Interim Results - Part 1

Land Securities Group Plc 20 November 2002 20 November 2002 Interim results for the six months ended 30 September 2002 HIGHLIGHTS • Adjusted earnings per share increased by 1.0% to 24.31p (30/09/2001 24.07p) • Revenue profit (pre-tax) stable at £174.5m (30/09/2001 £174.3m) • Adjusted diluted net assets per share increased by 6.9% to 1235p • Valuation surplus £21.9 million • strong retail performance • weaker central London office markets • Dividend up 5% to 9.5p maintaining progressive dividend policy • £511m of capital returned to shareholders • Mark Collins and Ian Ellis appointed to main board Peter Birch said 'While we are in a period of substantial global volatility and uncertainty the Group remains in a robust financial position with strong cash flows. We have clearly defined our strategy and are actively implementing this across the Group, which we believe will deliver enhanced earnings in the medium term. The benefits of a first-class management team clearly focussed on delivering enhanced returns by investing in the total property outsourcing market, completing the development pipeline and managing the investment portfolio actively, leave us confident about the future outlook for the Group.' For further information: Ian Henderson/Andrew Macfarlane/Emma Denne Land Securities Group PLC 020 7413 9000 Stephanie Highett / Steve Jacobs Financial Dynamics 020 7831 3113 Interim Results for the six months ended 30 September 2002 Financial Highlights Six months to Six months to Year to 30 September 30 31 March 2002 September % change 2002 2001 (restated) (restated) ____________ __________ _________ __________ Gross property income Property investment £283.5m £287.9m -1.5 £579.0m Total property outsourcing £296.4m £147.3m +101.2 £406.2m Property trading £1.9m - - £40.4m ____________ __________ _________ __________ Total £581.8m £435.2m +33.7 £1,025.6m ____________ __________ _________ __________ Operating profit (total) £277.4m £239.0m +16.1 £516.8m Pre-tax profit £157.1m £171.1m -8.2 £363.5m Net of property sales, bid costs and exceptional items (pre-tax) £17.4m £3.2m £1.3m 1 Revenue profit (pre-tax) £174.5m £174.3m +0.1 £364.8m ____________ __________ _________ __________ 2 Adjusted earnings per share (basic) 24.31p 24.07p +1.0 51.61p Earnings per share (basic) 21.69p 23.22p -6.6 50.27p Dividends per share 9.50p 9.05p +5.0 34.0p 3 Interest cover (times) 2.58 2.91 2.98 ____________ __________ _________ __________ As at As at 30 September 31 March 2002 2002 (restated) % change 4 Adjusted diluted net assets per share 1235p 1155p +6.9 Diluted net assets per share 1209p 1132p +6.8 5 Carrying value of investment properties £7,729.1m £7,800.0m Net borrowings £2,512.6m £1,942.1m Equity shareholders' funds £5,615.8m £6,036.6m 6 Gearing (net) 45.3% 32.2% ____________ __________ _________ __________ The comparative figures for the six months ended 30 September 2001 have been restated for the effects of adopting the Accounting Standard Board's Urgent Issues Task Force Abstract 34 (Pre-contract Costs) and the group's change in accounting policy to capitalise interest on properties under development. 1 Excludes results of property sales, bid costs and exceptional items (deficit on purchase and redemption of convertible bonds and the costs of reorganising the group) 2 Excludes results of property sales, bid costs, exceptional items and deferred tax arising from capital allowances on investment properties 3 Number of times gross interest payable (i.e. pre-capitalisation) is covered by operating profit and interest receivable but excluding the activities of Telereal and the exceptional deficit on purchase and redemption of convertible bonds 4 Excludes the additional deferred tax arising from capital allowances on investment properties 5 Market value less UITF 28 adjustment 6 Total borrowings, including bank overdraft and B and preference shares, less short-term deposits and cash, at book value, as a percentage of equity shareholders' funds Corporate Overview We are pleased to report a solid performance and strong progress across all our business units in the six months to 30 September 2002, despite volatility in the financial markets. The investment portfolio has performed well and delivered a small like-for-like valuation uplift of 0.3%. We have made further sales at prices in excess of the March 2002 valuation, benefiting from the appetite of the highly leveraged property investor. We have rigorously re-examined our development pipeline, in particular those schemes planned in Central London and this has reinforced our decision that the time is not right to increase further our speculative development exposure in the City. However, past results demonstrate that one of Land Securities' key strengths is the ability to develop through the cycle and to deliver schemes to the market when occupier demand is improving. We will therefore be progressing the scheme at Stag Place, Victoria, SW1 speculatively. We are pleased with the progress being made by Land Securities Trillium ('LS Trillium'), where we are seeing sound returns on our investment and increased interest in this market. We also returned capital to shareholders following a review of our medium term capital requirements and financial strategy, which resulted in a modest tightening of the Group's balance sheet. We continue to focus on long term and sustainable earnings while we execute our strategy of focusing our activities on the accommodation and service requirements of occupiers. Our progressive dividend policy is demonstrated by our 25-year track record of increased dividend payments. We recognise that in uncertain markets investors seek the relative security of defensive, asset backed securities and, while restructuring, we have ensured that we maintain the financial strength of the Group. We also remain committed to retaining our strong credit rating. Results During the six months to 30 September 2002 revenue profits were steady at £174.5m (30.9.2001: £174.3m). The pre-tax profit of £157.1m included a full six month contribution from Telereal and the BBC contracts but was adversely impacted by exceptional costs of £34.5m incurred in the return of capital, and buying-in the convertible bonds. Adjusted earnings per share are up 1.0% to 24.31p (30.9.2001: 24.07p) and adjusted net assets per share have increased since 31 March 2002 by 6.9% to 1235p per share. The Group realised £309.8m from property disposals and the release of equity from the London Hilton on Park Lane and received a total of £49.7m from Telereal, including a partial repayment of capital. It invested £182.9m in its portfolio and development activities. During the period the Group made no material outlays on investment property acquisitions. The Group also completed its capital restructuring and some 94% of shareholders elected to redeem their ' B' shares immediately, which resulted in a capital return of £511m. The next opportunity to redeem the remaining £30.3m of 'B' shares is in April 2003. The Board has declared an interim dividend of 9.5p per share, an increase of 5.0%, which will be paid on 6 January 2003 to shareholders on the register at 29 November 2002. The dividends proposed will be covered 2.91 times by post tax revenue profits. Board Appointments and Management Changes We are pleased to announce that Mark Collins, 46 and Ian Ellis 46, are to join the Board with immediate effect. Mark joined the Group from GE Capital Real Estate in late May as Chief Executive of Portfolio Management, enabling Francis Salway to take over as Head of the Development Business Unit. Ian Ellis has been Chief Executive of Land Securities Trillium since December 2001. Giles Henderson, non-executive Director, is stepping down from the Board and we would like to thank him for his valuable contribution. We are delighted that Mike Hussey joined as Head of Central London Development and Peter Cleary has been promoted to Head of Retail Development and believe that these two new appointments will help us to deliver our development programme. We are also pleased to announce the appointment of Martin Wood to the new position of Group Tax and Treasury Director. Martin was previously Group Treasurer at Railtrack. The Board will make an announcement on a successor to Ian Henderson, Group Chief Executive, nearer his normal retirement date in July 2003. Valuation The benefits of a diversified asset base have been demonstrated by the steady performance of the investment portfolio, which has marginally increased in value despite the more depressed outlook for the Central London market. The weakness of the London office market has been more than offset by the stronger performance of our retail holdings, with the latter now making up 48% of our total investment portfolio. In the London office market we are again seeing a disconnection between the investment and occupier markets. The investment market is still being driven by the ability of investors to arbitrage between historically low interest rates and property yields, even though demand is softening in the occupier market. We have found that within our own Central London portfolio values have been influenced as much by property specific characteristics as by general market trends and we have even achieved some increases in value in certain assets as a result of either active management, successful rent review settlements or well secured, long term income. All three retail sectors in which we operate - Central London, shopping centres and retail warehousing - have shown a positive valuation uplift via a combination of active management, reversionary growth and yield compression. Investment Activity In the six months under review we entered into a forward purchase agreement with Centros Miller for Fremlin Walk, a 32,500 sq m shopping centre in Maidstone, the development of which is expected to start in March 2003 with completion in 2005. The scheme, which is 50% pre-let, will comprise a 9,300 sq m department store let to House of Fraser and 44 individual units. This transaction illustrates our strategy of investing in retail centres where we believe above average rental and asset value growth can be achieved. We also sold 12 investment properties for £147.7m, the largest of which was Mitre House, EC1 which realised £95m. Since April 1999 we have completed the sale of £1.4bn of investment assets comprising £604m of retail properties, £487m of Central London assets, 83% of which were located in the City of London, and £311m of provincial offices, industrial and other properties. We continue to focus on four core sectors of the UK property market but also capitalised on the strong Central London hotel investment market by entering into a venture in association with London and Regional Properties in relation to the freehold interest in the London Hilton on Park Lane, W1. The transaction resulted in a £155.9m equity release. London and Regional Properties now holds a controlling interest in the venture and will manage it. During the time of our ownership of the London Hilton we achieved significant added-value through various lease re-structures and this transaction offered the opportunity to release a substantial amount of equity from the investment. Central London Offices and Retail Market Overview Over the past few months there have been many reports on Central London office market conditions, particularly in relation to occupier demand in the City of London. Our own research at the end of September showed that vacancy rates for the City and West End have continued to edge upwards with current availability at or slightly below 10% for both markets. This comprises both new supply and space which existing occupiers are seeking to sub-let and, as a result, rents have softened. The various London office sub-markets have different occupier characteristics. In the West End, vacancy rates initially rose more rapidly than in the City, but the rise in availability in the West End has been less marked over the last two quarters. We have recently experienced a slight improvement in the number of occupier enquiries in the West End. In particular the Victoria office market has held up relatively well as a result of a number of government requirements for accommodation. The major part of our West End office portfolio is located in Victoria. The City office market is faring less well with the health of the dominant financial services sector being impacted by the global downturn and supply being less constrained than in the West End. Any return to positive rental growth will take much longer to materialise in the City. City offices represent only 13% of our total investment portfolio. The demand for retail premises in Central London is more resilient. Land Securities is well represented in a number of prime retail locations including Oxford Street, Tottenham Court Road, Victoria Street and Notting Hill Gate. Portfolio Management Across the Central London office portfolio investment voids have increased but remain relatively low at 1.6%. We continue to manage our property assets actively, having concluded 38 rent reviews, 19 renewals and agreed 13 leases. In May we concluded a significant agreement with the Government for a lease extension and refurbishment of Clive House, the former Passport Office, a 1950's office building of 9,400 sq m in Victoria. The new occupant of the building will be the Lord Chancellor's Department pending this Department's move to our property at Queen Anne's Gate, London SW1. The agreement extends the current lease to 2025 at a base rent of £3.3m per annum from November 2004 and is indexed at 2.5% per year throughout the term. In anticipation of the completion of our refurbishment of 7 Soho Square, W1 and Empress State Building, SW6, we have now launched our Landflex product. This offers a contract for flexible accommodation, which we will be offering on selected office buildings in London, designed to offer customers greater choice, price certainty and customer service. Customers are able to select a number of agreement lengths, ranging from six months to 15 years, for different parts of their business in order to align their property requirements more closely with their business plans. The combination of a service charge inclusive rent with annual review by reference to the RPI also gives companies certainty of cost for budgeting purposes over the full period of the agreement. The inclusion of office services to both the customers' own space and common parts enables the customer to focus on its own core business. Development In London we now have planning consent for in excess of 300,000 sq m of office led development which will become available in stages over the next six years. This places us in a strong position to respond to any major occupier with a requirement for new accommodation between now and 2008. While we have been seeking to increase our capital allocation to development activities, our immediate exposure to letting risk on our London office developments is moderate, particularly in relation to the size of our investment portfolio. As at 30 September 2002, our only letting exposure on completed development schemes consisted of the one and a half floors, totalling 2,680 sq m, at Portman House, Oxford Street, W1. Between now and the end of this financial year, we will be completing two further refurbishment schemes comprising approximately 13,500 sq m in total at 190 High Holborn, WC2 and 7 Soho Square, W1. As originally planned 7 Soho Square will be marketed for our new Landflex leasing product. In June 2003, we will complete Empress State Building in Earls Court, SW6, which will provide 40,410 sq m of offices, also for Landflex. Our 36,330 sq m office development at 30 Gresham Street, EC2 which is unique in terms of the size of floor space being delivered into the City market, is on target for completion in December 2003. This is our only office development within the City of London. It is also the only available scheme under construction in the City of London capable of accommodating a single occupier in over 30,000 sq m in a self-contained building. This is a key differentiating factor and we are particularly targeting occupiers with this size requirement. In the context of risk planning on our Central London development pipeline, all of the schemes and the timetables for each have been reviewed carefully. As a result, we have decided to supplement our plans for the New Fetter Lane scheme, where we have planning consent for a single 67,140 sq m building, by seeking planning consent for an alternative option for the site involving a range of building sizes in order to broaden our offer. In addition, we are seeking to extend leases on existing buildings on the site from June 2003 to September 2004. At St Christopher House on Southwark Street, SE1 we have achieved a resolution to grant planning consent from the London Borough of Southwark. Our proposals comprise three office buildings totalling 73,760 sq m together with 10,120 sq m of retail and leisure. We have extended the existing lease on the building by six months to March 2003 at an increased rent. We are now seeking a pre-letting prior to starting development. Our scheme will continue and complement the regeneration of the area initiated by the Tate Modern development. In October, we commenced demolition and placed a building contract for our development at Stag Place, Victoria, SW1, which will provide 50,750 sq m of office development in two buildings and 9,250 sq m of retail accommodation. The scheme is due for completion on a phased basis in 2004 and 2005. Our detailed market analysis shows that this should be a favourable time to deliver new West End offices in terms of both supply and demand. Shopping Centres and Shops Market Overview In the past six months, the shopping centre investment market has continued to improve with yields hardening due to strong demand, particularly from debt-financed investors. While this situation has prevailed for secondary shopping centres and high streets, there have been relatively few transactions in the prime category. The occupational market has been strong for the best locations, although retailers continue to be cautious about rent levels and unit configuration. Against this background, we continue to improve our understanding of our customers' businesses in order to ensure that we offer attractive opportunities in both new developments and existing centres. Portfolio Management We continue to enhance the retail environment across our portfolio and believe that by forging strong community links and delivering a high level of customer service, we can improve the trading conditions for the retailers in our centres and thereby create sustainable growth in rents. This is clearly demonstrated by the activity at the White Rose Centre in Leeds, where we introduced a new customer service training scheme for all our staff and those of the contractors who service the centre. Having been successfully piloted, this is now being rolled out across our portfolio. At White Rose we also bought in three separate retail units and established new open market lettings at rents 10% ahead of prevailing levels. At Almondvale, Livingston, following a lease expiry, we made a small investment to extend a unit to create a total of four units. We let these to JJB Sports, HMV, Blockbuster Video and New Look, raising the rent from £200,000 pa to £670,000 pa, setting a new rental level and improving the overall design of the shopping centre. Through this and other ongoing activities across the retail portfolio, we have achieved 57 new lettings, 17 renewals and 170 rent review settlements and have contained voids to 2.0%. Development The first of our major retail developments due for completion is the New Bull Ring in Birmingham, which is being developed in partnership with Hammerson and Henderson Global Investors. The scheme is planned to open ahead of schedule on 4 September 2003 and is now 64% let or under offer. We have significant interest in the remaining units. We have also made progress on the third phase of our retail led development in Caxtongate, Birmingham. We recently pre-let the entire retail element to Tesco Metro and entered into a joint venture agreement with Crosby Homes for the development of 52 residential units on the upper floors of the scheme. The project is due for completion in mid 2004. At Whitefriars in Canterbury, a 37,220 sq m retail scheme, we placed the main building contract and will complete this on a phased basis with the final element due for completion in July 2005. The new Fenwick department store is due to open in February 2003 when we will start to market the unit shops. In the six months under review, we pre-let a key store within the scheme to Tesco. In July we achieved a resolution to grant planning permission for our proposed town centre retail scheme at Princesshay in Exeter. The 43,670 sq m retail led scheme now comprises an anchor department store, four large stores and 50 new shops as well as leisure and residential accommodation. It is anticipated that the scheme will open in Autumn 2006. We have also made significant progress over the last six months on our proposals for major retail developments in Bristol and Cardiff. In Bristol, working in conjunction with Hammerson, Henderson Global Investors and Morley Fund Management, we submitted an outline planning application to Bristol City Council in August. The outline application is for a 125,700 sq m retail led development together with 260 residential units. In Cardiff, we are working in conjunction with Capital Shopping Centres and submitted an outline planning application at the beginning of November for approximately 70,000 sq m of retail accommodation and 39, 570 sq m (gross) of hotel and residential space. The planning enquiry relating to our proposed 27,730 sq m retail led development in York closed in August, and we await the decision of the Inspector. In the meantime, our current investment in the site generates an income return in excess of our weighted average cost of capital. The retail development programme has the potential to deliver a total of approximately 215,000 sq m of new retail accommodation (including our effective share of schemes being undertaken in partnership). In addition to our retail development programme, we shall shortly be completing our new 17,770 sq m city centre leisure development, The Gate, in Newcastle. This is already 65% pre-let to occupiers such as Odeon Cinema, Tiger Tiger, Beyond Bar and Frankie and Benny's and will become a major leisure attraction in Newcastle. Retail Warehouses The retail warehouse market remains robust with strong occupier demand both from the traditional bulky goods occupiers and High Street retailers such as Argos and Next as well as new entrants such as Borders Books. Investor demand is also strong with competitive yields being seen on a number of transactions. We are working with retailers to reconfigure and re-size retail units across our retail warehouse portfolio. We have negotiated relocations and partial surrenders and taken back 17,850 sq m of which we have re-let 14,700 sq m at an average increase of 83% in rent from £108 per sq m to £198 per sq m. We have also completed large stores of 9,250 sq m for Big W in Manchester and 9,300 sq m for Homebase in Livingston. We have planning permission for a further 33,300 sq m of new development, of which 11,200 sq m is currently under construction, and all of which is pre-let. The development of our regional park in Dundee continues, with Phase Two due for imminent completion and Phase Three due to start next Spring. The extension at West Thurrock has been completed. Two out of the three units are let and we are at an advanced stage of negotiations for a letting of the remaining unit. South-East Industrial Premises The south-east industrial market has softened for lettings although occupiers are still willing to commit to longer leases on well located new space. Demand is also evident from owner-occupiers seeking freeholds. Availability of second-hand space has not grown significantly in the south-east and new development remains restricted through lack of available sites and tight planning policy. We continue to add to our industrial portfolio through the development of 90,000 sq m of accommodation. In September, we acquired a 2.5 hectare site at Langford Locks, Oxford. The site benefits from an outline planning consent and we have now received planning consent for a 11,700 sq m park with 12 warehouse / industrial units. We have also commenced work on Phase II of our development at Juniper, Basildon for 11,150 sq m in four units. In addition, work has commenced on 12,870 sq m at Croydon with units available from June 2003. We completed eight units at Zenith, Basildon where three units representing some 4,200 sq m were pre-let. We also completed Cobbett Park, Guildford, comprising ten units (11,440 sq m), 28% of which were also pre-let. Kent Thameside At the Eastern Quarry site adjacent to Bluewater Shopping Centre, we own 239 hectares of land, approximately half of which will be developable. Our indicative development proposals assisted the Local Authorities in the preparation of the Supplementary Planning Guidance that was adopted in July. Following on from this and an extensive community consultation exercise completed in early October, we are planning to submit an outline planning application for 7,250 residential units and approximately 200,000 sq m of leisure, retail, office and community accommodation within the next few months. At the appropriate time, we will enter into joint venture arrangements with residential development partners. At Ebbsfleet, adjacent to the new Channel Tunnel Rail Link station, we have a 50% interest in 123 hectares of land. This has the benefit of a resolution to grant outline planning consent subject to conclusion of a Section 106 Agreement, which we expect to complete shortly. Given the size of Eastern Quarry and Ebbsfleet, these developments will be phased over an extended period running until 2025. However, there is more immediate activity at our recently acquired land holdings at Crossways Business Park in Dartford. We are currently marketing for disposal a 6,240 sq m office building, and we started construction on a 6,070 sq m office building in September with completion planned for June 2003. On the same site, we have one finished phase of warehouse units, where two of the four units are currently let. This development has been forward funded by a pension fund with progressive release of profit at the time of letting of individual units. Total Property Outsourcing LS Trillium has continued to make good progress in the first six months of this year with income growing to £296.4m. The existing portfolio is summarised in the table below and we are in discussions for a further 1.8million sq m of new outsourcing work. LS Trillium is an increasingly important contributor to Group profits. It is well placed to meet the Group's objective of it contributing 25% to operating profits within five years. The securing of new business necessary to achieve this will be generated through a combination of winning new clients and scope extensions to existing contracts with the Department for Work and Pensions ('DWP'), the BBC and BT. Freehold Leasehold Total (m sq m) (m sq m) (m sq m) _____ _____ _____ Office DWP 0.64 1.00 1.64 Office BBC 0.03 0.03 Office BT 0.80 0.60 1.40 BT Telephone Exchanges 4.11 0.03 4.14 BBC under development 0.05 0.05 TOTAL 5.63 1.63 7.26 Under management but estate not DWP 0.07 Transferred BBC 0.37 _____ _____ _____ TOTAL 7.70 _____ _____ _____ Department for Work and Pensions The half-year has seen considerable activity on the DWP contract, largely generated by the Department's modernisation programme. This has seen us supporting the Early Office Infrastructure project, which is the deployment of a new IT platform across DWP, and offering continued estates strategy and accommodation services to the three newly formed DWP businesses, namely Job Centre Plus, The Pensions Service and The Debt Management Service. This activity has given rise to client enquiries for approximately 100,000 m(2) of new accommodation, as well as generating a requirement to modify properties within the existing 1.6 million sq m DWP estate. In addition to our activities on the modernisation programme, the quality of day-to-day service delivery has been maintained, with a positive trend in customer satisfaction. This contributed to the decision, announced in July 2002, that DWP would enter into negotiations with us in relation to the future management of the former Employment Services estate. Successful negotiations would see an expansion of the existing DWP contract by over 1,100 properties representing an additional 828,000 sq m of accommodation in the second half of 2003. BBC We continue to make good progress with the BBC, with the process of mobilising our facilities management and capital projects teams for the BBC estate in London and Scotland now being complete. The 50,000 sq m development of the new BBC accommodation on the White City site is proceeding to plan, and will be available for phased occupation commencing at the end of 2003. Other new developments of a smaller nature are currently under discussion. We are also working with the BBC to develop plans for major new broadcasting centres in London and in Scotland. If approved, these schemes could add an additional 67,000 sq m net of new fully serviced accommodation to our portfolio. BT The BT contract, operated through Telereal, our joint venture with the William Pears Group, made a £14.9m contribution to half-year pre-tax profits, including £8.9m profit from investment property sales. Sales included the disposal in August of six properties totalling 108,000 sq m with a rent roll of approximately £16.4m per annum for a total consideration of £270m. The transfer of the former in-house BT property team has been successfully completed. We are currently reviewing with BT the scope for transferring further facilities management and capital expenditure responsibilities, although this is unlikely to be finalised in this financial year. Our second joint venture with William Pears, Telereal Ventures, which provides professional property and estate management services to 02 (UK), is seeking to develop its relationship further and extend its 18 month contract. Total Property Outsourcing - Future Growth Market sentiment has become increasingly positive about Total Property Outsourcing with interest growing within both the corporate and public sectors. Driven by the current economic climate and increasing awareness of the cost of inefficiently managed property, an increasing number of organisations are actively focusing on releasing value from their property portfolios and procuring an integrated property solution from a single provider. In the corporate sector, we are progressing a number of potential property outsourcing transactions. In the public sector, beyond the negotiation of the contract expansion with the DWP to include the former Employment Services estate, we expect to see further market activity in 2003. This may include the outsourcing of more central government portfolios as well as the potential for transactions to occur in the local authority market. With our successful track record and robust operating infrastructure, we are confident in the strength of our product offering and ability to continue our profitable growth. Group Objectives and Outlook While we are in a period of substantial global volatility and uncertainty the Group remains in a robust financial position with strong cash flows. We have clearly defined our strategy and are actively implementing this across the Group, which we believe will deliver enhanced earnings in the medium term. The benefits of a first-class management team clearly focussed on delivering enhanced returns by investing in the total property outsourcing market, completing the development pipeline and managing the investment portfolio actively, leave us confident about the future outlook for the Group. Peter Birch Ian Henderson Chairman Group Chief Executive 20 November 2002 Investment Properties Portfolio Valuation at 30 September 2002 Total Total Total Portfolio Portfolio Portfolio (Note 1) (Note 1) (Note 1) Analysis of Valuation Total Surplus/(deficit) £m % % Offices West End 1,434.1 18.5 (1.7) City 1,031.9 13.3 (5.0) Midtown 582.1 7.5 (2.4) Inner London 294.4 3.8 (1.5) Rest of the United Kingdom 81.2 1.1 (2.5) Shopping centres and shops Shopping centres 1,366.9 17.7 3.7 Central London shops 696.8 9.0 1.5 Other in town shops 576.3 7.4 4.0 Retail warehouses Parks 845.5 10.9 2.7 Other (including food superstores) 207.6 2.7 6.4 Industrial premises and warehouses 385.8 5.0 0.4 Hotels, leisure, residential and other 240.5 3.1 3.0 Total valuation 7,743.1 100.0 0.3 Like-for-like Yield on Rental value growth present income (Note 2) (Note 3) % % Offices West End (0.6) 6.6 City (3.8) 8.5 Midtown (5.5) 7.5 Inner London 0.4 9.1 Rest of the United Kingdom (0.3) 8.7 Shopping centres and shops Shopping centres 2.5 6.9 Central London shops 0.1 6.6 Other in town shops 0.7 6.8 Retail warehouses Parks 0.9 5.7 Other (including food superstores) 1.6 7.1 Industrial premises and warehouses 1.6 7.4 Hotels, leisure, residential and other 2.4 6.1 Total valuation (0.4) 7.0 Unexpired lease term Unexpired lease term Median Mean (weighted) by years by years (Note 4) (Note 5) Offices West End 7.0 11.9 City 4.0 10.3 Midtown 6.8 8.5 Inner London 3.3 6.0 Rest of the United Kingdom 3.0 5.1 Shopping centres and shops Shopping centres 11.5 13.5 Central London shops 8.5 9.4 Other in town shops 9.0 11.2 Retail warehouses Parks 15.8 16.8 Other (including food superstores) 17.8 16.2 Industrial premises and warehouses 8.0 8.6 Hotels, leisure, residential and other 10.0 26.1 Total valuation 9.0 11.6 Notes The above tables exclude properties owned by LS Trillium and Telereal and all trading properties. 1. The portfolio valuation figures above relate to the investment portfolio business comprising investment and development properties. The portfolio valuation figures include a one-third apportionment of the valuation attributed to properties owned by the Birmingham Alliance limited partnerships and a one-half apportionment in relation to property owned by the Gunwharf Quays Limited Partnership and the Ebbsfleet Limited Partnership. 2. The like-for-like rental value growth figures exclude properties in the development programme and units of accommodation materially altered or refurbished during the period and is the change in the six months to 30.9.02. 3. Excluding developments, refurbishments and other pre-development holdings. 4. Number of years until half of income is subject to lease expiry / break clause. 5. Rent-weighted average number of years on leases. The investment portfolio was valued by Knight Frank at just over £7.7bn on 30 September 2002. After adjusting for sales, acquisitions and expenditure, on a like-for-like basis, the value increased marginally by 0.3% since 31 March 2002. Detailed breakdowns by sector, including analysis of the rental income yield, are shown above. After excluding developments and refurbishments and other vacant pre-development holdings, the value of the portfolio at 30 September 2002 was £6.8bn. At the same date, the annual rent roll, net of ground rents and excluding the same properties, was £479.4m, 7.0% of this figure. The valuation produced a total surplus of £24.9m made up of a £29.9m deficit relating to properties under development and a £54.8m surplus from other investment properties. The six month period to 30 September 2002 was characterised by continuing strong investor demand and liquidity resulting in yield compression for certain asset classes, particularly retail, retail warehousing and offices let on long leases. Rental growth from the different sectors was more varied across the portfolio, with Central London office rents continuing to soften as a result of the weak occupational market, with this trend being most marked in the City and Midtown. Our West End office portfolio suffered a smaller reduction in rental values largely as a result of our extensive holdings in Victoria - a location which has, in relative terms, benefited from lower vacancy rates and from there being a number of requirements for accommodation from government departments. The retail and retail warehouse sectors have continued to show good rental growth as a result of strong occupational demand and active management which has resulted in just under a 3.2% and 3.4% increase in capital value on a like-for-like basis for each of these two sectors respectively. The investment portfolio comprises 258 assets with over 4,500 tenancies and over 2,000 tenants. Our average lot size is £30m. On the table above we also provide an analysis of unexpired lease terms. The current yield on the portfolio is 7.0%. Overall the portfolio is reversionary with estimated rental values exceeding passing rents by 9.5% after allowing for over-rented income. Financial review For the six months to 30 September 2002 pre-tax revenue profits, which exclude exceptional items, bid costs and profits on disposal of properties were £174.5m, up 0.1% on last year. Headline pre-tax profits were, however, £14.0m lower principally as a result of the exceptional costs incurred in our capital reorganisation and convertible bonds buybacks. Adjusted basic earnings per share, which are based on revenue profits, were up 1.0% and we have declared an interim dividend of 9.5p (2001: 9.05p), a 5.0% increase. Our adjusted diluted net asset value per share is up 6.9% at 1235p, reflecting a small valuation surplus and the accretive impact of the return of capital. There are two factors that distort the comparability of our results for the first half. Firstly, this year's profits include a full six months contribution from Telereal and LS Trillium's BBC contract which did not become operational until the second half of last year. Secondly, the exceptional loss of £28.2m incurred in purchasing our convertible bonds is treated as additional interest while the professional costs associated with the return of capital and introduction of a new holding company have been charged against operating profits. Revenue profits, which exclude the distortions caused by exceptional items and certain potentially non-recurring costs and revenues, were held back by two main factors. Over the last 18 months we have been net sellers of mature assets with limited growth potential, which has diluted pre-tax profits in the first half of this year by £3.4m compared with 2001. Rental income analysis 30.09.01 30.09.02 Increase £m £m £m Common properties 237.8 246.0 8.2 Sales 22.4 5.4 Acquisitions 1.8 7.1 TOTAL 262.0 258.5 £m Explained by: Reviews and renewals 8.7 First lettings 6.3 Net re-lettings of voids 1.4 Voids for redevelopment (5.6) Turnover rents 0.2 Other (2.8) TOTAL 8.2 Property investment Rental income in the first half was £258.5m, compared with £262.0m and £263.9m in the first and second halves of last year respectively. The fall in rental income compared with last year reflects our continued rationalisation of the investment portfolio, where we have been net sellers of property over the last 18 months. Adjusting for the effects of acquisitions and sales, rental income on properties owned throughout the last 18 months increased by £8.2m. Contributing to this increase were £8.7m from reviews and renewals and £6.3m from letting developments, offset slightly by voids and bad debts. The cost of bad and doubtful debts for the current period was 0.18% of rent, a small decrease over the prior period. Overall portfolio voids increased slightly to 1.8% from 0.9%. During the six months, we realised £301.7m (2001: £194.9m) from investment properties, representing an exit yield on valuation of 6.5%. In the same period we spent £19.3m (2001: £80.4m) on acquisitions with an average initial yield of 8% (2001: 7.7%). The net effect of property sales and acquisitions either unconditionally exchanged or completed in the first six months of this year will reduce rental income in the second half of the year by £5.9m. Although profits on sale of properties were £10.6m, compared with £3.5m last year, the reduction in rental income combined with the higher costs of managing our portfolio more actively means that, overall, segment profits for property investment were £234.1m, compared with £236.5m for the same period last year. Development For clarity, we have revised the classification of projects in our 'Development Programme'. As a result it now includes: • Developments which are completed but less than 95% let • Developments on site • Committed developments (being projects which are approved and the building contract let) • Authorised developments (those projects approved by the Land Securities Board for which the building contract has not yet been let). Projects in these classifications are sufficiently firm to ensure that reporting from period to period provides a good basis for performance comparison and they are separately analysed in the relevant notes to the accounts. 'Proposed Developments' will now be excluded from the Development Programme as experience has shown that these schemes can be subject to revision. However, we will continue to give an indication of the likely size and timing of these schemes and their potential impact on cash flow when discussing our 'Development Pipeline', which combines both the Development Programme and Proposed Schemes. The carrying value of the Development Programme assets (which excludes the development for the BBC at White City and trading properties) was £885.6m at 30 September 2002, compared with £790.8m at 31 March 2002 (restated). Under the new classification, the programme excludes the following schemes which were included in developments at the year end: 40/50 Eastbourne Terrace, W2; New Fetter Lane, EC4; St Christopher House, SE1; Bristol; Exeter; Plymouth; York; Cardiff; Dundee, Phase 3; Livingston Retail Park, Phase 2; Hemel Hempstead, Phase 2; Ebbsfleet and Eastern Quarry. Most of these schemes have been reclassified as Proposed Developments. During the period, we incurred expenditure of £145.4m on development (excluding associated capitalised finance costs of £14.0m, incurred on our Development Programme mainly in relation to our projects at the New Bull Ring in Birmingham, 30 Gresham Street EC2, Empress State Building SW6, and the Whitefriars development in Canterbury). We added schemes with a book value of £3.2m to the programme, while projects with a value of £37.9m were completed during the first six months and, being fully let, were transferred out of the development programme. The total valuation surplus on these projects over the development period totalled £15.7m. The estimated future cash spend required to complete the current Development Programme (excluding interest, the White City development for the BBC) will be some £533m. Proposed Developments could add an additional £874m to this figure if we proceed with them. Total Property Outsourcing LS Trillium's results now include profits from the BBC contract and our 50% share of the Telereal joint venture, which did not start until the second half of last year. Segment profits from PRIME and BBC were £18.9m, compared with £12.7m in the corresponding period last year. However, the six months to 30 September 2001 reflected expensed bid costs of £6.7m relating to pre-contract work on the BBC and Telereal projects. After adding back bid costs and removing profits and losses from the sale of surplus properties, underlying segment profits were £19.5m for the current period, compared with £19.4m in the corresponding period last year. Although PRIME has continued to show profit growth in the first half, this has been offset by the expected initial losses incurred by the BBC contract. The contract is expected to become profitable in mid 2004 when the BBC will be in full occupation of the White City development. After interest on debt held in the joint venture, our share of Telereal's pre-tax profit was £14.9m. This includes profits of £8.9m realised on the sale of a portfolio of investment properties within the BT estate. Excluding the impact of bid costs and profits on the disposal of properties, Telereal contributed profits before tax of £7.8m in the current period, compared with £3.5m for the 31/2 months to 31 March 2002. Profits from this contract are evolving in line with our expectations. Cash flow and balance sheet Knight Frank's valuation of the Group's investment properties at 30 September was £7,743.1m, (of which just under £886m related to properties in the development programme), resulting in a net valuation surplus for the period of £21.9m (after adjustment for the impact of UITF 28). On a like-for-like basis, the total value of property investments rose by 0.3% over the six months. The valuation surplus equates to 4.72p per diluted share. The Group had a net cash outflow before the use of liquid resources and financing of £106.0m for the period, compared with £172.0m for the first six months of last year. Our continued capital expenditure programme, which has consumed more cash than capital receipts from the sale of investment properties during the period, is a significant component of this outflow. This, combined with the cash cost of returning £511m of capital to shareholders has resulted in net debt of £2,513m at 30 September 2002, compared with £1,942m at 31 March 2002. Gearing has therefore risen from 32.2% at the year end to 45.3% at 30 September, in line with our expectations. At 30 September 2002 the fair value of the Group's financial liabilities exceeded book value by £645.3m (31 March 2002: £474.9m), reflecting the reduction in long term interest rates since the Group's fixed rate borrowings were originally taken out. After tax, the implied adjustment to the Group's net asset value would be to reduce reported diluted net assets per share by 97p (31 March 2002: 60p) Capital structure During the last six months, we have successfully arranged to return £541m to shareholders. This was achieved by introducing a new holding company for the Group, combined with a B Share issue to all shareholders. Approximately 94% of shareholders elected for an immediate redemption of their B Shares in September at a cash cost to the Group of £511m. The remaining £30.3m of B Shares are next redeemable in April 2003. At the same time we effected a capital reduction which has created some £3.1bn of distributable reserves in the new holding company, giving substantial flexibility for the future. When we announced our intention to return capital to shareholders in May, redemption notices were issued to the holders of our convertible bonds because these bonds were beginning to convert, with bondholders taking advantage of the difference between the share and conversion prices. So, where the opportunity arose at appropriate prices we purchased bonds in the market to pre-empt conversion and successfully acquired some 80% of the bonds outstanding at 31 March 2002. This resulted in an exceptional loss of £28.2m, which is tax deductible. However, £48m nominal of new equity capital was created as a result of bond conversions and we increased the amount to be returned to shareholders from the £500m initially announced to £541m, to offset this. The purchase of the convertible bonds and the return of capital to shareholders was financed by a new £1.5bn syndicated bank facility. If conditions are favourable, we are likely to refinance some of our bank debt in the bond market next year. The return of capital and the purchase of convertible bonds has had a positive impact on earnings per share and net asset value per share, and has also reduced the diluted share capital of the Group. In terms of earnings, the impact in the current period has been small because the return of capital was only effected two weeks before the period end. However, the return accounted for the major part of the 6.9% increase in net asset value per share over the six month period. Similarly, having removed the dilution inherent in the convertible bonds, means that our current fully diluted share capital is only 1% in excess of that in issue. This information is provided by RNS The company news service from the London Stock Exchange

Companies

Land Securities Group (LAND)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today