation falls and we
expect values to weaken further. Our three retail parks, which
account for less than 5% of our portfolio, are 99% let with an
average lease length of 10 years, now yield 6.3% but are valued
above historic cost
• Income and income growth remain our key priority, which
allows us to be a little less obsessed about predicting exact
market movements or the timing of cycles
There is no certainty that
property values will be
realised. This is an inherent
risk in the industry.
No significant change
There has been no significant
change in perceived risk from
2018. Our preferred asset classes
are aligned to modern shopping
habits where the prospects for
valuation preservation and growth
are significantly better than
traditional retail.
READ MORE
PROPERTY REVIEW PAGE 24
READ MORE
FINANCIAL REVIEW PAGE 34
61
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED
Property risks
continued
11 TRANSACTION AND TENANT RISK
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Pressure on NAV,
earnings and potentially
loan covenants.
Impact on strategy
• Property purchases
and asset management
initiatives may be
inconsistent with strategy
• Due diligence may fail
to highlight risks
• Lettings may be made
to inappropriate tenants
• Tenant failure risk
• We undertake thorough due diligence on all acquisitions
including legal and property, tenant covenant strength and
trading performance
• Tenant concentration within the portfolio is considered for all
acquisitions and leasing transactions
• We have a diversified tenant base and limited exposure to occupiers
in bespoke properties
• Asset management initiatives undergo cost benefit analysis prior
to implementation
• External advisors benchmark lease transactions and advise on
acquisition due diligence
• Our experienced asset management team work closely with
tenants to offer them real estate solutions that meet their business
objectives. This proactive management approach helps to reduce
vacancy risk
• We monitor rent collection closely to identify potential issues
• The impact of recent retailer collapses and CVAs has had a
The Board’s appetite to
No significant change
negligible impact on earnings, other than Poundworld’s demise
risk arising out of poor due
where we owned their only UK distribution centre. Recently we
diligence processes on
took the decision to sell, achieving book value, to mitigate cost
leakage and reletting risk
• Other than the above, our tenant default rate within the
industry is very low and we have no significant arrears
• We maintain a high occupancy level within the industry despite
a number of smaller speculative developments completing
recently which have not yet been let. Our EPRA vacancy rate
at the year end was 2.2%
acquisitions, disposals and
lettings is low. The Board
is willing to accept a higher
degree of risk in relation to
tenant covenant strength
and unexpired lease term on
urban logistics assets where
there is high occupational
demand, redevelopment
opportunity or alternative
site use.
There has been no significant
change in perceived risk from
2018 despite further high profile
retail casualties and more retailers
looking to restructure their
physical store portfolios through
a CVA process. Retail occupiers
continue to invest heavily in
distribution and logistics and
convenience retail fulfils a top up
function for online shoppers.
READ MORE
CHIEF EXECUTIVE’S REVIEW PAGE 15
READ MORE
PROPERTY REVIEW PAGE 24
12 CAPITAL AND FINANCE RISK
Financing risk
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
The Company has insufficient
funds and available credit.
Strategy implementation
is at risk.
• We maintain a disciplined investment approach with competition
for capital. Assets are considered for sale when they have achieved
target returns and strategic asset plans
Impact on strategy
• Cash flow forecasts are closely monitored
• Our new £75 million unsecured loan with Wells Fargo and
£150 million private placement have increased headroom, debt
maturity and diversified our lending base without significant
impact on the Group’s weighted average cost of debt
The Board has no appetite
for imprudently low levels
of available headroom in its
reserves or credit lines.
• Relationships with a diversified range of lenders are nurtured and
loan facilities regularly reviewed. The availability of debt and the
terms on which it is available is considered as part of the Company’s
long term strategy
• Loan facilities incorporate covenant headroom, appropriate cure
provisions and flexibility
• Headroom and non-financial covenants are monitored
• A modest level of gearing is maintained
• The impact of disposals on secured loan facilities covering multiple
assets is considered as part of the decision making process
• Interest rate derivatives are used to fix or cap exposure to rising
rates. A specialist hedging advisor, JCRA, is used
62
• Average debt maturity has increased to 6.4 years and available
undrawn facilities to £373 million
• 73% of facilities are hedged by way of interest rate swaps and
caps assuming existing debt facilities are fully drawn
Reduced
Our funding activity during
the year has improved our
position for the reasons outlined
under Commentary.
READ MORE
FINANCIAL REVIEW PAGE 34
A low degree of market
standard inflexibility is
accepted in return for the
availability of credit.
The Board has some
appetite for interest rate risk,
loans are not fully hedged.
This follows cost benefit
assessment and takes into
account that not all loans
are fully drawn all the time.
LondonMetric Property PlcAnnual Report and Accounts 2019
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
• The impact of recent retailer collapses and CVAs has had a
negligible impact on earnings, other than Poundworld’s demise
where we owned their only UK distribution centre. Recently we
took the decision to sell, achieving book value, to mitigate cost
leakage and reletting risk
• Other than the above, our tenant default rate within the
industry is very low and we have no significant arrears
• We maintain a high occupancy level within the industry despite
a number of smaller speculative developments completing
recently which have not yet been let. Our EPRA vacancy rate
at the year end was 2.2%
The Board’s appetite to
risk arising out of poor due
diligence processes on
acquisitions, disposals and
lettings is low. The Board
is willing to accept a higher
degree of risk in relation to
tenant covenant strength
and unexpired lease term on
urban logistics assets where
there is high occupational
demand, redevelopment
opportunity or alternative
site use.
No significant change
There has been no significant
change in perceived risk from
2018 despite further high profile
retail casualties and more retailers
looking to restructure their
physical store portfolios through
a CVA process. Retail occupiers
continue to invest heavily in
distribution and logistics and
convenience retail fulfils a top up
function for online shoppers.
READ MORE
CHIEF EXECUTIVE’S REVIEW PAGE 15
READ MORE
PROPERTY REVIEW PAGE 24
• Property purchases
Pressure on NAV,
• We undertake thorough due diligence on all acquisitions
and asset management
earnings and potentially
including legal and property, tenant covenant strength and
loan covenants.
trading performance
11 TRANSACTION AND TENANT RISK
initiatives may be
inconsistent with strategy
• Due diligence may fail
to highlight risks
• Lettings may be made
to inappropriate tenants
• Tenant failure risk
Impact on strategy
• Tenant concentration within the portfolio is considered for all
acquisitions and leasing transactions
• We have a diversified tenant base and limited exposure to occupiers
in bespoke properties
to implementation
• Asset management initiatives undergo cost benefit analysis prior
• External advisors benchmark lease transactions and advise on
acquisition due diligence
• Our experienced asset management team work closely with
tenants to offer them real estate solutions that meet their business
objectives. This proactive management approach helps to reduce
vacancy risk
• We monitor rent collection closely to identify potential issues
12 CAPITAL AND FINANCE RISK
RISK
IMPACT
MITIGATION
COMMENTARY
APPETITE
CHANGE
The Company has insufficient
Strategy implementation
• We maintain a disciplined investment approach with competition
funds and available credit.
is at risk.
for capital. Assets are considered for sale when they have achieved
Impact on strategy
target returns and strategic asset plans
• Cash flow forecasts are closely monitored
• Our new £75 million unsecured loan with Wells Fargo and
£150 million private placement have increased headroom, debt
maturity and diversified our lending base without significant
impact on the Group’s weighted average cost of debt
The Board has no appetite
for imprudently low levels
of available headroom in its
reserves or credit lines.
• Relationships with a diversified range of lenders are nurtured and
loan facilities regularly reviewed. The availability of debt and the
terms on which it is available is considered as part of the Company’s
long term strategy
provisions and flexibility
• Loan facilities incorporate covenant headroom, appropriate cure
• Headroom and non-financial covenants are monitored
• A modest level of gearing is maintained
• The impact of disposals on secured loan facilities covering multiple
assets is considered as part of the decision making process
• Interest rate derivatives are used to fix or cap exposure to rising
rates. A specialist hedging advisor, JCRA, is used
• Average debt maturity has increased to 6.4 years and available
undrawn facilities to £373 million
• 73% of facilities are hedged by way of interest rate swaps and
caps assuming existing debt facilities are fully drawn
A low degree of market
standard inflexibility is
accepted in return for the
availability of credit.
The Board has some
appetite for interest rate risk,
loans are not fully hedged.
This follows cost benefit
assessment and takes into
account that not all loans
are fully drawn all the time.
Reduced
Our funding activity during
the year has improved our
position for the reasons outlined
under Commentary.
READ MORE
FINANCIAL REVIEW PAGE 34
63
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
VIABILITY
STATEMENT
In accordance with provision C.2.2 of the 2016 UK Corporate
Governance Code, the Board has assessed the prospects of the Group over
a period longer than the 12 months required by the ‘Going Concern’ provision.
The Directors conducted this review taking account of the Group’s current
financial position, strategy, principal risks and future plans.
Assessment of viability review period
The Board has determined that the three year
period to 31 March 2022 is an appropriate
period over which to assess the Group’s
viability, as in previous years, for the
following reasons:
• The Group’s financial business plan and
detailed budgets cover a rolling three
year period;
• It is a reasonable approximation of the
typical time it takes from committing
funds to development projects to practical
completion. The average length of the
Group’s developments that completed in
the year at Dagenham, Frimley, Ipswich,
Ringwood and Telford was 13 months; and
• Three years is considered to be the
optimum balance between long term
property investment and the difficulty in
accurately forecasting ahead given the
cyclical nature of property investment.
This period is reviewed and challenged
annually to ensure it remains appropriate.
In addition to the three year viability
assessment period, the Board considered a
number of other factors when assessing the
Group’s longer term prospects, including:
• The weighted average unexpired lease
length of 12.5 years;
• The longer term nature of some debt
facilities and a weighted average debt
maturity of 6.4 years; and
• The longer term investment horizon
and nature of the property cycle.
Assessment of prospects
The Group’s strategy is reviewed by the Board
at each meeting and extensively on an annual
basis as described on page 73.
The business plan is structured around the
Group’s strategy and consists of a rolling
three year profit and cash flow forecast,
with both a base case scenario including
deals under offer and also an assumed case
factoring in reinvestment and development.
The business plan considers property
investments, capital commitments,
dividend cover, loan covenants and REIT
compliance metrics.
The Executive Committee provides regular
strategic input to the financial forecasts
covering investment, divestment and
development plans and capital allocation.
Forecasts are updated at least quarterly,
reviewed against actual performance and
reported to the Board.
When assessing longer term prospects,
the Board is mindful of the following:
• Income certainty, with over 63% of the
Group’s rental income benefitting from
contractual uplifts and an average
unexpired lease length of 12.5 years;
• A proven track record of executing
transactions and progressing a fully
covered dividend;
• Substantial available debt facilities and
headroom under loan covenants; and
• Good relationships with lenders and
past experience of raising debt and
equity finance.
Assessment of viability
The business plan was stress tested to
validate its resilience to a combination
of adverse movements in its principal
risks including:
• Changes to macro-economic conditions
including the impact of a disorderly exit
from the EU, impacting rental income
levels and property values;
• Challenges in the retail environment
including tenant failures impacting
occupancy levels and lettings;
• Changes in the availability of funds and
interest rates; and
• Changes in property market
conditions impacting disposal and
reinvestment assumptions.
The stress testing involved modelling changes
in property values, rental income, interest
rates and disposal and reinvestment plans
that were likely to have an impact on the
Group’s solvency, profitability and delivery
of strategy.
In addition, further reverse stress testing
assessed the limits at which key financial
covenants and ratios would be breached or
deemed unacceptable.
Property values would need to fall by
approximately 45% and rental income fall by
63% to breach the loan to value and interest
cover covenants under the existing unsecured
debt facilities.
This scenario testing, when combined
with the Group’s strong current position
and mitigation actions available including
deferring non committed capital expenditure
and development projects and selling assets,
supported the Group’s ability to overcome
adverse economic and property market
conditions over the forecast viability period.
Conclusion
Based on the results of their review, the
Directors have a reasonable expectation
that the Company will be able to continue
in operation and meet its liabilities as
they fall due over the three year period
of their assessment.
64
LondonMetric Property PlcAnnual Report and Accounts 2019 GOVERNANCE
INSIDE THIS SECTION
Introduction from the Chairman ���������������������������������������������������66
Board of Directors ���������������������������������������������������������������������������� 68
Governance framework �����������������������������������������������������������������70
Division of responsibilities �����������������������������������������������������������������71
Governance in action �������������������������������������������������������������������� 72
Governance statement ������������������������������������������������������������������74
Stakeholder engagement ������������������������������������������������������������ 77
Nomination Committee report ��������������������������������������������������� 80
Audit Committee report ���������������������������������������������������������������� 86
Remuneration Committee report ����������������������������������������������� 93
Report of the Directors �������������������������������������������������������������������110
Directors’ Responsibility statement ���������������������������������������������113
Your Board remains
committed to upholding
the highest standards of
corporate governance it
has set in the past, which
underpin the successful
management of the
business and drive its long
term success� This report
sets out the Company’s
governance policies and
practices and explains how
we discharge our duties
and comply with the main
provisions of the Code�
Patrick Vaughan
Chairman
STATEMENT OF COMPLIANCE
The Board has considered the Company’s
compliance with the provisions of the UK Corporate
Governance Code (the ‘Code’) published by the
Financial Reporting Council in 2016, publicly
available at www.frc.org.uk.
The Board considers that the Company has
complied with the main provisions set out in the
Code throughout the year under review and to the
date of this report.
Application of the main principles is contained
in the governance section that follows.
2018 UK Corporate Governance Code
What is currently in place:
The FRC issued a new Corporate Governance
Code in July 2018 which is effective for the
Company from 1 April 2019. We will be reporting
on compliance with the provisions of the 2018 Code
next year.
However, in accordance with best practice, we have
assessed the new provisions we already have in
place and those which we will be addressing over
the coming year.
• Designated workforce Non Executive Director
• Majority independent Non Executive Directors
• Updated Committee terms of reference
What we are addressing:
• Succession planning for the Board
• Workforce engagement programme and monitoring
of culture
• Extended Remuneration Committee remit to set
remuneration of senior management and review
workforce policies and payouts
LondonMetric Property Plc
Annual Report and Accounts 2019
65
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INTRODUCTION FROM
THE CHAIRMAN
We recognise that, as
guardian of our culture,
the Board plays a vital
role in defining the way
in which we do business
and leading by example�
Patrick Vaughan
Chairman
Our governance framework underpins the
way we manage our business and supports
the successful delivery of our strategy.
It guides our ability to operate in a way that
is both legally compliant and responsible,
and is embedded into our day to day
business operations.
We take our governance role seriously and
recognise that, as guardian of our culture,
the Board plays a vital role in defining the
way in which we do business and leading by
example. We pride ourselves on operating
in an open, honest and responsible way that
welcomes constructive challenge and debate.
Our approach fosters a culture of appropriate
risk taking and effective decision making,
which is promoted beyond the boardroom
by the close involvement of the Executive
Directors in day to day operations.
We remain committed to upholding the
principles of good governance and have
complied fully with the provisions of the
2016 Corporate Governance Code (‘Code’)
throughout the year. However we are mindful
of the new provisions in the 2018 Corporate
Governance Code (‘2018 Code’) that we
will be required to report against next year.
We already observe many of the 2018 Code
provisions and themes and have taken
steps to further improve our governance
framework to facilitate compliance next year,
most significantly regarding independence
and succession.
Composition, independence and
succession planning
In September last year, following a review
of the 2018 Code, we decided to accelerate
the Board refreshment process as a number
of members were approaching best practice
tenure limits and may not be considered
independent under the 2018 Code.
Redgrave Partners was appointed to assist
with the search for new Non Executive
Directors, to replace Alec Pelmore and Philip
Watson who had informed the Board of their
intention to retire at the end of the financial
year. I am very pleased to report that Robert
Fowlds joined us as a Non Executive Director
and member of the Remuneration Committee
in January 2019. Robert brings a wealth of
corporate finance and investment banking
experience and the right personal qualities to
complement and enhance the existing skillset
of the Board.
I would also like to thank Alec and Philip for
their support and contribution to the Company
over their long service as Directors since the
merger in 2013 and previously at Metric.
The Nomination Committee also spent time
considering the overall size of the Board,
and with a complement of only 28 employees
including Executive Directors, a Board of
10 members was considered too large.
Therefore, following the AGM in July 2019,
the Board will reduce to six Non Executive
Directors and two Executive Directors,
responsible for leading and governing the
Company. Valentine Beresford and Mark
Stirling will step down but remain Investment
Director and Asset Director respectively
and members of the Executive Committee.
Following these changes, the Board (excluding
the Chairman) and its Committees will
meet the independence requirements of the
2018 Code.
In July 2019 James Dean, Non Executive
Director and Chairman of the Remuneration
Committee, will have served for nine years.
The Board has decided to appoint Robert
Fowlds as his successor as Remuneration
Committee chair in January 2020, after he has
served as a member for 12 months. James will
remain as chair and a Non Executive Director
until this time in order to facilitate an
orderly transition.
Our work on succession planning and
developing talent will continue to be a key
area of focus for the Nomination Committee
to support the Company’s long term plans.
We will remain mindful of the benefits of
a diverse Board as we search for suitably
experienced replacements.
Purpose and culture
We believe in leading by example in an open,
honest and responsible way. It is my role to
provide leadership and promote our culture
and thinking, which sets the tone for good
governance, beyond the boardroom and
throughout the organisation.
This year we have taken steps to better
articulate and document our purpose and
values. At the Board meeting in March
we received a paper from the Executive
Committee which prompted debate, following
which we approved and documented our
purpose as set out on page 01.
We have set out how our purpose works on
page 02 and throughout the Strategic Report.
66
LondonMetric Property Plc
Annual Report and Accounts 2019
I am delighted to report that Valentine
Beresford returned to full time employment
in September 2018, after taking a leave
of absence to recover from an operation.
Valentine remained in close contact with the
Company throughout his period of absence and
was engaged in all investment transactions.
Looking ahead
Looking forward, the challenging economic
and political landscape will continue to occupy
the Board’s time. We will seek to ensure the
business remains resilient and continues to
adapt to structural, market and regulatory
changes. Having a clear strategy, experienced
team and strong balance sheet, puts us in a
good and enviable position as negotiations on
the UK’s departure from the EU are finalised
and implemented.
Our work on succession planning will continue
and we will remain mindful of the benefits
diversity brings to the Board as we search for
suitably experienced independent Directors.
We strive each year to improve the
transparency and clarity of our reporting to you
and are proud that last year we received EPRA
Gold Awards for both our sustainability and
financial reporting. We continue our efforts in
this regard and to monitor the ever changing
legislative landscape.
Our success is down to the hard work and
dedication of a small, close knit team of
individuals and I would like to extend my
thanks to each and every one of them for their
contribution over the last year.
Patrick Vaughan
Chairman
23 May 2019
Strategy
We spend a great deal of time at each Board
meeting discussing the wider economic,
political and property markets and challenges
we face, ensuring we respond to opportunities
and remain resilient during this period of
continued uncertainty. We discuss strategy at
each meeting although more extensively at
our annual strategy meeting where two senior
managers were invited to present to the Board
as detailed on page 73.
We have paid particular attention this year
to the wellbeing and engagement of our
employees. We have refurbished our office
in Curzon Street to modernise the open plan
working space and offer communal kitchen
and breakout areas which facilitate a more
flexible, inclusive and collaborative approach.
In addition, our commitment to flexible
working for staff continued with the roll out
of laptops for all professional staff to help
improve employees’ work/life balance.
Diversity and inclusion
The Board believes in the benefits of
diversity and strives to operate in a
working environment of equal opportunity.
We recognise that a diverse organisation
brings a wide range of perspectives and avoids
narrow thinking. This year we reviewed and
approved a new Diversity and Inclusion Policy,
which can be found on our website.
We continue to support initiatives to promote
gender diversity in the real estate sector.
Low staff turnover signifies a loyal, content and
motivated workforce and something we are
proud of. However it also constrains the pace
of change as opportunities are dependent upon
staff vacancies arising. To the extent that we
have the opportunity we will seek to improve
diversity in its widest sense throughout
the Company.
As at the date of the AGM we will have a 25%
female representation on our Board, which is
just marginally below the Hampton Alexander
target of 33% to which we aspire.
Employees and other stakeholders
Our approach to business builds and maintains
the trust of our key stakeholders and we are
very conscious of the need to take account
of their views and interests when making
decisions that may affect them. We have
reminded decision makers throughout the
business of the importance of keeping these
factors in mind when preparing briefing papers
and recommendations. Details of our initiatives
to engage with them are provided on page 77.
We are proud of our comprehensive investor
relations programme which continues to be
a key priority for the Executive Directors and
value the support and engagement we have
with all of our shareholders.
We have also appointed Andrew Livingston
as the designated Non Executive Director
with responsibility for employee engagement
matters in accordance with the 2018 Code.
His remit is to engage with employees and to
feed back their views and any concerns to the
Board. During the latter part of the year we
conducted our second employee survey which
showed improvements against the previous
year. We will consider the results and look to
make further improvements where possible.
Further details of employee engagement and
wellbeing can be found on page 78 and in the
Responsible Business report on pages 44 to 45.
Being a team-centric, results-driven
organisation, we look to employ and retain
a diverse group of talented individuals with
a wide range of skills and expertise. I am
very pleased that staff both enjoy and are
proud to work for LondonMetric and have a
strong understanding of the strategic focus of
the business.
Performance evaluation
A full externally facilitated evaluation took
place last year. Progress has been made
against last year’s recommendations as
discussed on page 85.
This year we have undertaken an internal
questionnaire based performance review.
The findings and recommendations are
summarised in the Nomination Committee
report on page 84.
The Directors agreed unanimously that the
Board and its Committees continue to work
with exceptional cohesion in an open and
supportive environment that values mutual
respect, constructive challenge and debate.
We believe the Board has the right balance of
skills, knowledge and experience to undertake
its duties, with all Directors fully contributing
to boardroom discussions. I would like to thank
my colleagues for their dedication and the
valuable contribution they each make.
LondonMetric Property Plc
Annual Report and Accounts 2019
67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS BOARD OF
DIRECTORS
The Board provides leadership and direction to the business
as a whole, having due regard to the views and interests of
its stakeholders and the environment within which it operates�
8
6
7
10
2
1
3
9
4
5
1. Patrick Vaughan
Chairman
Appointed 13 January 2010
2. Andrew Jones
Chief Executive
Appointed 25 January 2013
3. Martin McGann
Finance Director
Appointed 13 January 2010
Skills and experience
Patrick has been involved in the UK property market
since 1970. He was a co-founder and CEO of Arlington,
of Pillar, and of London & Stamford, leading all three
of the companies to successful listings on the FTSE
main market. Upon completion of London & Stamford’s
merger with Metric in January 2013, he was appointed
Chairman, becoming Non Executive Chairman on
1 October 2014. Patrick also served as an Executive
Director of British Land 2005 to 2006, following its
acquisition of Pillar.
Other appointments None
Board Committees Nomination Committee
Skills and experience 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 where he served on the main Board.
Other appointments None
Board Committees Executive Committee
Skills and experience Martin joined London & Stamford
as Finance Director in September 2008 until its merger
with Metric in January 2013, when he became Finance
Director of LondonMetric. Between 2005 and 2008,
Martin was a Director of Kandahar Real Estate.
From 2002 to 2005 Martin worked for Pillar, latterly
as Finance Director. Prior to joining Pillar, Martin
was Finance Director of the Strategic Rail Authority.
Martin is a qualified Chartered Accountant, having
trained and qualified with Deloitte.
Other appointments None
Board Committees Executive Committee
68
LondonMetric Property PlcAnnual Report and Accounts 2019 4. Valentine Beresford
Investment Director
Appointed 3 June 2014
5. Mark Stirling
Asset Director
Appointed 3 June 2014
6. Suzanne Avery
Independent Director
Appointed 22 March 2018
Skills and experience Valentine was co-founder and
Investment Director of Metric from its inception in
March 2010 until its merger with London & Stamford
in January 2013. He joined the Board of LondonMetric
on 3 June 2014 as Investment Director. Prior to setting
up Metric, Valentine was on the Executive Committee of
British Land and was responsible for all their European
retail developments and investments. Valentine joined
British Land in July 2005, following the acquisition
of Pillar, where he also served on the Board as
Investment Director.
Other appointments None
Board Committees Executive Committee
Skills and experience Mark was co-founder and Asset
Management Director of Metric from its inception in
March 2010 until its merger with London & Stamford
in January 2013. He joined the Board of LondonMetric
on 3 June 2014 as Asset Director. Prior to the setting
up of Metric, Mark was on the Executive Committee
of British Land and as Asset Management Director was
responsible for the planning, development and asset
management of the retail portfolio. Mark joined British
Land in July 2005 following the acquisition of Pillar where
he was Managing Director of Pillar Retail Parks Limited
from 2002 until 2005.
Other appointments None
Board Committees Executive Committee
Skills and experience Suzanne was appointed to the
Board of LondonMetric in March 2018. Suzanne has
25 years’ experience in corporate banking, holding
various Managing Director roles at RBS, including
Managing Director of Real Estate Finance Group &
Sustainability, where she was responsible for REITs,
Funds and London based private property companies.
Other appointments Church Commissioner, senior
advisor to Centrus Advisors, Non Executive Director
of Richmond Housing Partnership Limited, trustee
of LandAid and co-founder of Real Estate Balance
Board Committees Audit Committee, Remuneration
Committee and Nomination Committee
7. James Dean
Independent Director
Appointed 29 July 2010
8. Robert Fowlds
Senior Independent Director
Appointed 31 January 2019
9. Andrew Livingston
Independent Director
Appointed 31 May 2016
Skills and experience Robert was appointed to the Board
on 31 January 2019. He has over 35 years’ experience in
real estate and is a chartered surveyor. He was head of
real estate investment banking at J.P. Morgan Cazenove
until 2015 and, prior to joining J.P. Morgan Cazenove in
2006, an equity analyst at Merrill Lynch and Dresdner
Kleinwort Benson.
Other appointments Member of the Supervisory Board
of Klepierre S.A and Non Executive Director of UK
Commercial Property REIT Limited
Board Committees Audit Committee and
Remuneration Committee
Skills and experience Andrew was appointed to the
Board on 31 May 2016. On 2 April 2018, Andrew was
appointed Chief Executive of Howden Joinery Group Plc,
having been the Chief Executive of Screwfix since 2013
and previously the Commercial and Ecommerce Director
from 2009 to 2013. Before joining Screwfix, Andrew
was Commercial Director at Wyevale Garden Centres
between 2006 and 2008 and then Chief Operating Officer
between 2008 and 2009. Andrew has worked previously
at Marks & Spencer, CSC Index and B&Q where he was
Showroom Commercial Director from 2000 to 2005.
Other appointments Chief Executive of Howden Joinery
Group Plc and Director of Vedoneire Limited
Board Committees Audit Committee and
Nomination Committee
Board independence
Female representation
57%
as at 2019 AGM
25%
as at 2019 AGM
Skills and experience James is a Chartered Surveyor
and has worked with Savills plc since 1973, serving
as a Director from 1988 to 1999.
Other appointments James is a Non Executive Director
of Branston Holdings and Chairman of London & Lincoln
Properties Ltd and Patrick Dean Ltd
Board Committees Remuneration Committee (Chairman)
10. Rosalyn Wilton
Independent Director
Appointed 25 March 2014
Skills and experience Rosalyn was appointed to the
Board of LondonMetric in March 2014, becoming
Chairman of the Audit Committee in March 2015.
She has held a number of Non Executive Directorship
positions, most recently with AXA UK Limited, until
September 2015, where she acted as Chair of the Risk
Committee and Optos Plc, where she was Chair of
Remuneration. She has previously served as Senior
Advisor to 3i Investments and Providence Equity
Partners, Chairman of Ipreo Holdings LLC, the US
based financial data and solutions group, and has
worked for Reuters Group where she was a member
of the Executive Committee.
Other appointments Deputy Chair of the University of
London, Vice Chair of the Harris Federation and Chair
of Governors of Harris Academy Bromley
Board Committees Audit Committee (Chairman) and
Remuneration Committee
69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 GOVERNANCE
FRAMEWORK
BOARD OF DIRECTORS
AUDIT COMMITTEE
REMUNERATION COMMITTEE
Chairman: Patrick Vaughan
Chairman: Rosalyn Wilton
Chairman: James Dean
BOARD COMMITTEES
Collectively responsible for the
long term success of the business
whilst taking into account the
views of its key stakeholders
and the communities within
which it operates. It provides
leadership and direction,
establishes and fosters the culture
and ethics of the organisation,
and independently oversees
management’s execution of
strategy within an acceptable
risk management and internal
control framework.
ACTIVITIES
PAGES 72 – 73
BIOGRAPHIES
PAGES 68 – 69
ROLES
PAGE 71
• Oversees financial reporting process
• Scrutinises significant judgements made
by management
• Monitors effectiveness of risk management
systems and internal control
• Evaluates the external audit process
• Regulatory compliance oversight
• Determines and implements
Remuneration Policy
• Sets remuneration packages and
incentives for Executive Directors and
senior management
• Approves annual bonus and LTIP targets
and outcomes
• Reviews workforce remuneration
arrangements and alignment
AUDIT COMMITTEE REPORT
PAGE 86
REMUNERATION COMMITTEE REPORT
PAGE 93
EXECUTIVE COMMITTEE
NOMINATION COMMITTEE
Operates under the direction and leadership
of the Chief Executive to deliver the approved
strategic objectives and manage the day to
day running of the business. It is supported by
sub-committees, focusing on different areas of
the business.
• Implementation of strategy
• Sets budgets and manages operational and
financial performance
• Day to day management of the business and
its principal risks
• Succession planning below Board and
people development
• Employee remuneration and wellbeing
• Manages allocation of capital
• Responsible business activities
Chairman: Patrick Vaughan
• Recommends appointments
• Board composition & succession
• Considers skills and diversity
• Leads performance evaluation
NOMINATION COMMITTEE REPORT
PAGE 80
MANAGEMENT COMMITTEES
INVESTMENT COMMITTEE
ASSET MANAGEMENT COMMITTEE
FINANCE COMMITTEE
Chairman: Valentine Beresford
Chairman: Mark Stirling
Chairman: Martin McGann
• Reviews investment and divestment
opportunities and allocation of capital
• Reviews value enhancing operational
activities and development opportunities
• Reviews budgets and forecasts, achievement
of targets, funding requirements and liquidity
70
LondonMetric Property PlcAnnual Report and Accounts 2019 DIVISION OF
RESPONSIBILITIES
There is a division of responsibility between the Chairman and
Chief Executive which has been approved by the Board�
The following table sets out the key roles and responsibilities of Board members:
ROLE
Chairman
Patrick Vaughan
Chief Executive
Andrew Jones
Non Executive Directors
Suzanne Avery
James Dean
Robert Fowlds
Andrew Livingston
Rosalyn Wilton
Senior Independent Director
Robert Fowlds
Executive Directors
Valentine Beresford
Martin McGann
Mark Stirling
Company Secretary
Jadzia Duzniak
RESPONSIBILITIES
• Leads the Board and ensures it operates effectively
• Sets Board culture, style and tone of discussions to promote boardroom debate and openness
• Promotes Company purpose, values and ethics
• Builds relationships between Executive and Non Executive Directors
• Monitors progress against strategy and performance of the Chief Executive
• Manages dialogue and communication with shareholders and key stakeholders and relays views
to the Board
• Develops and recommends strategy to the Board and is responsible for its implementation
• Day to day management of the business operations and personnel assisted by the
Executive Committee
• Support and constructively challenge the Executive Directors in determining and implementing strategy
• Bring independent judgement and scrutiny to decisions recommended by the Executive Directors and
approve decisions reserved for the Board as a whole
• Contribute a broad range of skills and experience
• Monitor delivery of agreed strategy within the risk and control framework set by the Board
• Review the integrity of financial information and risk management systems
• Acts as a sounding board for the Chairman and trusted intermediary for the other Directors
• Available as a communication channel for shareholders if other means are not appropriate
• Leads performance evaluation of Chairman
• Manage business operations within area of expertise
• Assist Chief Executive in the implementation of strategy
• Identify, assess and quantify risks in operating the business and implement risk mitigation processes
• Manage, appraise and develop staff below Board level
• Advises the Board and is responsible to the Chairman on corporate governance matters
• Ensures good flow of information to the Board, its Committees and senior management
• Promotes compliance with statutory and regulatory requirements and Board procedures
• Provides guidance and support to Directors, individually and collectively
The Chairman is responsible for leading the Board
and monitoring its effectiveness and the Chief
Executive, supported by the Executive Directors, is
responsible for the day to day management of the
Group and the implementation and delivery of the
Board’s agreed strategic objectives.
The Chairman is responsible for ensuring a
constructive relationship between Executive and
Non Executive Directors and for encouraging
and fostering a culture of boardroom challenge
and debate.
He maintains regular contact with the Executive
Directors and senior management outside of
formal Board meetings which ensures he is kept
abreast of individual Directors’ views and issues
as they arise.
71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 GOVERNANCE
IN ACTION
The table below reflects the key Board governance
activities during the year and how these supported
the delivery of our strategy�
HOW GOVERNANCE SUPPORTS STRATEGY
BOARD DISCUSSIONS, DECISIONS
AND ACTIONS IN THE YEAR
LINK TO STRATEGY
BOARD’S
GOVERNANCE ROLE
Setting strategy
Sector and
asset selection
• Annual strategy presentation from senior managers to the whole Board
• Debated the property and retail market outlook, economic and political landscape including
Brexit at each meeting
• Presentation from PwC on the potential impact of Brexit on the logistics sector and
UK warehousing
• Approved property acquisitions and disposals in excess of £10 million including a 340,000 sq ft
distribution portfolio acquisition and 492,000 sq ft distribution portfolio sale, retail park sales
in Launceston and Ipswich and the disposal of distribution centres in Wakefield and Sheffield
• Approved major capital expenditure and development projects including at Durham
and Bedford
• Post year end, approved an increased equity holding in our DFS joint venture, taking our total
interest to 82% and repaying the debt facility
Financial integrity
and performance
• Approved the interim and annual financial statements and results presentations
• Scrutinised the interim and annual property valuations
• Annual review of the internal control framework and risk register including specific
consideration of cyber security and Brexit
• Risk dashboard considered at each Board meeting facilitating debate and discussion
of principle and emerging risks
• Reviewed the rolling three year financial forecasts, going concern and the Viability Statement
Income and
dividend progression
• Considered and approved quarterly dividend and dividend progression
• Approved quarterly scrip dividend alternative and PID
Capital allocation
• Discussed financing arrangements, available debt facilities, LTV and financial covenants
• Received reports from the Finance Director and approved a £75 million loan facility with
Wells Fargo and a new £150 million private placement
Our strategic priorities
Own desirable
real estate
Manage
& enhance
Experience
& relationships
Generate
income growth
ANNUAL STRATEGY
REVIEW
PAGE 73
PROPERTY REVIEW
PAGE 24
FINANCIAL REVIEW
PAGE 34
RISK MANAGEMENT
PAGE 50
AUDIT COMMITTEE REPORT
PAGE 86
72
LondonMetric Property Plc
Annual Report and Accounts 2019
BOARD’S
GOVERNANCE ROLE
Stakeholder
engagement
Employees
Leadership
and Direction
HOW GOVERNANCE SUPPORTS STRATEGY
BOARD DISCUSSIONS, DECISIONS
AND ACTIONS IN THE YEAR
LINK TO STRATEGY
• Considered feedback from Executive Directors following shareholder meetings, roadshows
and results presentations
• Property tours of assets and developments in Bedford, Islip and Crawley for investors and
private placement lenders, with attendance by some Non Executive Directors
• Received Responsible Business update from senior management including progress against
annual targets and consideration of environmental matters including climate change
• Approved office refurbishment and implementation of flexible working practices for staff
• Andrew Livingston appointed as designated workforce Non Executive Director
• Half yearly presentation of results to all staff and companywide training on GDPR and health
and safety
• Approved Executive Directors’ variable remuneration against targets
• Consulted with legal advisors on the provisions of the new 2018 Code
• Received corporate governance update including a review of the new Code and GDPR
• Discussed and documented Company purpose
• Internal Board and Committee performance evaluation review
STAKEHOLDER
ENGAGEMENT
PAGE 77
RESPONSIBLE BUSINESS
REPORT
PAGE 40
NOMINATION COMMITTEE
REPORT
PAGE 80
Board refreshment
• Board refreshment accelerated, focusing on tenure and independence
• Redgrave Partners appointed to conduct search for new Non Executive Directors
• Robert Fowlds appointed in January 2019
• Alec Pelmore and Philip Watson retired in March 2019
Diversity
• Continued support to Real Estate Balance group promoting gender diversity in the sector
and Company at all levels
• Diversity and inclusion policy approved and available on Company website
ANNUAL STRATEGY REVIEW
The Board, Executive Committee and senior management team meet annually to discuss
and challenge our strategy. This year, the annual strategy review was held in September 2018
and included presentations from two senior managers on:
• The last five years of trading and lessons to be learnt;
• The occupier and capital markets;
• Structural and sector calls and asset selection criteria; and
• Future focus and inherent risks.
This annual event is an opportunity to focus discussions on strategy and ensure it remains
fit for purpose and suitably flexible and relevant.
It gives Non Executive Directors the chance to share their expertise, challenge management
and oversee the direction of the business.
73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 GOVERNANCE
STATEMENT
The Audit and Remuneration Committees are
composed entirely of independent Non Executive
Directors. The Nomination Committee includes
the Chairman who is not considered to be
independent but his inclusion is permitted by
the Code. The Chairman of each Committee
provides a verbal update on the matters
discussed at each meeting to the Board.
The Executive Committee meets monthly
to discuss financial and operating targets
and performance, property transactions and
employee matters. There are informal meetings
between the Executive Directors at other times
and due to the size of the organisation they are
involved in all significant business discussions
and decisions.
The Executive Committee is supported by three
sub-committees, each focusing on different
areas of the business: the Investment, Asset
Management and Finance Committees.
These Committees comprise Executive Directors
and members of the senior management team
and meet at least monthly.
Board culture and values
The Chairman sets and fosters the culture and
values of the Board and wider organisation,
broadly defined as a balanced approach to
business and a willingness to take considered
risks to achieve strategic goals within an open,
inclusive and respectful environment which
encourages constructive challenge and debate.
When running Board meetings, the Chairman
maintains a collaborative atmosphere in which
all Directors are able to voice their opinions
and contribute to the debate. The Chairman
also meets individual Directors, both Executive
and Non Executive, outside of formal Board
Meetings to keep abreast of individual views
and to foster an open and two way debate about
Board, Committee and individual members’
effectiveness.
This culture and thinking permeates through
the organisation through the close interaction
of Directors and staff in day to day activities.
Individual Directors and senior managers have
formed strong relationships over several years
of working together and processes are well
understood and adhered to after many years of
consistent application. We are proud of our high
staff retention rates and contented workforce.
The importance of good corporate governance
has been made clear to the Board and will be
a more regular agenda item to assess and
monitor culture within the organisation and to
ensure issues are identified, addressed and
corrective action is taken.
Culture is also monitored by reviewing the
outcome of the annual employee survey, the
second of which has recently been undertaken.
Board meetings
The Board has a regular schedule of meetings,
timed around the financial calendar, together
with further ad hoc meetings as required to deal
with transactional matters.
Whilst strategy is considered at every Board
meeting encompassing topics such as
market conditions and outlook, investment
opportunities, capital allocation and emerging
risks, one meeting each year is dedicated
to strategy.
In September 2018, two senior managers were
invited to present to the Board on the Company’s
longer term strategy as described on page 73.
The Company Secretary maintains a rolling
agenda for the Board and its Committees and,
in consultation with the Chairman, she ensures
agenda items cover the schedule of matters
reserved for the Board, compliance with the
Code and other regulatory requirements.
The Board considers the Company’s
stakeholders in its discussions and takes
account of the views of, and feedback from,
its shareholders, employees and customers
as described in detail on pages 77 to 79 and in
the Responsible Business section on pages 40
to 49.
The Executive Committee has regular off site
meetings to discuss business strategy and
performance in a less formal environment.
External advisors and senior managers are
invited to present and the focus is on reviewing
the appropriateness of and progress against
agreed strategy in light of market conditions
and investment opportunities.
The role of the Board
Your Board is collectively responsible for
delivering long term, sustainable returns to
shareholders, having due regard to the views
and interests of its stakeholders and the
communities within which it operates.
It operates in an open and honest manner,
engaging and fostering relationships with
stakeholders and acting with integrity.
When making decisions, the Board considers:
• The interests and wellbeing of its employees;
• The impact on local communities and
the environment;
• The needs of current and future tenants; and
• Its relationships with key suppliers.
The Board establishes the culture, values and
ethics of the organisation, sets and implements
strategy and provides leadership and direction
within a sound framework of risk management
and internal control.
The Board’s collective experience and skill set
covers a range of relevant sectors including
property, finance, banking, risk management,
sustainability and retail as reflected in the chart
on page 82 and as described in their individual
biographies on pages 68 and 69.
The Board has a schedule of matters reserved
for its attention which includes approval of
strategy, budgets, financial reports, significant
acquisitions and disposals above the delegated
authority limits (currently £10 million), major
capital expenditure, funding and dividend policy.
Board Committees
The Board has three Committees of Non
Executive Directors to which it has delegated
a number of its responsibilities: the Audit,
Remuneration and Nomination Committees.
The Committees ensure a strong governance
framework for decision making and each
operates within defined terms of reference
which are reviewed annually by each Committee
and the Board and which are available on written
request and on the Company’s website at
www.londonmetric.com.
74
LondonMetric Property PlcAnnual Report and Accounts 2019 MEMBERSHIP AND ATTENDANCE
The number of Board and Committee members and their attendance during the year was as follows:
Member
Chairman
Patrick Vaughan
Executive Directors
Andrew Jones
Martin McGann
Valentine Beresford4,5
Mark Stirling5
Non Executive Directors
Suzanne Avery
James Dean
Robert Fowlds
Andrew Livingston
Alec Pelmore3
Philip Watson3
Rosalyn Wilton
Percentage independent1
Date appointed
Tenure6
(years)
Independent
Board²
Audit
Committee
Remuneration
Committee
Nomination
Committee
13/1/2010
25/1/2013
13/1/2010
3/6/2014
3/6/2014
22/3/2018
29/7/2010
31/1/2019
31/5/2016
25/1/2013
25/1/2013
25/3/2014
9
6
9
5
5
1
9
0
3
n/a
n/a
5
n/a
No
No
No
No
Yes
Yes
Yes
Yes
n/a
n/a
Yes
56%
6 (6)
6 (6)
6 (6)
4 (6)
6 (6)
6 (6)
6 (6)
2 (2)
6 (6)
6 (6)
6 (6)
6 (6)
3 (3)
0 (0)
3 (3)
2 (2)
3 (3)
3 (3)
5 (5)
0 (0)
5 (5)
5 (5)
5 (5)
2 (2)
4 (4)
1 (1)
2 (2)
4 (4)
4 (4)
1 Based on Board members as at 31 March 2019. Following the resignation of two Executive Directors with effect from the AGM in July 2019, 57% of the remaining Directors excluding the
Chairman will be independent in accordance with Provision B.1.1 of the Code
2 Bracketed numbers indicate the number of meetings the member was eligible to attend
3 Retired with effect from 31 March 2019
4 Valentine Beresford was unable to attend two Board meetings due to a leave of absence to undergo and recuperate from an operation
5 To resign from the Board on 11 July 2019 and continue to serve as Investment Director and Asset Director of the Company
6 Tenure is measured from the date of appointment to the LondonMetric Board and as at 31 March 2019, rounded to the nearest whole year
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. On the rare
occasion that a Director is unable to attend
a meeting, papers will still be provided in
advance and their comments and apologies for
absence are provided to the Board prior to the
meeting. The attendance record of Directors at
Board meetings during the year is reflected in
the table above.
Valentine Beresford was not able to attend
two Board Meetings during the year as he was
recovering from an operation as reported last
year. He sent his apologies in advance and was
sent all relevant papers. He kept in regular
contact through his period of convalescence
and attended by phone numerous transactional
meetings of the investment team. He returned
to full time duties in September 2018.
Non Executive Directors
The Non Executive Directors are a diverse
group with a wide range of business experience
encompassing property, finance, banking, risk
management, sustainability and retail.
They provide a valued role by independently
challenging and scrutinising aspects of executive
decisions and monitoring the delivery of the
agreed strategy, adding insight from their varied
commercial backgrounds.
Many either currently or have previously served
on other listed Boards, bringing different
views and perspectives to Board operations
and debates.
The Senior Independent Director acts as an
intermediary to the Executive Directors for
the Non Executive Directors and shareholders
as required. He is available to meet with
shareholders at their request to address
concerns or, if other communication channels
fail, to resolve queries raised. No such requests
were received from shareholders in the year.
On appointment, Non Executive Directors are
advised of the likely time commitment to fulfil
the role. The ability of individual Directors
to allocate sufficient time to discharge their
responsibilities is considered as part of
the annual evaluation process led by the
Nomination Committee.
The Board is satisfied that each of the
Non Executive Directors devoted sufficient
time to the Company’s business during the
year and has capacity to continue to do so.
75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 Independent advice
All Directors and Committees 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
governance regulations are complied with
and high standards maintained. The Directors
may, in the furtherance of their duties, take
independent professional advice at the expense
of the Company. None of the Directors sought
such advice in the year.
The Chairmen of the Audit and Remuneration
Committees communicate regularly and
independently with relevant staff and external
advisors including the Company’s external
auditors, Deloitte LLP, and remuneration
advisors, PwC.
Conflicts of interest
Directors are required and have a duty to notify
the Company of any potential conflicts of interest
they may have. Any conflicts are recorded and
reviewed at each Board meeting. There have
been no conflicts of interest noted this year.
GOVERNANCE STATEMENT
CONTINUED
Non Executive Directors are encouraged to
communicate directly and openly with the
Executive Directors and senior management
between scheduled Board meetings to explore
and challenge large and complex transactions
and as part of each Director’s contribution to the
delivery of strategy. During the year Suzanne
Avery acted as a sounding board for the Finance
Director and team when arranging the debt
private placement. Property and retail market
experience and insights were also given by other
Non Executive Directors.
Professional development
Oversight of the training needs of individual
Directors is the responsibility of the Chairman.
However, Directors are also expected to identify
and develop their own individual training
needs, skills and knowledge and ensure they
are adequately informed about the Group’s
strategy, business and responsibilities. They are
encouraged to attend relevant seminars and
conferences and receive technical update
material from advisors and are offered training
and guidance at the Company’s expense.
During the year, training and information
updates were provided through presentations
by senior management and external
advisors on GDPR, Brexit and regulatory and
accounting updates.
Specific briefing papers were provided to the
Board and its Committees on the Group’s new
£75 million debt facility and £150 million private
placement, proposed changes in tax legislation,
the 2018 Corporate Governance Code, GDPR,
Responsible Business, Company purpose, Brexit
and cyber security.
Time commitment
Before taking on any additional external
commitments, Directors must seek the prior
agreement of the Board to ensure possible
conflicts of interest are identified and to
confirm they will continue to have sufficient
time available to devote to the business of the
Company and fulfil their duties.
Executive Directors are required to devote
almost all their working time to their executive
role at LondonMetric although certain external
appointments are permitted. Post year end,
Andrew Jones stepped down as a Non Executive
Director of The Unite Group Plc, having served
on its Board for six years.
All Directors are expected to attend all meetings
of the Board and of the Committees on which
they serve and the Annual General Meeting.
This ad hoc communication is often
supplemented by site visits and provides further
opportunity to mix with senior management.
During the year Alec Pelmore and Suzanne
Avery accompanied senior management on a
tour of four assets in Crawley. Robert Fowlds
visited the development at Bedford as part of his
induction on appointment.
Each of the Non Executive Directors, other
than the Chairman, is considered by the
Board to be independent from management
and has no commercial or other connection
with the Company. Tenure is measured from
the date of election to the LondonMetric
Board as in previous periods and the Board’s
composition throughout the year met the Code’s
requirement that at least half of its members,
excluding the Chairman, are independent Non
Executive Directors.
Information flow
The Chairman, supported by the Company
Secretary, ensures that the Directors
receive clear and timely information on all
relevant matters.
Comprehensive reports and briefing papers
are circulated one week prior to Board and
Committee meetings to give the Directors
sufficient time to consider their content prior
to the meeting and to promote an informed
boardroom discussion and debate.
The Board papers contain market, property,
financial, risk and governance updates as well
as other specific papers relating to agenda
items. The Board receives other ad hoc papers
of a transactional nature at other times,
circulated by email, for their review and approval
which are ratified at the next Board meeting.
76
LondonMetric Property PlcAnnual Report and Accounts 2019 STAKEHOLDER
ENGAGEMENT
Our approach to business builds and maintains
the trust of our key stakeholders.
Building relationships with our stakeholders
is a strategic priority as described on pages
06 to 07 and integral to our business model
as shown on pages 20 to 21. We believe
that engagement with our stakeholders is
fundamental to understand their views.
Examples of our work can be found in the
Responsible Business report on pages 40 to 49
and in our Responsible Development Bedford
case study on pages 32 to 33.
Section 172 Companies Act 2006
The duties placed on Directors by Section 172
Companies Act 2006 and the 2018 Code have
been discussed by the Board.
We believe the Board does take into account
the views, interests and impact on key
stakeholders when making decisions but have
reminded decision makers throughout the
business of the importance of keeping these
factors in mind when preparing briefing papers
and recommendations.
Section 172 Summary – Directors’ duty to
promote the success of the Company for its
members as a whole, having regard to:
• Consequences of decisions in the
long term;
• Interests of employees;
• Company’s relationships with suppliers,
customers and others;
• Impact of Company’s operations on the
community and environment; and
• Company’s reputation.
OUR KEY STAKEHOLDERS
WHY ARE THEY IMPORTANT TO US
HOW HAVE WE ENGAGED WITH THEM
Employees
PAGES 44 – 45
PAGE 78
Investors and
joint venture partners
PAGE 47
PAGES 78 – 79
Occupiers
PAGE 46
Contractors
and suppliers
PAGE 46
We employ a small dedicated and hardworking
team of just 28 employees and Executive
Directors and a further 6 Non Executive Directors.
They are critical to our success and the delivery
of our strategy and we strive to ensure they
remain motivated and happy at work.
• Second employee survey and first employee
wellbeing assessment undertaken in the year
• Designated workforce NED appointed
• Annual one to one appraisal and review
• Senior employees participate in LTIP
• Regular business updates including at half
year and annual results
Understanding the views and priorities of our
investors, lenders and partners is fundamental
to the development of our strategy and their
continued financial support.
• 234 investors met at investor meetings,
conferences, site visits and roadshows
• Annual and half yearly results presentations
• AGM attended by all Directors
encouraging liaison
• Comprehensive information provided
on website
• Responses to investor related CSR and
environmental surveys and questions
• Debt investors tour of assets in Bedford
and Islip alongside senior management
Our occupiers lie at the heart of our core purpose.
We need to understand our occupiers’ needs
in order to deliver fit for purpose real estate
solutions which underpin long term sustainable
income growth.
• Annual customer satisfaction survey with
regular ongoing customer discussions
and meetings
• Scored 9 out of 10 in the latest occupier survey
• Enhanced CRM processes implemented
• Panel discussions undertaken
To deliver our strategy and being a small team,
we are supported by a diverse group of key
suppliers including contractors, professional
advisors and agents.
• Signatory to the UK Prompt Payment Code
and our average payment time this year was
just 15 days
• Close involvement of development team
Local communities
and environment
PAGE 47
Supporting and investing into the communities
within which we work underpins our responsible
approach to doing business and delivering
our strategy.
with contractors
• Contractor, project and supplier
audits undertaken
• Communities Policy, Charity and Communities
Working Group
• Creation of jobs from new lettings
• Charitable giving
• Working with local schools
• Encouraging strong community involvement
by our contractors
• Local authority liaison and dialogue
77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 STAKEHOLDER ENGAGEMENT
CONTINUED
Further details on employee matters can be
found in the Responsible Business review on
pages 44 to 45.
Shareholders
Regular communication with investors
continues to be a top priority for the Board
who believes that understanding the views of
shareholders is an important contributor to the
Company’s strategic direction and success.
The Chief Executive and Finance Director are
the Company’s principal representatives and,
along with the other Executive Directors and
the Head of Investor Relations, hold meetings
throughout the year to communicate the
Company’s strategy and performance.
Investor meetings
The framework of investor relations is set
around the financial reporting calendar,
specifically announcement of half and full year
results. In addition, significant shareholder
engagement occurs outside of these periods
and primarily consists of UK regional and
overseas roadshows and responses to ad hoc
requests for meetings.
INVESTOR MEETINGS
1
4
3
By location
1
2
1 Overseas ............................................................ 20%
2 London ............................................................... 57%
3 Site visit ............................................................. 1%
4 UK regional ....................................................... 22%
1
4
By type
of investor
2
3
These meetings and roadshows seek to
keep investors informed of the Company’s
performance and plans, answer questions they
may have and understand their views.
1 Specialist institution ......................................... 31%
2 Broker ................................................................ 3%
3 Private wealth ................................................... 43%
4 Generalist institution ........................................ 23%
Topics discussed include the development
and implementation of strategy, financial
and operational performance, property
transactions and the markets in which we
operate, quality of underlying occupiers,
strength of the Company’s income, debt
structure and the real estate market
in general.
Investor activity
During the financial year, the Company met
with over 230 shareholders, analysts and
potential investors.
A breakdown by type of investor seen and
location of meeting are shown in the charts
above. Meetings were held predominantly
in the UK with over half of investors seen
in London.
Employee engagement
The Board engages with the workforce on a
regular basis both formally and informally.
This helps us monitor whether our core values
and culture have permeated through the
organisation successfully.
One to one reviews are undertaken annually
and are formally documented. Annual and
half yearly results are presented to all staff
who have the opportunity to question and
challenge the Executive Directors. Our recently
refurbished open plan office facilitates greater
team communication and collaboration and all
Directors operate an open door policy.
The appointment of Andrew Livingston as
designated workforce NED will strengthen
relationships between the Board and wider
employees and his role is expected to include
the following next year:
• Attendance at results presentations to
staff to facilitate his integration and give
employees the opportunity to raise concerns
or issues;
• Monitor results and actions arising from
employee surveys; and
• Formal feedback at Board meetings of staff
liaison and queries.
A second employee survey was undertaken by
all staff in March 2019. The key findings were
collated and reported to Andrew Livingston
as designated workforce NED and will be
considered by the Board.
In addition, an employee wellbeing assessment
was undertaken for the first time as discussed
in the Responsible Business report on pages
44 to 45.
Employees are actively encouraged to develop
their role and to continue their professional
training. During the year the Company
supported one employee through an MBA
programme, providing financial assistance and
flexible working hours.
Community volunteer work during working
hours is also encouraged and members of staff
have helped charities with fundraising events
over the course of the year. Funds raised by
staff were matched by Company donations.
78
LondonMetric Property PlcAnnual Report and Accounts 2019 KEY SHAREHOLDER EVENTS
THROUGHOUT THE YEAR
Q1
• Full year 2018 results presentation
• Investor full year roadshow held post results
in Holland, London and Scotland
Q2
• Annual General Meeting of Shareholders
• United States investor roadshow
• Site visits to Crawley
Q3
• Half year results presentation
• Half year investor roadshow post results
• Investor roadshow in London, Guildford,
Bristol, Cambridge and South Africa
Q4
• Investor meetings in London, Birmingham,
Jersey, Leeds, York and the United States
• Site visits to Bedford and Islip
As the importance of retail/private wealth
shareholders continues to grow, the Company
maintained its high level of roadshow activity
in UK regions. Regional roadshows included
visits to Birmingham, Bristol, Cambridge
Edinburgh, Glasgow, Guildford, Jersey, Leeds
and York. In total, private wealth meetings
accounted for over 40% of investors seen
and the Company continues to place great
importance on engaging with its private wealth
shareholders. 20% of investor meetings were
held overseas in Holland, South Africa and the
United States. The Company will continue to
engage with overseas investors to broaden its
investor base further.
The Company also presented at a number
of conferences during the year including
participating on panel discussions
organised by various brokers including BNP
Exane, Citigroup, JPMC, Peel Hunt and
Société Générale.
Investor site visits
Tours provide an opportunity to see our assets,
understand strategy and meet the senior
management team. During the year, three site
visits were arranged for brokers, investors
and lenders at the Company’s distribution
warehouses and developments in Bedford,
Crawley and Islip.
Investor feedback
Investor feedback is presented to the
Board at scheduled meetings, together
with published analyst comments.
Feedback received continues to be very
supportive of the Company’s strategy,
performance, management and
future direction.
Last year, as part of its ongoing shareholder
engagement, the Company conducted its first
biennial investor Responsible Business survey.
An update survey will be carried out next year.
Public communication
Shareholders are kept informed of the
Company’s progress through results
statements and other announcements
released through the London Stock Exchange.
Company announcements are made available
on the website affording all shareholders full
access to material information.
The website is an important source of
information for shareholders and includes
a comprehensive investor relations section
containing all RNS announcements, share
price information, investor presentations
and factsheets, half year results and Annual
Reports available for downloading.
A live and on demand webcast of results
and a CEO interview is posted twice a year.
Individual shareholders can raise questions
directly with the Company at any time through
a facility on the website.
Annual General Meeting
Shareholders are encouraged to participate in
the Annual General Meeting of the Company,
which provides a forum for communication
with both private and institutional shareholders
alike. The whole Board attends and is available
to answer shareholder questions.
The Senior Independent Director is available
for shareholders to contact if other channels
of communication with the Company are not
available or appropriate.
Details of the resolutions to be proposed can
be found in the Notice of Annual General
Meeting on pages 156 to 159. Shareholders are
able to lodge their votes through the CREST
system or by returning the Proxy Card sent
with the Annual Report and available for
downloading on our website.
Details of the number of proxy votes for,
against and withheld for each resolution will
be disclosed at the meeting and in the AGM
RNS announcement.
79
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSLondonMetric Property PlcAnnual Report and Accounts 2019 NOMINATION COMMITTEE REPORT
MEMBERSHIP & ATTENDANCE
Member
Patrick Vaughan (Chairman)
Andrew Livingston
Suzanne Avery
James Dean (resigned 31 March 2019)
Alec Pelmore (retired 31 March 2019)
Philip Watson (retired 31 March 2019)
Date
appointed
Tenure
(years)²
Meetings
attended1
1/11/2012
19/9/2018
31/1/2019
14/7/2016
25/1/2013
25/1/2013
6
1
0
n/a
n/a
n/a
3 (3)
2 (2)
0 (0)
3 (3)
3 (3)
3 (3)
1 Bracketed numbers indicate the number of meetings the member was eligible to attend
2 Tenure is measured from date of appointment to the Committee and as at 31 March 2019, rounded to the nearest
whole year
KEY RESPONSIBILITIES
Board composition & succession
• Review and evaluate the size, structure and composition of the
Board and its Committees, including the diversity and balance
of skills, knowledge and experience of each
• Consider succession planning for Directors and other
senior executives
PAGE 81
Board appointment
• Lead the process for new Board and Committee appointments
and make recommendations regarding Board and Committee
membership changes
PAGES 82 – 83
Diversity
• Promote the Company’s policy on diversity at Board level and
PAGES 83 – 84
in the wider organisation
Performance evaluation
• Lead the Board and Committee performance evaluation exercise
PAGES 84 – 85
Reappointment of Directors
• Assess the time commitment required from Non Executive Directors
PAGE 85
and consider the annual election and re-election of Directors to
the Board
FOCUS IN 2020
• Succession planning for the Board
• Continue to promote diversity in its widest sense at all levels of recruitment
This year the Committee’s
main focus has been the
independence of the
Non Executive Directors
and the size, structure and
composition of the whole
Board, taking into account
the new provisions of the
2018 Code.
Patrick Vaughan
Nomination Committee Chairman
80
LondonMetric Property PlcAnnual Report and Accounts 2019 Board composition and succession
The Committee has spent a significant
amount of time this year considering the
size and composition of the Board and its
Committees, and the independence of its
Non Executive Directors.
Valentine Beresford and Mark Stirling will
step down but remain Investment Director
and Asset Director respectively and members
of the Executive Committee responsible
for running the day to day operations and
implementing strategy.
Dear Shareholder,
I am pleased to present the Nomination
Committee’s report for the year to
31 March 2019.
The Committee’s main focus this year has
been the size and composition of the Board
and its Committees, and the independence
of its Non Executive Directors in light of the
impairment provisions outlined in the 2018
Corporate Governance Code that will become
effective next year.
In January 2019, following a rigorous
recruitment process, we were delighted to
welcome Robert Fowlds to the Board and
Remuneration Committee.
I met personally with the Company’s legal
counsel and senior managers of the finance
team to discuss the new provisions in the 2018
Code, which in turn prompted a full review
of the length of service and independence
of Non Executive Directors. Two Non
Executive Directors would have served for
more than nine years from the date of first
appointment by the year end and may not be
considered independent.
Sadly we have said farewell to Alec Pelmore and
Philip Watson who each served as Non Executive
Directors since the merger and formerly at
Metric, and stepped down from the Board at the
end of the financial year. I would like to thank
them both for their dedication, commitment and
valuable contribution to the Board over many
years of service.
To address this, the Committee decided to
accelerate the pace of Board refreshment and in
September 2018 appointed Redgrave Partners,
an executive search agency, to assist the search
for Non Executive Directors to replace both
Philip Watson and Alec Pelmore, who had
informed the Board of their intention to retire
at the end of the financial year.
Robert brings complementary and relevant
experience of corporate finance, investment
banking, M&A and real estate as former
Managing Director and Head of Real Estate for
J P Morgan Cazenove until 2015 and as Non
Executive Director of UK Commercial Property
REIT and Klepierre SA. His appointment and
induction process are discussed in detail on
page 83.
Role of the Committee
Our role is to ensure the Board and its
Committees continue to have the right
balance of skills, experience and knowledge to
independently carry out their duties and provide
strong and effective leadership to enable the
Company to deliver its strategy, having due
regard to the interest of its key stakeholders and
to the benefits of diversity.
We are responsible for identifying and
recommending candidates to fill Board
vacancies and lead the selection process,
ensuring it is formal, rigorous and transparent.
The Committee drives succession planning
and ensures that the refreshment process is
properly planned and managed to maintain
stability and mitigate business disruption.
I am delighted to report that on 31 January
2019, Robert Fowlds was appointed as a
Non Executive Director and member of the
Remuneration Committee. On 31 March 2019
and following the retirement of Alec Pelmore
and Philip Watson, Robert took over the role
of Senior Independent Director and become
a member of the Audit Committee.
In July 2019 James Dean, Non Executive
Director and Chairman of the Remuneration
Committee, will have served for nine years.
The Board has decided to appoint Robert Fowlds
as his successor as Remuneration Committee
chair in January 2020, after he has served as
a member for 12 months. James will remain
as chair and a Non Executive Director until this
time in order to facilitate an orderly transition.
The Committee has also considered the size
of the Board in relation to the overall size of
the organisation. With a complement of 28
employees including Executive Directors, a
Board of 10 Directors was considered too large.
Therefore following the AGM in July 2019, the
Board will reduce to six Non Executive Directors
and two Executive Directors, responsible for
leading and governing the Company.
Following these Board changes, the majority of
Board members excluding the Chairman will be
independent Non Executive Directors and meet
the requirements of the 2018 Code.
I have served as a Director for nine years, the
first three years as Chief Executive and as your
Non Executive Chairman for the last six, since
October 2014. The Nomination Committee
discussed my tenure and decided that it is in
the best interests of the Company for me to
continue in my role as Chairman. The Board
does not believe my independence, objectivity
and judgement is compromised by the length of
service and praised my leadership and working
relationship with the Chief Executive as noted on
page 85. The Nomination Committee, which is
leading the current Board refreshment process
is very aware of the importance of finding my
replacement as part of that process. We cannot
set a time limit on this search as appointing
the right candidate is essential. I will remain in
office as long as necessary in order to facilitate
an orderly and planned succession with minimal
business disruption.
Below the Board, succession planning is
delegated to the Executive Committee, to ensure
there is a pipeline of talented and suitable
future leaders to serve as the next generation
of Directors and support the Company’s
longer term plans. The Executive Committee
is committed to nurturing, developing
and retaining high performing individuals.
Staff appraisals are undertaken on an annual
basis and provide a forum to discuss targets,
progress and future prospects. Regular contact
with Board members is encouraged, through
Board presentations, tours of assets and one
to one sessions with Non Executive Directors
to discuss specific issues. Low staff turnover
indicates a contented workforce and an
appropriate reward structure.
Although there are no immediate vacancies
at Board or Executive Committee level
and execution of the Company’s strategy
is not dependent on any one individual, we
recognise the need to develop our internal
talent and to have contingency plans for
unforeseen absences.
81
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOMINATION COMMITTEE REPORT
CONTINUED
A BALANCED BOARD
All charts reflect the composition of the Board as at 31 March 2019
1
2
Board
composition
3
1
Board
independence
2
1 Non Executive Chairman .................................... 10%
1 Independent ...................................................... 56%
2 Non Executive ...................................................... 50%
2 Non independent .............................................. 44%
3 Executive .............................................................. 40%
Board independence increases to 57% as at the date of the
2019 AGM
1
Board
tenure
2
3
1
2
Board gender
diversity
1 Up to three years ................................................. 30%
1 Male ................................................................... 80%
2 Three to six years ................................................. 30%
2 Female ............................................................... 20%
3 More than six years ............................................. 40%
Tenure has been reflected from the date of appointment
to the LondonMetric Board
Board gender diversity increases to 25% female
representation as at the date of the 2019 AGM
Board skills
Retail
Sustainability
Risk Management
Finance & Banking
Property
10%
10%
10%
40%
80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Some Directors are represented in more than one category in terms of their expertise
Board appointment and induction
Following the review of Board composition
and refreshment, the Committee appointed
Redgrave Partners to begin the search for new
Non Executive Directors, with particular focus
on diversity, property experience and having
the right cultural fit. Experience as members
of Audit or Remuneration Committees was
also considered beneficial. Redgrave Partners
had no former connection with the Company
or Directors.
Redgrave Partners approached a large number
of candidates, both men and women, from a
range of business and cultural backgrounds, of
which five were shortlisted for interview by the
Finance Director and Chief Executive. Of these,
two candidates were recommended for the
next stage of the process along with a further
three candidates recommended by Directors
and advisors. A brief summary and CVs of the
remaining five candidates were circulated to the
Nomination Committee for consideration.
Robert Fowlds was chosen as the preferred
candidate given his wealth of recent and relevant
experience and good cultural fit with the Board.
Robert brings complementary and relevant
experience of corporate finance, investment
banking, M&A and real estate as former
Managing Director and Head of Real Estate for
J P Morgan Cazenove until 2015 and as Non
Executive Director of UK Commercial Property
REIT and Klepierre SA.
On appointment, the Company arranges a
tailored induction programme to help new
Directors develop an understanding of the
business including its strategy, portfolio,
governance framework, stakeholders, finances,
risks and controls.
Details of the appointment process and
induction programme for Robert are given
in the case study opposite.
82
LondonMetric Property PlcAnnual Report and Accounts 2019 APPOINTMENT PROCESS
INDUCTION PROGRAMME
↓ Appointment of external search agency,
Redgrave Partners
↓ Discussed candidate specification with
agency, with focus on diversity, property
experience, Board Committee exposure
and cultural fit
↓ Review of potential candidates by agency
↓ Shortlist of candidates provided for initial
interviews with Finance Director and
Chief Executive
↓ Final selection of candidates circulated
to Nomination Committee with CVs
for consideration
↓ Committee recommended Robert
Fowlds to the Board
↓ Induction programme organised by the
Finance Director
↓ Proposed election by shareholders at
the first AGM following appointment
Key induction events included the following:
• One to one meetings with the Finance Director,
Company Secretary and senior management
to discuss:
• the investment portfolio, asset selection,
capital allocation and strategic focus;
• financial forecasting and reporting
processes, banking and hedging strategy,
risks and internal controls and regulatory
matters; and
• shareholder engagement and responsible
business matters.
• Provision of past Board and Committee
papers, minutes and finance reports
• Guidance and information on annual Board
timetables, governance processes and
regulatory procedures including share dealing
• Site visit to the development at Bedford, being
a key strategic site, with senior management
• Meeting with external remuneration advisors,
PwC, post year end
Robert Fowlds
Non Executive Director, member of
the Remuneration and Audit Committees
and Senior Independent Director
A comprehensive induction programme was
arranged for Robert Fowlds, who joined as
a new Non Executive Director in the year.
Diversity
The Board continues to recognise the
importance of a diverse and balanced Board
and the benefits this brings to the organisation
in terms of skills and experience, wider
perspectives and better decision making.
It strives to operate in a working environment
of equal opportunity and promotes a culture
of mutual respect and inclusion throughout
the organisation. During the year the Board
reviewed and approved a Diversity and
Inclusion Policy which is available on the
Company’s website.
We encourage the recruitment, development
and retention of a diverse workforce and the
elimination of discrimination. Current and
potential employees are offered the same
opportunities regardless of background,
gender, age, religion, disability, nationality,
ethnicity, sexual orientation or marital status.
However, we acknowledge that the diversity of
recruitment will be subject to the availability of
suitable candidates. We are proud of our low
level of staff turnover which signifies a loyal and
content workforce, but recognise that this also
constrains the pace of change.
The Board supports greater female
representation on listed company boards
and the aspirational targets of the Hampton
Alexander Review which aims to achieve a
minimum of 33% of women on FTSE 350
company boards and senior leadership teams
by 2020. Diversity is more than just gender
based and the Board is also mindful of the
Parker Review regarding ethnic and cultural
diversity and its recommendation that each
FTSE 250 board should have at least one director
from an ethnic minority background by 2024.
Although it does not deem quotas appropriate
given the size of the Company and has not set
targets, there has been an ongoing commitment
to strengthen female representation at Board
level, which has increased from 9% in 2017
to 20% today. This increases to a 25% female
representation following the AGM.
The charts on page 84 reflect the gender
diversity of the Board, senior management team
and across the Company.
Ultimately, all appointments to the Board and
senior management team are based on merit
and suitability for the role, as an appointment
on any other basis would not be in the best long
term interests of the Company. However, we will
continue to be mindful of the benefits a diverse
team brings when recruiting and will ensure
that any executive search agency we engage
has signed up to the Voluntary Code of Conduct
for Executive Search Firms, which addresses
gender and ethnic diversity.
The Board acknowledges the challenges faced
by the real estate sector in improving gender
diversity and will continue to support the Real
Estate Balance group, whose objective is to
improve gender diversity at Board and senior
management level by promoting and supporting
the development of a female talent pipeline.
Further information on the Company’s
commitment to developing and supporting
employees and to promoting diversity and
inclusion is included in the Responsible
Business report on page 40.
83
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOMINATION COMMITTEE REPORT
CONTINUED
GENDER DIVERSITY
2019 BOARD PERFORMANCE AND EVALUATION
1
2
Board
1 Male ................................................................... 80%
2 Female ............................................................... 20%
Board gender diversity increases to 25% female
representation as at the date of the 2019 AGM
1
2
Senior
management
1 Male ................................................................... 75%
2 Female ............................................................... 25%
1
Employees
2
1 Male .................................................................... 57%
2 Female ................................................................ 43%
A key requirement of good governance is to
ensure that the Board operates effectively.
The annual evaluation enables us to monitor
and improve the effectiveness of the Board
and its Committees.
Last year, the Committee commissioned
Independent Audit to undertake a full
performance evaluation. As a result of that
review, the Chairman and Non Executive
Directors this year held meetings and a
dinner without the Executive Directors
present to allow for discussion and debate
outside of main Board meetings.
Further progress against targets set last year
is reflected in the table on page 85.
This year, an internal questionnaire based
evaluation was led by the Chairman
and focused on the key aspects of good
governance. The Board is committed
to undertaking an external evaluation every
three years.
The findings were collated and summarised
by the Company Secretary and tabled for
discussion by the Committee who reported
their findings to the Board in May 2019.
The key findings are summarised below.
The Board welcomed the recommendations
for continued development to its practices
and procedures and will report progress at
future meetings.
Board objectives and strategy
Board composition and its Committees
• Strategy and objectives are clear, supported
• Board is very cohesive and combines
and understood by management
• Strategy is continually monitored and flexed for
changes in external economic and market factors,
investor preferences and available resources
• Comprehensive updates on trading, opportunities
and market conditions provided by Executive
Directors at each meeting
• Strategy specific briefing extremely beneficial,
facilitating a deeper review and liaison with other
members of the senior management team
Performance
• Board reporting is regular and timely
• Board receives early warning signals of problems
that may adversely affect the business
• Financial information is comprehensive and
succinct and easy to review
• Reporting of performance against strategy,
communication of expected performance
and variances
Risk management
• Process for identifying and reporting risk is sound,
suitable and relevant to the business
• Good debate at each meeting on market risk and
impact to strategy
management support with
appropriate challenge
• Appropriate allocation of time devoted to
discussion of pertinent matters
• Board and Committees have the right balance
of skills to discharge their duties
• Changes implemented and planned including
reduction in overall Board size were considered
appropriate and sensible
• Committees are very well supported by external
advisors and continue to have open and good
working relationships with them
• Chairman praised for his exceptional guidance,
leadership and inclusive approach
Relationships with shareholders
• Extensive programme of investor meetings
evidences priority placed on shareholder
engagement by Chief Executive
• Feedback at meetings both regular
and informative
• Directors agreed shareholder relationships
are extremely good and investor sentiment
is positive and supportive of strategy
• The Company has a good reputation and
is well regarded
84
LondonMetric Property Plc
Annual Report and Accounts 2019
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Overall the results concluded that the Board
continues to work well together, within a climate
of openness and trust, and with the appropriate
complement of skills and expertise required to
monitor performance, challenge management
and develop strategy.
Individual Directors bring to the Board an
increasingly diverse range of skills from different
business sectors and from serving on a variety of
different boards.
No significant issues or areas of weakness
were noted and it was acknowledged that good
progress had been made against last year’s
recommendations, noted opposite.
Potential areas of improvement to governance
processes for consideration next year are
reflected below.
In addition, the Chairman conducted one to
one meetings with each of the Non Executive
Directors. All Committees also carry out an
annual review of their performance against their
roles and responsibilities set out in their terms
of reference.
The review of the Chairman’s performance
was led by the Senior Independent Director,
who praised the Chairman for continued good
leadership both in and out of meetings, for
facilitating boardroom discussion and debate in
an open and constructive way and for driving the
Board refreshment process.
The Directors agreed that the Chairman and
Chief Executive continue to have a very strong,
supportive and respectful working relationship
providing clear and effective leadership and
focus that is instrumental to the long term
success of the Company.
2018 TARGETS AND PROGRESS
RECOMMENDATION
PROGRESS IN 2019
• To facilitate a more balanced debate in the
• Dinner arranged for Chairman and Non
boardroom, variations to the format, agenda,
seating arrangements, attendees and location
of meetings could be explored
Executive Directors to promote discussion and
debate in an informal setting
• Strategy review presented to the Board by two
senior managers
• Consider holding one off site meeting each year,
ensuring the length, format and location are
conducive to good discussions
• Under consideration in 2020
• Encourage Non Executive Directors to stay in
• Andrew Livingston appointed designated
touch with the wider organisation by arranging
more meetings with senior managers and
mentoring those senior managers identified
as having high potential
workforce Non Executive Director
• Consider if more could be done to help the Non
Executive Directors have contact with a range of
stakeholders, for instance by attending more site
visits to customers
• Alec Pelmore, Suzanne Avery and Robert
Fowlds visited assets in Crawley and Bedford
alongside investors and lenders
AREAS OF FOCUS FOR 2020
• Succession planning for the Board
• Annual strategy meeting to be a standing
calendar item
• Periodic information on tenant covenant reviews
to be provided
• More regular updates of corporate governance
matters to be provided
• A bi-annual dinner for Non Executive Directors
to facilitate informal discussion
Re-election of Directors
Following the Board evaluation and appraisal
process, the Committee concluded that
each of the Directors seeking re-election
continues to make an effective contribution
to the Board and has the necessary skills,
knowledge, experience and time to enable
them to discharge their duties properly in the
coming year. The Committee considers the
time commitment required of the Directors
and other external appointments they have.
In accordance with the Code and in line with
previous years, all of the Directors will offer
themselves for election and re-election at
the forthcoming AGM on 11 July 2019 except
for Valentine Beresford and Mark Stirling,
who will be stepping down from the Board
but remaining Investment Director and Asset
Director respectively and members of the
Executive Committee.
Patrick Vaughan
Chairman of the Nomination Committee
23 May 2019
LondonMetric Property Plc
Annual Report and Accounts 2019
85
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS AUDIT
COMMITTEE REPORT
MEMBERSHIP & ATTENDANCE
Member
Rosalyn Wilton (Chairman)
Andrew Livingston
Suzanne Avery
Robert Fowlds
Alec Pelmore (retired 31 March 2019)
Date
appointed
Tenure
(years)2
Meetings
attended1
25/3/2014
31/5/2016
22/3/2018
31/3/2019
25/1/2013
5
3
1
0
n/a
5 (5)
5 (5)
5 (5)
0 (0)
5 (5)
1 Bracketed numbers indicate the number of meetings the member was eligible to attend
2 Tenure is measured from date of appointment to the Committee and as at 31 March 2019, rounded to the nearest
whole year
KEY RESPONSIBILITIES
Financial reporting
• Monitor the integrity of the financial reporting process and scrutinise
PAGES 88 – 89
the full and half year financial statements
• Consider and challenge the key financial judgements made
by management
Risk management
• Review the risk management framework and ensure risks
are carefully identified, assessed and mitigated
PAGES 89 – 90
Internal control
• Oversee the internal control processes and need for an internal
PAGE 91
audit function
External auditor
• Review the performance, independence and effectiveness of the
PAGES 90 – 91
external auditor and audit process
Regulatory compliance
• Review the Viability Statement and going concern basis of
preparation of the financial statements
• Consider whether the Annual Report is ‘fair, balanced
and understandable’
• Specific consideration this year of GDPR, Responsible Business,
Corporate Governance including the 2018 Corporate Governance
Code (‘2018 Code’) and Company purpose
PAGE 92
FOCUS IN 2020
• Regular Corporate Governance updates to be reviewed including implementation of the
2018 Code
We continue to play
a key role overseeing
the integrity of financial
reporting and ensuring
that there is a sound
system of internal control
and risk management
in place.
In this report, we explain
how we have challenged
the processes in place
to ensure the accuracy
of our financial results.
Rosalyn Wilton
Audit Committee Chairman
86
LondonMetric Property Plc
Annual Report and Accounts 2019
Dear Shareholder,
I am pleased to present the Audit Committee’s
report for the year to 31 March 2019.
Our job is to provide assurance over the
integrity of the financial reporting processes at
LondonMetric and the information contained in
this Annual Report. We take our role seriously
and have discussed key transactions in the
year as set out in the Strategic Report and
have challenged the significant judgements
made by management including the valuation
of investment property which is the largest
balance sheet item.
Our remit includes reviewing going concern
and viability reporting, and considering whether
this report, taken as a whole, represents a fair,
balanced and understandable assessment of
the Group’s position, performance and strategy.
Our review process is described in detail on
page 92.
Ensuring that the Company’s risk
management and internal control procedures
remain robust and are effectively implemented
remains one of our top priorities. Our work
included a comprehensive review of principal
risks and the internal control framework as
discussed on pages 89 to 90, with specific
consideration of cyber security and Brexit.
I am pleased to report that no significant
weaknesses in the control processes were
identified. We will keep under consideration
the risk imposed upon us by the UK’s
departure from the EU and the impact this may
have on our ability to execute strategy.
This year in addition to its recurring business,
the Committee received briefing papers on
various compliance and regulatory matters
including GDPR, Responsible Business,
Corporate Governance and Company purpose
and policy updates on diversity and inclusion
and anti-corruption and compliance.
We have also considered the independence
and effectiveness of the external auditors and
whether they continue to provide appropriate
challenge and expertise. Following our review
which is described on pages 90 to 91, we have
recommended the reappointment of Deloitte
LLP (‘Deloitte’) at the AGM in July. We are
mindful that they have now been in office for
six years and that a tender process will be
required after 10 years.
Membership
The Committee comprised throughout the year
of four independent Non Executive Directors,
chaired by Rosalyn Wilton. Robert Fowlds was
appointed to the Committee on 31 March 2019,
to replace Alec Pelmore who had informed the
Committee of his intention to retire at the end
of the financial year. I would like to thank Alec
personally for his longstanding commitment
to the Committee and the diligence and insight
he provided. Robert has extensive experience
of corporate finance, investment banking, M&A
and real estate as former Managing Director
and Head of Real Estate for J P Morgan
Cazenove until 2015 and as a Non Executive
Director of UK Commercial Property REIT and
Klepierre SA and brings a fresh perspective
and approach.
In addition to formal Committee meetings,
the Chairman has regular contact and
meetings with the Audit Partner and Finance
Director. This enables a better understanding
of key issues in advance of Committee
meetings and promotes debate outside
of scheduled meetings.
The May and November meetings are
scheduled to precede the approval and
issue of the full and half year financial
reports. Separate meetings are held with
the Company’s property valuers to challenge
the valuation process and review their
independence. At the March meeting, the
Committee reviewed risk management and
internal control processes and considered the
year end audit plan.
The Board is satisfied that Rosalyn Wilton,
Suzanne Avery and Robert Fowlds all bring
recent and relevant financial experience to the
Committee as required by the UK Corporate
Governance Code (‘Code’). It considers that the
Committee as a whole has the relevant real
estate and financial competence to enable it
to discharge its duties and the appointment of
Robert Fowlds brings complementary skills
and experience through the positions he
currently or previously has held.
Biographies of the Committee members which
set out the relevant skills, knowledge and
sector experience they bring can be found on
pages 68 and 69.
Meetings
The Committee follows an annual programme
to ensure it gives full consideration to matters
of particular importance and its terms
of reference.
The Committee met five times last year, with
meetings aligned to the Company’s financial
reporting timetable. Meetings are attended by
the Committee members and, by invitation, the
Group’s external auditor, independent property
valuers (CBRE Ltd and Savills (UK) Limited),
the Finance Director and Head of Finance.
Time is allocated for the Committee to meet
the external auditor and property valuers
independently of management.
The Chairman of the Committee reports
to the Board on the matters considered
and conclusions reached after each
Committee meeting.
The Committee is satisfied that it receives
sufficient, reliable and timely information
and support from management and the
Company’s external auditor to allow it to fulfil
its obligations.
Committee effectiveness
During the year the Board, led by the
Nomination Committee, carried out an
internally facilitated evaluation of its
performance and that of its Committees.
The review concluded that the Committee
continued to operate effectively with diligence
and due process and was further enhanced
by the breadth of experience and skills of
new members. The Board agreed that it
continued to be very well supported by the
Finance Director and the external auditors and
provided the appropriate level of challenge
and scrutiny.
Terms of reference
The Committee considers its own terms of
reference at least annually, taking into account
changes to legislation, particularly this year
the 2018 Code. They were last reviewed and
updated in March 2019 and can be found on the
Company’s website.
LondonMetric Property Plc
Annual Report and Accounts 2019
87
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Financial reporting and significant
financial judgements
The Committee continues to monitor the
integrity of the financial information published
in the interim and annual statements and the
overall tone, messaging and clarity of reporting.
In conducting its review, the
Committee considers:
• The extent to which suitable accounting
policies have been adopted, consistently
applied and disclosed;
• Significant matters by virtue of their size,
complexity, level of judgement and potential
impact on the financial statements;
• Application and disclosure of key financial
judgements and estimates; and
• Compliance with other regulations including
the Code.
The significant matter considered by the
Committee, discussed with the external
auditor and addressed during the year is set
out opposite.
Further details can be found in note 1 to the
financial statements on page 126.
Management confirmed that they were not
aware of any material misstatements and
the auditor confirmed they had not found any
material misstatements in the course of their
work, as reported in their independent report
on pages 115 to 121.
AUDIT COMMITTEE REPORT
CONTINUED
ACTIVITIES DURING 2019
During the year, the work undertaken by the Committee has included the consideration,
review and approval of the following:
• Interim and full year results
announcements and reports
• Accounting treatment of significant
transactions and areas of judgement
including property valuations
• Implementation of new accounting
standards on revenue and
financial instruments
• Processes undertaken to ensure that the
financial statements are fair, balanced
and understandable
• Annual assessment of the Group’s risk
register, principal and emerging risks
including cyber security and Brexit
• The adequacy and effectiveness of
the Group’s internal control and risk
management systems
• The appropriateness of the going
concern assumption
• The Viability Statement and longer
term forecast
• The need for an internal audit function
• Scope of the external audit plan
• The independence and objectivity
of Deloitte
• Performance of the external auditor and
effectiveness of the audit process
• Auditor’s fee
• Reappointment of external auditor
• External audit tenure
• Review of non audit services and ratio
of fees
• Committee’s composition, member
changes, performance, terms of
reference and constitution
• Responsible business including
stakeholder engagement
• Policy updates on compliance and
anti-corruption, diversity and inclusion
• GDPR, 2018 Corporate Governance Code
• Review of Company purpose
Financial reporting
Risk management and internal control
External audit
Governance & compliance
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LondonMetric Property PlcAnnual Report and Accounts 2019 STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
PROPERTY VALUATIONS
AREA OF FOCUS
THE COMMITTEE’S ROLE
The property valuation is the largest item on the balance
sheet and key to the Group’s reported performance.
It is a key determinant of the Group’s profitability, net
asset value, total property return, and drives an element
of variable remuneration and is therefore a key area
of focus.
It is a principal recurring risk, as reflected within Risk
Management on pages 50 to 63 of this report.
For further details on property valuations refer to notes
1 and 9 of the financial statements.
REPORTING ISSUE
Property valuations are inherently subjective as they are
based on assumptions and judgements made by external
valuers and underpinned by recent market transactions,
which may not prove to be accurate.
Assumptions include future rental growth, yield,
development expenditure, letting timeframes,
void costs and incentive packages.
All of the Group’s investment properties and those held in joint ventures are
externally valued by two independent property valuers, CBRE Limited and Savills
(UK) Limited.
The Committee met twice during the year with the property valuers, as part of the
interim and year end reporting process, to scrutinise and challenge the integrity
of the valuation process, methodologies and outcomes.
The key judgements applied to each property valuation and any issues raised
with management were considered and discussed to ensure that undue
influence had not been placed on the valuation process and the valuers remained
independent and objective. Supporting market evidence was provided to enable
the Committee to benchmark assets and conclude that the assumptions applied
were appropriate.
The Committee debated any valuations which required a greater level of
judgement with the valuers, including property under development and
valuation movements that were not broadly in line with the IPD benchmark.
The Committee challenged assumptions and discussed the impact on values
if key assumptions changed.
As part of their audit work, Deloitte use their own valuation specialists to
assess and independently challenge the valuation approach, assumptions and
judgements. They meet separately with the valuers and report their findings and
conclusions to the Committee.
CONCLUSION
The Committee confirmed to the Board that it was satisfied that the external property valuation included within the financial statements
had been carried out appropriately, independently and in accordance with industry valuation standards.
Risk management and internal controls
The Board is ultimately responsible for
establishing and maintaining the Company’s
framework of risk management and
internal control and for identifying the
principal risks which may affect its strategic
objectives. It recognises that risk is inherent
in running the business and understands
that effective risk management is critical
to the decision making process and long
term outperformance.
The risk management framework and ongoing
processes in place to identify, evaluate and
manage the principal risks and uncertainties
facing the Group are described in the Risk
Management section on pages 50 to 63.
The system is designed to give the Board
confidence that the risks are managed or
mitigated as far as possible, acknowledging
that no system can eliminate the risk of
failure to achieve the Company’s objectives
entirely and can only provide reasonable but
not absolute assurance against material
misstatement or loss.
There is a culture of risk awareness embedded
into the decision making process and robust
processes in place to support the identification
and management of risk. The Board considers
risk at each meeting via a dashboard, which
enables material issues to be monitored so
that key risks can be managed and emerging
risks identified early on with appropriate action
taken to remove or reduce their likelihood
and impact.
The Board has delegated responsibility
for reviewing the effectiveness of the risk
management framework and internal control
environment to the Audit Committee.
Each year the Committee carries out a review
of the risk register and reports its findings to
the Board. The risk register was last updated
in March 2019 and presented to the Audit
Committee at their planning meeting.
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CONTINUED
RISK REGISTER
INTERNAL CONTROL FRAMEWORK
The risk register identifies the following for
each corporate, property and financial risk
facing the business:
The key elements of the Group’s internal
control framework are as follows:
• A defined schedule of matters reserved
• Significance and probability of each risk;
for the Board’s attention;
• Controls and safeguards in place
to manage and minimise each risk;
• Movements in the Group’s exposure
to the risk since the last review; and
• Allocated owner of the risk and
management of safeguards.
The Executive Committee is responsible for the
ongoing identification and assessment of risks,
assisted by senior management.
Short reporting lines and operating from one
office facilitates the early identification of risks
and development of mitigation strategies.
This year the Committee received a paper
analysing the potential impact of a disruptive
Brexit on our top 20 tenants which account
for 68% of revenue.
The Committee concluded that risks were
properly categorised, understood and acted
upon as necessary.
The Audit Committee reviews the effectiveness
of the Group’s internal controls including
all material financial, operational and
compliance controls.
It receives an annual internal control
evaluation report which is completed by the
Finance Director and other reports provided
by the external auditor.
The report highlighted improvements made
to financial reporting processes through
the implementation and development of
integrated property and financial systems,
improving efficiency and reducing the risk
of manual error.
• A documented appraisal and approval
process for all significant capital
expenditure and development;
• A comprehensive and robust system
of financial budgeting, forecasting
and reporting;
• Short term cash flow forecasting
that is considered weekly by the
Executive Committee;
• An integrated financial and property
management system;
• An organisational structure with clearly
defined roles, responsibilities and limits
of authority that facilitates effective and
efficient decision making;
• Close involvement of the Executive
Directors in day to day operations
including regular meetings with senior
management on all operational aspects
of the business;
• Disciplined monthly meetings of the
Executive, Investment, Asset Management
and Finance Committees;
• The maintenance of a risk register and
risk dashboard highlighting movements
in principal and emerging risks and
mitigation strategies; and
• A formal whistleblowing policy
Based on its review and assessment, the Audit
Committee is satisfied that no significant
weaknesses in the Group’s internal control
structure were identified during the year
and an effective risk management system
is in place, and has reported these findings
to the Board.
External audit
Deloitte has been external auditor since 2013
following the merger and after conducting a
formal tender.
Current UK regulations require rotation of the
lead audit partner every five years, a formal
tender of the auditor every ten years and a
change of auditor every 20 years.
Georgina Robb, our current lead partner,
was appointed for the 2018 year end.
Oversight
As in previous years, Deloitte presented their
audit plan to the Committee in March.
The key audit risk areas and materiality levels
were highlighted and agreed. Their detailed
audit findings were presented ahead of the
interim and full year results.
The Committee questioned and challenged
the work undertaken and the key assumptions
made in reaching their conclusions.
Effectiveness
The Committee assesses the effectiveness
of the external audit process by its review
of the following:
• Audit plan and deliverables;
• Independence, objectivity and the provision
of non audit services; and
• Fees and reappointment.
In making its assessment, the Committee
considers the expertise and consistency of the
audit partner and team as well as the quality
and timeliness of the audit deliverables.
It reviewed the extent to which the audit plan
was met, the level of independent challenge
and scrutiny applied to the audit and the
depth of understanding of key matters and
accounting judgements.
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LondonMetric Property PlcAnnual Report and Accounts 2019 STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Non audit services
The Company’s policy on non audit services
stipulates that they are assessed on a case
by case basis by the Executive Directors who
observe the following guidelines:
As previously reported, 2019 is Deloitte’s sixth
consecutive year in office. The Committee
believes there is no immediate need to
re-tender the audit but will keep this under
review to allow sufficient time for the process.
The Company has complied with the provisions
of the Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and
Audit Committee Responsibilities) Order 2014
during the year.
Internal audit
On an annual basis the Committee reviews
the requirement for a dedicated internal audit
function. Due to the size of the organisation,
relatively simple structure of the Group and
close involvement of Directors in day to day
operations, the Committee did not feel an
internal audit function was either appropriate
or necessary. However, from time to time
external advisors are engaged to carry out
reviews to supplement existing arrangements
and provide further assurance. During the year
this included:
• Review of GDPR regulations and
arrangements; and
• Cyber security and disaster recovery.
The Committee agreed that external
assurance would be sought for any complex,
specialist or high risk issue.
• Pre approval of fees by the Executive
Directors up to a limit of £100,000 or
referral to the Audit Committee for review
and approval;
• Proposed arrangements to maintain
auditor independence;
• Confirmation from the auditors that they are
acting independently; and
• Certain services are prohibited from
being undertaken by the external auditors
including bookkeeping, preparing financial
statements, design and implementation of
financial information systems, valuation,
remuneration and legal services.
Having undertaken its review, in the opinion
of the Audit Committee, the 2019 audit was
appropriately planned, executed and of a high
quality. There continues to be a good working
relationship between management and
Deloitte, who continue to provide appropriate
professional challenge to management and
remain independent and objective.
Auditor reappointment
The external audit was last tendered in 2013
and in accordance with the current regulation
the Company is required to re-tender the
audit by 2023. The Committee believes
Deloitte remains effective in its role and has
recommended to the Board that they be
appointed for another year. A resolution to this
effect will be proposed at the AGM in July.
It also considered the interaction with and
feedback from senior management on
the audit process, focusing on the early
identification and resolution of issues and
judgements and the quality and timely
provision of audit clearance reports for review.
Feedback from the audit debrief meeting held
between senior management and the audit
team is provided to the Audit Committee.
Independence
The Committee recognises the importance
of auditor objectivity and independence and
understands that this could be compromised
by the provision of non audit services.
All taxation services and remuneration
advice is provided separately by PwC.
Corporate due diligence and subsidiary audit
work is undertaken by BDO LLP.
The table below sets out the fees payable
to Deloitte for each of the past three years.
The three year average ratio of non audit
fees (primarily the cost of the interim review)
to audit fees is just 21%, supporting the
Committee’s conclusion that Deloitte remains
independent and that the level on non audit
fees is not material.
Deloitte 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.
They have also confirmed that they have
internal procedures in place to identify
any aspects of non audit work which could
compromise their role as auditors and to
ensure the objectivity of their audit report.
AUDIT AND NON AUDIT FEES
Year to 31 March
Audit fees
Review of interim results
Other non audit fees
Total
Ratio of non audit fees (including interim review) to audit fees
Audit fees paid to the external auditor in respect of joint ventures totalled £48,200 at share (2018: £47,000 at share).
2019
£000
122
28
–
150
23%
2018
£000
115
27
2
144
25%
2017
£000
153
26
–
179
17%
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LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS It also considered whether the Annual Report:
• Was written in straightforward language
and without unnecessary repetition;
• Provided the necessary information
for shareholders to assess the Group’s
position, performance, business model
and strategy; and
• Included the use of alternative performance
measures which had been adequately
explained and reconciled to the financial
statements and had not been given more
prominence than a corresponding measure
under IFRS.
The Committee concluded that the Annual
Report was fair, balanced and understandable,
allowing the Board to make its statement on
page 113.
Rosalyn Wilton
Chairman of the Audit Committee
23 May 2019
AUDIT COMMITTEE REPORT
CONTINUED
FAIR, BALANCED AND UNDERSTANDABLE
At the request of the Board, the Audit
Committee considered whether the 2019
Annual Report was fair, balanced and
understandable and whether it provided the
necessary information for shareholders to
assess the Group’s position, performance,
business model and strategy.
In reaching its decision, the Committee
considered the procedures in place and
adopted by management in the preparation
of the Annual Report, which, as in previous
years, included the following:
• The establishment of a team of
experienced senior managers, drawn
from finance, investor relations and
property with clear responsibilities
for preparation and review of relevant
sections of the report;
• Regular team liaison during the drafting
stages to ensure consistency of tone
and message, balanced content and
appropriate linking of the various sections;
• Technical briefing update given
by the external auditor covering
corporate governance and accounting
regulations attended by relevant staff
in February 2019;
• Early input from Chief Executive and
Executive Directors to the overall
message and tone of the report;
• Close involvement of the Executive
Directors throughout with extensive
review of drafting;
• A verification exercise was undertaken
by the finance team to ensure factual
accuracy and consistency throughout
the report; and
• Review by the Audit Committee before
being presented to the Board for approval.
Whistleblowing procedures, anti-corruption
and anti-bribery
As a company, we seek to operate in an
honest and professional manner, with integrity
and respect for others. We do not tolerate
inappropriate behaviour or malpractice of any
kind. Employees are encouraged to speak
out if they witness any wrongdoings and are
provided with a compliance procedures manual
on joining which sets out our whistleblowing
policy and anti-corruption procedures.
Updated policies on compliance and anti-
corruption and diversity and inclusion were
reviewed this year and are available on
our website.
Updated GDPR and IT policies were circulated
to staff. In addition and on an annual basis, all
employees are required to confirm in writing
that they have complied with the personal
account dealing and gifts and benefits
procedures throughout the year.
GDPR
The Data Protection Act 2018 became
mandatory in May 2018 and as a result
we reviewed and updated our policies and
procedures and engaged Jones Day to advise
and assist us with this exercise.
Going concern and viability
Although the statements on going concern and
viability are a matter for the whole Board, the
Audit Committee reviewed the appropriateness
of preparing the financial statements on a
going concern basis and the analysis prepared
to support the Board’s longer term Viability
Statement required by the Code.
Its assessment included a review of the
principal risks and risk appetite, the chosen
period of assessment, headroom under loan
covenants, liquidity, investment commitments
and the level of stress testing of financial
forecasts undertaken. Particular attention
was paid to the time horizons chosen to
assess the Company’s viability and its longer
term prospects.
Following their review, the Committee
was satisfied that the going concern basis
of preparation remained appropriate and
recommended the Viability Statement
be approved by the Board. The Board’s
confirmation on going concern is set out in
note 1 to the financial statements on page
126 and its Viability Statement is set out on
page 64.
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LondonMetric Property PlcAnnual Report and Accounts 2019 REMUNERATION
COMMITTEE REPORT
MEMBERSHIP & ATTENDANCE
Member
James Dean (Chairman)
Rosalyn Wilton
Suzanne Avery
Robert Fowlds
Philip Watson (retired 31/3/2019)
Andrew Livingston (resigned 19/9/2018)
Date
appointed
Tenure
(years)2
Meetings
attended1
1/10/2010
14/7/2016
19/9/2018
31/1/2019
25/1/2013
11/7/2017
9
3
1
0
n/a
n/a
4 (4)
4 (4)
2 (2)
1 (1)
4 (4)
2 (2)
1 Bracketed numbers indicate the number of meetings the member was eligible to attend
2 Tenure is measured from date of appointment to the Committee and as at 31 March 2019, rounded to the nearest
whole year
KEY RESPONSIBILITIES
Remuneration policy
• Setting and reviewing the Group’s overall Remuneration Policy and strategy
Remuneration packages
• Determining and reviewing individual remuneration packages
Variable incentives
• Determining and reviewing the Long Term Incentive Plan (‘LTIP’) and Annual Bonus Plan
arrangements and approving targets and outcomes
Performance evaluation
• Lead the Board and Committee performance evaluation exercise
Payouts
• Approving salaries, bonuses and LTIP awards
FOCUS IN 2020
• Set remuneration of the Executive Directors and senior management
• Review workforce remuneration arrangements and alignment with Remuneration Policy
• In consultation with shareholders, review Remuneration Policy in the light of the 2018
Corporate Governance Code for approval at 2020 AGM
I am pleased to present
the Remuneration
Committee’s report on
Directors’ remuneration for
the year to 31 March 2019.
Our remuneration framework
is designed to align executive
pay with the Company’s
strategic goals and wider
workforce pay and to
encourage and reward
exceptional overall and
individual performance.
James Dean
Remuneration Committee Chairman
NEW 2018 CORPORATE GOVERNANCE CODE
We have considered the current compliance of our Remuneration Policy in the context of the new Code which applies for financial years beginning on or after
1 January 2019. While we are not required to comply with the Code for the year being reported on, the following table shows that we are already substantially
compliant with the new Code.
Key Remuneration Element of the Code
Company Position
Five year period between the date of grant
and realisation for equity incentives
The LTIP meets this requirement
Phased release of equity awards
The LTIP ensures the phased release of equity awards through annual rolling grants
Discretion to override formulaic outcomes
The Remuneration Policy contains the ability to override formulaic outcomes for both the annual bonus and the LTIP
Post termination holding requirement
The Remuneration Policy already contains a requirement to hold the shares equal to 100% of salary for one year post
cessation. The Committee will be reviewing this requirement as part of formulating the new Remuneration Policy
Pension alignment
It is the Committee’s intention to bring new Executive Directors in at a pension contribution equivalent to the average
employee contribution. The Committee does not intend to change the provision for existing Executive Directors
Extended malus and clawback
The current malus and clawback provisions already exceed the best practice suggested in relation to the new Code
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CONTINUED
There is a clear and direct link between results
and rewards as all of the performance metrics
are KPIs used to monitor performance of the
business against strategic priorities.
Performance during the year
The Company has delivered strong returns to
shareholders this year. Its focus on owning good
assets, in structurally supported sectors of
logistics and convenience-led retail, has led to
growth in both earnings and net assets.
The strong financial performance and robust
portfolio metrics have supported a progressive
and well covered dividend of 8.2p, up 3.8% on
last year.
EPRA earnings per share has grown by 3.5%
to 8.8p and EPRA net assets per share by 5.9%
to 174.9p. Like for like income grew by 5.7%
and the Group’s total property return of 9.0%
outperformed the IPD Quarterly Universe Index of
4.6% by 440 bps. Total accounting return for the
year was 10.7%.
Taking into account the Company’s strong
performance and the progressive returns enjoyed
by its shareholders, the Committee considers
it appropriate to reward the Executive Directors
with the variable elements of this year’s annual
bonus and LTIP in line with the formulaic
outcomes as detailed below. The Committee feels
that the underlying performance of the business
is consistent with these outcomes and therefore
has not exercised its discretion or made any
adjustment due to share price performance over
the period. It has also considered pay increases,
bonuses and LTIP awards of the wider workforce
when determining Executive Directors’ pay.
Annual bonus
The Executive Directors have delivered
successfully against a large number of
operational and strategic objectives as set
out on page 103 including income quality and
growth, asset selection, funding, stakeholder
relationships, responsible business targets
and the delivery of developments on time and
within budget.
This strong financial and non financial
performance has been taken into account when
considering the variable elements of remuneration.
The Committee has calculated annual bonuses
for the Executive Directors to be at 90% of their
respective maximum levels. The Directors have
decided to opt out of the annual bonus deferral
provision in accordance with the Remuneration
Policy, as they have met the minimum
shareholding requirement of 700% of salary.
Their annual bonuses will be paid in June 2019.
LTIP vesting
Vesting of the LTIP awards granted to Executive
Directors in 2016 is dependent on Company
performance over the three year period to
31 March 2019.
Performance is measured by reference to
relative TAR and TSR versus the FTSE 350
Real Estate Super Sector excluding agencies
and operators and EPRA EPS growth.
The Committee assessed performance and
based on actual EPRA EPS of 8.8p, and TAR and
TSR over the three year period both at 34%. 84%
of awards granted are expected to vest in June
2019, subject to continued service.
The Committee is satisfied that the amount
payable under the variable incentive plans is
appropriate and no discretion was exercised by
the Committee in relation to these outcomes.
LTIP awards
The Group’s LTIP arrangements seek to align
executive pay with the delivery of long term growth
in shareholder value. This year 1,514,969 share
awards were granted to the Executive Directors
and 2,103,453 LTIP and deferred bonus share
awards vested. The Directors disposed of 991,606
shares to settle tax liabilities and retained the
remaining 1,111,847 shares which increased their
holding in the Company to a total of 11.8 million
shares as reflected in the table on page 107.
Salary increases
The Committee approved a salary increase for
Martin McGann of 3.9% in line with the wider
workforce and an increase of 2.0% for all other
Executive Directors. The increases will take
effect from 1 June 2019.
Looking forward
The Committee believes the current
remuneration arrangements are fair and fit for
purpose, and meet our objective of incentivising
management to deliver the Company’s strategy.
However, our focus next year will be to review
the current Policy ahead of the mandatory vote
at the AGM in 2020.
We will continue the work already underway to
demonstrate the Company is compliant with the
changes to the 2018 Code and will continue to
monitor emerging trends and best practice in
corporate governance.
James Dean
Chairman of the Remuneration Committee
23 May 2019
Chairman’s introduction
I have chaired the Remuneration Committee
since 2013 and have served as an independent
Non Executive Director since July 2010. I have
been closely involved with the evolution of the
Remuneration Policy and its implementation
to date. I am delighted to report that Robert
Fowlds has joined the Committee and will take
on the role of Chairman in January 2020 once
he has served as a member for 12 months.
I will be standing for re-election at the AGM and
will continue with my current role in order to
facilitate an orderly handover and transition.
To remind you, the primary role of the
Remuneration Committee is to determine
and recommend a fair reward structure that
incentivises the Executive Directors to deliver the
Group’s strategy whilst maintaining stability in
the management of its long term business.
The Remuneration Policy was approved by
shareholders at the 2017 AGM on 11 July 2017
for a period of three years. We will be reviewing
our policy next year ahead of the 2020 AGM.
Our Annual Report on Remuneration contains
details of payments during the financial year and
how we intend to implement the Remuneration
Policy for the next financial year. This part of
the report is subject to an advisory vote at the
forthcoming AGM.
Next year we will be reporting against
the provisions of the new 2018 Corporate
Governance Code, which is effective for the
Company from 1 April 2019. With the help of our
remuneration advisor, we have reviewed the new
provisions and have made some changes to our
current practice. We have reported the CEO pay
ratio for the first time as promised last year and
have extended the remit of this Committee to set
the remuneration of the Executive Committee
and Company Secretary (‘senior management’)
at the next pay review in May. It will also have
oversight of the remuneration arrangements of
the wider workforce and review their alignment
with the Executive Directors’ arrangements.
The employee voice has been strengthened
by the appointment of Andrew Livingston as
designated workforce NED as reported in detail
on page 67.
Remuneration aligned to strategy
Our remuneration framework is aligned with the
Company’s strategic direction and performance
as well as the interest of our shareholders
as reflected in the chart on page 99. The key
performance metrics which underpin the
variable elements of remuneration are EPRA
earnings per share (‘EPS’), total property return
(‘TPR’), total accounting return (‘TAR’) and total
shareholder return (‘TSR’).
94
LondonMetric Property PlcAnnual Report and Accounts 2019 DIRECTORS’ REMUNERATION
AT A GLANCE
EARNINGS FOR THE FINANCIAL YEAR
Total remuneration for Executive Directors
Salary
£000
Benefits
£000
Pension
£000
Bonus
£000
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
533
350
337
368
24
26
25
25
80
52
55
55
797
444
467
467
LTIP
£000
1,128
611
643
643
Total
2019²
£000
2,562
1,483
1,527
1,558
Total
2018
£000
2,392
1,369
1,401
1,440
Illustrative change in
value of shares owned
and outstanding
share awards1
£000
600
376
425
375
1 Based on an illustrative swing in share price of 10p. For reference, the highest closing share price during the year was 199.7p and the lowest closing price was 172.2p.
The number of shares and share awards was calculated based on the year end total
2 Full details of Directors’ remuneration for the year can be found in the table on page 102
Actual total remuneration compared
to the 2019 potential
The following charts show the actual remuneration
earned by the Executive Directors against the
minimum, on target and maximum scenarios
for the year under the Remuneration Policy.
The elements of remuneration have been
categorised into three components: (i) Fixed;
(ii) Annual Bonus (including Deferred Bonus);
and (iii) LTIP.
The target scenarios assume 50% payout
of the maximum opportunity under the
annual bonus and 25% (being threshold
vesting) of the LTIP. In line with the changes
to the regulations, we have also shown the
maximum scenario with the impact of 50%
share price appreciation over three years.
For the purposes of comparison we have
included the single figure remuneration for
the year ending 31 March 2019.
Actual remuneration is between the on target
and maximum scenarios reflecting the strong
performance in the year.
ANDREW JONES £000
MARTIN MCGANN £000
2,562
3,256
579
2,677
1,156
1,156
884
637
884
637
1,368
289
442
637
637
831
157
246
428
428
1,156
1,548
628
492
428
1,156
1,861
313
628
492
428
1,483
Minimum
On target
Maximum
Actual
Minimum
On target
Maximum
Actual
Fixed
Bonus
LTIP
Share price growth
Fixed
Bonus
LTIP
Share price growth
VALENTINE BERESFORD £000
MARK STIRLING £000
841
165
259
417
417
1,156
1,595
660
518
417
1,156
1,925
330
660
518
417
1,527
872
165
259
448
448
1,156
1,626
660
518
448
1,956
1,156
330
660
518
448
1,558
Minimum
On target
Maximum
Actual
Minimum
On target
Maximum
Actual
Fixed
Bonus
LTIP
Share price growth
Fixed
Bonus
LTIP
Share price growth
95
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REMUNERATION AT A GLANCE
CONTINUED
ANNUAL BONUS PLAN – TARGETS AND OUTCOMES
Payout target
Performance measure
EPRA EPS
TPR
25%
8.54p
7.13%
50%
8.66p
7.84%
100%
8.90p
8.56%
Actual
8.77p
8.96%
%
awarded
72%
100%
Combining these outcomes with the
personal objectives gives the following
payouts:
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
£000
797
444
467
467
% of
maximum
90
90
90
90
In addition, personal objectives have been awarded in full as noted on page 103.
2016 LTIPS VESTING – TARGETS AND OUTCOMES
Performance measure
TSR
TAR
EPRA EPS
Payout target
25%
0%
10.1%
8.72p
100%
29.5%
32.2%
9.11p
Actual
34.4%
34.0%
8.77p
%
awarded
100%
100%
34%
The estimated number of shares vesting
are as follows:
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Number
605,277
327,702
345,082
345,082
The level of LTIP vesting in 2019 demonstrates the successful performance of the Company over the longer term performance period with strong
absolute earnings growth and a resulting comparative return performance in excess of the Company’s direct competitors.
LTIPS GRANTED IN THE YEAR
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Basis of award
(% of salary)
200%
165%
165%
165%
Date of grant
15 June 2018
15 June 2018
15 June 2018
15 June 2018
Share awards
number
Face value
per share
Face value of award
£000
564,939
305,862
322,084
322,084
189.5p
189.5p
189.5p
189.5p
1,071
580
610
610
SHAREHOLDING OF THE EXECUTIVE DIRECTORS
0%
250%
500%
750%
1,000%
1,250%
1,500%
1,750%
823%
700%
700%
680%
700%
680%
700%
680%
1415%
1458%
1616%
1342%
Shareholding requirement
Beneficially owned shares
Unvested interests over shares
Shareholding requirement
Beneficially owned shares
Unvested interests over shares
Shareholding requirement
Beneficially owned shares
Unvested interests over shares
Shareholding requirement
Beneficially owned shares
Unvested interests over shares
% of salary
Andrew
Jones
Martin
McGann
Valentine
Beresford
Mark
Stirling
96
LondonMetric Property PlcAnnual Report and Accounts 2019
SUMMARY OF POLICY
AND OPERATION NEXT YEAR
ELEMENTS AND OPERATION
BASE SALARY
IMPLEMENTATION IN THE YEAR TO 31 MARCH 2020
An Executive Director’s basic salary is set on appointment and
reviewed annually with changes taking effect from 1 June or when
there is a change in position or responsibility.
The Committee approved a salary increase for Martin McGann of 3.9%
in line with the wider workforce and an increase of 2.0% for all other
Executive Directors.
When determining an appropriate level of salary, the Committee
considers multiple factors including pay increases to other
employees, remuneration within comparable property companies,
and the general performance of the Company and individual.
PENSION
The maximum contribution is 15% of salary which is payable as a
monthly contribution to the Executive Director’s individual personal
pension plan or taken as a cash equivalent. Salary sacrifice
arrangements can apply.
BENEFITS
The Committee recognises the need to maintain suitable
flexibility in the benefits provided to ensure it is able to support the
objective of attracting and retaining personnel in order to deliver the
Group strategy.
ANNUAL BONUS
Annual performance targets are set by the Committee at the start
of the financial year linked to the Group’s long term strategy of
growth in EPRA EPS and TPR.
At least half of the bonus will be linked to the key property and
financial metrics.
Non financial targets are set to measure individual strategic
performance and contribution to the achievement of
portfolio management initiatives and other operational
management objectives.
The payout for on target performance is 50% of the maximum
and the payout for threshold performance is 25% of the maximum.
Executive Directors who have met their minimum shareholding
requirement have the option to receive the annual bonus paid
in cash.
Personal
objectives
For those who are yet to meet the minimum shareholding
requirement, up to 100% of the annual bonus will be paid in
deferred shares vesting after three years.
The maximum bonus opportunity will remain at 165% of
salary for the Chief Executive and 140% of salary for the other
Executive Directors.
Executive Director
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Base salary from
1 June 2019
Base salary from
1 June 2018
545,870
365,000
377,228
377,228
535,167
351,204
369,831
369,831
Executive Directors will receive the 15% of salary supplement in lieu
of pension this year.
In line with the Policy, each Executive Director receives:
• Car allowance
• Private medical insurance
• Life insurance
• Permanent health insurance
The performance conditions and their weightings for the annual
bonus are as follows:
Performance
measure
Growth in
EPRA EPS
Growth in total
property return
(‘TPR’)
Weighting Description of targets
Growth in Company’s EPRA EPS against
a range of challenging targets
35%
35% Growth in Company’s TPR against IPD
Quarterly Universe Index; Full payout
if growth is 120% of the Index; 50%
payout if growth is 110% of the Index;
25% payout if growth matches the Index;
Straight line interpolation between
points; No payout if TPR is negative
30% Vary between individuals and include
portfolio management metrics, financial
and people management, investor
relations and regulatory compliance
The Committee believes that the EPRA EPS target and details
of the personal objectives for the coming year are commercially
sensitive and accordingly these are not disclosed. These will
be reported and disclosed retrospectively next year in order for
shareholders to assess the basis for any payouts.
97
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS SUMMARY OF POLICY AND OPERATION NEXT YEAR
CONTINUED
ELEMENTS AND OPERATION
LONG TERM INCENTIVE PLAN
Annual awards of up to 200% of salary for the Chief Executive and
165% of salary for the other Executive Directors.
Awards will normally vest at the end of a three year period subject to:
• The Executive Director’s continued employment at the date
of vesting
• Satisfaction of the performance conditions
Vested awards will be subject to a further two year holding period
during which Executive Directors cannot dispose of shares other than
for tax purposes.
The Committee may award dividend equivalents on awards that vest.
SHAREHOLDING REQUIREMENT
Executive Directors are encouraged to build up and hold a
shareholding equivalent to a percentage of base salary.
Executive Directors will be required to retain at least 50% of the
post tax amount of vested shares from incentive plans until this
requirement is met and maintained.
The Committee has introduced a post leaving shareholding
requirement for the Executive Directors, who must retain
shares equivalent in value to one year’s salary for 12 months
post cessation.
IMPLEMENTATION IN THE YEAR TO 31 MARCH 2020
Performance
measures
Total
shareholder
return (‘TSR’)
Total accounting
return (‘TAR’)
EPRA EPS
growth
Weighting
Threshold
(25% vesting)
37.5%
Equal to index
37.5%
Equal to index
Maximum1
(100% vesting)
Equal to upper
quartile ranked
company
Equal to upper
quartile ranked
company
25%
RPI plus 0%
over three years
RPI plus 4%
over three years
1 Straight line interpolation between threshold and maximum
TSR and TAR are relative measures measured against the FTSE
350 Real Estate Super Sector excluding agencies and operators
(the Index). Under the TSR element, there will be no payout if TSR
is negative.
The Committee determined that the indices would not be weighted.
The shareholding requirement for 2020 is:
• Chief Executive – 700% of salary
• Other Executive Directors – 700% of salary
• Newly appointed Executive Directors – 400% of salary
Key elements and time period
Year ending March
Base salary
Pension
Benefits
Annual bonus
Cash
Deferred shares
LTIP
Non Executive Directors’ fees
2020
2021
2022
2023
2024
Key: Performance period:
Vesting period:
Holding period:
98
LondonMetric Property Plc
Annual Report and Accounts 2019
DIRECTORS’
REMUNERATION POLICY
The Group’s Remuneration Policy is designed
to align Executive pay and incentives with the
Company’s goals and encourage and reward
exceptional overall and individual performance.
The Remuneration Policy for the Group was
approved by shareholders at the 2017 AGM on
11 July 2017 for a period of three years. We will
be reviewing our Policy next year ahead of the
2020 AGM.
The following section is an extract from
the full Remuneration Policy which can
be found on the Company’s website at
www.londonmetric.com.
Overview of our Policy
The overriding objective is to operate a fair
and transparent Remuneration Policy which
motivates and retains individuals of the highest
calibre and rewards the delivery of the Group’s
key strategic priorities, long term growth and
attractive shareholder returns. As well as
motivating, remuneration plays a key role in
retaining highly regarded individuals and needs
to be competitive.
The principles which underpin the Policy
ensure that Executive Directors’ remuneration:
• Is aligned to the business strategy and
achievement of business goals;
• Is aligned with the interests of
shareholders by encouraging high levels
of share ownership;
• Attracts, motivates and retains high
calibre individuals;
• Is competitive in relation to other
comparable property companies;
• Is set in the context of pay and employment
conditions of other employees; and
• Rewards superior performance through
the variable elements of remuneration
that are linked to performance.
STRATEGY LINK TO REMUNERATION POLICY
The Committee’s remuneration decisions are steered by the Group’s strategic direction and corporate objectives. It is important that the
incentive arrangements operated by the Company are directly linked to the achievement of the Company’s strategy and overall corporate
objectives. It is the Committee’s belief that the incentive elements of the Remuneration Policy align with these objectives.
The following table demonstrates how the Company’s key performance indicators (‘KPIs’) are aligned to its variable incentive arrangements of
the annual bonus and LTIP. Further details of these KPIs can be found on pages 22 to 23.
Key performance indicators
Link to remuneration
Link to strategy
Annual bonus
LTIP
Total shareholder return
Total accounting return
EPRA earnings per share
Total property return
37.5%
37.5%
35% 25%
35%
99
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REMUNERATION POLICY
CONTINUED
Shareholding guidelines
Minimum shareholding requirement
In line with the Group’s remuneration
principles, the Remuneration Policy places
significant importance on aligning the long
term interests of shareholders with those of
management by encouraging the Executive
Directors to build up over a five year period
and then subsequently hold a shareholding
equivalent to a percentage of base salary.
Adherence to these guidelines is a condition
of continued participation in the equity
incentive arrangements.
In addition, Executive Directors will be required
to retain at least 50% of the post tax amount
of vested shares from the Company incentive
plans until the minimum shareholding
requirement is met and maintained.
The following table sets out the minimum
shareholding requirements.
Role
Chief Executive
Other Executive Directors
Newly appointed
Executive Directors
Shareholding
requirement
(% of salary)
700%
700%
400%
The Committee has set the requirement at
400% of salary for the Policy period for newly
appointed Executive Directors to reflect the
practical maximum that could be achieved if all
incentives were earned over the Policy period
and paid in shares.
Post leaving shareholding requirement
There is a post leaving shareholding
requirement for the Executive Directors, who
must retain shares equivalent in value to one
year’s salary, for 12 months post cessation.
This requirement provides further long term
alignment with shareholders and ensures a
focus on successful succession planning.
Other directorships
Executive Directors are permitted to accept
external, non executive appointments with
the prior approval of the Board where such
appointments are not considered to have an
adverse impact on their role within the Group.
Fees earned may be retained by the Director.
There were no new appointments in the year.
Andrew Jones was a Non Executive Director
of The Unite Group Plc and earned fees of
£47,115 in the year to 31 March 2019.
The other Executive Directors did not hold
external appointments during the year.
NON EXECUTIVE DIRECTORS’ FEES
The fees for Non Executive Directors and the Chairman are broadly set at a competitive level
against the comparator group and increases take account of any change in responsibility.
The aggregate fee for Non Executive Directors and the Chairman will not exceed £1 million.
The base fee for Non Executive Directors, excluding the Chairman, has been increased by 2%
to £49,500 from 1 June 2019. The current fees for the Non Executive Director roles are:
Chairman
Base Non Executive Director fee
Senior Independent Director additional fee
Additional fee for Audit/Remuneration Committee Chairmanship
Additional fee for Audit/Remuneration Committee membership
£215,000
£49,500
£5,000
£10,000
£5,000
The Committee is mindful of the internal
pay relativities when setting pay for the
Executive Directors. The Company provides
regular strategy and performance updates
to employees, including half yearly results
presentations, which are used to convey
key messages.
The diagram below illustrates the cascade of
pay structures throughout the business for
the Chief Executive, other Executive Directors
and other senior managers for the year to
31 March 2019.
The Committee believes this demonstrates
a fair and transparent progression of
remuneration throughout the Company which
is in line with one of its core pay principles that
variable performance based pay increases
with seniority.
Employee considerations
The Company applies the same principles to
the remuneration of all employees as it applies
to the Executive Directors, namely that:
• Any incentive compensation is aligned to
the business strategy and achievement of
business goals
• The remuneration encourages employees to
become shareholders
• The remuneration attracts, motivates and
retains high calibre individuals
• The remuneration is competitive in relation
to other comparable property companies
• The incentive elements reward superior
performance through the variable
elements of remuneration that are linked
to performance
The Committee considers employee views
carefully and the Board has appointed Andrew
Livingston as the designated workforce Non
Executive Director with the role of gathering
employee views, ensuring that key points
raised by employees are discussed at Board
or Committee meetings and feeding back
to employees how their views have been
considered in the decision making process.
EMPLOYEE CONSIDERATIONS
Element of pay
LTIP
Annual bonus
Pension
Salary
Chief Executive
Participation
Other Executive
Directors
Other senior managers
200% of salary
165% of salary
40% to 125% of salary
165% of salary
15% of salary
140% of salary
50% to 110% of salary
15% of salary
10% to 15% of salary
£535,167
£351,204 to £369,831
£110,000 to £220,000
100
LondonMetric Property Plc
Annual Report and Accounts 2019
ANNUAL REPORT
ON REMUNERATION
On the following pages we set out the Annual
Report on Remuneration for the year ending
31 March 2019 which provides details of how
the Remuneration Policy was applied and
how we intend to apply the Policy for the
year ahead to 31 March 2020. It is subject to
an advisory vote at the forthcoming AGM on
11 July 2019 and complies with the 2016 UK
Corporate Governance Code, Listing Rules
and The Large and Medium Sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The areas
of the report which are subject to audit have
been highlighted.
The role of the Remuneration Committee
The Committee determines Directors’
remuneration in accordance with the approved
policy and its terms of reference, which
are reviewed annually by the Board and
are available on the Company’s website at
www.londonmetric.com.
The Board recognises that it is ultimately
accountable for executive remuneration
but has delegated this responsibility to the
Committee. All Committee members are Non
Executive Directors of the Company, which is
an important pre-requisite to ensure Executive
Directors’ pay is set by Board members who
have no personal financial interest in the
Company other than as potential shareholders.
The Committee meets regularly without the
Executive Directors being present and is
independently advised by PwC, a signatory
of the Remuneration Consultants’ Code of
Conduct and which has no connection with the
Group other than in the provision of advice on
executive and employee remuneration matters
and taxation advice.
PwC were appointed by the Remuneration
Committee following a competitive
tender process.
Total fees paid to PwC in respect of
remuneration advice to the Committee were
£60,500 calculated on both hourly and fixed
fee bases.
No Executive Director is involved in the
determination of his own remuneration
and fees for Non Executive Directors are
determined by the Board as a whole.
The Company Secretary acts as secretary to
the Committee and the Chief Executive and
Finance Director attend meetings by invitation
but are not present when their own pay is
being discussed.
The Chairman of the Committee reports to the
Board on proceedings and outcomes following
each Committee meeting.
MEETINGS AND ACTIVITIES
The Committee met on four occasions during the year. The main activities of the Committee during the year and to the date of this report were
as follows:
Annual bonus & LTIP
• Set challenging EPS targets for the 2018 LTIP awards and annual bonus for the year to 31 March 2019
• Approved Executive Directors’ share awards under the LTIP following the announcement of the Company’s
results for the year ended 31 March 2018
• Approved the Deferred Bonus Shares vesting in the year for Executive Directors
• Assessed the performance of Executive Directors against targets set at the beginning of the year
and determined annual bonuses for the year to 31 March 2019
Salary
• Reviewed and approved annual salary increases effective from 1 June 2019
• Reviewed Directors’ salary increases against pay increases within the wider workplace
Governance
• Approved Suzanne Avery and Robert Fowlds as members of the Committee
• Reviewed and approved the Remuneration Committee Report
• External evaluation of its own performance and review of its terms of reference
• Reviewed and approved the CEO pay ratio
101
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ANNUAL REPORT ON REMUNERATION
CONTINUED
SINGLE TOTAL FIGURE OF REMUNERATION FOR EACH DIRECTOR (AUDITED)
Director
Executive
Andrew Jones
Martin McGann
Valentine Beresford5
Mark Stirling
Non Executive
Patrick Vaughan6
Suzanne Avery
James Dean
Robert Fowlds
Andrew Livingston
Alec Pelmore
Philip Watson
Rosalyn Wilton
Salary and fees
2019
£000
2018
£000
Benefits1
Pension2
Annual bonus3
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
2019
£000
533
350
337
368
230
57
63
9
56
53
58
68
520
342
360
360
250
–
63
–
56
53
58
68
24
26
25
25
11
–
–
–
–
–
–
–
24
25
24
25
9
–
–
–
–
–
–
–
80
52
55
55
–
–
–
–
–
–
–
–
78
51
54
54
–
–
–
–
–
–
–
–
797
444
467
467
679
378
360
398
1,128
611
643
643
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
LTIP4
2018
£000
1,091
573
603
603
–
–
–
–
–
–
–
–
Total
2018
£000
2,392
1,369
1,401
1,440
259
–
63
–
56
53
58
68
2019
£000
2,562
1,483
1,527
1,558
241
57
63
9
56
53
58
68
1 Taxable benefits include the provision of a car allowance for Executive Directors and
private medical insurance
2 Pension contribution is 15% of salary (excluding any salary sacrifice) and may be taken
partly or entirely in cash
3 Annual bonus payable in respect of the financial year ending 31 March 2019 paid fully
in cash as minimum shareholding requirements met
4 2016 LTIP awards expected to vest in June 2019 for the performance period to 31 March 2019.
The value of the award has been calculated by multiplying the estimated number of shares
that will vest, including the dividend equivalent, by the average share price for the three
months to 31 March 2019. No discretion was applied in determining the estimated vesting
of the award as a result of changes in share price or other factors. The change in share
price growth between grant and 31 March 2019 accounts for £160,000 for Andrew Jones,
£85,000 for Martin McGann, £91,000 for Valentine Beresford and £91,000 for Mark Stirling
as reflected in the table on page 105. The estimated figures disclosed in the previous
Annual Report for 2018 vesting have been restated to reflect final vesting figures and the
share price on the date of vesting. The estimated share price used was 178.3p and the
actual share price on vesting was 187.63p. The differences in value were: Andrew Jones
£68,000, Martin McGann £36,000, Valentine Beresford £37,000 and Mark Stirling £37,000
5 Salary payable to Valentine Beresford was adjusted to take account of his leave of absence
6 Private Medical Insurance benefit has continued at the discretion of the Remuneration
Committee since becoming Non Executive Chairman
The Committee believes it is important
to take a holistic view of the Executive
Directors’ total wealth when considering the
single figure of remuneration. The Executive
Directors have very large shareholdings
in the Company and are exposed to
relatively small changes in the share price
significantly affecting their overall wealth.
In the Committee’s opinion, the impact of
share price movements on the total wealth
of the Director is more important than the
single figure. The significant shareholding
encourages Directors to take a long term
view of the sustainable performance of
the Company, which is critical in a cyclical
business. The Directors’ significant exposure
to share price movements is a key facet
of the Company’s Remuneration Policy.
GROUP FINANCIAL TARGETS
Annual bonus outcome for the year ended 31 March 2019
The annual bonus performance targets set for the year to 31 March 2019 and the assessment
of actual performance achieved is set out in the table below.
Bonus awards are based 70% on the Company’s financial performance and 30% on the individual’s
contribution in the year.
The financial performance element measures growth in EPRA EPS and TPR relative to the IPD
Quarterly Universe Index for the Group’s portfolio of assets. In determining the base EPRA EPS
target, the Committee looks to maintain consistency with longer term incentive targets but is mindful
of shorter term strategic priorities and changing market conditions. The 2019 annual bonus outcome
is set out in the table below.
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Financial
objectives
Individual
objectives
Bonus %
of maximum
Bonus %
of salary
Total bonus
£000
60%
60%
60%
60%
30%
30%
30%
30%
90%
90%
90%
90%
149%
126%
126%
126%
797
444
467
467
Performance measure
Weighting
Basis of
calculation
EPRA EPS
Total property return
(‘TPR’)
35%
35%
Growth in EPRA EPS
against a challenging target
Growth in TPR against IPD
Quarterly Universe index
(0%)
<8.54p
Positive
growth
Range
(25%)
(50%)
Maximum
(100%)
Actual
performance
% awarded
8.54p
8.66p
8.90p
TPR
matches
index
7.13%
TPR is
1.1 times
index
7.84%
TPR is
1.2 times
index
8.56%
8.77p
8.96%
72%
100%
102
LondonMetric Property PlcAnnual Report and Accounts 2019
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Individual non financial targets
Executive Directors’ non financial targets
accounted for 30% of the maximum bonus
award. Personal objectives were aligned to the
delivery of the Group’s key strategic objectives.
The Committee felt that all Executive Directors
had achieved their individual personal
objectives and approved a full payout for
all Directors.
The table below outlines the key personal
objectives set and the Committee’s
assessment of performance for each of the
Executive Directors for the annual bonus
awarded in the year to 31 March 2019.
OBJECTIVE
ASSESSMENTS
Andrew
Jones
• Portfolio focus to maximise both EPS and NAV growth
• Recycling capital with sell down of non core assets
Increase in EPRA EPS of 3.5% from 8.5p to 8.8p, providing cover for a 3.8% increase in dividend
•
• Strong increase in EPRA NAV per share of 5.9% from 165.2p to 174.9p
•
Investment in preferred sectors increased to 94% of the overall portfolio from 91% last year,
with distribution at 72.5% of the portfolio up from 68.5% last year
• Focus on income quality to deliver opportunities for sustainable and
progressive earnings
• Growth in earnings in the year supporting a 3.8% increase in dividend
• WAULT increased to 12.5 years (2018: 12.4 years) despite a year passing
• Like for like income growth at 5.7% (2018: 4.3%)
• Lengthen and strengthen relationships with key stakeholders:
institutional shareholders, private client wealth managers (‘PCM’),
occupiers and analysts
• 234 investor meetings in the year and strong share price performance
• Continuing focus on PCMs which account for 43% of the register (2018: 40%)
• Continuation of strong portfolio metrics - occupancy increased to 98% and strong like for like growth
• Strengthened relationships with top tenants
• Focused programme in support of key analysts
• Continue to realign the team in line with our evolving portfolio strategy
• Further team realignment and continuing focus on right team with right skills
• Reinforce the position of the Company as leading investor/partner of choice
in logistics
• Reinforcement of ‘end to end’ logistics continues to be well received in the market
•
Increased emphasis on urban logistics well received by stakeholders
• To provide oversight to the delivery of development schemes during the year
• Completion of 322,000 sq ft of development during the year across distribution and long income
sectors, producing £2.6 million of annual rent
Martin
McGann
• Optimising the funding structure to support the real estate strategy
• Two new debt facilities arranged in the year totalling £225 million with Wells Fargo and a Private
Placement syndicate
• Average maturity extended from 4.8 years to 6.4 years and undrawn facilities increased to £373 million
• Deliver risk management/corporate governance agenda to increasing
satisfaction of stakeholders
• Focus on Board refreshment and appointment of Robert Fowlds to the Board
• Continued focus on risk dashboard/register at Board/Audit Committee and more focus on new
• Focus on income quality to deliver growth in our sustainable earnings
•
Improve our ranking in the EPRA/GRESB sustainability rankings
corporate governance regulations including 2018 Code
• Growth in earnings in the year and 3.8% increase in dividend
• WAULT increased to 12.5 years (2018: 12.4 years) despite a year passing
• Like for like income growth at 5.7% (2018: 4.3%)
Included in the FTSE4Good index
•
• GRESB Green Star, EPRA sustainability Gold Award
• GRESB score of 67% is above peer group average of 60%
• Delivery of development schemes on schedule and on budget, with lettings
• Completion of 322,000 sq ft of development during the year across distribution and long income
at or above target rents and within agreed timescales
sectors, producing £2.6 million of annual rent
• Maintain appropriate LTV, cost of finance and debt maturity metrics
•
Improved LTV at 32% (2018: 35%) and debt maturity of 6.4 years (2018: 4.8 years)
Valentine
Beresford
• Continue to reposition portfolio with the objective of maintaining distribution
• Logistics portfolio now 72.5% (2018: 68.5%) and the retail park portfolio reduced to 5% (2018: 7%)
at c.70% and reducing retail bias to 10%
• Sell down non core, ex-growth and underperforming assets
• Residential portfolio reduced to 33 units, 17 flats sold in the year and one post year end
• Continue to strengthen team and integrate whole Investment team into
• Continued strong performance and fine tuning of team to ensure right people with right skills
broader Company business
• Promote Company as ‘partner of choice’ with developers, vendors and agents
• Evidence of ‘off market’ opportunities testament to strong reputation amongst developers and agents
• Provide support to the development pipeline in the year and to the delivery of
• Completion of 322,000 sq ft of development during the year across distribution and long income
funding and developments on schedule and within budget
sectors, producing £2.6 million of annual rent
Mark
Stirling
• Portfolio focus to deliver both income and capital growth versus
• Strong portfolio metrics with like for like income growth of 5.7% and total property return of 9.0%
IPD benchmark
exceeding the IPD benchmark of 4.6%
• Continuing focus on asset management to lengthen and strengthen our
rent roll
• Asset management activity delivered 50 occupier transactions, increasing income by £3.2 million
• Average lease lengths on new lettings of 11 years
• Continuing to increase and improve our development pipeline through new
opportunities and new planning consents
• Additional development schemes at Durham and Swindon in the year
• Continued focus on funding and development opportunities
• Maintain our high occupancy
• Occupancy increased to 97.8%
• Retain our position as partner of choice amongst key retailers
• Continued focus on real estate needs of retailers with 50% of the logistics portfolio being
let to retailers
• Delivery of development schemes on schedule and on budget, with lettings
• Completion of 322,000 sq ft of development during the year across distribution and long income
at or above target rents and within agreed timescales
sectors, producing £2.6 million of annual rent
LondonMetric Property Plc
Annual Report and Accounts 2019
103
103
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ANNUAL REPORT ON REMUNERATION
CONTINUED
Deferred Bonus Plan
The Remuneration Policy approved in July
2017 allows the Directors to opt out of
bonus deferral if the minimum shareholding
requirement is met.
At the date of this report, each Executive
Director’s shareholding exceeds the
minimum requirement.
Dividend equivalents accrue on deferred
shares held. Income tax and employees’
national insurance liabilities are payable
on vesting based on the market value
of the shares at that date.
One third of the deferred shares granted on
11 June 2015, 8 June 2016 and 16 June 2017
and held at 31 March 2018, vested on
21 June 2018.
Further shares representing one third
of the June 2016 and June 2017 awards
are expected to vest in June 2019.
Deferred shares are held in an Employee
Benefit Trust which at 31 March 2019 held
3,370,197 shares.
Outstanding deferred bonus shares held
by the Executive Directors are set out in
the table below.
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Date of grant
11 June 2015
8 June 2016
16 June 2017
11 June 2015
8 June 2016
16 June 2017
11 June 2015
8 June 2016
16 June 2017
11 June 2015
8 June 2016
16 June 2017
Face value
on grant1
£000
290
291
376
158
159
209
167
168
220
167
168
220
At 1 April
2018
67,153
130,915
230,102
36,724
71,595
128,125
38,672
75,394
134,921
38,672
75,394
134,921
Entitlement to ordinary shares
Awarded
in the year
Notional dividend
shares
Released
in the year
At 31 March
2019
–
–
–
–
–
–
–
–
–
–
–
–
831
5,787
10,170
455
3,164
5,663
478
3,330
5,963
478
3,330
5,963
(67,984)
(66,268)
(77,650)
(37,179)
(36,240)
(43,237)
(39,150)
(38,162)
(45,530)
(39,150)
(38,162)
(45,530)
–
70,434
162,622
–
38,519
90,551
–
40,562
95,354
–
40,562
95,354
1 Face value is the weighted average share price over the five business days immediately preceding the date of the award. For 2015 this was 168.2p, for 2016 this was 160.7p and for 2017
this was 168.6p
Long Term Incentive Plan
Awards granted in the year to 31 March 2019 are summarised in the table below.
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Basis of award
(% of salary)
200%
165%
165%
165%
Date of grant
15 June 2018
15 June 2018
15 June 2018
15 June 2018
Share awards
number
Face value
per share
564,939
305,862
322,084
322,084
189.5p
189.5p
189.5p
189.5p
Face value
of award
£000
1,071
580
610
610
The face value is based on a weighted average price per share, being the average share price over the five business days immediately preceding
the date of the award. Awards will vest after three years subject to continued service and the achievement of performance conditions.
104
LondonMetric Property PlcAnnual Report and Accounts 2019 PERFORMANCE CONDITION
VESTING LEVEL
Total Shareholder Return (‘TSR’) measured against FTSE 350 Real Estate
Super Sector excluding agencies and operators (37.5% of Award)
TSR less than index over 3 years
TSR equals index over 3 years1
0%
25%
TSR between index and upper quartile ranked company in the index1
Pro rata on a straight line basis between 25% and 100%
TSR equal or better than the upper quartile ranked company in the index1
100%
Total Accounting Return (‘TAR’) measured against FTSE 350 Real Estate
Super Sector excluding agencies and operators (37.5% of Award)
TAR less than index over 3 years
TAR equals index over 3 years
0%
25%
TAR between index and upper quartile ranked company in the index
Pro rata on a straight line basis between 25% and 100%
TAR equal or better than the upper quartile ranked company in the index
100%
EPRA EPS growth against a base target plus RPI (25% of award)
Less than base plus RPI plus 0% over 3 years
Base plus RPI plus 0% over 3 years
0%
25%
Base plus RPI plus between 0% and 4% over 3 years
Pro rata on a straight line basis between 25% and 100%
Base plus RPI plus 4% over 3 years
1 TSR must be positive over 3 years
100%
The adjusted EPRA EPS base target for the three year performance periods commencing 1 April 2016, 1 April 2017 and 1 April 2018 has been
set at 7.77p, 8.16p and 8.54p respectively. The Group’s three year financial forecast was taken into account when setting these targets along with
consideration of strategic goals and priorities, proposed investment and development plans, gearing levels and previous years’ results. Targets are
considered challenging yet achievable in order to adequately incentivise management and are in line with the Company’s strategic aim of delivering
long term growth for shareholders.
Awards expected to vest in the year to 31 March 2020 in relation to the three year performance period commencing 1 April 2016 are summarised below.
Performance measure
Weighting
Basis of calculation
(0%)
Range
(25%)
(100%)
Actual
performance
%
awarded
Total shareholder return (‘TSR’)
37.5%
Total accounting return (‘TAR’)
37.5%
Growth in TSR against FTSE 350
Real Estate Index
Growth in TAR against FTSE 350
Real Estate Index
EPRA EPS
25%
Growth in EPRA EPS against
a challenging base target
<0%
0%
29.5%
34.4%
100%
<10.1%
10.1%
32.2%
34.0%
100%
<8.72p
8.72p
9.11p
8.77p
34%
Director
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
LTIP
% of maximum
Estimated
number of shares
Face value
at grant
£000
Share price
appreciation
£000
84%
84%
84%
84%
605,277
327,702
345,082
345,082
968
524
552
552
160
85
91
91
Total estimated
face value
of award1
£000
1,128
611
643
643
1 The face value is based on the average share price for the three months to 31 March 2019 of 187.2p
105
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION
CONTINUED
Outstanding LTIP awards held by the Executive Directors are set out in the table below.
Director
Andrew Jones
Date of
grant
Face value
on grant
At 1 April
2018
Granted
in year
Notional
dividend
shares
Vested
in year
Lapsed
in year
At 31 March
2019
Performance
Period
Number of shares under award1
7,559
(581,294)
(37,104)
–
15.6.2018
189.5p
–
564,939
17,759
Martin McGann
3,970
(305,181)
(19,480)
–
11.6.2015
168.2p
610,839
8.6.2016
160.7p
690,068
16.6.2017
168.6p
639,653
–
–
–
30,500
28,272
16,514
15,306
17,389
16,118
17,389
16,118
11.6.2015
168.2p
320,691
8.6.2016
160.7p
373,608
16.6.2017
168.6p
346,314
–
–
–
15.6.2018
189.5p
–
305,862
9,615
11.6.2015
168.2p
337,699
8.6.2016
160.7p
393,422
16.6.2017
168.6p
364,680
–
–
–
15.6.2018
189.5p
–
322,084
10,125
11.6.2015
168.2p
337,699
8.6.2016
160.7p
393,422
16.6.2017
168.6p
364,680
–
–
–
15.6.2018
189.5p
–
322,084
10,125
–
–
–
–
–
–
720,568
667,925
582,698
–
–
–
–
–
–
390,122
361,620
315,477
–
–
–
–
–
–
410,811
380,798
332,209
–
–
–
–
–
–
410,811
380,798
332,209
1.4.2015 to
31.3.2018
1.4.2016 to
31.3.2019
1.4.2017 to
31.3.2020
1.4.2018 to
31.3.2021
1.4.2015 to
31.3.2018
1.4.2016 to
31.3.2019
1.4.2017 to
31.3.2020
1.4.2018 to
31.3.2021
1.4.2015 to
31.3.2018
1.4.2016 to
31.3.2019
1.4.2017 to
31.3.2020
1.4.2018 to
31.3.2021
1.4.2015 to
31.3.2018
1.4.2016 to
31.3.2019
1.4.2017 to
31.3.2020
1.4.2018 to
31.3.2021
4,182
(321,368)
(20,513)
–
4,182
(321,368)
(20,513)
–
Valentine
Beresford
Mark Stirling
1 Awards granted as nil cost options
Directors’ shareholdings
and share interests (audited)
The beneficial interests in the ordinary shares
of the Company held by the Directors and their
families who were in office during the year and
at the date of this report are set out in the table
on page 107.
There were no movements in Directors’
shareholdings between 31 March 2019 and the
date of this report.
106
The shareholding guidelines recommend
Executive Directors build up a shareholding
in the Company at least equal to seven times
salary. All Executive Directors complied with
this requirement at 31 March 2019 and as at
the date of this report. No Director had any
interest or contract with the Company or any
subsidiary undertaking during the year.
The Executive Directors have entered into
individual personal loan arrangements with
J P Morgan International Bank Limited and
granted pledges over ordinary shares in the
Company as security in connection with the
loans. The loans were used to repay debt
secured against various residential investment
properties held personally. The number of
shares pledged by each of the Directors is
reflected in the table on page 107.
LondonMetric Property PlcAnnual Report and Accounts 2019 Overall beneficial
Interest
31 March 2019
Ordinary shares of
10p each
Overall beneficial
Interest
31 March 2018
Ordinary shares of
10p each
LTIP shares
subject to
performance
conditions
Total
interests
as at
31 March
2019
Deferred
bonus
shares
Share
ownership
as % of
salary1
Shareholding
guideline
met
Number of
shares pledged
as at 31 March
2019
3,791,072
2,564,560
2,991,860
2,485,522
3,371,802
1,971,191
233,056
5,995,319
2,341,585
1,067,219
129,070
3,760,849
2,757,059
1,123,818
135,916
4,251,594
2,250,721
1,123,818
135,916
3,745,256
1415%
1458%
1616%
1342%
Yes
Yes
Yes
Yes
3,446,072
2,341,585
2,577,984
2,016,818
Executive Directors
Andrew Jones
Martin McGann
Valentine Beresford
Mark Stirling
Non Executive Directors
Patrick Vaughan2
12,250,000
12,854,000
Suzanne Avery
James Dean
Robert Fowlds
Andrew Livingston
Rosalyn Wilton
22,750
20,000
104,000
68,898
100,000
2,750
20,000
n/a
68,898
50,000
1 Based on the Company’s share price at 31 March 2019 of 199.7p and the beneficial interests of the Directors
2 Beneficial interest includes shares held in a family trust (80,000) and by spouse (20,000)
Performance graph
The first graph below shows the Group’s total
shareholder return (‘TSR’) for the period from
1 October 2010, when the Company listed
on the Main Market of the London Stock
Exchange, to 31 March 2019, compared to the
FTSE All Share REIT Index, the FTSE 350 Real
Estate Index and the FTSE 350 Real Estate
Super Sector index. These have been chosen
by the Committee as in previous years as
they are considered the most appropriate and
relevant benchmarks against which to assess
the performance of the Company.
The starting point required by the
remuneration regulations was close to
the bottom of the property cycle where a
number of property companies launched
rights issues while the Company did not.
The Company’s share price had not fallen as
much as the average share price of the FTSE
Real Estate sector prior to this starting point,
thereby setting a higher initial base price for
this graph.
Total shareholder return measures share price
growth with dividends deemed to be reinvested
on the ex-dividend date.
The Company’s total shareholder return
over the period since merger in 2013 has
outperformed all indices as shown in the
second graph below.
280
250
220
190
160
130
100
280
250
220
190
160
130
100
Oct
2010
Apr
2011
Oct
2011
Apr
2012
Oct
2012
Apr
2013
Oct
2013
Apr
2014
Oct
2014
Apr
2015
Oct
2015
Apr
2016
Oct
2016
Apr
2017
Oct
2017
Apr
2018
Oct
2018
Apr
2019
Apr
2013
Oct
2013
Apr
2014
Oct
2014
Apr
2015
Oct
2015
Apr
2016
Oct
2016
Apr
2017
Oct
2017
Apr
2018
Oct
2018
Apr
2019
LondonMetric Property Plc
FTSE All Share REIT Index
FTSE 350 Real Estate Index
FTSE 350 Real Estate Super Sector Index
LondonMetric Property Plc
FTSE All Share REIT Index
FTSE 350 Real Estate Index
FTSE 350 Real Estate Super Sector Index
107
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ANNUAL REPORT ON REMUNERATION
CONTINUED
Chief Executive’s remuneration table
The table below details the remuneration of the Chief Executive for the
period from the Company’s listing on the main market of the London
Stock Exchange on 1 October 2010 to 31 March 2019.
Year to 31 March
2019
2018
2017
2016
2015
2014
2013 (Andrew Jones)1
2013 (Patrick Vaughan)1
2012
20112
Total
remuneration
£000
Annual bonus
(as a % of the
maximum
payout)
LTIP vesting
(as a % of the
maximum
opportunity)
2,562
2,392
2,506
2,792
1,167
1,296
166
583
664
323
90
79
89
77
78
100
100
100
100
100
84
94
100
100
–
–
–
–
–
–
1 Andrew Jones became Chief Executive and Patrick Vaughan became Chairman on
25 January 2013 following the merger of the Company with Metric Property Investments plc
2 For the six months from the Company’s listing on 1 October 2010 to 31 March 2011
Percentage change in Chief Executive’s remuneration
The percentage change in the Chief Executive’s remuneration from
the previous year compared to the average percentage change in
remuneration for all other employees is as follows:
Chief Executive
Other employees (excluding Chief
Executive)
Salary
and fees
2%
4%
% change
Taxable
benefits
11%
Annual
bonus
17%
The Chief Executive’s single figure of remuneration for 2019 and 2018
used for the calculation ratio is as detailed on page 102. The same
methodology was used to calculate all employee pay for the purposes of
the ratios, which were calculated based on amounts receivable up to the
end of the relevant financial year for all employees excluding the CEO
and the Non Executive Directors.
As we continue to disclose the ratio in future years, we anticipate that
there is likely to be changes in the ratio as the CEO’s total remuneration
has a greater portion of pay delivered as variable remuneration, which is
consistent with the Company’s remuneration principles.
In summary, we anticipate volatility in this ratio, and we believe that this
is caused by the following:
• Our CEO pay is made up of a higher proportion of incentive pay
than that of our employees, in line with the expectations of our
shareholders. This introduces a higher degree of variability in his pay
each year which affects the ratio;
• The value of long term incentives which measure performance over
three years is disclosed in pay in the year it vests, which increases
the CEO pay in that year, again impacting the ratio for the year;
• Long term incentives are provided in shares, and therefore an
increase in share price over the three years magnifies the impact
of a long term incentive award vesting in a year;
• We recognise that the ratio is driven by the different structure of the
pay of our CEO versus that of our employees, as well as the make-
up of our workforce. This ratio varies between businesses even in
the same sector. What is important from our perspective is that this
ratio is influenced only by the differences in structure and not by
divergence in fixed pay between the CEO and the wider workforce.
The table showing the year on year change of CEO remuneration
and average employee remuneration demonstrates that divergence
is not occurring; and
17%
22%
• Where the structure of remuneration is similar, as for the Executive
Committee and the CEO, the ratio is much more stable over time.
CEO pay ratio
Whilst the Company has fewer than 250 employees and therefore is not
required to disclose a ratio, the Committee felt that it was appropriate
to disclose the CEO to all employee pay ratio, recognising that the
Company’s investors expect to see such disclosure.
Year
2019
2018
Pay ratio
25th
percentile
50th
percentile
75th
percentile
34:1
32:1
12:1
12:1
8:1
6:1
Payments to past Directors and for loss of office
There have been no payments made to retiring Directors or for loss
of office in the year.
Relative importance of spend on pay
The table below shows the expenditure and percentage change in spend
on employee remuneration compared to other key financial indicators.
Employee costs1
Dividends2
2019
£000
9,539
55,566
2018
£000
9,425
51,372
%
change
1.2%
8.2%
The Company chose to adopt the Option A methodology when
calculating the ratio as it deemed it the most appropriate approach and
had sufficient data to be able to carry out this method. This method was
used to calculate both 2018 and 2019 figures in the table above.
1 Figures taken from note 4 Administrative costs on page 131 and are stated before any
amounts capitalised and exclude share scheme costs
2 Figures taken from note 7 Dividends on page 133
108
LondonMetric Property PlcAnnual Report and Accounts 2019 Statement of voting at AGM
At the AGM on 11 July 2018, the Annual Report on Remuneration was
approved with votes from shareholders representing 69% of the issued
share capital of the Company.
The Directors’ Remuneration Policy was approved at the AGM on 11 July
2017 with votes from shareholders representing 71% of the issued share
capital at the time. The details of these outcomes are below.
2018 Annual Report
on Remuneration
2017 Directors’
Remuneration Policy
Votes cast
%
Votes cast
471,375,729
98.36
492,623,371
7,835,501
3,520,071
1.64
5,370,453
5,053,433
482,731,301
503,047,257
%
98.92
1.08
For
Against
Withheld
Total
On the basis of strong shareholder support for the Policy, no changes
were made this year.
Statement of implementation of Remuneration Policy for the year
ending 31 March 2020
The table on pages 97 to 98 illustrates how we intend to implement
our policy over the next financial year and gives details of remuneration
payments and targets.
I am always available to shareholders to discuss the Remuneration
Policy and its implementation and can be contacted through the
Company Secretary.
I look forward to the support of shareholders for this year’s Annual
Report on Remuneration.
James Dean
Chairman of the Remuneration Committee
23 May 2019
109
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS REPORT OF THE
DIRECTORS
ANNUAL GENERAL MEETING
The Annual General Meeting (‘AGM’) of the
Company will be held at the Connaught,
Carlos Place, Mayfair, London W1K 2AL
at 10 am on 11 July 2019.
The Notice of Meeting on pages 156 to 159
sets out the proposed resolutions and
voting details.
The Board considers that the resolutions
promote the success of the Company, and
are in the best interests of the Company and
its shareholders. The Directors unanimously
recommend that you vote in favour of the
resolutions as they intend to do in respect
of their own beneficial holdings, which
amount in aggregate to 24,398,662 shares
representing approximately 3.5% of the
existing issued ordinary share capital of the
Company as at 22 May 2019.
Additional information which is incorporated into this report by reference, including information
required in accordance with the Companies Act 2016 and Listing Rule 9.8.4R can be found on the
following pages:
Review of business and future developments
Principal risks
Throughout the Strategic Report on pages
01 to 64
Risk Management section of Strategic
Report on pages 50 to 63
Viability Statement
Page 64
Directors’ details
Directors’ interests
Employee involvement and engagement
Directors’ biographies on pages 68 and 69
Remuneration Committee report on
page 107
Governance report on page 78 and
Responsible Business report on
page 44 to 45
Greenhouse gas emissions
Responsible Business report on page 49
Financial instruments
Note 14 on page 141
Financial risk management policies
Note 14 and Risk Management on pages
139 to 140
Interest capitalised
Note 5 on page 132
Details of long term incentive schemes
Remuneration Committee report on pages
104 to 106 and on page 98
Shareholder waivers of dividends
Report of the Directors on page 111
Related party transactions
Post balance sheet events
Note 19 on page143
Note 20 on page 143
All other subsections of LR 9.8.4R are not applicable.
I am pleased to present
the Report of the Directors
together with the audited
financial statements for the
year ended 31 March 2019.
The Corporate Governance
report on pages 66 to 109
forms part of this report.
Martin McGann
Finance Director
110
LondonMetric Property Plc
Annual Report and Accounts 2019
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Company status and branches
LondonMetric Property Plc is a Real Estate
Investment Trust (‘REIT’) and the holding
company of the Group, which has no branches.
It is listed on the London Stock Exchange with
a premium listing.
Of the total dividend for 2019 of 8.2p, 6.45p
was payable as a PID as required by REIT
legislation, after deduction of withholding tax
at the basic rate of income tax. The balance
of 1.75p was payable as an ordinary dividend
which is not subject to withholding tax.
Principal activities and business review
The principal activity of the Group
continues to be property investment and
development, both directly and through joint
venture arrangements.
The purpose of the Annual Report is to provide
information to the members of the Company
which is a fair, balanced and understandable
assessment of the Group’s performance,
business model and strategy. A detailed review
of the Group’s business and performance
during the year, its principal risks and
uncertainties, its business model, strategy
and its approach to responsible business is
contained in the Strategic report on pages 01
to 64 and should be read as part of this report.
The Annual Report contains certain forward
looking statements with respect to the
operations, performance and financial
condition of the Group. By their nature, these
statements involve risk and uncertainty
because they relate to future events and
circumstances which can cause results and
developments to differ from those anticipated.
The forward looking statements reflect
knowledge and information available at the
date of preparation of this Annual Report.
Nothing in this Annual Report should be
construed as a profit forecast.
Results and dividends
The Group reported a profit for the year of
£119.7 million (2018: £186.0 million). The first
two quarterly dividends for 2019 totalling 3.8p
per share were paid in the year as Property
Income Distributions (‘PIDs’).
The third quarterly dividend of 1.9p was paid
following the year end on 17 April 2019 as a
PID. The Directors have approved a fourth
quarterly dividend of 2.5p per share payable
on 11 July 2019 to shareholders on the register
at the close of business on 7 June 2019, of
which 0.75p will be paid as a PID.
The total dividend charge for the year to
31 March 2019 was 8.2p per share, an increase
of 0.3p or 3.8% over the previous year.
Investment properties
A valuation of the Group’s investment
properties at 31 March 2019 was undertaken
by CBRE Limited and Savills Advisory Services
Limited on the basis of fair value which
amounted to £1,846.2 million including the
Group’s share of joint venture property as
reflected in notes 9 and 10 to these accounts.
Share capital
As at 31 March 2019, there were 699,991,840
ordinary shares of 10p in issue, each carrying
one vote and all fully paid. The Company
issued 2,775,644 ordinary shares under the
terms of its Scrip Dividend Scheme in the
year. Since the year end the Company issued
a further 669,979 ordinary shares in relation
to the third quarterly dividend scrip alternative.
There is only one class of share in issue and
there are no restrictions on the size of a
holding or on the transfer of shares. None of
the shares carry any special rights of control
over the Company. There were no persons with
significant direct or indirect holdings in the
Company other than those listed as substantial
shareholders opposite.
The rules governing appointments,
replacement and powers of Directors are
contained in the Company’s Articles of
Association, the Companies Act 2006 and the
UK Corporate Governance Code. These include
powers to authorise the issue and buy back
of shares by the Company. The Company’s
Articles can be amended by Special Resolution
in accordance with Companies Act 2006.
Purchase of own shares
The Company was granted authority at the
Annual General Meeting in 2018 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 AGM and
a resolution will be proposed for its renewal.
No ordinary shares were purchased under this
authority during the year.
Shares held in the Employee Benefit Trust
As at 31 March 2019, the Trustees of the
LondonMetric Long Term Incentive Plan held
3,370,197 shares in the Company in trust to
satisfy awards under the Company’s Long
Term Incentive and Deferred Bonus plans.
The Trustees have waived their right to receive
dividends on shares held in the Company.
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:
Shareholder
BlackRock Inc
Rathbones
Number
of shares
55,068,396
49,144,898
Standard Life Aberdeen
36,909,438
Troy Asset Management
34,999,720
Cohen & Steers Inc
31,163,460
The Vanguard Group Inc
28,339,072
Ameriprise Financial Inc
25,374,589
%
7.86
7.02
5.27
5.00
4.44
4.04
3.62
Directors
The present membership of the Board and
biographical details of Directors are set out on
pages 68 and 69.
The interests of the Directors and their families
in the shares of the Company are set out in the
Remuneration Committee report on page 107.
The Board appointed Robert Fowlds as
a Director on 31 January 2019 and on
31 March 2019 Alec Pelmore and Philip
Watson resigned. In accordance with the UK
Corporate Governance Code and in line with
previous years, all of the Directors will offer
themselves for election and re-election by
the shareholders at the forthcoming AGM on
11 July 2019 except for Valentine Beresford and
Mark Stirling, who will be stepping down from
the Board but remaining Investment Director
and Asset Director respectively and members
of the Executive Committee. The powers of
Directors are described in their Terms of
Reference, which are available on request.
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.
LondonMetric Property Plc
Annual Report and Accounts 2019
111
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Disclosure of information to auditor
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 auditor is unaware and each Director
has taken all steps that he or she ought to
have taken as a Director to make himself or
herself aware of any relevant audit information
and to establish that the auditor is aware of
that information.
Auditor
Deloitte LLP is willing to be reappointed as the
external auditor to the Company and Group.
Their reappointment has been considered
by the Audit Committee and recommended
to the Board. A resolution will be proposed
at the AGM on 11 July 2019.
On behalf of the Board
Martin McGann
Finance Director
23 May 2019
REPORT OF THE DIRECTORS
CONTINUED
The Group recognises the importance
of minimising the adverse impact of its
operations on the environment and the
management of energy consumption and
waste recycling.
The Group strives to improve its environmental
performance and regularly reviews
its management system and policy to
ensure it maintains its commitment to
environmental matters.
Greenhouse gas reporting
In accordance with Schedule 7 of the Large
and Medium-Sized Companies and Groups
(Accounts and Reports) Regulations 2008,
information regarding the Company’s
greenhouse gas emissions can be found on
page 49.
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 2019 was 15 days
(2018: 15 days).
Charitable and political contributions
During the year, the Group made charitable
donations of £12,252 (2018: £25,170).
No political donations were made during the
year (2018: £nil).
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.
The Group’s Long Term Incentive Plan and
Deferred Share Bonus Plan contain provisions
relating to the vesting of awards in the event of
a change of control of the Company.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of office or
employment that occurs specifically because
of a takeover bid, except for the provisions
within the Company’s share schemes as
noted above.
Employees
At 31 March 2019 the Group had 34 employees
including all Directors. The Company promotes
employee involvement and consultation and
invests time in ensuring staff are informed
of the Group’s transactions, activities
and performance through internal email
communication of corporate announcements
and periodic updates by the Chief Executive.
The Group’s interim and annual results
are presented to all staff by the Executive
Directors. Staff receive regular briefings,
presentations and email communication on
other relevant matters affecting them as
employees, which this year included GDPR and
health and safety.
Certain employees are eligible to participate
in the annual bonus and LTIP arrangements,
helping to develop an interest in the Group’s
performance and align rewards with Directors’
incentive arrangements. The Company
provides retirement benefits for its employees
and Executive Directors.
The Company operates a non-discriminatory
employment policy and full and fair
consideration is given to applications for
employment made by people with disabilities,
having regard to their skills and abilities, and
to the continued employment and training
of staff who become disabled. This year the
Company approved a Diversity and Inclusion
policy which can be found on our website.
The Company encourages the continuous
development and training of its staff. It is
the policy of the Company that the training,
career development and promotion of disabled
persons should, as far as possible, be identical
to that of other employees.
Further details of how we engage with
employees can be found in the Governance
report on page 77 and the Responsible
Business report on pages 44 to 45.
The environment
Details of our approach to responsible
business and its aims and activities can
be found on the Company’s website
www.londonmetric.com, where a full version
of the annual Responsible Business report can
be downloaded. An overview of our responsible
business activity can be found on pages 40 to
49 of this report.
112
LondonMetric Property PlcAnnual Report and Accounts 2019
DIRECTORS’ RESPONSIBILITY
STATEMENT
The Directors are responsible for preparing
the Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law the Directors are required
to prepare the Group financial statements
in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by
the European Union and Article 4 of the IAS
Regulation and have elected to prepare the
Company financial statements in accordance
with Financial Reporting Standard 101
(‘FRS101’) ‘Reduced Disclosure Framework’.
Under Company law the Directors must not
approve the accounts unless they are satisfied
that they give a true and fair view of the state of
affairs of the Company and of the profit or loss
of the Company for that period.
In preparing the Company financial
statements, the Directors are required to:
• Select suitable accounting policies and then
apply them consistently
• Make judgements and accounting estimates
that are reasonable and prudent
• State whether applicable FRS101 ‘Reduced
Disclosure Framework’ has been followed,
subject to any material departures disclosed
and explained in the financial statements
• Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Company
will continue in business
In preparing the Group financial statements,
International Accounting Standard 1 requires
that Directors:
• Properly select and apply accounting policies
• Present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information
• Provide additional disclosures when
compliance with the specific requirements
in IFRSs are insufficient to enable users
to understand the impact of particular
transactions, other events and conditions
on the entity’s financial position and
financial performance
• Make an assessment of the Company’s
ability to continue as a going concern
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of
the Company and to enable them to ensure
that the financial statements comply with the
Companies Act 2006. They are also responsible
for safeguarding the assets of the Company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• The financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole
• The Strategic report includes a fair review
of the development and performance of the
business and the position of the Company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks and
uncertainties that they face
• The Annual Report and financial statements,
taken as a whole, are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
Company’s performance, business model
and strategy
By order of the Board
Martin McGann
Finance Director
23 May 2019
Andrew Jones
Chief Executive
23 May 2019
113
LondonMetric Property PlcAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS FINANCIAL
STATEMENTS
INSIDE THIS SECTION
Independent Auditor’s report ����������������������������������������������������115
Group financial statements ������������������������������������������������������� 122
Notes forming part of the Group financial statements ������ 126
Company financial statements ������������������������������������������������ 144
Notes forming part of the Company
financial statements �������������������������������������������������������������������� 146
Supplementary information ������������������������������������������������������ 150
Glossary ������������������������������������������������������������������������������������������ 155
Notice of Annual General Meeting ����������������������������������������� 156
Financial calendar ����������������������������������������������������������������������� 160
Shareholder information ������������������������������������������������������������� 160
114
LondonMetric Property PlcAnnual Report and Accounts 2019 INDEPENDENT AUDITOR’S
REPORT TO THE MEMBERS OF
LONDONMETRIC PROPERTY PLC
REPORT ON THE AUDIT OF THE
FINANCIAL STATEMENTS
We have audited the financial statements,
which comprise:
• The Group Income Statement
• The Group and Company Balance sheets
• The Group and Company Statements of
Changes in Equity
• The Group Cash Flow Statement
• The Statement of Accounting Policies and
the related notes 1 to 20 for the Group
notes and I to VII for the Company
The financial reporting framework that has
been applied in their preparation is applicable
law and IFRSs as adopted by the European
Union and, as regards the Company financial
statements, as applied in accordance with the
provisions of the Companies Act 2006.
OPINION
In our opinion:
• The financial statements of LondonMetric
Property Plc (‘the Company’) give a true
and fair view of the state of the Group’s and
of the Company’s affairs as at 31 March
2019 and of the Group’s profit for the year
then ended
• The Group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (‘IFRSs’) as adopted by the
European Union
• The Company financial statements have
been properly prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice, including FRS 101
‘Reduced Disclosure Framework’
• The financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation
SUMMARY OF OUR AUDIT APPROACH
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards
are further described in the auditor’s
responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the
Company in accordance with the ethical
requirements that are relevant to our audit of
the financial statements in the UK, including
the Financial Reporting Council’s (the ‘FRC’s’)
Ethical Standard as applied to listed public
interest entities, and we have fulfilled our
other ethical responsibilities in accordance
with these requirements. We confirm that the
non-audit services prohibited by the FRC’s
Ethical Standard were not provided to the
Group or the Company.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matters
The key audit matters that we identified in the current year were:
Materiality
Scoping
• Valuation of investment property
• Property transaction accounting
Within this report, any new key audit matters are identified with
which are the same as the prior year identified with
.
and any key audit matters
The materiality that we used for the Group financial statements was £23.9 million which was
determined on the basis of 2% of equity. For testing balances that impacted EPRA earnings
we used a lower materiality of £3.0 million, which was based on 5% of that measure.
The Group is subject to a full scope audit on 100% of net assets, revenue and profit
before tax.
Significant changes in our approach
There has been no change to the basis upon which materiality is calculated, our identified
risks or our approach in scoping the audit from the prior year.
115
LondonMetric Property PlcAnnual Report and Accounts 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LONDONMETRIC PROPERTY PLCGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT CONCLUSIONS RELATING TO GOING
CONCERN, PRINCIPAL RISKS AND
VIABILITY STATEMENT
Going concern
We have reviewed the Directors’ Statement
in note 1(c) to the financial statements about
whether they considered it appropriate to
adopt the going concern basis of accounting
in preparing them and their identification of
any material uncertainties to the Group’s and
Company’s ability to continue to do so over a
period of at least 12 months from the date of
approval of the financial statements.
We considered as part of our risk assessment
the nature of the Group, its business model
and related risks including where relevant
the impact of Brexit, the requirements of the
applicable financial reporting framework and
the system of internal control. We evaluated
the Directors’ assessment of the Group’s
ability to continue as a going concern,
including challenging the underlying data
and key assumptions used to make the
assessment, and evaluated the Directors’
plans for future actions in relation to their
going concern assessment.
We are required to state whether we have
anything material to add or draw attention
to in relation to that statement required
by Listing Rule 9.8.6R(3) and report if the
statement is materially inconsistent with our
knowledge obtained in the audit.
We confirm that we have nothing material to
report, add or draw attention to in respect of
these matters.
Principal risks and Viability Statement
Based solely on reading the Directors’
statements and considering whether they
were consistent with the knowledge we
obtained in the course of the audit, including
the knowledge obtained in the evaluation of
the Directors’ assessment of the Group’s and
the Company’s ability to continue as a going
concern, we are required to state whether
we have anything material to add or draw
attention to in relation to:
• The disclosures on pages 50 to 63 that
describe the principal risks and explain
how they are being managed or mitigated
• The Directors’ confirmation on page 50 that
they have carried out a robust assessment
of the principal risks facing the Group,
including those that would threaten its
business model, future performance,
solvency or liquidity
• The Directors’ explanation on page 64 as
to how they have assessed the prospects
of the Group, over what period they have
done so and why they consider that period
to be appropriate, and their statement
as to whether they have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions
We are also required to report whether
the Directors’ Statement relating to the
prospects of the Group required by Listing
Rule 9.8.6R(3) is materially inconsistent with
our knowledge obtained in the audit.
We confirm that we have nothing material to
report, add or draw attention to in respect of
these matters.
Key audit matters
Key audit matters are those matters that, in
our professional judgement, were of most
significance in our audit of the financial
statements of the current period and include
the most significant assessed risks of
material misstatement (whether or not due
to fraud) that we identified. These matters
included those which had the greatest effect
on: the overall audit strategy, the allocation
of resources in the audit; and directing the
efforts of the engagement team.
These matters were addressed in the context
of our audit of the financial statements as a
whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters.
During the year, we have rebutted the
presumed significant risk in respect of
revenue recognition. Previously, we identified
the judgements in respect of recognition
of property acquisitions and disposals as
having a potentially key impact on revenue
recognition. As a result of the implementation
of IFRS 15 and the resulting change in
accounting policy to recognise transactions
on completion, rather than when significant
risks and rewards pass, we consider that
the level of judgement involved has reduced
significantly. In addition, the remaining
elements of rental income are considered to
be stable and predictable as determined by
long term lease agreements, hence this is no
longer considered to be a Key Audit Matter.
116
LondonMetric Property PlcAnnual Report and Accounts 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LONDONMETRIC PROPERTY PLC CONTINUED Key observations
We concluded that the
assumptions applied in
arriving at the fair value
of the Group’s property
portfolio by the external
valuers were appropriate.
REFER TO PAGE 86 FOR THE
AUDIT COMMITTEE REPORT
REFER TO PAGE 126 FOR
THE ACCOUNTING POLICY
AND NOTE 9 ON PAGE 135
(FINANCIAL DISCLOSURES)
VALUATION OF INVESTMENT PROPERTY
Key audit matter description
The Group owns a portfolio of
largely distribution property assets,
which is valued at £1,688.0 million
(2018: £1,677.6 million), as at 31 March
2019. The valuation of the portfolio
is a significant judgement area and
is underpinned by a number of
assumptions including capitalisation
yields, future lease income and with
reference to development properties,
costs to complete.
The Group uses professionally
qualified external valuers to fair value
the Group’s portfolio at six monthly
intervals. The valuers are engaged by
the Directors and performed their work
in accordance with the Royal Institution
of Chartered Surveyors (‘RICS’) Valuation
– Professional Standards. The valuers
used by the Group have considerable
experience in the markets in which
the Group operates.
The valuation exercise also relies on
the integrity of the underlying lease
and financial information provided to
the valuers by management. Therefore,
due to this and the high level of
judgement in the assumptions, we have
determined that there is a potential
fraud risk in the balance.
How the scope of our audit responded
to the key audit matter
• We assessed management’s process for reviewing
and assessing the work of the external valuer and
development appraisals
• We assessed the competence, objectivity and
integrity of the external valuer and read their
terms of engagement with the Group to determine
whether there were any matters that might have
affected their objectivity or may have imposed
scope limitations on their work
• We obtained the external valuation reports and,
assisted by our internal real estate specialist,
assessed and challenged the valuation process,
performance of the portfolio and significant
assumptions and critical judgement areas, including
lease incentives, future lease income and yields.
We benchmarked these assumptions to relevant
market evidence including specific property sales
and other external data
• We also met with the external valuers of the portfolio
to discuss the results of their work and, for a sample
of properties of audit interest, further challenged the
yield assumptions and valuation
• We performed audit procedures to assess the
integrity of a sample of the information provided to
the external valuer by agreeing that information to
underlying lease agreements
• We tested a sample of the costs to complete
in relation to the development properties
via challenging the assumptions or agreeing
to supporting documentation such as
construction contracts
• We have assessed management’s assessment
of the impact of Brexit on the fair value of the
Group’s investment property portfolio in respect
of occupier demand and solvency, asset liquidity
and the performance of assets in different
property sectors
117
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT
How the scope of our audit responded to the key
audit matter
Key observations
We concluded that property
transactions had been
appropriately accounted for.
We performed the following procedures for a sample
of transactions:
• We agreed key transaction terms to signed sale
purchase agreements and other external evidence
• We reviewed sale purchase agreements for unusual
terms and conditions
• We considered the adequacy of the disclosure of the
transactions in the financial statements
• We traced transactions to the accounts and agreed
the quantum of the transactions
PROPERTY TRANSACTION ACCOUNTING
Key audit matter description
In the period the Group has undertaken
14 acquisitions recognised at £159.7 million
(2018: £306.6 million) and 18 disposals
recognised at £247.7 million (2018:
£172.0 million).
We have identified investment property
transactions as a key audit matter, owing
to the complexity and judgement that may
be involved in accounting for transactions
such as those including corporate
acquisitions, complex structuring or
forward funding on developments, or
other unusual terms or conditions.
Management changed their accounting
policy in respect of recognising
investment property transactions
following adoption of IFRS 15.
This has been on unconditional exchange
(ie, transfer of risks and rewards of
ownership) and is now on completion
(ie, change in control), which has reduced
the judgement around the timing and
recognition of transactions.
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and
in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
We determined Company materiality to be
£18.6 million (2018: £17.4 million).
We determined materiality for
the Group to be £23.9 million
(2018: £22.9 million).
We consider EPRA Earnings as
a critical performance measure
for the Group and we applied a
lower threshold of £3.0 million
(2018: £3.0 million) for testing of
all balances and classes of
transaction which impact that
measure, primarily transactions
recorded in the income statement
other than fair value movements on
investment property, development
property and derivatives.
Materiality
118
LondonMetric Property PlcAnnual Report and Accounts 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LONDONMETRIC PROPERTY PLC CONTINUED Group financial statements
Company financial statements
Materiality for the Group is based
on 2% (2018: 2%) of shareholders’
equity at 30 September 2018. For
EPRA Earnings the basis used
was 5% (2018: 5%) of that
measure on a forecasted basis.
As an investment property
company, the focus of
management is to generate long
term capital value from the
investment property portfolio
and, therefore, we consider equity
to be the most appropriate basis
for materiality.
OUR APPLICATION OF MATERIALITY
Basis for determining materiality
Rationale for the benchmark applied
An overview of the scope of our audit
Revenue
100%
Profit
before tax
1
100%
Net assets
1
100%
Full audit scope
Full audit scope
Full audit scope
Materiality for the Company is based on 2% of net
assets (2018: 2%).
The Company has a significant number of
investments in subsidiaries which are property
companies. These companies have a focus on
generating long term capital value. Therefore,
we consider equity to be the most appropriate basis
for materiality.
We agreed with the Audit Committee that we would
report to the Committee all audit differences in
excess of £1.1 million (2018: £1.1 million) for the
Group and £928,000 (2018: £870,000) for the
Company, as well as differences below that threshold
that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing
the overall presentation of the financial statements.
LondonMetric Property Plc Group is a FTSE 250
Real Estate Investment Trust with investment
property assets substantially in the United Kingdom.
Our Group audit was scoped by obtaining an
understanding of the Group and its environment,
including group wide controls, and assessing the
risks of material misstatement at Group level.
Based on that assessment, and consistent with
our conclusion on scoping in the prior year, our
full scope audit is performed on 100% (2018: 100%)
of the Group’s net assets, and 100% (2018: 100%)
of revenue and profit before tax.
The Group was audited by one audit team, led by the
Senior Statutory Auditor, responsible for the audit of
the Company, joint ventures and certain subsidiaries.
Our audit work on subsidiaries and joint ventures
was carried out to a materiality which is lower than,
and in most cases substantially lower than, Group
materiality as set out above. Our audit also included
testing of the consolidation process and group
wide controls.
The Company is located in London, UK and audited
directly by the Group audit team.
119
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT Responsibilities of Directors
As explained more fully in the Directors’
Responsibilities Statement, the Directors
are responsible for the preparation of the
financial statements and for being satisfied
that they give a true and fair view, and
for such internal control as the Directors
determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the
Directors are responsible for assessing the
Group’s and the Company’s ability to continue
as a going concern, disclosing as applicable,
matters related to going concern and using
the going concern basis of accounting unless
the Directors either intend to liquidate the
Group or the Company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or
error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance
is a high level of assurance, but is not
a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect
a material misstatement when it exists.
Misstatements can arise from fraud or error
and are considered material if, individually
or in the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis of these
financial statements.
Details of the extent to which the audit
was considered capable of detecting
irregularities, including fraud, are set
out below.
A further description of our responsibilities
for the audit of the financial statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
auditor’s report.
Extent to which the audit was considered
capable of detecting irregularities,
including fraud
We identify and assess the risks of material
misstatement of the financial statements,
whether due to fraud or error, and then
design and perform audit procedures
responsive to those risks, including
obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
Identifying and assessing potential risks
related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance with
laws and regulations, our procedures
included the following:
• Enquiring of management and the Audit
Committee, including obtaining and
reviewing supporting documentation,
concerning the Group’s policies and
procedures relating to
• Identifying, evaluating and complying
with laws and regulations and whether
they were aware of any instances of non-
compliance
• Detecting and responding to the risks of
fraud and whether they have knowledge
of any actual, suspected or alleged fraud
• The internal controls established to
mitigate risks related to fraud or non-
compliance with laws and regulations
• Discussing among the engagement team
and involving relevant internal specialists,
including tax and industry specialists
regarding how and where fraud might
occur in the financial statements and any
potential indicators of fraud. As part of this
discussion, we identified potential for fraud
in the valuation of investment property
• Obtaining an understanding of the legal
and regulatory framework that the Group
operates in, focusing on those laws and
regulations that had a direct effect on
the financial statements or that had a
fundamental effect on the operations of the
Group. The key laws and regulations we
considered in this context included the UK
Companies Act, Listing Rules, REIT regime
and tax legislation
Other information
The Directors are responsible for the other
information. The other information comprises
the information included in the Annual Report
other than the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements does
not cover the other information and, except
to the extent otherwise explicitly stated in
our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether there
is a material misstatement in the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that there
is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically
required to report to you as uncorrected
material misstatements of the other
information include where we conclude that:
• Fair, balanced and understandable – the
statement given by the Directors that
they consider the Annual Report and
financial statements taken as a whole is
fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Group’s position
and performance, business model and
strategy, is materially inconsistent with our
knowledge obtained in the audit
• Audit Committee reporting – the section
describing the work of the Audit Committee
does not appropriately address matters
communicated by us to the Audit Committee
• Directors’ statement of compliance with the
UK Corporate Governance Code – the parts
of the Directors’ statement required under
the Listing Rules relating to the Company’s
compliance with the UK Corporate Governance
Code containing provisions specified for review
by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure
from a relevant provision of the UK Corporate
Governance Code
We have nothing to report in respect of
these matters.
120
LondonMetric Property PlcAnnual Report and Accounts 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LONDONMETRIC PROPERTY PLC CONTINUED Audit response to risks identified
As a result of performing the above, we
identified valuation of investment property
as a key audit matter. The key audit matters
section of our report explains in more
detail and describes specific procedures
we performed in response to that key
audit matter.
Report on other legal and regulatory
requirements
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion the part of the Annual Report
on Remuneration to be audited has been
properly prepared in accordance with the
Companies Act 2006.
Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of Directors’ remuneration have
not been made or the part of the Annual
Report on Remuneration to be audited is not
in agreement with the accounting records
and returns.
In addition to the above, our procedures
to respond to risks identified included
the following:
• Reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance
with relevant laws and regulations
discussed above
• Enquiring of management, the Audit
Committee and external legal counsel
concerning actual and potential litigation
and claims
• Performing analytical procedures to
identify any unusual or unexpected
relationships that may indicate risks of
material misstatement due to fraud
• Reading minutes of meetings of those
charged with governance
• In addressing the risk of fraud through
management override of controls, testing
the appropriateness of journal entries and
other adjustments; assessing whether the
judgements made in making accounting
estimates are indicative of a potential bias;
and evaluating the business rationale
of any significant transactions that are
unusual or outside the normal course
of business
We also communicated relevant identified
laws and regulations and potential fraud
risks to all engagement team members
including internal specialists, and remained
alert to any indications of fraud or non-
compliance with laws and regulations
throughout the audit.
In our opinion, based on the work undertaken
in the course of the audit:
We have nothing to report in respect of
these matters.
• The information given in the Strategic
Report and the Directors’ Report for
the financial year for which the financial
statements are prepared is consistent with
the financial statements
• The Strategic Report and the Directors’
Report have been prepared in accordance
with applicable legal requirements
In the light of the knowledge and
understanding of the Group and the Company
and their environment obtained in the
course of the audit, we have not identified
any material misstatements in the Strategic
Report or the Directors’ Report.
Matters on which we are required to report
by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• We have not received all the information
and explanations we require for our audit
• Adequate accounting records have not
been kept by the Company, or returns
adequate for our audit have not been
received from branches not visited by us
• The Company financial statements are not
in agreement with the accounting records
and returns
We have nothing to report in respect of
these matters.
Other matters
Auditor tenure
Following the recommendation of the
Audit Committee, we were appointed by
the Board of LondonMetric Property Plc
on 19 September 2013 to audit the financial
statements for the year ending 31 March 2014
and subsequent financial periods. The period
of total uninterrupted engagement including
previous renewals and reappointments of the
firm is six years, covering the years ending
31 March 2014 to 31 March 2019.
Consistency of the Audit Report with the
additional report to the Audit Committee
Our audit opinion is consistent with the
additional report to the Audit Committee we
are required to provide in accordance with
ISAs (UK).
Use of our report
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.
Georgina Robb, FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
23 May 2019
121
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT GROUP INCOME STATEMENT
For the year ended 31 March
Gross revenue
Gross rental income
Property operating expenses
Net rental income
Property advisory fee income
Net income
Administrative costs
Profit on revaluation of investment properties
Profit/(loss) on sale of investment properties
Share of (losses)/profits of joint ventures
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year and total comprehensive income
Earnings per share
Basic
Fully diluted
EPRA (basic)
EPRA (fully diluted)
All amounts relate to continuing activities.
The notes on pages 126 to 143 form part of these financial statements.
Note
3
4
9
10
5
6
8
8
8
8
2019
£000
86,817
85,107
(1,221)
83,886
1,710
85,596
(13,658)
75,921
566
(6,383)
142,042
343
(22,871)
119,514
151
119,665
17.2p
17.1p
8.8p
8.7p
2018
£000
83,709
81,988
(828)
81,160
1,721
82,881
(13,800)
114,723
(2,139)
13,655
195,320
415
(9,685)
186,050
(32)
186,018
26.9p
26.9p
8.5p
8.5p
122
LondonMetric Property PlcAnnual Report and Accounts 2019 GROUP BALANCE SHEET
As at 31 March
Non current assets
Investment properties
Investment in equity accounted joint ventures
Derivative financial instruments
Other tangible assets
Current assets
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
Share premium
Capital redemption reserve
Other reserve
Retained earnings
Equity shareholders’ funds
Net asset value per share
EPRA net asset value per share
Note
2019
£000
2018
£000
9
10
14
11
12
13
14
14
16
8
8
1,688,005
98,854
–
402
1,787,261
5,823
20,605
26,428
1,813,689
1,677,555
117,646
2,836
73
1,798,110
2,344
26,162
28,506
1,826,616
36,398
36,398
33,576
33,576
558,951
643,551
1,551
560,502
596,900
1,216,789
69,999
100,753
9,636
221,695
814,706
1,216,789
174.7p
174.9p
–
643,551
677,127
1,149,489
69,722
96,079
9,636
222,502
751,550
1,149,489
165.7p
165.2p
The financial statements were approved and authorised for issue by the Board of Directors on 23 May 2019 and were signed on its behalf by:
Martin McGann
Finance Director
Registered in England and Wales, No 7124797
The notes on pages 126 to 143 form part of these financial statements.
123
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March
At 1 April 2018
Profit for the year and total comprehensive
income
Purchase of shares held in trust
Vesting of shares held in trust
Share based awards
Dividends
At 31 March 2019
At 1 April 2017
Profit for the year and total comprehensive
income
Purchase of shares held in trust
Vesting of shares held in trust
Share based awards
Dividends
At 31 March 2018
Note
7
Note
7
Share
capital
£000
69,722
–
–
–
–
277
69,999
Share
capital
£000
69,238
–
–
–
–
484
69,722
Share
premium
£000
96,079
–
–
–
–
4,674
100,753
Share
premium
£000
88,548
–
–
–
–
7,531
96,079
Capital
redemption
reserve
£000
9,636
–
–
–
–
–
9,636
Capital
redemption
reserve
£000
9,636
–
–
–
–
–
9,636
Other
reserve
£000
222,502
–
(4,781)
3,974
–
–
221,695
Other
reserve
£000
221,374
–
(2,783)
3,911
–
–
222,502
Retained
earnings
£000
751,550
119,665
–
(3,662)
2,719
(55,566)
814,706
Retained
earnings
£000
618,119
186,018
–
(3,635)
2,420
(51,372)
751,550
Total
£000
1,149,489
119,665
(4,781)
312
2,719
(50,615)
1,216,789
Total
£000
1,006,915
186,018
(2,783)
276
2,420
(43,357)
1,149,489
The notes on pages 126 to 143 form part of these financial statements.
124
LondonMetric Property PlcAnnual Report and Accounts 2019 GROUP CASH FLOW STATEMENT
For the year ended 31 March
Cash flows from operating activities
Profit before tax
Adjustments for non cash items:
Profit on revaluation of investment properties
(Profit)/loss on sale of investment properties
Share of post tax loss/(profit) of joint ventures
Movement in lease incentives
Share based payment
Net finance costs
Cash flows from operations before changes in working capital
Change in trade and other receivables
Change in trade and other payables
Cash flows from operations
Interest received
Interest paid
Tax received/(paid)
Cash flows from operating activities
Investing activities
Purchase of investment properties
Capital expenditure on investment properties
Lease incentives paid
Sale of investment properties
Investments in joint ventures
Distributions from joint ventures
Purchase of tangible assets
Cash flows from investing activities
Financing activities
Dividends paid
Purchase of shares held in trust
Vesting of shares held in trust
New borrowings and amounts drawn down
Repayment of loan facilities
Financial arrangement fees and break costs
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 126 to 143 form part of these financial statements.
2019
£000
2018
£000
119,514
186,050
(75,921)
(566)
6,383
(5,098)
2,719
22,528
69,559
397
(19)
69,937
92
(16,230)
359
54,158
(158,951)
(27,549)
(3,220)
260,993
(5,085)
17,494
(438)
83,244
(50,615)
(4,781)
312
360,000
(445,000)
(2,875)
(142,959)
(5,557)
26,162
20,605
(114,723)
2,139
(13,655)
(10,524)
2,420
9,270
60,977
1,730
(2,859)
59,848
52
(16,409)
(17)
43,474
(306,245)
(56,199)
(3,049)
192,329
(12,662)
16,238
–
(169,588)
(43,357)
(2,783)
276
397,237
(220,407)
(21,634)
109,332
(16,782)
42,944
26,162
125
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP
FINANCIAL STATEMENTS
For the year ended 31 March 2019
The accounting policies subject to significant judgements and
estimates are considered by the Audit Committee on pages 88 to 89
and are as follows:
Significant areas of estimation uncertainty
Property valuations
The valuation of the property portfolio is a critical part of the Group’s
performance. The Group carries the property portfolio at fair value
in the balance sheet and engages professionally qualified external
valuers to undertake six monthly valuations.
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 lease income, lease incentives, 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.
The fair value of a development property is determined by using
the ‘residual method’, which deducts all estimated costs necessary
to complete the development, together with an allowance for
development risk, profit and purchasers’ costs, from the fair
valuation of the completed property.
Note 9(b) to the financial statements includes further information
on the valuation techniques and inputs used to determine the fair
value of the property portfolio.
ii) Adoption of new and revised standards
Standards and interpretations effective in the current period
During the year, the following new and revised Standards and
Interpretations have been adopted and have not had a material impact
on the amounts reported in these financial statements. The Group
and Company accounting policies were amended following the
adoption of IFRS 9 and 15 as discussed further below.
Name
IFRS 9
IFRS 15
IAS 40 (amendments)
IAS 12 (amendments)
IFRS 2 (amendments)
Annual Improvements to
IFRSs: 2014 – 2016 cycle
Description
Financial instruments
Revenue from contracts
with customers
Transfers of Investment Property
Recognition of Deferred Tax Assets
for Unrealised Losses
Classification and Measurement of
Share Based Payment Transactions
Amendments to IFRS 1 and IAS 28
1 SIGNIFICANT ACCOUNTING POLICIES
a) General information
LondonMetric Property Plc is a company incorporated in the United
Kingdom under the Companies Act. The address of the registered
office is given on page 160. The principal activities of the Company and
its subsidiaries (‘the Group’) and the nature of the Group’s operations
are set out in the Strategic report on pages 01 to 64.
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) Going concern
The principal risks and uncertainties facing the Group’s activities,
future development and performance are on pages 50 to 63.
The Group’s financial position, cash flows and liquidity, borrowings,
undrawn facilities and hedging are described in note 14 and in the
Financial Review on pages 34 to 39.
The Directors have reviewed the current and projected financial
position of the Group, making reasonable assumptions about future
trading performance, property valuations and planned capital
expenditure. As part of this review, the Group has considered its cash
balances and undrawn facilities, future capital commitments, its debt
maturity profile 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 financial statements for the year
to 31 March 2019.
d) Basis of preparation
The financial statements are prepared on a going concern basis,
as explained above.
The functional and presentational currency of 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 except for the adoption of new and revised standards as
noted below.
i) Significant accounting estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
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.
126
LondonMetric Property PlcAnnual Report and Accounts 2019 Changes to debt modification rules for non-substantial modifications
may result in a gain or loss being recognised in the profit and loss
equal to the difference in the present value of cash flows under the
original and modified terms of the debt, discounted at the effective
interest rate. We have reviewed debt modifications made last year
as a result of refinancing our secured facility with Helaba and
have concluded that there is no material impact on the financial
statements at transition.
Hedge accounting
The Group does not apply hedge accounting and therefore there
is no impact from the hedge accounting provisions in IFRS 9.
IFRS 15 Revenue from contracts with customers
The Group has applied IFRS 15 from 1 April 2018 and has adopted
the modified retrospective approach without restatement of
comparatives. The new standard is based on the principle that
revenue is recognised when control of a good or service transfers
to a customer.
IFRS 15 does not apply to rental income which, at 31 March 2019,
accounted for over 95% of total gross revenue of the Group, but does
apply to other non-core income streams including management
fees and surrender premiums receivable. IFRS 15 did not have a
material impact on the timing of revenue recognition for the non-core
income streams.
The main impact of adopting IFRS 15 has been to recognise property
transactions at the point of completion, which is the point at which
control of the property passes, rather than on unconditional exchange
of contracts, which was the point at which significant risks and
rewards were transferred under IAS 18. The effect of adopting the
cumulative catch up approach on transition to IFRS 15 was nil.
iii) 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:
Name
IFRS 16
Annual Improvements to
IFRSs: 2015 – 2017 cycle
Description
Leases
Amendments to IFRS 3,
Business Combinations
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IFRS 9 Financial instruments
IFRS 9 replaces the provisions of IAS 39 relating to the recognition,
classification and measurement of financial assets and liabilities,
derecognition of financial instruments, the impairment of financial
assets and hedge accounting. The Group has applied IFRS 9 from
1 April 2018 without restating comparatives on initial application in
accordance with the transitional provisions of the standard.
The Group has reviewed its financial assets and liabilities and has
assessed the main impact of adopting this standard as follows:
Classification and measurement
IFRS 9 contains three principal classification categories for financial
assets: measured at amortised cost, fair value through profit and
loss (‘FVTPL’) and fair value through other comprehensive income
(‘FVTOCI’).
The Group’s financial assets at 31 March 2019 consist primarily of
trade receivables which will continue to be reflected at amortised
cost as the Group’s business model is to collect the contractual cash
flows due from tenants, which meet the test of being solely payments
of principal and interest (‘SPPI’).
There was no impact on the Group’s accounting for financial liabilities
under IFRS 9, as the new requirements only affect the accounting for
financial liabilities that are designated at fair value through profit or
loss and the Group does not have any such liabilities.
Impairment
Trade receivables at 31 March 2019 were £903,000 (2018: £776,000)
and the credit risk associated with unpaid rent is deemed to be low.
The new impairment model requires the recognition of impairment
provisions based on expected credit losses (‘ECL’) rather than only
incurred credit losses as was the case under IAS 39. It is no longer
necessary for a credit event to have occurred before credit losses
are recognised. The Group applies the IFRS 9 simplified approach
to measuring ECLs at an amount equal to lifetime expected credit
losses for all trade receivables.
We performed an assessment of the Group’s trade receivables at
31 March 2018 and 31 March 2019 for impairment in accordance with
the requirements of IFRS 9. We have based our estimate of expected
credit losses on past experience of incurred credit losses and the
trade debtor’s current financial condition and we have specifically
provided against receivables where there is no realistic prospect
of recovery.
Based on our assessment, there was no material impact on the
Group or Company financial statements of impairment losses
recognised under IFRS 9 at transition and no adjustment was made
to opening net assets. We recognised an impairment provision in
accordance with IFRS 9 of £140,000 in the Group financial statements
and £419,000 in the Company financial statements at the year end as
disclosed in notes 11 and iv.
127
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IFRS 16 Leases
IFRS 16 was issued in January 2016 and is effective for the Group for
accounting periods beginning on or after 1 April 2019.
It will result in almost all leases being recognised on the balance
sheet for a lessee, as the distinction between operating and finance
leases is removed. Under the new standard, an asset (the right to use
the leased item) and a financial liability to pay rentals are recognised.
The accounting for lessors will not significantly change.
The standard does not impact the accounting for the rental
income earned by the Group as lessor as it scopes out leases
of investment properties.
At present, as a lessee the Group holds a limited number of operating
leases as reflected in note 15, the most significant being the lease of
its head office in London. Management has performed an assessment
of the impact of bringing operating leases on to the balance sheet
as at 31 March 2019. It has also assessed long leasehold properties
where the Group is the lessee and ground rent is payable. IFRS 16
is not estimated to have a material impact on the gross or net asset
position at transition nor the income statement for the year to
31 March 2020.
e) Basis of consolidation
i) Subsidiaries
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Subsidiaries are those entities
controlled by the Group. Control is assumed when the Group:
• Has the power over the investee
• Is exposed, or has rights, to variable returns from its involvement
with the investee
• Has the ability to use its power to affect its returns
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.
f) Property portfolio
i) Investment properties
Investment properties are properties owned or leased by
the Group which are held for long term rental income and for
capital appreciation. Investment property includes property that is
being constructed, developed or redeveloped for future use as an
investment property. Investment property is initially recognised at
cost, including related transaction costs. It is subsequently carried
at each published balance sheet date at fair value on an open market
basis as determined by professionally qualified independent external
valuers. Changes in fair value are included in the income statement.
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.
In accordance with IAS 40 Investment Properties, 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 cost of the investment property can be measured reliably
All costs directly associated with the purchase and construction of
a development 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 included in the carrying value of the property.
ii) Assets held for sale
An asset is classified as held for sale if its carrying amount is
expected to be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only when
the sale is highly probable, the asset is available for sale in its present
condition and management expect the sale to complete within one
year from the balance sheet date.
iii) 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.
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.
iv) Net 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.
Surrender premiums receivable are recognised on completion
of the surrender.
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.
Joint venture management fees are recognised as income in the
accounting period in which the service is rendered.
128
LondonMetric Property PlcAnnual Report and Accounts 2019 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Where a rent free period is included in a lease, the rental income
foregone is allocated evenly over the period from the date of lease
commencement to the earlier of the first break option or the lease
termination date. Lease incentives and costs associated with
entering into tenant leases are amortised over the period from the
date of lease commencement to the earlier of the first break option
or the lease termination date.
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.
The Group has applied IFRS 15, Revenue from contracts with
customers, from 1 April 2018. The main impact of adopting IFRS
15 has been to recognise property transactions at the point of
completion, which is the point at which control of the property passes,
rather than on unconditional exchange of contracts, which was
the point at which significant risks and rewards were transferred.
The cumulative effect of adopting IFRS 15 at the date of initial
application was nil.
v) Profit and loss on sale of investment properties
Profits and losses on sales of investment properties are calculated
by reference to the carrying value at the previous year end valuation
date, adjusted for subsequent capital expenditure.
g) 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.
Financial instruments under IFRS 9
i) Trade and other receivables and payables
Trade receivables are recognised and carried at amortised cost as
the Group’s business model is to collect the contractual cash flows
due from tenants. An impairment provision is created based on the
expected credit loss model which reflects the Group’s historical
incurred credit losses and the lifetime expected credit loss.
ii) Cash and cash equivalents
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, measured at
amortised cost.
iii) Borrowings
Borrowings are recognised initially at fair value less attributable
transaction costs. Subsequently, borrowings are stated at amortised
cost with any difference being recognised in the income statement
over the term of the borrowing.
Financial instruments under IAS 39
iv) 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 the income statement.
h) Finance costs and income
Net finance costs include interest payable on borrowings,
net of interest capitalised and finance costs amortised.
Interest is capitalised if it is directly attributable to the acquisition,
construction or redevelopment of development properties from
the start of the development work until practical completion of the
property. Capitalised interest is calculated with reference to the
actual interest rate payable on specific borrowings for the purposes
of development or, for that part of the borrowings financed out of
general funds, with reference to the Group’s weighted average
cost of borrowings.
Finance income includes interest receivable on funds invested at
the effective rate and notional interest receivable on forward funded
developments at the contractual rate.
i) 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 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.
As the Group is a UK REIT there is no provision for deferred tax arising
on the revaluation of properties or other temporary differences.
The Group must comply with the UK REIT regulation to benefit from
the favourable tax regime.
j) 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.
k) 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 or net
assets per share.
l) 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.
129
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
2 SEGMENTAL INFORMATION
As at 31 March
Property value
Distribution
Convenience & leisure
Long income
Retail parks
Residential
Development
For the year to 31 March
Gross rental income
Distribution
Convenience & leisure
Long income
Retail parks
Office
Residential
Development
For the year to 31 March
Net rental income
Distribution
Convenience & leisure
Long income
Retail parks
Office
Residential
Development
100%
owned
£000
1,282,860
152,125
104,890
86,975
1,365
59,790
1,688,005
100%
owned
£000
63,656
8,739
6,272
6,373
–
67
–
85,107
100%
owned
£000
62,851
8,652
6,215
6,101
–
72
(5)
83,886
Share
of JV
£000
9,702
–
132,533
–
15,982
–
158,217
Share
of JV
£000
607
–
9,436
–
–
352
–
10,395
Share
of JV
£000
609
–
9,200
–
–
139
–
9,948
2019
Total
£000
1,292,562
152,125
237,423
86,975
17,347
59,790
1,846,222
100%
owned
£000
1,223,505
174,700
95,250
139,775
1,765
42,560
1,677,555
2019
Total
£000
64,263
8,739
15,708
6,373
–
419
–
95,502
2019
Total
£000
63,460
8,652
15,415
6,101
–
211
(5)
93,834
100%
owned
£000
57,737
10,281
4,769
7,044
2,007
58
92
81,988
100%
owned
£000
57,656
10,108
4,696
6,653
1,904
57
86
81,160
Share
of JV
£000
9,576
–
125,580
–
28,374
925
164,455
Share
of JV
£000
513
–
8,664
–
–
617
–
9,794
Share
of JV
£000
513
–
8,561
–
–
319
–
9,393
2018
Total
£000
1,233,081
174,700
220,830
139,775
30,139
43,485
1,842,010
2018
Total
£000
58,250
10,281
13,433
7,044
2,007
675
92
91,782
2018
Total
£000
58,169
10,108
13,257
6,653
1,904
376
86
90,553
An operating segment is a distinguishable component of the Group that engages in business activities, earns revenue and incurs expenses,
whose results are reviewed by the Group’s chief operating decision makers and for which discrete financial information is available.
Gross rental income represents the Group’s revenues from its tenants and net rental income is the principal profit measure used to determine
the performance of each sector. Total assets are not monitored by segment. However, property assets are reviewed on an ongoing basis.
The Group operates almost entirely in the UK and no geographical split is provided in information reported to the Board.
3 GROSS REVENUE
For the year to 31 March
Gross rental income
Property advisory fee income
2019
£000
85,107
1,710
86,817
2018
£000
81,988
1,721
83,709
For the year to 31 March 2019, 22% of the Group’s gross rental income was receivable from two tenants. For the comparative period, 12% of the
Group’s gross rental income was receivable from one tenant.
130
LondonMetric Property PlcAnnual Report and Accounts 2019 4 ADMINISTRATIVE COSTS
a) Total administrative costs
For the year to 31 March
Staff costs
Auditors’ remuneration
Depreciation
Other administrative costs
b) Staff costs
For the year to 31 March
Employee costs, including those of Directors, comprise the following:
Wages and salaries
Less staff costs capitalised
Social security costs
Pension costs
Share based payment
2019
£000
10,400
168
109
2,981
13,658
2019
£000
8,591
(1,858)
6,733
711
237
2,719
10,400
2018
£000
10,008
180
263
3,349
13,800
2018
£000
8,422
(1,835)
6,587
702
301
2,418
10,008
The long term share incentive plan (‘LTIP’) that was created following the merger in 2013 allows Executive Directors and eligible employees to
receive an award of shares, held in trust, dependent on performance conditions based on the earnings per share, total shareholder return and
total accounting return of the Group over a three year vesting period. The Group expenses the estimated number of shares likely to vest over the
three year period based on the market price at the date of grant. In the current year the charge was £2.7 million (2018: £2.4 million).
The Company awarded 2,125,515 LTIP shares during the year, 1,514,969 of which were awarded to Executive Directors as shown in the
Remuneration Committee report on page 104. The cost of acquiring the shares expected to vest under the LTIP of £4.8 million has been charged
to reserves this year (2018: £2.8 million).
Employee costs of £1.9 million (2018: £1.8 million) have been capitalised in respect of time spent on development projects.
The emoluments and pension benefits of the Directors, who are also the key management personnel of the Company, are set out in detail
within the Remuneration Committee report on page 102 and in aggregate are as follows:
Salary and fees
Benefits
Pension
Annual bonus
Long term incentives
Short term employee benefits
2019
£000
2,182
111
242
2,175
3,025
7,735
2018
£000
2,159
107
237
1,815
2,870
7,188
In accordance with the disclosure requirements of IAS 24 Related party disclosures for key management personnel, short term employee
benefits were £7.7 million and share based payments were £2.1 million.
c) Staff numbers
The average number of employees including Executive Directors during the year was:
Head office and property management
2019
Number
28
2018
Number
31
131
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
4 ADMINISTRATIVE COSTS (CONTINUED)
d) Auditor’s remuneration
For the year to 31 March
Audit services:
Audit of the Group and Company financial statements, pursuant to legislation
Audit of subsidiary financial statements, pursuant to legislation
Other fees:
Audit related assurance services
Other advisory services
Total fees for audit and other services
2019
£000
117
5
28
–
150
2018
£000
111
4
27
2
144
In addition to the above audit fees, £48,200 (2018: £47,000) was due to the Group’s auditor in respect of its joint venture operations. BDO LLP is
responsible for the audit of other subsidiary entities at a cost to the Group of £33,700 (2018: £30,950).
5 FINANCE COSTS
For the year to 31 March
Interest payable on bank loans and related derivatives
Debt and hedging early close out costs
Amortisation of loan issue costs
Commitment fees and other finance costs
Total borrowing costs
Less amounts capitalised on the development of properties
Net borrowing costs
Fair value loss/(gain) on derivative financial instruments
Total finance costs
6 TAXATION
For the year to 31 March
Current tax
UK tax (credit)/charge on profit
2019
£000
16,328
6
1,410
1,859
19,603
(1,119)
18,484
4,387
22,871
2019
£000
(151)
The tax assessed for the year varies from the standard rate of corporation tax in the UK. The differences are explained below:
For the year to 31 March
Profit before tax
Tax at the standard rate of corporation tax in the UK of 19% (2018: 19%)
Effects of:
Tax effect of income not subject to tax
Share of post tax losses/(profits) of joint ventures
Land remediation tax credit
UK tax (credit)/charge on profit
2019
£000
119,514
22,708
(23,664)
1,213
(408)
(151)
2018
£000
15,530
18,981
1,350
1,705
37,566
(1,695)
35,871
(26,186)
9,685
2018
£000
32
2018
£000
186,050
35,350
(32,724)
(2,594)
–
32
The current tax credit relates to a land remediation receipt, net of tax arising on income that does not qualify as property income within the REIT
regulations and income tax charged to non resident landlords on property rental income in the Isle of Man.
As the Group is a UK REIT there is no provision for deferred tax arising on the revaluation of properties or other temporary differences.
132
LondonMetric Property PlcAnnual Report and Accounts 2019 7 DIVIDENDS
For the year to 31 March
Ordinary dividends paid
2017 Third quarterly interim dividend: 1.8p per share
2017 Fourth quarterly interim dividend: 2.1p per share
2018 First quarterly interim dividend: 1.85p per share
2018 Second quarterly interim dividend: 1.85p per share
2018 Third quarterly interim dividend: 1.85p per share
2018 Fourth quarterly interim dividend: 2.35p per share
2019 First quarterly interim dividend: 1.9p per share
2019 Second quarterly interim dividend: 1.9p per share
Quarterly dividend payable in 2019/20
2019 Third quarterly interim dividend: 1.9p per share
2019 Fourth quarterly interim dividend: 2.5p per share
2018
£000
11,269
14,457
12,817
12,829
–
–
–
–
51,372
2019
£000
–
–
–
–
12,837
16,311
13,206
13,212
55,566
13,237
17,434
The Company paid its third quarterly interim dividend in respect of the current financial year of 1.9p per share, wholly as a Property Income
Distribution (‘PID’), on 17 April 2019 to ordinary shareholders on the register at the close of business on 15 March 2019.
The fourth quarterly interim dividend for 2019 of 2.5p per share, of which 0.75p is payable as a PID, will be payable on 11 July 2019 to
shareholders on the register at the close of business on 7 June 2019. A scrip dividend alternative will be offered to shareholders as it was
for the first three quarterly dividend payments.
Neither dividend has been included as a liability in these accounts. Both dividends will be recognised as an appropriation of retained earnings
in the year to 31 March 2020.
During the year the Company issued 2,775,644 ordinary shares in relation to the last two quarterly dividend payments for 2018 and the first
two quarterly dividend payments for 2019, which reduced the cash dividend payment by £5.0 million to £50.6 million.
8 EARNINGS AND NET ASSETS PER SHARE
Adjusted earnings and net assets per share are calculated in accordance with the Best Practice Recommendations of The European Public
Real Estate Association (‘EPRA’). The EPRA earnings measure highlights the underlying performance of the property rental business.
The earnings per share calculation uses the weighted average number of ordinary shares during the year and excludes the average number
of shares held by the Employee Benefit Trust for the year.
The net asset per share calculation uses the number of shares in issue at the year end and excludes the actual number of shares held
by the Employee Benefit Trust at the year end.
a) EPRA earnings
EPRA earnings for the Group and its share of joint ventures are detailed as follows:
For the year to 31 March
Gross rental income
Property costs
Net rental income
Management fees
Administrative costs
Net finance costs1
Other
EPRA earnings
Group
£000
85,107
(1,221)
83,886
1,710
(13,658)
(18,135)
151
53,954
JV
£000
10,395
(447)
9,948
(781)
(71)
(2,077)
–
7,019
2019
£000
95,502
(1,668)
93,834
929
(13,729)
(20,212)
151
60,973
Group
£000
81,988
(828)
81,160
1,721
(13,800)
(16,475)
(32)
52,574
JV
£000
9,794
(401)
9,393
(763)
(106)
(1,982)
–
6,542
1 Group net finance costs reflect net borrowing costs of £18,484,000 (note 5) less early close out costs of £6,000 (note 5) and finance income of £343,000
2018
£000
91,782
(1,229)
90,553
958
(13,906)
(18,457)
(32)
59,116
133
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
8 EARNINGS AND NET ASSETS PER SHARE (CONTINUED)
The reconciliation of EPRA earnings to IFRS reported profit can be summarised as follows:
Group
£000
53,954
75,921
(4,387)
(6)
566
126,048
JV
£000
7,019
(11,493)
(356)
–
(1,553)
(6,383)
2019
£000
60,973
64,428
(4,743)
(6)
(987)
119,665
Group
£000
52,574
114,723
26,186
(18,981)
(2,139)
172,363
For the year to 31 March
EPRA earnings
Revaluation of investment property
Fair value of derivatives
Debt and hedging early close out costs
Profit/(loss) on disposal
IFRS reported profit/(loss)
b) Earnings per ordinary share
For the year to 31 March
Basic and diluted earnings
EPRA adjustments1
EPRA earnings
1 Adjustments shown in table reconciling EPRA earnings with IFRS reported profit/(loss)
Weighted average number of shares
Ordinary share capital
Shares held in employee benefit trust
Weighted average number of ordinary shares1
JV
£000
6,542
6,842
234
(76)
113
13,655
2019
£000
119,665
(58,692)
60,973
2019
Number of
shares
‘000
698,409
(2,839)
695,570
2018
£000
59,116
121,565
26,420
(19,057)
(2,026)
186,018
2018
£000
186,018
(126,902)
59,116
2018
Number of
shares
‘000
695,121
(2,983)
692,138
1 Fully diluted weighted average share number of ordinary shares at 31 March 2019 is 700,787,000, which includes the expected vesting of all outstanding share awards. There was no
material difference in the fully diluted weighted average number of ordinary shares in the prior year
Basic earnings per share
Fully diluted earnings per share
EPRA earnings per share
EPRA fully diluted earnings per share
c) Net assets per share
As at 31 March
Equity shareholders’ funds
Fair value of derivatives
Fair value of joint ventures’ derivatives
EPRA net asset value
As at 31 March
Ordinary share capital
Number of shares held in employee trust
Number of ordinary shares
Basic net asset value per share
EPRA net asset value per share
Further EPRA performance measures are reflected in the Supplementary notes on pages 150 to 154.
134
17.2p
17.1p
8.8p
8.7p
2019
£000
1,216,789
1,551
306
1,218,646
2019
Number of
shares
‘000
699,992
(3,370)
696,622
26.9p
26.9p
8.5p
8.5p
2018
£000
1,149,489
(2,836)
(43)
1,146,610
2018
Number of
shares
‘000
697,216
(3,323)
693,893
174.7p
174.9p
165.7p
165.2p
LondonMetric Property PlcAnnual Report and Accounts 2019 9 INVESTMENT PROPERTIES
a) Investment properties
As at 31 March
Opening balance
Acquisitions
Other capital expenditure
Disposals
Property transfers
Revaluation movement
Movement in tenant incentives and rent free uplifts
Completed
£000
1,634,995
146,961
14,141
(247,200)
20,965
66,254
(7,901)
1,628,215
Under
development
£000
42,560
12,694
16,326
(500)
(20,965)
9,667
8
59,790
2019
Total
£000
1,677,555
159,655
30,467
(247,700)
–
75,921
(7,893)
1,688,005
Completed
£000
1,346,085
274,562
20,236
(172,038)
60,366
101,353
4,431
1,634,995
Under
development
£000
27,315
32,064
29,584
–
(60,366)
13,370
593
42,560
2018
Total
£000
1,373,400
306,626
49,820
(172,038)
–
114,723
5,024
1,677,555
Investment properties are held at fair value as at 31 March 2019 based on external valuations performed by professionally qualified valuers CBRE
Limited (‘CBRE’) and Savills (UK) Limited (‘Savills’). The valuation of property held for sale at 31 March 2019 was £10.6 million (2018: £89.9 million).
The valuations have been prepared in accordance with the RICS Valuation – Professional Standards 2014 on the basis of fair value as set out in note 1.
There has been no change in the valuation technique in the year. 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.
Long term leasehold values included within investment properties amount to £109.4 million (2018: £101.4 million). All other properties are freehold.
Included within the investment property valuation is £62.5 million (2018: £70.3 million) in respect of unamortised lease incentives and rent free
periods. The movement in lease incentives on properties sold has been reclassified between cash flows from investing activities and cash flows
from operations in the Group cash flow statement this year. Prior year comparatives of £8.5 million have been reclassified accordingly.
The historical cost of all of the Group’s investment properties at 31 March 2019 was £1,295.6 million (2018: £1,328.8 million).
Capital commitments have been entered into amounting to £19.7 million (2018: £47.5 million) which have not been provided for in the
financial statements.
Internal staff costs of the development team of £1.9 million (2018: £1.8 million) have been capitalised, being directly attributable to the
development projects in progress.
Forward funded development costs of £10.4 million (2018: £9.8 million) have been classified within investment property as acquisitions.
b) Valuation technique and quantitative information
Asset type
Distribution
Convenience and leisure
Long income
Retail parks
Development – distribution
Development – convenience and leisure
Residential
Fair
value
2019
£000
1,282,860
152,125
104,890
86,975
46,450
13,340
1,365
Valuation
technique
Yield
capitalisation
Yield
capitalisation
Yield
capitalisation
Yield
capitalisation
Residual
Residual
Comparison
ERV
Net initial yield
Reversionary yield
Weighted
average
(£ per sq ft)
Range
(£ per sq ft)
Weighted
average
%
Range
%
Weighted
average
%
Range
%
6.50
3.50-19.90
15.10
7.10-80.70
18.50
9.80-36.90
17.40 14.00-20.80
6.80-7.30
6.90
13.10-16.00
13.80
n/a
n/a
4.2
4.8
6.0
6.3
6.8
4.9
n/a
1.3-6.5
3.5-9.0
4.3-8.4
5.6-7.0
6.4-7.3
4.8-5.0
n/a
4.6
4.6
5.1
6.0
5.0
4.9
n/a
3.7-7.1
3.1-8.8
4.4-6.7
5.4-6.6
4.7-5.3
4.8-5.0
n/a
All of the Group’s properties are categorised as Level 3 in the fair value hierarchy as defined by IFRS 13 Fair Value Management. There have
been no transfers of properties between Levels 1, 2 and 3 during the year ended 31 March 2019. The fair value at 31 March 2019 represents the
highest and best use.
135
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
9 INVESTMENT PROPERTIES (CONTINUED)
i) Technique
The valuation techniques described below are consistent with IFRS 13 and use significant ‘unobservable’ inputs. There have been no changes in
valuation techniques since the prior year.
Yield capitalisation – for commercial investment properties, market rental values are capitalised with a market capitalisation rate.
The resulting valuations are cross-checked against the net initial yields and the fair market values per square foot derived from recent
market transactions.
Residual – for certain investment properties under development, the fair value of the property is calculated by estimating the fair value of the
completed property using the yield capitalisation technique less estimated costs to completion and a risk premium.
Comparison – for residential properties the fair value is calculated by using data from recent market transactions.
ii) Sensitivity
An increase or decrease in ERV will increase or decrease the fair value of the Group’s investment properties.
An increase or decrease to the net initial yields and reversionary yields will decrease or increase the fair value of the
Group’s investment properties.
An increase or decrease in the estimated costs of development will decrease or increase the fair value of the Group’s investment properties
under development.
There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in more than one input
could magnify or mitigate the impact on the valuation.
iii) Process
The valuation reports produced by CBRE and Savills are based on:
• Information provided by the Group, such as current rents, lease terms, capital expenditure and comparable sales information, which is
derived from the Group’s financial and property management systems and is subject to the Group’s overall control environment
• Assumptions applied by the valuers such as ERVs and yields which are based on market observation and their professional judgement
10 INVESTMENT IN JOINT VENTURES
At 31 March 2019, the following principal property interests, being jointly controlled entities, have been equity accounted for in these
financial statements:
Metric Income Plus Partnership
LMP Retail Warehouse JV PUT
LSP London Residential Investments Ltd
Country of incorporation
or registration1
Property sectors
Group share
England
Guernsey
Guernsey
Long income
Long income & distribution
Residential
50.0%
45.0%
40.0%
1 The registered address for entities incorporated in England is One Curzon Street, London, W1J 5HB. The registered address for entities incorporated in Guernsey is Regency Court,
Glategny Esplanade, St Peter Port, Guernsey, GY1 3AP
The principal activity of all joint venture interests is property investment in the UK in the sectors noted in the table above, which complements the
Group’s operations and contributes to the achievement of its strategy.
The Metric Income Plus Partnership (‘MIPP’), in which the Company has a 50% interest, acquired a forward funded development in Telford for
£4.0 million (Group share: £2.0 million) and three further investment assets for £17.4 million (Group share: £8.7 million) in the year.
The Group also disposed of 17 residential flats for £24.5 million (Group share: £9.8 million) through its 40% interest in LSP London Residential
Investments Limited in the year. One further flat was sold at Moore House post year end, reducing the number held to 33.
At 31 March 2019, the freehold and leasehold investment properties were externally valued by Royal Institution of Chartered Surveyors (‘RICS’)
Registered Valuers of CBRE Limited and Savills (UK) Limited.
The valuation of property held for sale by joint ventures at 31 March 2019 was £5.8 million (Group share: £2.8 million), (2018: £21.9 million and
Group share £8.8 million).
136
LondonMetric Property PlcAnnual Report and Accounts 2019 10 INVESTMENT IN JOINT VENTURES (CONTINUED)
The movement in the carrying value of joint venture interests in the year is summarised as follows:
As at 31 March
Opening balance
Additions at cost
Share of (loss)/profit in the year
Disposals
Profit distributions received
The Group’s share of the profit after tax and net assets of its joint ventures is as follows:
Metric
Income Plus
Partnership
£000
LMP
Retail
Warehouse
JV PUT
£000
LSP
London
Residential
Investments
£000
2019
£000
117,646
5,085
(6,383)
–
(17,494)
98,854
Total
2019
£000
21,732
(998)
20,734
(159)
(1,658)
2018
£000
107,567
12,662
13,655
(3,964)
(12,274)
117,646
Group
share
2019
£000
10,395
(447)
9,948
(71)
(781)
7,694
16
7,710
(46)
(303)
880
(532)
348
(70)
(328)
(7,455)
(3,374)
(24,400)
(11,493)
13,158
(482)
12,676
(43)
(1,027)
(13,571)
292
(2,740)
(713)
–
(5,126)
(2,563)
13,571
713
–
9,158
4,579
1
(1,899)
–
–
(1,992)
(898)
7,455
–
–
5,463
2,459
202,150
91,425
573
4,484
(3,386)
(80,518)
1,007
(613)
123,697
61,849
–
1,071
(866)
(46,619)
76
–
45,087
20,292
2
–
–
(3,883)
(7,305)
(2,922)
3,374
–
3,883
(48)
(19)
39,955
154
1,885
(212)
–
–
–
41,782
16,713
295
(4,639)
(713)
(3,883)
(14,423)
(6,383)
24,400
713
3,883
14,573
7,019
148
(2,225)
(356)
(1,553)
(6,383)
11,493
356
1,553
7,019
333,530
158,217
727
7,440
(4,464)
(127,137)
1,083
(613)
210,566
98,854
348
3,478
(2,173)
(61,247)
537
(306)
98,854
137
Summarised income statement
Gross rental income
Property costs
Net rental income
Administrative costs
Management fees
Revaluation
Finance income
Finance cost
Derivative movement
Loss on disposal
Loss after tax
Group share of loss after tax
EPRA adjustments:
Revaluation
Derivative movement
Loss on disposal
EPRA earnings
Group share of EPRA earnings
Summarised balance sheet
Investment properties
Other current assets
Cash
Current liabilities
Bank debt
Unamortised finance costs
Derivative financial instruments
Net assets
Group share of net assets
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
10 INVESTMENT IN JOINT VENTURES (CONTINUED)
Summarised income statement
Gross rental income
Property costs
Net rental income
Administrative costs
Management fees
Revaluation
Finance income
Finance cost
Derivative movement
Profit/(loss) on disposal
Profit/(loss) after tax
Group share of profit/(loss) after tax
EPRA adjustments:
Revaluation
Derivative movement
(Profit)/loss on disposal
Debt and hedging early close out costs
EPRA earnings
Group share of EPRA earnings
Summarised balance sheet
Investment properties
Other current assets
Cash
Current liabilities
Bank debt
Unamortised finance costs
Derivative financial instruments
Net assets
Group share of net assets
11 TRADE AND OTHER RECEIVABLES
As at 31 March
Trade receivables
Amounts receivable from property sales
Prepayments and accrued income
Other receivables
Metric
Income Plus
Partnership
£000
LMP
Retail
Warehouse
JV PUT
£000
LSP
London
Residential
Investments
£000
11,066
(129)
10,937
(75)
(910)
16,775
21
(2,626)
473
1,275
25,870
12,935
(16,775)
(473)
(1,275)
11
7,358
3,679
183,355
351
21,682
(3,002)
(75,900)
1,169
85
127,740
63,870
9,466
(86)
9,380
(82)
(329)
904
–
(1,979)
(6)
580
8,468
3,373
(904)
6
(580)
185
7,175
2,761
98,630
37
1,142
(950)
(46,619)
321
–
52,561
23,661
1,543
(746)
797
(85)
(460)
(4,879)
2
(8)
–
(2,000)
(6,633)
(2,653)
4,879
–
2,000
9
255
102
70,935
208
4,434
(290)
–
–
–
75,287
30,115
Total
2018
£000
22,075
(961)
21,114
(242)
(1,699)
12,800
23
(4,613)
467
(145)
27,705
13,655
(12,800)
(467)
145
205
14,788
6,542
352,920
596
27,258
(4,242)
(122,519)
1,490
85
255,588
117,646
2019
£000
903
3,777
1,042
101
5,823
Group
share
2018
£000
9,794
(401)
9,393
(106)
(763)
6,842
12
(2,070)
234
113
13,655
(6,842)
(234)
(113)
76
6,542
164,455
272
13,128
(2,043)
(58,938)
729
43
117,646
2018
£000
776
10
1,443
115
2,344
All amounts fall due for payment in less than one year. Trade receivables comprise rental income which is due on contractual payment days
with no credit period. At 31 March 2019, trade receivables of £44,600 were overdue and considered at risk (2018: £2,200). Based on the IFRS 9
ECL model, an impairment provision of £140,000 (2018: £nil) has also been made against trade receivables.
138
LondonMetric Property PlcAnnual Report and Accounts 2019 12 CASH AND CASH EQUIVALENTS
Cash and cash equivalents include £5.7 million (2018: £5.3 million) retained in rent and restricted accounts which are not readily available to the
Group for day to day commercial purposes.
13 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 and deferred income
2019
£000
2,281
2,160
14,679
883
6,484
9,911
36,398
2018
£000
2,582
1,173
15,973
785
4,139
8,924
33,576
The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
14 BORROWINGS AND FINANCIAL INSTRUMENTS
a) Non current financial liabilities
As at 31 March
Secured bank loans
Unsecured bank loans
Unamortised finance costs
2019
£000
130,000
435,000
(6,049)
558,951
2018
£000
130,000
520,000
(6,449)
643,551
Certain bank loans at 31 March 2019 are secured by fixed charges over Group investment properties with a carrying value of £377.6 million
(2018: £357.7 million).
b) Financial risk management
Financial risk factors
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group’s financial performance. The Group’s financial risk management objectives are to minimise the effect of risks it is exposed
to through its operations and the use of debt financing.
The principal financial risks to the Group and the policies it has in place to manage these risks are summarised below:
i) Credit risk
Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations.
The Group’s principal financial assets are cash balances and deposits and trade and other receivables. The Group’s credit risk is primarily
attributable to its cash deposits and trade receivables.
The Group mitigates financial loss from tenant defaults by dealing with only creditworthy tenants. The trade receivable amounts presented in
the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is objective evidence that
the Group will not be able to collect amounts due according to the original terms of the receivables concerned. The balance is low relative to the
scale of the balance sheet and therefore the credit risk of trade receivables is considered to be low.
Cash is placed on deposit with a diverse mix of institutions with suitable credit ratings and rates of return and for varying periods of time.
The credit ratings of the banks are monitored and changes are made where necessary to manage risk.
The credit risk on liquid funds and derivative financial instruments is limited due to the Group’s policy of monitoring counterparty exposures
with a maximum exposure equal to the carrying amount of these instruments. The Group has no significant concentration of credit risk, with
exposure spread over a large number of counterparties.
139
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
14 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
and institutions. Weekly cash flow forecasts are prepared for the Executive Committee to ensure sufficient resources of cash and undrawn
borrowing facilities are in place to meet liabilities as they fall due.
The Group had cash reserves of £20.6 million (2018: £26.2 million) and available and undrawn bank loan facilities at 31 March 2019 of
£363.8 million (2018: £53.8 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.
As at 31 March 2019
Bank loans
Derivative financial instruments
As at 31 March 2018
Bank loans
Derivative financial instruments
Less than
one year
£000
17,776
820
18,596
Less than
one year
£000
16,047
1,000
17,047
One to
two years
£000
17,752
798
18,550
One to
two years
£000
16,091
1,244
17,335
Two to
five years
£000
213,040
800
213,840
Two to
five years
£000
426,590
2,439
429,029
More than
five years
£000
437,711
–
437,711
More than
five years
£000
270,587
–
270,587
Total
£000
686,279
2,418
688,697
Total
£000
729,315
4,683
733,998
iii) Market risk – interest rate risk
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 2019, 73% of the Group’s exposure (including share of joint ventures) to interest rate fluctuations was hedged by way of current and
forward starting swaps and caps assuming existing debt facilities are fully drawn (2018: 73%).
The average interest rate payable by the Group (including share of joint ventures) on all bank borrowings at 31 March 2019 including the cost of
amortising finance arrangement fees, was 3.1% (2018: 2.8%). A 1% increase or decrease in interest rates during the year would have decreased
or increased the Group’s annual profit before tax by £2.3 million or £1.3 million respectively.
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.
140
LondonMetric Property PlcAnnual Report and Accounts 2019 14 BORROWINGS AND FINANCIAL INSTRUMENTS (CONTINUED)
c) Financial instruments
i) Categories of financial instruments
As at 31 March
Non current assets
Derivative financial instruments (see 14c(iii))
Current assets
Cash and cash equivalents (note 12)
Trade receivables (note 11)
Other receivables (note 11)
Non current liabilities
Derivative financial instruments (see 14c(iii))
Borrowings (note 14a)
Current liabilities
Trade payables (note 13)
Accrued interest (note 13)
Other accruals (note 13)
Other payables (note 13)
Measured at amortised cost
Measured at fair value
2019
£000
–
20,605
903
101
21,609
–
558,951
2,281
883
9,911
6,484
578,510
2018
£000
–
26,162
776
115
27,053
–
643,551
2,582
785
8,924
4,139
659,981
2019
£000
–
–
–
–
–
1,551
–
–
–
–
–
1,551
2018
£000
2,836
–
–
–
2,836
–
–
–
–
–
–
–
ii) Fair values
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 2019.
iii) Derivative financial instruments
Details of the fair value of the Group’s derivative financial instruments that were in place at 31 March 2019 are provided below:
As at 31 March
Interest rate caps – expiry
Less than one year
One to two years
Two to five years
As at 31 March
Interest rate swaps – expiry
Less than one year
One to two years
Two to five years
Total fair value
2019
%
3.0
–
2.0
2.3
2019
%
2.0
–
1.1
1.1
Average rate
Notional amount
Fair value
2018
%
2.0
3.0
2.0
2.1
2019
£000
10,000
–
19,620
29,620
2018
£000
100,000
10,000
19,620
129,620
2019
£000
–
–
9
9
2018
£000
–
–
74
74
Average rate
Notional amount
Fair value
2018
%
0.6
2.0
1.3
1.3
2019
£000
10,000
–
350,000
360,000
2018
£000
50,000
10,000
425,000
485,000
2019
£000
(21)
–
(1,539)
(1,560)
(1,551)
2018
£000
18
(122)
2,866
2,762
2,836
All derivative financial instruments are non current interest rate derivatives, and are carried at fair value following a valuation as at 31 March
2019 by JCRA.
The market values of hedging products change with interest rate fluctuations, but the exposure of the Group to movements in interest rates
is protected by way of the hedging products listed above. In accordance with accounting standards, fair value is estimated by calculating the
present value of future cash flows, using appropriate market discount rates. For all derivative financial instruments this equates to a Level
2 fair value measurement as defined by IFRS 13 Fair Value Measurement. The valuation therefore does not reflect the cost or gain to the
Group of cancelling its interest rate protection at the balance sheet date, which is generally a marginally higher cost (or smaller gain) than a
market valuation.
141
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT
NOTES FORMING PART OF THE GROUP FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
15 COMMITMENTS UNDER OPERATING LEASES
The Group’s minimum lease rentals receivable under non cancellable operating leases, excluding joint ventures, are as follows:
As at 31 March
Less than one year
Between one and five years
Between six and ten years
Between 11 and 15 years
Between 16 and 20 years
Over 20 years
2019
£000
77,925
303,898
295,948
217,832
102,282
38,716
1,036,601
2018
£000
83,087
323,519
313,920
213,107
96,093
47,380
1,077,106
The Group’s minimum lease payments under non cancellable operating leases, excluding joint ventures, are as follows:
As at 31 March
Less than one year
Between one and five years
16 SHARE CAPITAL
As at 31 March
Issued, called up and fully paid
Ordinary shares of 10p each
2019
£000
289
2,783
3,072
2019
Number
2019
£000
2018
Number
2018
£000
337
–
337
2018
£000
699,991,840
69,999
697,216,196
69,722
In June 2018, the Company granted options over 2,125,515 ordinary shares under its Long Term Incentive Plan.
In addition, 2,017,875 ordinary shares in the Company that were granted to certain Directors and employees under the Company’s Long Term
Incentive Plan in 2015 vested along with 574,242 ordinary shares in the Director’s Deferred Bonus Plan. The share price on vesting was 187.63p.
The Company issued 2,775,644 shares under the terms of its Scrip Dividend Scheme in the year.
No disclosures have been made in accordance with IFRS 2 for share based payments to employees other than those in the Remuneration
Committee report on pages 93 to 109 on the basis of materiality.
17 RESERVES
The Group statement of changes in equity is shown on page 124.
The following describes the nature and purpose of each reserve within equity:
Share capital
Share premium
Capital redemption reserve
Other reserve
Retained earnings
The nominal value of shares issued.
The premium paid for new ordinary shares issued above the nominal value.
Amounts transferred from share capital on redemption of issued ordinary shares.
A reserve relating to the application of merger relief in the acquisition of LondonMetric Management
Limited and Metric Property Investments plc by the Company, the cost of the Company’s shares held
in trust to provide for the Company’s future obligations under share award schemes.
The cumulative profits and losses after the payment of dividends.
142
LondonMetric Property PlcAnnual Report and Accounts 2019 18 ANALYSIS OF MOVEMENT IN NET DEBT
As at 31 March
Opening balance
Cash movement
Loan issue costs paid
Amortisation of loan issue costs
Closing balance
Cash and cash
equivalents
£000
Borrowings
£000
26,162
(5,557)
–
–
20,605
643,551
(85,000)
(1,010)
1,410
558,951
2019
Net debt
£000
617,389
(79,443)
(1,010)
1,410
538,346
Cash and cash
equivalents
£000
Borrowings
£000
42,944
(16,782)
–
–
26,162
466,319
176,830
(948)
1,350
643,551
2018
Net debt
£000
423,375
193,612
(948)
1,350
617,389
19 RELATED PARTY TRANSACTIONS
Management fees and profit distributions receivable from the Group’s joint venture arrangements in which it has an equity interest were
as follows:
For the year to 31 March
LSP London Residential Investments
Metric Income Plus Partnership
LMP Retail Warehouse JV Property Unit Trust
Group interest
40.0%
50.0%
45.0%
Management fees
Profit distributions
2019
£000
273
1,134
303
1,710
2018
£000
384
1,008
329
1,721
2019
£000
10,480
4,543
2,471
17,494
2018
£000
5,303
3,750
3,221
12,274
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
20 POST BALANCE SHEET EVENTS
Post year end, the Group has increased its equity investment in the DFS joint venture to 82% at a cost of £18.6 million, and has repaid the
debt facility.
The Group has also acquired two urban logistics warehouses and two convenience stores post year end as described in the Strategic Report
on pages 27 and 29.
As reported in the Chairman’s Statement, we have today separately announced a £414.7 million recommended offer to acquire A&J Mucklow
Group plc, a distribution and industrial REIT with a portfolio located predominantly in the West Midlands.
143
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT COMPANY BALANCE SHEET
As at 31 March
Fixed assets
Investment in subsidiaries
Other tangible assets
Derivative financial instruments
Current assets
Trade and other receivables
Cash at bank
Total assets
Current liabilities
Trade and other payables
Non current liabilities
Borrowings
Derivative financial instruments
Total liabilities
Net assets
Equity
Called up share capital
Share premium
Capital redemption reserve
Other reserve
Retained earnings
Equity shareholders’ funds
Note
2019
£000
2018
£000
iii
vi
iv
v
vi
vi
784,998
402
–
785,400
566,418
14,471
580,889
1,366,289
10,800
10,800
431,319
1,560
432,879
443,679
922,610
69,999
100,753
9,636
(6,225)
748,447
922,610
893,822
73
2,762
896,657
455,112
17,574
472,686
1,369,343
11,050
11,050
516,362
–
516,362
527,412
841,931
69,722
96,079
9,636
39,694
626,800
841,931
The Company reported a profit for the financial year to 31 March 2019 of £133.0 million (2018: £50.8 million).
The financial statements were approved and authorised for issue by the Board of Directors on 23 May 2019 and were signed on its behalf by:
Martin McGann
Finance Director
Registered in England and Wales, No 7124797
The notes on pages 146 to 149 form part of these financial statements.
144
LondonMetric Property PlcAnnual Report and Accounts 2019 COMPANY STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 March
At 1 April 2018
Profit for the year
Purchase of shares held in trust
Vesting of shares held in trust
Share based awards
Reserve transfer of impairment in subsidiary
Dividends
At 31 March 2019
At 1 April 2017
Profit for the year
Purchase of shares held in trust
Vesting of shares held in trust
Share based awards
Reserve transfer of impairment in subsidiary
Dividends
At 31 March 2018
Share
capital
£000
69,722
–
–
–
–
–
277
69,999
Share
capital
£000
69,238
–
–
–
–
–
484
69,722
Share
premium
£000
96,079
–
–
–
–
–
4,674
100,753
Share
premium
£000
88,548
–
–
–
–
–
7,531
96,079
Capital
redemption
reserve
£000
9,636
–
–
–
–
–
–
9,636
Capital
redemption
reserve
£000
9,636
–
–
–
–
–
–
9,636
Other
reserve
£000
39,694
–
(4,781)
3,974
–
(45,112)
–
(6,225)
Other
reserve
£000
69,101
–
(2,783)
3,911
–
(30,535)
–
39,694
Retained
earnings
£000
626,800
133,044
–
(3,662)
2,719
45,112
(55,566)
748,447
Retained
earnings
£000
598,081
50,771
–
(3,635)
2,420
30,535
(51,372)
626,800
Total
£000
841,931
133,044
(4,781)
312
2,719
–
(50,615)
922,610
Total
£000
834,604
50,771
(2,783)
276
2,420
–
(43,357)
841,931
The notes on pages 146 to 149 form part of these financial statements.
145
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE
COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2019
I ACCOUNTING POLICIES
Accounting convention
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared in
accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share
based payments, financial instruments, capital management, presentation of a cash flow statement and certain related party transactions.
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 reported profit of the Company was £133.0 million (2018: £50.8 million).
Audit fees in relation to the Company only were £116,380 in the year (2018: £110,500).
III FIXED ASSET INVESTMENTS
At 1 April 2018
Additions
Disposals
Impairment of investment
At 31 March 2019
Subsidiary
undertakings
£000
893,822
95,266
(9,207)
(194,883)
784,998
The carrying value of the Company’s investments was impaired by £194.9 million following an impairment review to assess the recoverable
amount based on the net assets of the subsidiary companies.
146
LondonMetric Property PlcAnnual Report and Accounts 2019 III FIXED ASSET INVESTMENTS (CONTINUED)
The Company is incorporated in England and is the ultimate holding company of the Group and has the following subsidiary undertakings:
London & Stamford Property Limited
LondonMetric Management Limited
LMP Retail Warehouse JV Holdings Limited1
Metric Property Investments Limited
Metric Property Finance 1 Limited
Metric Property Finance 2 Limited²
Metric LP Income Plus Limited1
LSI (Investments) Limited
LSI Developments Limited
LondonMetric Saturn Limited
LondonMetric Retail Distribution I Limited
LondonMetric Saturn II Limited
LondonMetric Retail Distribution II Limited
LondonMetric Retail Distribution III Limited
LondonMetric Liverpool Limited
LondonMetric Swindon Limited
LondonMetric Distribution Limited
LondonMetric Retail Limited
LondonMetric Edinburgh Limited
LondonMetric Derby Limited
Goresbrook Property Limited²
LondonMetric Crawley Limited
LondonMetric Leisure Limited
Metric Property Launceston Limited
Metric Property Loughborough Limited1
Metric Property Coventry Limited
Metric Property Bedford Limited1
Metric Property Kirkstall Limited1
LondonMetric Logistics Limited
L&S Business Space Limited1,2
L&S Highbury Limited1,2
LMP Green Park Cinemas Limited1,2
LMP Thrapston Limited1,2
LMP Bell Farm Limited1,2
LMP Omega II Limited1,2
LMP Dagenham Limited1,2
LMP GB1W02 LLC1,2
Country of
incorporation or
registration3
Guernsey
Guernsey
Guernsey
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Guernsey
Delaware
Proportion of voting rights
held (by way of share
capital or units held)
100%
100%
81.88%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Intermediate holding company
Management company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
1 Undertakings held indirectly by the Company
2 Exempt from the requirement to file audited accounts
3 The registered address for companies incorporated in England is One Curzon Street, London, W1J 5HB. The registered address for companies incorporated in Guernsey is Regency
Court, Glategny Esplanade, St Peter Port, Guernsey, GY1 3AP. The registered address of the company incorporated in Delaware is The Corporation Trust Company, Corporation Trust
Centre, 1209 Orange Street, Wilmington, DE19801
All of the undertakings listed above operate in their country of incorporation except those who are tax resident in the UK. All shares held are
ordinary shares.
147
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2019
IV TRADE AND OTHER RECEIVABLES
As at 31 March
Prepayments and accrued income
Other receivables
Amounts due from subsidiary undertakings
2019
£000
628
33
565,757
566,418
2018
£000
915
32
454,165
455,112
All amounts under receivables fall due for payment in less than one year. Based on the IFRS 9 ECL model, an impairment provision of £419,000
was recognised on amounts due from Group undertakings, which are unsecured and repayable on demand.
2018
£000
530
7,646
2,874
11,050
2018
£000
520,000
(3,638)
516,362
2018
£000
13,843
433,539
136,364
583,746
V TRADE AND OTHER PAYABLES
As at 31 March
Trade payables
Other accruals and deferred income
Other payables
VI BORROWINGS AND FINANCIAL INSTRUMENTS
Non current financial liabilities
As at 31 March
Unsecured bank loans
Unamortised finance costs
2019
£000
126
7,595
3,079
10,800
2019
£000
435,000
(3,681)
431,319
The following table shows the contractual maturity profile of the Company’s financial liabilities on an undiscounted cash flow basis and
assuming settlement on the earliest repayment date.
Bank
loans
£000
14,407
217,343
306,652
538,402
Derivative
financial
instruments
£000
820
1,598
–
2,418
2019
£000
15,227
218,941
306,652
540,820
As at 31 March
Less than one year
One to five years
More than five years
148
LondonMetric Property PlcAnnual Report and Accounts 2019 VI BORROWINGS AND FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments
The Company is exposed to market risk through interest rate fluctuations. It is the Company’s policy that a significant portion of external bank
borrowings are at either fixed or capped rates of interest in order to manage this risk.
The Company 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 Company 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.
The market values of hedging products change with interest rate fluctuations, but the exposure of the Company to movements in interest rates is
protected by way of the hedging products listed below. In accordance with accounting standards, fair value is estimated by calculating the present
value of future cash flows, using appropriate market discount rates. For all derivative financial instruments this equates to a Level 2 fair value
measurement as defined by IFRS 13 Fair Value Measurement. The valuation therefore does not reflect the cost or gain to the Company 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.
Details of the fair value of the Company’s derivative financial instruments that were in place are provided below.
As at 31 March
Interest rate caps – expiry
Less than one year
One to two years
Two to five years
As at 31 March
Interest rate swaps – expiry
Less than one year
One to two years
Two to five years
Total fair value
Average rate
2018
%
2.0
3.0
–
2.1
Average rate
2018
%
0.6
2.0
1.3
1.3
2019
%
3.0
–
–
3.0
2019
%
2.0
–
1.1
1.1
2019
£000
10,000
–
–
10,000
2019
£000
10,000
–
350,000
360,000
Notional
2018
£000
70,000
10,000
–
80,000
Notional
2018
£000
50,000
10,000
425,000
485,000
2019
£000
–
–
–
–
2019
£000
(21)
–
(1,539)
(1,560)
Fair value
2018
£000
–
–
–
–
Fair value
2018
£000
18
(122)
2,866
2,762
2,762
Further information on financial risk management policies and practices can be found in note 14 of the Group accounts.
VII RELATED PARTY TRANSACTIONS
Related party transactions for the Company are as noted for the Group in note 19 to the Group financial statements.
149
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT SUPPLEMENTARY INFORMATION
(NOT AUDITED)
I EPRA SUMMARY TABLE
EPRA earnings per share
EPRA net asset value per share
EPRA triple net asset value per share
EPRA vacancy rate
EPRA cost ratio (including vacant property costs)
EPRA cost ratio (excluding vacant property costs)
EPRA net initial yield
EPRA ‘topped up’ net initial yield
The definition of these measures can be found in the Glossary on page 155.
II EPRA PROPORTIONALLY CONSOLIDATED INCOME STATEMENT
For the year to 31 March
Gross rental income
Property costs
Net rental income
Management fees
Administrative costs
Net finance costs
Other
EPRA earnings
Group
£000
85,107
(1,221)
83,886
1,710
(13,658)
(18,135)
151
53,954
III EPRA PROPORTIONALLY CONSOLIDATED BALANCE SHEET
As at 31 March
Investment property
Gross debt
Cash
Other net liabilities
EPRA net assets
Loan to value
Cost of debt
Undrawn facilities
Group
£000
1,688,005
(565,000)
20,605
(24,124)
1,119,486
32%
3.1%
363,750
JV
£000
10,395
(447)
9,948
(781)
(71)
(2,077)
–
7,019
JV
£000
158,217
(61,247)
3,478
(1,288)
99,160
37%
3.5%
9,741
2019
£000
95,502
(1,668)
93,834
929
(13,729)
(20,212)
151
60,973
2019
£000
1,846,222
(626,247)
24,083
(25,412)
1,218,646
32%
3.1%
373,491
Group
£000
81,988
(828)
81,160
1,721
(13,800)
(16,475)
(32)
52,574
Group
£000
1,677,555
(650,000)
26,162
(24,710)
1,029,007
35%
2.7%
53,750
2019
8.8p
174.9p
174.7p
2.2%
15%
14%
4.3%
4.7%
JV
£000
9,794
(401)
9,393
(763)
(106)
(1,982)
–
6,542
JV
£000
164,455
(58,938)
13,128
(1,042)
117,603
28%
3.4%
12,050
2018
8.5p
165.2p
165.7p
2.5%
15%
15%
4.5%
4.9%
2018
£000
91,782
(1,229)
90,553
958
(13,906)
(18,457)
(32)
59,116
2018
£000
1,842,010
(708,938)
39,290
(25,752)
1,146,610
35%
2.8%
65,800
150
LondonMetric Property PlcAnnual Report and Accounts 2019 IV EPRA COST RATIO
For the year to 31 March
Property operating expenses
Administrative costs
Share of joint venture property costs, administrative costs and management fees
Less:
Joint venture property management fee income
Ground rents
Total costs including vacant property costs (A)
Group vacant property costs
Share of joint venture vacant property costs
Total costs excluding vacant property costs (B)
Gross rental income
Share of joint venture gross rental income
Less:
Ground rents
Total gross rental income (C)
Total EPRA cost ratio (including vacant property costs) (A)/(C)
Total EPRA cost ratio (excluding vacant property costs) (B)/(C)
V EPRA NET INITIAL YIELD AND ‘TOPPED UP’ NET INITIAL YIELD
As at 31 March
Investment property – wholly owned
Investment property – share of joint ventures
Less development properties
Less residential properties
Completed property portfolio
Allowance for:
Estimated purchasers’ costs
Estimated costs to complete
EPRA property portfolio valuation (A)
Annualised passing rental income
Share of joint ventures
Less development properties
Less residential properties
Annualised net rents (B)
Contractual rental increases for rent free periods
Contractual rental increases for stepped rental uplifts
‘Topped up’ net annualised rent (C)
EPRA net initial yield (B/A)
EPRA ‘topped up’ net initial yield (C/A)
2019
£000
1,221
13,658
1,299
(1,710)
(113)
14,355
(742)
(148)
13,465
85,107
10,395
95,502
(113)
95,389
15%
14%
2018
£000
828
13,800
1,270
(1,721)
(127)
14,050
(253)
(204)
13,593
81,988
9,794
91,782
(127)
91,655
15%
15%
2019
£000
2018
£000
1,688,005
1,677,555
158,217
(59,790)
(17,347)
164,455
(43,485)
(30,139)
1,769,085
1,768,386
120,298
14,790
120,250
30,848
1,904,173
1,919,484
74,475
9,384
(1,058)
(195)
82,606
5,267
1,363
89,236
4.3%
4.7%
78,378
9,263
(1,198)
(352)
86,091
6,247
1,685
94,023
4.5%
4.9%
151
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT SUPPLEMENTARY INFORMATION (NOT AUDITED) CONTINUED
VI EPRA VACANCY RATE
As at 31 March
Annualised estimated rental value of vacant premises
Portfolio estimated rental value1
EPRA vacancy rate
1 Excludes residential and development properties
VII EPRA CAPITAL EXPENDITURE ANALYSIS
As at 31 March
Opening valuation
Acquisitions
Developments1
Capital expenditure2
Disposals
Revaluation
Lease incentives
Closing valuation
Group
2019
£000
1,677,555
146,961
29,020
14,141
(247,700)
75,921
(7,893)
1,688,005
JV
2019
£000
164,455
9,313
5,257
818
(11,066)
(11,493)
933
158,217
Total
2019
£000
1,842,010
156,274
34,277
14,959
(258,766)
64,428
(6,960)
1,846,222
Group
2018
£000
1,373,400
274,562
61,648
20,236
(172,038)
114,723
5,024
1,677,555
1 Includes capitalised interest of £1.1 million (2018: £1.7 million) and capitalised staff costs of £1.9 million (2018: £1.8 million)
2 Capital expenditure on completed properties
VIII TOTAL ACCOUNTING RETURN
For the year to 31 March
EPRA net asset value
– at end of year
– at start of year
Increase
Dividend paid
Net increase
Total accounting return
IX PORTFOLIO SPLIT AND VALUATION
As at 31 March
Mega distribution
Regional distribution
Urban logistics
Distribution
Convenience & leisure
Long income
Retail parks
Investment portfolio
Development – distribution1
Development – retail²
Residential
Total portfolio
2019
£m
427.1
385.5
480.0
1,292.6
152.1
237.4
87.0
1,769.1
46.5
13.3
17.3
1,846.2
2019
%
23.1
20.9
26.0
70.0
8.3
12.9
4.7
95.9
2.5
0.7
0.9
100
1 Represents regional distribution of £22.6 million (1.2%) and urban logistics of £23.9 million (1.3%) at 31 March 2019
2 Represents convenience and leisure of £13.3 million (0.7%) at 31 March 2019
152
2019
£000
1,944
90,125
2.2%
JV
2018
£000
160,428
15,180
848
125
(18,937)
6,842
(31)
164,455
2018
£000
2,407
95,808
2.5%
Total
2018
£000
1,533,828
289,742
62,496
20,361
(190,975)
121,565
4,993
1,842,010
2019
pence per share
2018
pence per share
174.9
165.2
9.7
8.0
17.7
10.7%
2018
£m
500.8
379.0
353.3
1,233.1
174.7
220.8
139.8
1,768.4
29.4
14.1
30.1
1,842.0
165.2
149.8
15.4
7.6
23.0
15.4%
2018
%
27.2
20.6
19.1
66.9
9.5
12.0
7.6
96.0
1.6
0.8
1.6
100.0
LondonMetric Property PlcAnnual Report and Accounts 2019 X INVESTMENT PORTFOLIO YIELDS
As at 31 March
Distribution
Convenience & leisure
Long income
Retail parks
Investment portfolio
XI INVESTMENT PORTFOLIO – KEY STATISTICS
As at 31 March 2019
Distribution
Convenience & leisure
Long income
Retail parks
Investment portfolio
XII TOTAL PROPERTY RETURNS
For the year to 31 March
Capital return
Income return
Total return
XIII CONTRACTED RENTAL INCOME
As at 31 March
Distribution
Convenience & leisure
Long income
Retail parks
Investment portfolio
Development – distribution
Development – retail
Commercial portfolio
Residential
Total portfolio
EPRA NIY
%
EPRA
topped up NIY
%
3.9
4.8
6.0
6.1
4.3
4.3
4.8
6.2
6.3
4.7
Area
‘000 sq ft
9,892
499
1,370
319
12,080
2019
Equivalent
yield
%
4.9
5.3
5.8
6.2
5.1
EPRA NIY
%
EPRA
topped up NIY
%
4.3
4.7
5.6
4.5
4.5
4.6
4.9
5.9
5.6
4.9
2018
Equivalent
yield
%
5.3
5.3
5.5
5.6
5.3
WAULT
to expiry
years
WAULT
to first break
years
Occupancy
%
Average rent
£ per sq ft
12.9
14.8
10.7
10.4
12.5
12.2
14.6
9.1
8.6
11.6
96.9
100.0
100.0
98.8
97.8
6.20
15.80
19.00
18.50
7.90
All property
2019
%
All property
2018
%
3.9
4.9
9.0
2019
£m
59.0
7.9
15.7
5.9
88.5
–
1.0
89.5
0.2
89.7
7.9
5.5
13.7
2018
£m
61.1
9.4
13.9
8.4
92.8
0.4
0.8
94.0
0.4
94.4
153
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT SUPPLEMENTARY INFORMATION (NOT AUDITED) CONTINUED
Within 3 years
%
Within 5 years
%
Within 10 years
%
Within 15 years
%
Within 20 years
%
Over 20 years
%
XIV RENT SUBJECT TO EXPIRY
As at 31 March 2019
Distribution
Convenience & leisure
Long income
Retail parks
Commercial portfolio
XV CONTRACTED RENT SUBJECT TO RPI OR FIXED UPLIFTS
As at 31 March
Distribution
Convenience & leisure
Long income
Retail parks
Commercial portfolio
XVI TOP TEN ASSETS (BY VALUE)
As at 31 March 2019
Primark, Islip
Eddie Stobart, Dagenham
Primark, Thrapston
Dixons Carphone, Newark
Argos, Bedford
Amazon, Omega South, Warrington
Tesco, Croydon
DHL, Reading
Clipper, Ollerton
Burlington Road, New Malden
XVII TOP TEN OCCUPIERS
As at 31 March 2019
Primark1
Dixons Carphone
M&S
Argos1
Eddie Stobart
DFS
DHL¹
Odeon1
Tesco
Clipper Logistics
Top ten
Other commercial
Total commercial
Residential
Total Group
1 Market capitalisation of Parent Company
154
3.5
3.9
3.9
1.3
3.5
9.0
6.7
11.5
8.3
9.2
37.4
28.3
40.0
47.1
37.6
2019
£m
42.4
7.5
5.3
1.3
56.5
76.6
33.7
90.5
85.3
75.3
2019
%
71.8
84.0
33.9
22.6
63.2
82.6
84.6
97.5
100.0
86.6
2018
£m
34.6
6.9
4.7
1.1
47.3
100
100
100
100
100
2018
%
56.2
73.4
32.2
12.5
50.3
Area
‘000 sq ft
Contracted
rent
£m
Occupancy
%
WAULT
to expiry
years
WAULT
to first break
years
1,062
454
783
726
657
357
191
230
364
51
5.6
4.1
4.2
4.4
4.1
2.1
1.9
1.8
1.9
1.9
100
100
100
100
100
100
100
100
100
100
21.5
24.5
13.5
14.3
15.0
12.7
9.1
6.3
18.5
12.6
21.5
24.5
13.5
14.3
15.0
12.7
9.1
6.3
18.5
8.0
Contracted
rental income
£m
Market
capitalisation
£bn
Contracted
rental income
%
9.8
7.9
4.7
4.2
4.1
3.9
3.1
3.0
2.5
2.3
45.5
44.0
89.5
0.2
89.7
19.2
1.7
4.6
5.2
0.4
0.5
31.1
0.6
22.8
0.3
10.9
8.8
5.2
4.7
4.6
4.3
3.5
3.3
2.8
2.6
50.7
49.1
99.8
0.2
100.0
LondonMetric Property PlcAnnual Report and Accounts 2019 GLOSSARY
Building Research Establishment
Environmental Assessment Methodology
(‘BREEAM’)
A set of assessment methods and tools designed
to help construction professionals understand
and mitigate the environmental impacts of the
developments they design and build
Capital Return
The valuation movement on the property portfolio
adjusted for capital expenditure and expressed as a
percentage of the capital employed over the period
Commercial portfolio
The Group’s property portfolio excluding residential
properties
Contracted Rent
The annualised rent excluding rent free periods
Cost of Debt
Weighted average interest rate payable
Debt Maturity
Weighted average period to expiry of drawn debt
Distribution
The activity of delivering a product for consumption
by the end user
Energy Performance Certificate (‘EPC’)
Required certificate whenever a property is built,
sold or rented. An EPC gives a property an energy
efficiency rating from A (most efficient) to G (least
efficient) and is valid for ten years. An EPC contains
information about a property’s energy use and
typical energy costs, and recommendations about
how to reduce energy use and save money
EPRA Cost Ratio
Administrative and operating costs (including and
excluding costs of direct vacancy) as a percentage
of gross rental income
EPRA Earnings per Share (‘EPS’)
Underlying earnings from the Group’s property
rental business divided by the average number of
shares in issue over the year
EPRA NAV per Share
Balance sheet net assets excluding fair value of
derivatives, divided by the number of shares in
issue at the balance sheet date
EPRA NNNAV per Share
EPRA NAV per share adjusted to include the fair
value of financial instruments, debt and deferred
taxes at the balance sheet date
EPRA Net Initial Yield
Annualised rental income based on cash rents
passing at the balance sheet date, less non
recoverable property operating expenses,
expressed as a percentage of the market value
of the property, after inclusion of estimated
purchaser’s costs
EPRA Topped Up Net Initial Yield
EPRA net initial yield adjusted for expiration of
rent free periods or other lease incentives such as
discounted rent periods and stepped rents
Logistics
The organisation and implementation of operations
to manage the flow of physical items from origin to
the point of consumption
EPRA Vacancy
The Estimated Rental Value (‘ERV’) of immediately
available vacant space as a percentage of the total
ERV of the Investment Portfolio
Equivalent Yield
The weighted average income return expressed as
a percentage of the market value of the property,
after inclusion of estimated purchaser’s costs
Estimated Rental Value (‘ERV’)
The external valuers’ opinion of the open market
rent which, on the date of valuation, could
reasonably be expected to be obtained on a new
letting or rent review of a property
European Public Real Estate Association
(‘EPRA’)
EPRA is the industry body for European Real Estate
Investment Trusts (‘REITs’)
Gross Rental Income
Rental income for the period from let properties
reported under IFRS, after accounting for lease
incentives and rent free periods. Gross rental
income will include, where relevant, turnover based
rent, surrender premiums and car parking income
Group
LondonMetric Property Plc and its subsidiaries
IFRS
The International Financial Reporting Standards
issued by the International Accounting Standards
Board and adopted by the European Union
Income Return
Net rental income expressed as a percentage of
capital employed over the period
Investment Portfolio
The Group’s property portfolio excluding
development, land holdings and residential
properties
Investment Property Databank (‘IPD’)
IPD is a wholly owned subsidiary of MSCI producing
an independent benchmark of property returns
and the Group’s portfolio returns
Like for Like Income Growth
The movement in contracted rental income on
properties owned through the period under
review, excluding properties held for development
and residential
Loan to Value (‘LTV’)
Net debt expressed as a percentage of the total
property portfolio value at the period end, adjusted
for deferred completions on sales
Net Debt
The Group’s bank loans net of cash balances
at the period end
Net Rental Income
Gross rental income receivable after deduction
for ground rents and other net property outgoings
including void costs and net service charge
expenses
Occupancy Rate
The ERV of the let units as a percentage of the total
ERV of the Investment Portfolio
Omni-Channel Retailing
The evolution of multi-channel retailing providing
a seamless shopping experience for the consumer
through all available shopping channels, ie physical,
internet, mobile, social media, telephone,
catalogue readeretc
Passing Rent
The gross rent payable by tenants under operating
leases, less any ground rent payable under head
leases
Property Income Distribution (‘PID’)
Dividends from profits of the Group’s tax-
exempt property rental business under the
REIT regulations. The PID dividend is paid after
deducting withholding tax at the basic rate
Real Estate Investment Trust (‘REIT’)
A listed property company which qualifies for and
has elected into a tax regime which is exempt
from corporation tax on profits from property
rental income and UK capital gains on the sale of
investment properties
Total Accounting Return (‘TAR’)
The movement in EPRA NAV per share plus the
dividend paid during the period expressed as a
percentage of the EPRA NAV per share at the
beginning of the period
Total Property Return (‘TPR’)
Unlevered weighted capital and income return
of the property portfolio as calculated by IPD
Total Shareholder Return (‘TSR’)
The movement in the ordinary share price as
quoted on the London Stock Exchange plus
dividends per share assuming that dividends
are reinvested at the time of being paid
Weighted Average Interest Rate
The total loan interest and derivative costs per
annum (including the amortisation of finance costs)
divided by the total debt in issue at the period end
Weighted Average Unexpired Lease Term
(‘WAULT’)
Average unexpired lease term across
the investment portfolio weighted by
Contracted Rent
155
LondonMetric Property PlcAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOTICE OF ANNUAL GENERAL MEETING
This document is important and requires your immediate attention. If you are in any doubt as to the action you should take,
you should seek your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, or other
financial advisor authorised under the Financial Services and Markets Act 2000.
If you have sold or otherwise transferred all your ordinary shares, please send this document, together with the
accompanying documents, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent
through whom the sale or transfer was effected, for delivery to the purchaser or transferee.
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 11 July
2019 at 10.00 am.
Resolutions 1 to 14 (inclusive) will be proposed as ordinary
resolutions and resolutions 15 to 18 (inclusive) will be proposed as
special resolutions.
1.
2.
3.
4.
5.
6.
7.
8.
9.
That the Annual Report and Audited Financial Statements for the
year ended 31 March 2019 be considered and approved.
That the Annual Report on Remuneration in the form set out in
the Annual Report and Audited Financial Statements for the year
ended 31 March 2019 be approved.
That Deloitte LLP be reappointed as auditor of the Company, to
hold office until the conclusion of the next general meeting at
which accounts are laid before the Company.
That the Directors be authorised to determine the remuneration of
the auditor.
That Patrick Vaughan be re-elected as a Director.
That Andrew Jones be re-elected as a Director.
That Martin McGann be re-elected as a Director.
That James Dean be re-elected as a Director.
That Rosalyn Wilton be re-elected as a Director.
10. That Andrew Livingston be re-elected as a Director.
11. That Suzanne Avery be re-elected as a Director.
12. That Robert Fowlds be elected as a Director.
13.
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’):
14.
(i) in the event that the Company’s proposed acquisition of the
entire issued, and to be issued, ordinary share capital of
A&J Mucklow Group plc (‘Mucklow’) (the ‘Combination’),
has not taken place in accordance with its terms, up to an
aggregate nominal amount of £23,355,394; or
(ii) in the event that the Combination has taken place in
accordance with its terms, up to an aggregate nominal
amount of £27,975,917
(such amount to be reduced by the nominal amount of any
equity securities (within the meaning of Section 560 of the
2006 Act) allotted under paragraph 13b below in excess of the
applicable amount set out in 13a(i) or 13a(ii) above); and
156
b. to exercise all the powers of the Company to allot equity
securities (within the meaning of Section 560 of the 2006 Act):
(i) in the event that the Combination has not taken place in
accordance with its terms, up to a maximum nominal
amount of £46,710,788; or
(ii) in the event that the Combination has taken place in
accordance with its terms, up to a maximum aggregate
nominal amount of £55,951,834
(such amount to be reduced by any Relevant Securities allotted
or granted under paragraph 13a above) 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 date as the Directors may determine are proportionate
(as nearly as may be) to the respective numbers of equity
securities 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 paragraphs 13a and 13b 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 this 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 (and treasury shares to be sold) after such expiry and the
Directors may allot Relevant Securities or equity securities (and
sell treasury shares) in pursuance of any such offer or agreement
as if the authority in question had not expired.
That, subject to the passing of resolution 13 and in accordance
with Article 145 of the Company’s Articles of Association (as varied
and amended from time to time), the Directors be and are hereby
authorised, for the period of three years from the date of the
passing of this resolution, to offer to any holder of ordinary shares
in the Company, the right to elect to receive ordinary shares
credited as fully paid, instead of cash in respect of the whole (or
part, to be determined by the Directors) of all or any dividend on
such terms as the Directors shall determine (subject to the terms
provided in the Articles of Association of the Company) from time
to time.
15.
That the Directors be and are empowered, in accordance with
Sections 570 and 573 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 13 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 or sale, provided that this power shall be limited to:
LondonMetric Property PlcAnnual Report and Accounts 2019
a. the allotment of equity securities and sale of treasury shares
for cash in connection with an offer of, or invitation to apply
for, equity securities made to (but in the case of the authority
conferred by paragraph 13b of resolution 13 above, by way of
a rights issue only):
(i) to ordinary shareholders in proportion (as nearly as may
be practicable) to their existing holdings;
(ii) to holders of other equity securities as required by the
rights of those securities or, if the Directors otherwise
consider necessary, as permitted by the rights of those
securities, and so that the Directors may impose any
limits or restrictions and make any arrangements which
they consider necessary or appropriate to deal with any
treasury shares, fractional entitlements, record dates,
legal, regulatory or practical problems in, or under the
laws of, any territory or any other matter; and
b. the allotment of equity securities or sale of treasury shares
(otherwise than under paragraph 15a above):
(i) in the event that the Combination has not taken place in
accordance with its terms, up to an aggregate nominal
amount of £3,503,309; or
(ii) in the event that the Combination has taken place in
accordance with its terms, up to an aggregate nominal
amount of £4,196,388
provided that this power shall expire at the conclusion of
the next Annual General Meeting of the Company (or, if
earlier, on the date which is 15 months after the date of this
Annual General Meeting) but prior to its expiry the Company
may make offers, and enter into agreements, which would,
or might, require equity securities to be allotted (and
treasury shares to be sold) after the authority expires and
the Directors may allot equity securities (and sell treasury
shares) under any such offer or agreement as if the authority
had not expired.
16.
That the Directors be and are empowered, in addition to any
authority granted under resolution 15, to allot equity securities
(as defined in Section 560(1) of the 2006 Act) for cash pursuant
to the authority conferred by resolution 13 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 or sale, such power to be:
a. limited to the allotment of equity securities or sale of
treasury shares:
(i) in the event that the Combination has not taken place in
accordance with its terms, up to an aggregate nominal
amount of £3,503,309; or
(ii) in the event that the Combination has taken place in
accordance with its terms, up to an aggregate nominal
amount of £4,196,388; and
b. used only for the purposes of financing (or refinancing, if the
authority is to be used within six months after the original
transaction) a transaction which the Directors determine
to be an acquisition or other capital investment of a kind
contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-
Emption Group prior to the date of this notice,
provided that this power shall expire at the end of the next
Annual General Meeting of the Company (or, if earlier, on
the date which is 15 months after the date of this Annual
General Meeting) but, in each case, prior to its expiry the
Company may make offers, and enter into agreements which
would, or might, require equity securities to be allotted (and
treasury shares to be sold) after the authority expires and
the Directors may allot equity securities (and sell treasury
shares) under any such offer or agreement as if the authority
in question had not expired.
17.
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:
(i) in the event that the Combination has not taken place in
accordance with its terms, 70,066,182; or
(ii) in the event that the Combination has taken place in
accordance with its terms, 83,927,750; and
b. the minimum price which may be paid for an ordinary share is
10p being the nominal amount thereof (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.
18.
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
23 May 2019
157
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTLondonMetric Property PlcAnnual Report and Accounts 2019
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
NOTES TO THE NOTICE OF THE ANNUAL GENERAL MEETING:
(i)
Shareholders entitled to attend and vote at the meeting may appoint one or more
proxies (who need not be shareholders) to attend, speak and vote on their behalf,
provided that each proxy is appointed to exercise the rights attaching to the
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.
Any person to whom this notice is sent who is a person nominated under Section
146 of the 2006 Act 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
Annual 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 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.
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 completed
and signed and received by Link Asset Services at PXS1, The Registry, 34
Beckenham Road, Beckenham, Kent BR3 4ZF as soon as possible but, in any
event, so as to arrive no later than 10.00 am on 9 July 2019. 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
Link Asset Services at PXS1, The Registry, 34 Beckenham Road, Beckenham, Kent
BR3 4ZF. 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.
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 close of business on 9 July
2019. 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 close of business 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.
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.
In order for a proxy appointment or instruction 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 10.00 am on 9 July 2019. 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.
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.
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 system providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system and timings.
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
158
(xi)
(xii)
(xiii)
Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a member
provided that they do not do so in relation to the same shares.
You may not use any electronic address provided either in this Notice of Annual
General Meeting or any related documents (including the form of proxy) to
communicate with the Company for any purposes other than those expressly stated.
As at 22 May 2019 (being the closest practical business day before the publication
of this Notice), the Company’s issued share capital consisted of 700,661,819
ordinary shares carrying one vote each. If the Combination has taken place, the
Company’s issued share capital shall consist of 839,277,503 ordinary shares
carrying one vote each.
(xiv)
Members satisfying the thresholds in Section 527 of the 2006 Act can require the
Company to publish a statement on its website setting out any matter relating to:
a.
b.
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
any circumstances connected with an auditor of the Company ceasing to hold
office since the last Annual General Meeting, that the members 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 auditor 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.
b.
c.
to do so would interfere unduly with the preparation for the meeting or involve
the disclosure of confidential information;
the answer has already been given on a website in the form of an answer to a
question; or
it is undesirable in the interests of the Company or the good order of the
meeting that the question be answered.
(xvi)
(xvii)
A copy of this Notice, and other information required by Section 311A of the 2006
Act, can be found at www.londonmetric.com.
The following documents are available for inspection at the registered office of the
Company during normal business hours on each weekday (public holidays excluded)
from the date of this notice until the conclusion of the Annual General Meeting 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; and
c. a copy of the Articles of Association of the Company.
(xviii) In the case of joint registered holders, the signature of one holder on a proxy card
will be accepted and the vote of the senior holder who tenders a vote, whether
in person or by proxy, shall be accepted to the exclusion of the votes of the other
joint holders. For this purpose, seniority shall be determined by the order in which
names stand on the register of members of the Company in respect of the relevant
joint holding.
EXPLANATORY NOTES:
The information below is an explanation of the business to be considered at the Annual
General Meeting.
Resolution 1 – To receive the Annual Report and Audited Financial
Statements
The Chairman will present the Annual Report and Audited Financial Statements for the
year ended 31 March 2019 to the meeting. Resolution 1 is to consider and approve the
Report of the Directors, the financial statements and the Auditor’s report on the financial
statements and on the auditable part of the Annual Report on Remuneration for the
financial year ended 31 March 2019.
Resolution 2 – Annual Report on Remuneration
Resolution 2 is an ordinary resolution to approve the Annual Report on Remuneration
relating to the implementation of the Company’s existing Remuneration Policy, which
was approved at the 2017 Annual General Meeting. Section 439 of the 2006 Act requires
UK-incorporated listed companies to put their Annual Report on Remuneration to
an advisory shareholder vote. As the vote is advisory it does not affect the actual
remuneration paid to any individual Director. The Annual Report on Remuneration is set
out in full in the Annual Report and Financial Statements.
Resolutions 3 and 4 – Reappointment of auditors
Resolution 3 relates to the reappointment of Deloitte LLP as the Company’s auditor
to hold office until the next Annual General Meeting of the Company and Resolution 4
authorises the Directors to set their remuneration.
Resolutions 5 to 12 – Re-election and election of Directors
Resolutions 5 to 12 deal with re-election and election of the Directors (as applicable).
Biographies of each of the Directors seeking re-election and election can be found
on pages 68 and 69 of the Annual Report and Accounts. The Board has confirmed,
LondonMetric Property PlcAnnual Report and Accounts 2019
following a performance review, that all Directors standing for re-election or election
continue to perform effectively and demonstrate commitment to their role.
Proposed acquisition of A&J Mucklow Group plc (‘Mucklow’)
On 23 May 2019, the Company announced that it had reached agreement on the terms of
a recommended offer pursuant to which the Company will acquire the entire issued, and
to be issued, ordinary share capital of Mucklow (the ‘Combination’). A combined circular
and prospectus has been sent to shareholders of the Company and the general meeting
at which a resolution to approve the terms of the Combination is to be tabled will be
held on 20 June 2019. If the Combination is approved by shareholders and otherwise
becomes effective, part of the consideration to be paid to the shareholders of Mucklow
will be satisfied by way of an issue of new ordinary shares in the Company. Accordingly,
if the Combination is approved and otherwise becomes effective, the Company will issue
on or around 28 June 2019 approximately 138,615,684 new ordinary shares and the total
issued share capital of the Company will be increased to approximately 839,277,503.
Resolutions 13, 15, 16 and 17, are proposed in a manner which accommodates whether
or not the Combination is approved and otherwise becomes effective.
Resolution 13 – Allotment of share capital
At the last Annual General Meeting of the Company the Directors were given authority
to allot ordinary shares in the capital of the Company. This authority expires at the
conclusion of the Annual General Meeting (or, if earlier, on the date which is 15 months
after the date of the Annual General Meeting).
Your Board considers it appropriate that a similar authority be granted to allot
ordinary shares in the capital of the Company up to a maximum nominal amount of
(i) £23,355,394 in the event that the Combination has not taken place in accordance
with its terms; or (ii) £27,975,917 in the event that the Combination has taken place
in accordance with its terms, (representing approximately one third of the Company’s
issued ordinary share capital as at 22 May 2019 or following the Combination as the case
may be) during the period up to the conclusion of the next Annual General Meeting of the
Company. Such authority is sought in paragraph 13a of Resolution 13.
In accordance with the guidelines issued by the Investment Association, paragraph
13b of Resolution 13 will allow Directors to allot, including the shares referred to in
paragraph 13a of Resolution 13, shares in the Company in connection with a pre-
emptive offer by way of a rights issue to shareholders up to a maximum nominal amount
of (i) £46,710,788 in the event that the Combination has not taken place in accordance
with its terms; or (ii) £55,951,834 in the event that the Combination has taken place in
accordance with its terms, representing approximately two thirds of the issued ordinary
share capital of the Company as at 22 May 2019.
Your Board considers it appropriate to seek this additional allotment authority at the
Annual General Meeting in order to take advantage of the flexibility it offers. However,
the Board has no present intention of exercising either authority. If they do exercise
the authority, the Directors intend to follow best practice as regards its use, as
recommended by the Investment Association.
As at the date of this Notice the Company does not hold any ordinary shares in the
capital of the Company in treasury.
Resolution 14 – Authority to offer scrip dividend
Under the Articles of Association of the Company, the Board may, with the prior authority
of an ordinary resolution of the Company, offer holders of any particular class of shares
who have elected to receive them paid up ordinary shares instead of cash in respect of
all or part of a dividend or dividends specified by the ordinary resolution.
Under a scrip dividend programme, shareholders who elect to do so will be able to
receive ordinary shares in the Company in lieu of future cash dividends. In addition to
the benefit to shareholders of allowing them to increase their shareholdings without
incurring costs (such as stamp duty or dealing costs), a scrip dividend programme
will allow the Company to retain the proceeds which would otherwise be paid out
as dividends.
Authority was previously granted on 14 July 2016 and that authority expires after three
years. This resolution renews that authority. A Scrip Circular setting out the terms and
conditions and instructions on how to participate is available on the Company’s website.
In line with investor protection guidelines the authority contained in resolution 14 is
sought for three years.
Resolutions 15 and 16 – General and additional authority to disapply
pre-emption rights
At the last Annual General Meeting of the Company the Directors were also given
authority to allot equity securities for cash without first being required to offer such
shares to existing shareholders. This authority expires at the conclusion of the Annual
General Meeting (or, if earlier, on the date which is 15 months after the date of last year’s
Annual General Meeting).
The passing of Resolutions 15 and 16 would allow the Directors to allot equity securities
(or sell any shares which the Company may purchase and hold in treasury) without first
offering them to existing holders in proportion to their existing holdings.
The authority set out in Resolution 15 is limited to: (a) allotments or sales in connection
with pre-emptive offers and offers to holders of other equity securities if required by the
rights of those shares; or (b) otherwise than in connection with a pre-emptive offer, up
to an aggregate nominal amount of (i) £3,503,309 (representing £35,033,091 shares) in
the event that the Combination has not taken place in accordance with its terms; or (ii)
£4,196,388 (representing 41,963,875 shares) in the event that the Combination has taken
place in accordance with its terms. This aggregate nominal amount represents 5% of the
issued ordinary share capital of the Company (i) as at 22 May 2019 and in the event that the
Combination has not taken place in accordance with its terms; and (ii) in the event that the
Combination has taken place in accordance with its terms.
Taking into account the template resolutions published by the UK Pre-Emption Group
in May 2016, the authority set out in Resolution 16 is limited to allotments or sales of up
to an aggregate nominal amount of (i) £3,503,309 (representing 35,033,091 shares) in
the event that the Combination has not taken place in accordance with its terms; or (ii)
£4,196,388 (representing 41,963,875 shares) in the event that the Combination has taken
place in accordance with its terms, in addition to the authority set out in Resolution 15
which are used only for the purposes of financing (or refinancing, if the authority is to be
used within six months after the original transaction) a transaction which the Directors
determine to be an acquisition or other capital investment of a kind contemplated by
the Statement of Principles on dis-applying pre-emption rights most recently published
by the UK Pre-Emption Group prior to the date of this Notice. This aggregate nominal
amount represents approximately an additional 5% of the issued ordinary share capital
of the Company (i) as at 22 May 2019 and in the event that the Combination has not taken
place in accordance with its terms; and (ii) in the event that the Combination has taken
place in accordance with its terms.
The Directors also confirm their intention to follow the provisions of the UK Pre-Emption
Group’s Statement of Principles regarding cumulative usage of authorities within a
rolling three year period where the Principles provide that usage in excess of 7.5% of
issued ordinary share capital of the Company (excluding treasury shares) should not
take place without prior consultation with shareholders, except in connection with an
acquisition or specified capital investment as referred to above.
Resolution 17 – Authority to purchase own shares
Resolution 17 gives the Company authority to buy back its own ordinary shares in
the market as permitted by the 2006 Act. The authority limits the number of shares
that could be purchased to a maximum of (i) 70,066,182 shares in the event that
the Combination has not taken place in accordance with its terms; or (ii) 83,927,750
shares in the event that the Combination has taken place in accordance with its terms
(representing approximately 10% of the Company’s issued ordinary share capital (i) as
at 22 May 2019 and in the event that the Combination has not taken place in accordance
with its terms; and (ii) in the event that the Combination has taken place in accordance
with its terms) and sets minimum and maximum prices. This authority will expire at the
conclusion of the next Annual General Meeting of the Company.
The Directors have no present intention of exercising the authority to purchase the
Company’s ordinary shares but will keep the matter under review, taking into account
the financial resources of the Company, the Company’s share price and future funding
opportunities. The authority will be exercised only after consideration by the Directors
of the effect on net asset value and if the Directors believe that to do so would be in
the interests of shareholders generally. Any purchases of ordinary shares would be by
means of market purchases through the London Stock Exchange.
Listed companies purchasing their own shares are allowed to hold them in treasury
as an alternative to cancelling them. No dividends are paid on shares whilst held in
treasury and no voting rights attach to treasury shares.
If Resolution 17 is passed at the Annual General Meeting, it is the Company’s current
intention to hold in treasury the majority of the shares it may purchase pursuant to the
authority granted to it. However, in order to respond properly to the Company’s capital
requirements and prevailing market conditions, the Directors will need to reassess
at the time of any and each actual purchase whether to hold the shares in treasury or
cancel them, provided it is permitted to do so. The Company may hold a maximum of up
to 10% of its issued share capital in treasury in accordance with guidelines issued by the
Investment Association.
As at 22 May 2019 (the latest practicable date before publication of this Notice), there
were share awards over 7,643,060 ordinary shares in the capital of the Company
representing approximately (i) 1.09% of the Company’s issued ordinary share capital, in
the event that the Combination has not taken place in accordance with its terms; or (ii)
0.91% of the Company’s issued ordinary share capital, in the event that the Combination
has taken place in accordance with its terms. If the authority to purchase the Company’s
ordinary shares was exercised in full, these awards would represent approximately (i)
1.09% of the Company’s issued ordinary share capital, in the event that the Combination
has not taken place in accordance with its terms; or (ii) 0.91% of the Company’s issued
ordinary share capital, in the event that the Combination has taken place in accordance
with its terms.
Resolution 18 – Notice period for general meetings
It is proposed in Resolution 18 that shareholders should approve the continued ability
of the Company to hold general meetings other than the Annual General Meeting on 14
clear days’ notice.
This resolution is required under Section 307A of the 2006 Act. Under that section,
a traded company which wishes to be able to call general meetings (other than an
Annual General Meeting) on 14 clear days’ notice must obtain shareholders’ approval.
Resolution 18 seeks such approval.
The resolution is valid up to the next Annual General Meeting of the Company and needs
to be renewed annually. The Company will also need to meet the requirements for voting
by electronic means under Section 307A of the 2006 Act before it can call a general
meeting on 14 days’ notice.
The shorter notice period would not be used as a matter of routine for general meetings,
but only where the flexibility is merited by the business of the meeting and is thought to
be to the advantage of shareholders as a whole.
159
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTLondonMetric Property PlcAnnual Report and Accounts 2019 FINANCIAL CALENDAR
Announcement of results
Annual General Meeting
23 May 2019
11 July 2019
SHAREHOLDER INFORMATION
ADVISORS TO THE COMPANY
Joint Financial Advisors
and Brokers
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
JP Morgan Securities Limited
25 Bank Street
Canary Wharf
London E14 5JP
Auditor
Deloitte LLP
1 New Street Square
London EC4A 3HQ
Property Valuers
CBRE Limited
St Martin’s Court
10 Paternoster Row
London EC4M 7HP
Savills (UK) Limited
33 Margaret Street
London W1G 0JD
Tax Advisors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Solicitors to the Company
Jones Day
21 Tudor Street
London EC4Y 0DJ
CMS Cameron McKenna
Nabarro Olswang LLP
78 Cannon Place
Cannon Street
London EC4N 6AF
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Registrar
Link Asset Services
34 Beckenham Road
Beckenham
Kent BR3 4TU
Secretary and
Registered Address
Jadzia Duzniak
One Curzon Street
London W1J 5HB
www.londonmetric.com
REIT status and taxation
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 Link Asset Services. Tax vouchers will continue to be sent to the shareholder’s
registered address.
160
LondonMetric Property Plc
Annual Report and Accounts 2019
Design and production
Radley Yeldar – www.ry.com
Paper
The report is printed on
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Find us online
WWW.LONDONMETRIC.COM
LondonMetric Property Plc
One Curzon Street, London W1J 5HB, United Kingdom
Telephone +44 (0) 20 7484 9000
Fax +44 (0) 20 7484 9001