Half-yearly Report part 2 of 2
Highlights
- Strong performance in growing net assets
 Basic NAV at 2356p up 52p
 Adjusted diluted NAV up 55p to 2236p, an increase of 2.5%
 Out-performance vs IPD Quarterly Universe benchmark by 2.3%
- Valuation surplus of £130.8m or 0.9% on the investment portfolio
 Valuation uplifts from London offices of 4.2%, and Central London shops of
0.7%, with valuation deficits of 1.5% for shopping centres and 3.9% for retail
warehouses
- Excellent progress on the development programme
 Valuation surplus on development of £174.2m
 Development lettings totalling 78,900m2
- Investment portfolio property sales of £929m at 7.8% above March 2007
valuations (before disposal costs)
- Investment portfolio valuation of £15.0bn
- Pre-tax profit of £375.2m (2006: £1,178.2m), down as a result of smaller
valuation surplus
- Revenue profit down 10.5% at £172.8m
- Earnings per share
 Basic EPS at 78.57p down 57.1%
 Adjusted diluted EPS up by 11.0% at 36.46p
- First two quarterly dividends for 2007/08 of 16.0p each, as announced
Retail Portfolio
- Princesshay shopping centre development in Exeter opened, now 92% let
- £0.6bn assets sold in H1, 4.1% above valuation (pre-disposal costs)
- Joint venture entered into with J Sainsbury on three supermarket assets
since period end
London Portfolio
- 97,700m2 of developments completed in H1 and now 95% let
- Record rents for Mid-town in the range of £71psf - £76psf achieved in the
tower building at New Street Square
- The entire office element of 34,600m2 at Bankside 2&3 let to Royal Bank of
Scotland
- £0.3bn assets sold in H1, 15.3% above valuation (pre-disposal costs)
Property Partnerships
- Land Securities Trillium new business - £65m invested and £209m committed in
acquiring PFI contracts
- Disposals of £83.0m generating a profit of £25.1m
- Good progress on establishing the PFI fund: £568m of debt raised since
period end
Chief Executive's Statement
In our first full reporting period since becoming a Real Estate Investment
Trust (REIT), we have delivered a set of results which belie the current
negative sentiment towards the UK commercial property market. Our success has
been founded upon our ability to judge the timing of both our development
programme and our execution of a programme of property sales. During the
period, our Board has also demonstrated its commitment to long-term value
creation for shareholders by undertaking a comprehensive review of our current
business structure.
Our achievements have resulted in a 2.5% increase in adjusted diluted net
assets per share over the six months, founded on a 0.9% valuation surplus from
our £15.0bn investment portfolio. Pre-tax profit was £375.2m, down 68.2% on
the comparable period as a result of a smaller valuation surplus than in the
prior period. As expected, revenue profit, our measure of underlying pre-tax
profit, was down by 10.5% to £172.8m due to the accounting treatment which
requires us to recognise the interest cost of the loan associated with
acquiring Secondary Market Infrastructure Fund (SMIF) but not the income from
the underlying contracts. However, our adjusted diluted earnings per share
were up by 11.0% to 36.46 pence per share, largely as a result of no longer
paying tax on the majority of our activities following conversion to REIT
status on 1 January. For the current financial year commencing 1 April 2007,
we have moved to quarterly dividend payments and, as previously announced, the
second quarterly dividend will be 16.00 pence per share payable on 7 January
2008.
Over a 12 month period we benchmark our performance against three key
indicators, providing shareholders with a clear indication of the value we are
creating. Over a six month period, however, the most relevant indicator of our
performance is a comparison to the Investment Property Databank (IPD), the
industry standard for commercial property performance in the UK. During the
period under review, our ungeared investment portfolio total return was 3.6%
as compared to 1.3% for the IPD Quarterly benchmark. Our outperformance is
largely attributable to the timing and execution of our development programme;
this has delivered substantial valuation surpluses, which accounted for more
than the whole of our overall revaluation surplus. Our financial performance
also benefited from the timing of our sales of £929.1m of investment
properties, where the sale prices were on average 7.8% above valuation
(pre-disposal costs).
The defensive income characteristics of our investment portfolio have
strengthened over the period. As a result of major development lettings, the
average unexpired duration of leases has increased by half a year to
approximately 10 years; and the net reversionary potential of the portfolio
(the extent to which today's rental values exceed rents currently payable) has
increased from 10.6% to 14.6%.
Performance Highlights
We have achieved notable success over the half year in the areas of leasing up
our developments, securing planning consents for the future, selling
investment properties and progressing the establishment of a fund for
investment in Private Finance Initiatives (PFI) contracts.
In our London Portfolio, our development projects delivered a valuation
surplus of 7.5% with the strongest contributions being from New Street Square,
EC4 and Bankside 2&3, SE1, at both of which we achieved significant lettings.
At New Street Square we achieved record rents for Mid-town in the range of
£71.00psf - £76.00psf in the tower building as compared to £42.50psf on our
initial pre-letting within the scheme two and a half years ago. At Bankside
2&3, we were delighted to conclude a letting of the whole of the office
element totalling 34,600m2 to Royal Bank of Scotland. Within the Retail
Portfolio, we opened our Princesshay shopping centre development in Exeter
with the scheme 90% let on the date of opening. The scheme makes a strong
civic contribution to Exeter, and this has been widely recognised in the press
with accolades such as the headline `A Jewel in the Crown'.
We have sold £333.3m of property from our London Portfolio at an average of
15.3% above the 31 March 2007 valuation figures (pre-disposal costs). The
premium pricing reflected, in a number of instances, specific actions we took
to create additional value. An example was at Blackfriars Road in Southwark,
SE1 where we established the likelihood of getting planning consent for a new
building over 2.5 times the size of the existing buildings. Sales from our
Retail Portfolio totalled £589.1m and, despite negative sentiment towards
retail investment property over the whole period, averaged 4.1% above March
valuation figures (pre-disposal costs).
Whilst 2007 represents the high point in terms of the level of our development
completions, we continue to create future opportunities for development in the
medium-term. We obtained planning consent following a Public Inquiry for a
55,700m2 tower building at 20 Fenchurch Street in the City of London; and we
received a resolution to grant outline planning consent for Eastern Quarry,
the largest of our landholdings at Ebbsfleet Valley in Kent.
Our Property Partnerships division, Land Securities Trillium (Trillium), has
successfully widened the base for its new business opportunities by moving
into the PFI sector. We made our principal acquisition in this area, SMIF, in
early 2007 and we stated at the time that we would establish a fund for the
PFI contracts acquired and introduce third party co-investors. We have made
good progress in establishing the fund: we have successfully raised £568m of
debt for the fund; and we are at an advanced stage of discussions with a
number of prospective investors. We expect to move to a first closing for the
fund before the end of this calendar year.
Whilst delivering financial returns for our shareholders continues to be our
first priority, it is increasingly important to us to meet the expectations of
our customers and other stakeholders on environmental issues. We were
therefore delighted to be placed within SustainableBusiness.com's `Top 20
Sustainable Stocks in the World'. We were both the only UK company and the
only property company within this list. We have also been adjudged the Global
Sector Leader in the Financial Services sector in the 2007 Dow Jones
Sustainability Index.
Outlook
We had anticipated a weakening in the pricing of property investments and so
accelerated our programme of property sales in the first half of the calendar
year. We expect the current weak trend in property investment pricing to
continue, but we believe that the greatest impact will be experienced on
secondary properties where, in recent years, yield pricing has not fully
reflected the risks associated with lower quality properties. We therefore
expect our shareholders to benefit, in relative terms, as a result of the high
quality of our portfolio.
Our London development programme completions are concentrated in the current
financial year ending 31 March 2008 reflecting our decision to start a
substantial development programme early in the cycle. We will be completing
148,600m2 of developments in London in the current financial year, and these
projects are now 93% let. Over the next two financial years, when employment
growth in the financial services sector may be weaker, we will be completing
just 25,400m2 of office developments in London.
The leasing environment for our Retail Portfolio has been broadly consistent
over the last 18 months. Our Princesshay project in Exeter once again
demonstrated that high quality schemes which enhance the shopping experience
for consumers will continue to be attractive to retailers. We expect to be
able to sustain the good progress we have made in leasing up our other retail
development projects.
New business acquisitions for Trillium continue to be one of our priorities.
Since 1 April 2007 we have agreed terms to acquire over £274m of additional
PFI contracts, and we are encouraged by recent comments from Government which
reaffirm its commitment to future PFI projects.
Review of Business Structure
The Land Securities Board has completed its review of the structure of the
business and has concluded that, over the long-term, the Group's component
businesses, and shareholders, will benefit from separation, and proposes to
demerge the Group into three specialist separately quoted entities.
This change will represent a continued evolution of the Land Securities
business model. In 2004, the Group demonstrated its preference for a focused,
sector-based approach by exiting industrial property and moving the group
structure to one built around the Retail, London and Outsourcing sectors
rather than the functions of asset management, development and outsourcing.
Since this time, the Group has developed three specialised business divisions,
which have enjoyed strong growth and each of which has considerable scale and
leadership positions within their respective peer groups.
These three divisions have performed well under the current diversified
structure, but the business models are distinctive and have different
financial characteristics:
- RETAIL: The Retail division seeks to create and enhance long-term dominant
assets through development and active management. It focuses on creating
attractive, retail environments to generate sustainable earnings growth.
- LONDON: The London Portfolio has a greater emphasis on development activity
and capital recycling to manage effectively the cyclical nature of its office
market. The portfolio also offers a broader investment in London as one of the
world's major financial centres. It has material retail assets and also major
retail and residential elements in its development programme. In addition, it
offers shareholders significant value creation potential from its Kent
Thameside development, which will be material relative to the size of this
business.
- PROPERTY OUTSOURCING: The historic value creation from Trillium, with a
return on capital since acquisition of 28%, has been outstanding. It now has
market leading positions in both property outsourcing and PFI. However, with
the growing role of PFI and PPP contracts, Trillium's business and operations
have increasingly different characteristics from property investment, and as
such the key valuation metrics are also different.
Trillium has grown by 57% in the last year in terms of floorspace under
management, and it now manages more floor space than the London and Retail
divisions combined. Land Securities' brand and balance sheet have been
important to the development of Trillium to date. However, Trillium now has
the size and track record to operate independently of Land Securities. Having
regard to the different characteristics of Trillium's business and its
valuation metrics, the Board considers that the creation of long-term
shareholder value is best achieved by demerger.
For the Retail and London divisions, the Board also believes that, over the
longer term, the development of each business and the needs of investors will
be better served by a separation of the two. Specifically,
- They operate in market segments with different characteristics and they will
be able to adopt a capital structure best suited to their respective sectors'
outlook;
- They will, in future, each have an acquisition currency that should be
valued in line with the assets or businesses they may wish to acquire at any
point in their respective cycles. As a combined group, the market rating of
London and Retail will tend to reflect an average of the less favoured sector
and the more favoured sector, reducing its effectiveness as a potential
acquisition currency; and
- The full benefit of successful investment decisions will be more visible and
have greater financial impact in separate focused entities.
As separate companies:
- The management teams of London and Retail will have a clear investment
mandate and be able to allocate capital without competing demands driven by
the cyclical dynamics of a different property segment;
- Shareholders will be given the choice of making sector allocations in line
with their individual investment preferences. Shareholders benefit from
greater liquidity and lower transaction costs in dealing through shares to
change sector allocations, than can be achieved by a diversified property
company transacting in property assets; and
- The businesses will be better placed to take advantage of significant
inflows of capital into global real estate funds which typically favour
investment in specialist companies. Over time, the ability to access this
expanding pool of capital is expected to help drive the valuation of
specialised property groups.
Both businesses will retain:
- The strength of their customer relationships through an unchanged presence
in their customers' markets; and
- Stability of cash flows and stable income growth, which result from the five
year, upward only rent review structure in the UK.
Extensive and detailed work needs to take place before the company is in a
position to seek shareholder approval and effect the demergers. The demergers
will be executed when the preparatory work has been completed and only when
market conditions are favourable.
Business Unit Review - Retail Portfolio
Our retail business represents 44.7% of the combined portfolio by value, and
includes 28 shopping centres and 29 retail parks. With over 1,600 occupiers
and 1.7 million m2 of retail accommodation, the Retail Portfolio has a 5.1%
share of the UK's retail commercial property market. Many of our retail
properties form the central shopping districts of major cities and towns
across the UK and we are investing some £1.2bn to create the next generation
of retail schemes through a 380,000m2 development pipeline.
National sales data has shown that retail conditions have remained broadly
similar over the past 12 months and our experience of leasing conditions on
new and existing shopping centres and retail parks is consistent with this,
demonstrating continuing demand for our retail development pipeline.
Across our like-for-like portfolio, we saw rental income growth of 4.7%,
primarily driven by rent review settlements. These rent review settlements
reflect increases in rental value over the last five years. In the last six
months, rental values have continued to increase, but at much more modest
levels, namely 0.8% for the half year. In line with the wider investment
market, valuation yields have increased, particularly for secondary assets and
retail warehouses and this depressed capital values. However, we have
benefited from strong performance from completed developments and also the
greater resilience to adverse yield change of some of our high quality
shopping centres. As a result, we have seen only a small decline in the value
of the Retail Portfolio of 2.2%. The reversionary potential of the portfolio
remains strong at 12.0% and void levels are below market average at 4.0%.
Sales, acquisitions and asset management
We have continued with an active sales programme. We sold £589.1m of retail
assets, the largest of which were the Whitefriars shopping centre in
Canterbury and our 50% stake in the East Kilbride Shopping Centre in Scotland.
Our sales also included £121.9m of retail warehouse assets. On average the
sales were at prices 4.1% above March 2007 values (before disposal costs).
Retail investment acquisitions were not our priority during this period, but
we have agreed to acquire a major development opportunity by establishing a
partnership with Caddick Developments regarding its £80m Trinity Shopping
Centre in Leeds. This centre which will be integrated with our Leeds Shopping
Plaza, an asset we acquired in 2005 as part of our corporate acquisition of
Tops Estates plc. This scheme is planned for completion in 2010. The combined
development incorporating our refurbished Leeds Shopping Plaza will provide a
total of 83,640m2 of retail floorspace in a prime location in the centre of
Leeds.
We have secured some £10.3m p.a. of rent in new lettings within the portfolio,
all of which have either driven rental growth or improved tenant mix.
Our void levels have increased slightly on a like-for-like basis and are now
at 4.0% of ERV. 26% of these are currently in solicitors' hands and a further
17% are being held vacant pending redevelopment or refurbishment work.
We continue to create additional revenue opportunities from within our Retail
Portfolio. As an example of this, 14 of our shopping centres have entered into
an advertising partnership with Sky which will generate some £3.5m over the
next five years.
Development
We made excellent progress on our retail development programme, completing
59,710m2 of retail floor space with an annual rent roll of £16.7m and letting
some 18,000m2 across our major schemes.
We successfully launched our 44,600m2 mixed use regeneration scheme at
Princesshay, in Exeter city centre in September 2007. Introducing 35 new
retailers to the region and providing retail accommodation for 14 independent
traders, the scheme demonstrated that the right retail product attracts strong
demand from retailers. Christs Lane, Cambridge and the first phase of Corby's
regeneration also achieved significant retail pre-lets ahead of their
openings.
The 140,000m2 Cabot Circus scheme is set to transform the heart of Bristol
upon its launch in September 2008. Together with our development partner,
Hammerson, we have secured 59,000m2 of lettings bringing it to 79% pre-let or
in solicitors' hands by floor area or 68% by income, 12 months ahead of
opening. The retail led mixed use scheme will establish Bristol as one of the
leading fashion and leisure destinations outside London.
In Cardiff we are progressing the St David's 2 development with Capital
Shopping Centres to regenerate the city centre with 106,400m2 of retail,
leisure and residential accommodation. The first phase of the catering units
is fully let. The scheme will bring the first John Lewis department store to
Wales and is on schedule for an autumn 2009 opening.
Construction is underway on The Elements, Livingston, where we are extending
the existing shopping centre to provide an additional 32,000m2 of retail
space, 5,670m2 of leisure, residential accommodation and new public spaces.
Debenhams and Marks & Spencer will anchor the scheme which is on schedule for
an autumn 2008 completion.
In our retail warehouse portfolio we completed 22,350m2 of new space including
the 13,380m2 Peterborough Retail Park, which was 91% pre-let to B&Q and
Matalan, with one remaining unit under offer. At Thanet we completed a 8,970m2
leisure park, which is 100% pre-let, and is adjacent to our Westwood Cross
fashion park improving the mix of uses and the overall car parking provision.
In April we submitted a joint planning application with Henderson Global
Investors for the 65,000m2 expansion of Buchanan Galleries, Glasgow, and a
resolution to grant outline planning consent was passed in early November. The
new scheme will create further retail space in the UK's second ranked shopping
destination, and will also provide residential accommodation and upgraded
transport facilities for the city centre.
Business Unit Review - London Portfolio
During the last six months we have continued to implement the strategy we set
several years ago. We have executed our programme of sales of mature,
potentially ex-growth assets. We have also continued to deliver strong
performance from our development properties with some market-leading leasing
transactions.
Our London Portfolio represents 54.9% of our overall investment portfolio by
value. This 1.1 million m2 London portfolio represents a 5.1% share of
London's total office accommodation. We continue to invest in our mixed use
development clusters across the capital, creating innovative buildings in
improving areas. We currently have over 600 occupiers in our London Portfolio
accommodating more than 50,000 people.
The London Portfolio delivered a strong performance with a valuation surplus
of 3.6%. This was driven by a 7.5% surplus on our developments. The valuation
increase for the like-for-like assets was 2.7%. We saw growth in rental values
of 9.5%, and the portfolio is now 19.1% reversionary. Void levels have
declined from 4.8% in March to 4.4% in September on a like-for-like basis.
Sales, acquisitions and asset management
During the first half of the year we have sold £333.3m of London property,
including Greater London House, NW1 and 20 Blackfriars Road, SE1. Our
properties sales were, on average, at 15.3% above March 2007 values. We
purchased £537.1m of investment properties with a focus on the areas to the
east of the City, which we had already identified as providing future growth
potential, namely Harbour Exchange, E13 and Thomas More Square, E1. This
latter complex provides over 52,000m2 on a 4.2 acre site and is let at low
rents averaging £28psf. We also completed the purchase of a further 50.5%
interest in Times Square, EC4, in Queen Victoria Street in the City, taking
our holding to 95%.
With the recent disposal (after 30 September) of our Lime Street Estate in
EC3, we have largely completed the sale of assets identified for disposal 18
months ago. We believe the balance of the portfolio provides a strong blend of
investment assets and buildings offering medium-term development
opportunities.
In terms of asset management, we have focused on two key areas: firstly,
maximising income, in the short-term on assets targeted for redevelopment in
the next cycle; and, secondly, improving the performance of our Central London
retail assets with a particular focus on customer relationship management.
Development
We have delivered excellent performance from our developments. We initiated
our development programme early in the cycle, anticipating improving market
conditions. We have been rewarded for this early commitment to development by
the levels of development surpluses and the fact that we have already let 93%
of our schemes which are due for completion in the current financial year.
The London Portfolio has secured strong development lettings totalling
60,800m2 over the six month period. These include the letting of Bankside 2&3,
SE1 to Royal Bank of Scotland, 35% of the office space at One New Change, EC4
to K&L Gates, and further lettings at New Street Square, EC4. The office space
at New Street Square is now 87% let and has set record rents for the Mid-town
market, establishing the location as a leading destination for the legal and
professional community. The offices at Cardinal Place, SW1 are now fully let
to occupiers including 3i and Microsoft; and One Wood Street, EC2 has been
handed over to the occupier, Eversheds, for fitting out.
With the good progress of lettings on the latest phase of developments, we
have moved on to focus on the new generation of schemes to be delivered beyond
2010.
At 20 Fenchurch Street, EC3 we received notification that the Secretary of
State has confirmed the grant of planning consent for our proposed tower
building. Demolition works are already underway and will complete in March
2009. At that time we will review how we will take the project forward.
We submitted outline planning applications for some 92,900m2 of space at
Ludgate Hill, EC4 and Fleetbank House, in Salisbury Square, EC4. In August we
also submitted a joint planning application with Transport for London for the
`Victoria Transport Interchange', a 180,000m2 regeneration of the area to the
north of Victoria station, to include office, retail, leisure and residential
accommodation. The application also sets out our proposals to improve the
public realm and address the capacity constraints of the local transport
network to create a world class transport interchange.
Business Unit Review - Urban Community Development
Kent Thameside
Our focus here has continued to move towards delivery of development as the
planning phase draws to a conclusion.
At Eastern Quarry, Dartford Borough Council resolved to grant Outline Planning
Permission in July 2007 and it is anticipated that the Section 106 Agreement
will be signed in November. This will allow the development of up to 6,250
homes and 232,000m2 of office, retail, leisure and community space. It is
anticipated that infrastructure works will commence in 2008 with construction
of the first dwellings beginning in late 2009.
At Ebbsfleet, the new international train station opens on 19 November 2007
for Eurostar services providing a total of 12 trains a day to Brussels and
Paris.
At Springhead, good progress is being made with our joint venture partners,
Countryside Properties, on the delivery of the first 383 new homes of the 600
planned. The primary infrastructure and first homes are now under construction
with first occupations targeted for autumn 2008.
Sales continue at our residential scheme at Waterstone Park with an agreement
having been reached with Countryside Properties to deliver the final phase of
the project.
Milton Keynes
With our joint venture partner Gazeley Limited, we completed the development
of the 60,400m2 distribution centre which had been pre-let to John Lewis and
which we have now sold. Our share in the project generated some £35.0m of sale
proceeds and a profit of £8.1m.
Business Unit Review - Property Partnerships
Trillium provides Property Partnership services in the outsourcing and Public
Private Partnership (PPP) markets. In the six months under review it generated
19.9% of the Group's underlying operating profit, some £57.8m. This business
now has 4.8 million m2 of floor space under ownership or management. It is
involved in 123 long-term partnerships, providing accommodation services to
more than 455,000 people.
Trillium delivered strong results for the six months under review and made
excellent progress on its new business pipeline with £65m invested in seven
new PPP acquisitions and a further £209m invested since the period end. In
addition to the underlying operating profit of £57.8m, the business also
generated £25.1m of profits on disposal.
The outlook for Trillium is positive in terms of new business prospects. In
its Pre Budget Report, the Government reiterated that £22.2bn worth of PFI
projects (which are part of Trillium's PPP market) are expected to reach
financial close before April 2011, and that PFI should continue to form a
significant part of the Government's strategy for delivering high quality
public services. As a leader in the education and health markets, we believe
Trillium is well placed to take advantage of these opportunities.
In addition, the Government restated its objective of selling public sector
assets totalling £30bn by 2011. This sales programme will include a
significant amount of property assets and the Trillium partnership approach
can offer long-term operating efficiencies as well as capital realisation, a
potentially more attractive solution.
Trillium Financial Results
The results for the period are set out in the table below:
Table 1: Trillium financial results
Six months Six months
ended ended
30 30 Year ended
September September 31 March
2007 2006 2007
£m £m £m
Contract level operating profit
 DWP 45.2 42.8 81.0
 Norwich Union 4.8 3.9 9.2
 Barclays 0.9 1.2 3.3
 DVLA 1.8 0.7 1.7
 Telereal II 7.6 7.0 16.1
 Accor 11.6 - 1.5
 Royal Mail 2.1 - -
 BBC - - 2.8
Bid costs (3.1) (1.4) (2.8)
Central costs (15.4) (5.7) (14.0)
Other 2.3 3.3 -
Underlying operating profit 57.8 51.8 98.8
Net (deficit) / surplus on revaluation of investment
properties (8.8) 0.3 (13.6)
Profit on disposal of properties 15.1 8.5 7.5
Profit on disposal of a PPP project (Meterfit) 10.0 - -
Segment profit 74.1 60.6 92.7
Share of profit / (loss) from Investors in the
Community (IIC) (joint venture) 0.1 (1.1) (3.0)
Capital employed 2,135.2 663.7 2,032.5
Existing contracts
On the Department for Work and Pensions (DWP) contract, we disposed of
35,380m2 of surplus leasehold space and 33,500m2 surplus freehold
accommodation. The proceeds from the freehold disposals were £46.9m, which
showed a net profit on book value of £14.1m after gain share.
DWP issued vacation notices during the period on 67,026m2 (63% leasehold and
37% freehold) and actual vacations during the period were in line with
expectations. The negative impact of vacations on our profitability was offset
by a one off payment for backdated services, and income growth due to
indexation.
We have completed a programme of 13 refurbishment projects on the Royal Mail
portfolio and let or disposed of 10,200m2 of surplus space, which is ahead of
our expectations at the time we won this contract.
On the DVLA contract, we have been awarded three scope extensions to provide
an additional 7,000m2 of accommodation with capital investment of
approximately £26m over the next 18 months.
The turnover on the Accor hotels portfolio increased by 5.6% over the period.
However, as a result of yield re-pricing in the property investment market,
there was only a small underlying increase in investment value (excluding
purchase costs) during the period.
The increase in central costs primarily reflects the inclusion of the SMIF and
IIC businesses.
New business
In July, Trillium announced the purchase of AMEC's Project Investments
business for £163.5m which included AMEC's interests in nine signed PFI
projects in healthcare, transport and education, one preferred bidder project,
and the PFI/PPP bidding and asset management team. Some of the projects were
in joint ownership and were subject to pre-emption clauses in favour of the
joint owners. As a result of the exercise of pre-emption clauses on two small
projects our acquisition now relates to seven signed projects and one at
preferred bidder stage for a total net consideration of £152.4m. The purchase
was completed after the period end. Since the period end, we have also
completed on the purchase of nine new PPP health assets from United Medical
Enterprises for a total consideration of £56.6m.
For the Northern Ireland Civil Service, the new Assembly Government has
confirmed its support for the outsourcing proposal, and we now await the
outcome of a legal challenge to the shortlist selection process. We are one of
two shortlisted parties who will be invited to submit best and final offers
once this has been resolved.
On the Defence Training Review (DTR) outsourcing contract, our Metrix
consortium with Qinetiq remains as preferred bidder on Package 1. Good
progress has been made and the Ministry of Defence (MoD) anticipates
committing to the final developmental phase in spring 2008, with a view to
financial close a year later. Metrix also remains as provisional preferred
bidder for Package 2. However, having concluded that there are insufficient
efficiencies to move forward with a "Whole Programme Solution" for DTR, the
MoD continues to consider a range of options for Package 2, from adaptations
of the Metrix proposal through to conventional procurement.
We are shortlisted for the Building Schools for the Future (BSF) projects in
Birmingham and Kent where the initial phases involve in excess of £200m of PPP
capital expenditure. It is anticipated that the preferred bidders will be
announced this financial year.
PPP market update
Following the integration of the of SMIF and IIC businesses last year, the
acquisition of AMEC's Project Investments business has further strengthened
our position at the forefront of the UK PPP market. We now have an unrivalled
team engaged in the development and acquisition of new business opportunities.
Our portfolio and our underlying asset and capital management activities have
made significant progress. We are in the process of establishing our own debt
aggregation vehicle, which will reduce over the long-term the cost of capital
in our underlying investments. The completion of a major school refinancing,
together with a 29% reduction in insurance premia through our consolidated
buying programme, were also notable achievements.
In April, we commenced the establishment of a new joint venture fund, aimed at
bringing in third party investors alongside our own long-term investment in
the venture. Once established, this will be the largest venture of its kind in
the marketplace. UBS have been appointed as our advisers on this initiative,
which is intended to release in excess of £750m of capital and provide us with
a further ongoing source of capital that will support our new business
platform. Notwithstanding the turmoil prevailing within the credit markets, we
have made good progress and expect to achieve a first closing this year with a
final closing before our financial year end.
During the period we completed the disposal of Meterfit, one of the non-core
utility businesses we acquired as part of the SMIF transaction generating a
profit on sale of £10.0m.
Financial results
Headline results
Profit before tax was £375.2m for the six months to 30 September 2007, down
from £1,178.2m for the comparable period. `Profit before tax' includes the
revaluation surplus on our investment properties, and the reduction in profit
before tax for the period was almost entirely due to the lower, but still
positive, revaluation surplus on our investment properties. Earnings per share
at 78.57p were similarly impacted (six months to 30 September 2006: 183.25p).
Revenue profit, our measure of underlying profit before tax, decreased from
£193.1m to £172.8m for the reasons explained below under `Revenue profit'.
Adjusted diluted earnings per share showed an 11.0% increase on the prior
period to 36.46p (six months to 30 September 2006: 32.84p), the increase being
largely attributable to the majority of our activities no longer being subject
to tax since we became a REIT on 1 January 2007.
The combined portfolio rose in value from £14,752.5m to £15,043.2m. This
included a valuation surplus of £130.8m or 0.9%. Net assets per share rose by
2.3% to 2356p from 2304p, with adjusted diluted net assets per share rising by
2.5% to 2236p (31 March 2007: 2181p).
Profit before tax
The main drivers of our profit before tax performance are the change in value
of our investment portfolio (including any profits or losses on disposal of
properties), our net rental income, the performance of Trillium, and the
amount of net interest we paid. The degree to which movements on these and
other items led to the reduction against the comparable period in our profit
before tax to £375.2m (six months to 30 September 2006: £1,178.2m) is
explained in Table 2 below:
Table 2: Principal changes in profit before tax and revenue profit
Profit Revenue
before tax profit
£m £m
Six months ended 30 September 2006 1,178.2 193.1
Valuation surplus (840.4) -
Profit on disposal of non-current properties 38.1 -
Profit on disposal of PPP projects 10.0 -
Profit on sale of trading properties (0.6) -
Increase in capitalised interest (1) 20.9 20.9
Amortisation of bond de-recognition (2) 6.3 -
Long-term development contract profits (3) (8.4) -
Property Partnerships profit (4) 7.2 7.2
Net rental and service charge income (5) (3.2) (3.2)
Indirect costs 0.2 0.2
Interest on SMIF acquisition loan (27.1) (27.1)
Other interest (6) (18.3) (18.3)
Debt restructuring charges 5.3 -
Other 7.0 -
Six months ended 30 September 2007 375.2 172.8
Notes:
1. Increased development activity, with several developments commencing since
1 October 2006 (One New Change, St David's 2, Cardiff and The Elements,
Livingston).
2. The debt instruments issued as part of the refinancing in November 2004 do
not meet the de-recognition requirements of IAS39 as they are not deemed to be
substantially different from the debt they replaced. As a result, the book
value of the new instruments is reduced to the book value of the debt it
replaced and the difference is amortised over the life of the new instruments.
The decrease in amortisation over the comparable period is a reflection of the
maturity profile of debt replaced.
3. Lower levels of activity on the development contract at Broadcasting House.
4. Profits from Accor, Royal Mail and one-off income from DWP, offset by
increased central costs.
5. Decrease in net rental and service charge income is largely driven by
disposals made in the year ended 31 March 2007.
6. Other interest, includes interest on the REIT conversion charge paid in
July 2007 (£316.2m), which amounted to £3.6m.
Revenue profit
Revenue profit is our measure of the underlying pre-tax profit of the Group,
which we use internally to assess our performance. It includes the pre-tax
results of our joint ventures but excludes capital and other one-off items
such as the valuation surplus, gains on disposals, trading profits and profits
on long-term development contracts.
Revenue profit for the six months fell by 10.5% from £193.1m to £172.8m, for
the reasons set out in Table 2.
While Trillium's operating profit is at a similar level to last year, at the
revenue profit level there has been a decline of £34.5m, largely attributable
to interest on the SMIF assets acquired in February 2007. SMIF owns and
provides management services to PPP projects. Since it remains our intention
to divest the PPP investments by transferring them to a fund and bringing in
outside investors while maintaining a minority interest, we have treated these
assets as a disposal group. The accounting implications of this are that we do
not consolidate the individual assets and liabilities of the PPP investments.
Instead, they are held in the balance sheet at fair value less costs to sell
and we do not recognise our share of the underlying net income of the PPP
projects. However, we do include the interest cost of the loan associated with
acquiring SMIF in Group revenue profit as well as the cost of the SMIF
management team. For the six months to 30 September 2007, the interest cost
associated with the acquired SMIF business amounted to £27.1m.
A reconciliation between profit before tax and revenue profit is shown in
Table 3 below:
Table 3: Reconciliation of profit before tax to revenue profit
Six months Six months
ended ended
30 30
September September
2007 2006
£m £m
Profit before tax 375.2 1,178.2
Valuation (surplus) / deficit - Group (145.5) (896.7)
Valuation (surplus) / deficit - joint ventures 23.5 (65.7)
(Profits) / losses on non-current property disposals - Group (79.0) (33.6)
Non-current property disposa ls - joint ventures 7.3 -
Profit on disposal of PPP projects (Meterfit) (10.0) -
Mark-to-market adjustment on interest rate swaps 4.2 (6.2)
Eliminate effect of bond exchange de-recognition 2.3 8.6
Debt restructuring charges 1.0 6.3
Joint venture tax adjustment 3.0 20.4
Profit on sale of trading properties - Group - (8.8)
Profit on sale of trading properties - joint ventures (8.2) -
Long-term development contract profits (1.0) (9.4)
Revenue profit 172.8 193.1
Earnings per share
Basic earnings per share decreased by 57.1% to 78.57p (six months to 30
September 2006: 183.25p), the decrease predominantly relating to the lower
revaluation surplus.
In the same way that we adjust profit before tax to remove capital and one-off
items to give revenue profit, we also report an adjusted earnings per share
figure, for which the calculation is set out in note 7 to the financial
statements. Adjusted diluted earnings per share increased from 32.84p per
share for the six months ended 30 September 2006 to 36.46p per share in 2007,
an 11.0% increase. The increase in adjusted earnings per share is largely
attributable to a significantly lower tax rate following REIT conversion
partially offset by the interest costs associated with the SMIF acquisition.
Dividends
As announced at our preliminary results in May 2007, we have commenced paying
dividends on a quarterly basis. We will be paying a second quarterly dividend
of 16.0p per share on 7 January 2008 to shareholders on the register on 7
December 2007. Taken together with the first quarterly dividend of 16.0p, paid
on 26 October 2007, this makes a first half dividend of 32.0p per share (2006:
19.0p), which represents a 68.4% increase. Part of this substantial increase
arises because quarterly dividends result in the total dividend being more
equally spread between the first and second half of the year than was the case
last year. Nevertheless, on an annualised basis our quarterly dividends imply
an increase in the total dividend for the year of over 20%. The third
quarterly dividend will be paid on 25 April 2008.
Both quarterly dividends comprise 80% Property Income Distribution (PID) from
the REIT qualifying activities. The PID element is subject to 22% withholding
tax for relevant shareholders. The Company offers shareholders the option to
participate in a Dividend Reinvestment Plan (DRIP). For further details please
refer to the Shareholder centre, within the Investor section of our corporate
website www.landsecurities.com
Balance of business tests
REIT legislation specifies conditions in relation to the type of
business a REIT may conduct, which the Group is required to meet in order to
retain its REIT status. In summary, at least 75% of the Group's profits must
be derived from REIT qualifying activities (the 75% profits test) and 75% of
the Group's assets must be employed in REIT qualifying activities (the 75%
assets test). Qualifying activities means our property rental business. The
result of these tests for the Group for the six months ended 30 September 2007
and at the balance sheet date is as follows:
Table 4: REIT balance of business tests
For the six months ended / at 30 September 2007
Tax-exempt Residual Adjusted
business business results
Adjusted profit before tax (£m) 186.5 (12.0) 174.5
Balance of business - 75% profits test 106.9% (6.9%)
Adjusted total assets (£m) 16,189.5 2,308.1 18,497.6
Balance of business - 75% assets test 87.5% 12.5%
If the £27.1m interest cost of the SMIF acquisition loan is eliminated from
the above figures, the profits of the tax-exempt business comprise 92.5% of
total adjusted profits.
Net assets
At 30 September 2007, net assets per share were 2356p, an increase of 52p over
the six months since 31 March 2007.
In common with other property companies, we calculate an adjusted measure of
net assets which we believe better reflects the underlying net assets
attributable to shareholders. In previous years, the main adjustment to net
assets has been to remove the deferred tax on revaluations. Since we no longer
provide for deferred tax on revaluations due to our REIT status, this
adjustment is no longer required. As a result, our adjusted net assets are now
lower than our reported net assets primarily due to the debt adjustment we
continue to make. Under IFRS, we do not show our debt at its nominal value,
although we believe it would be more appropriate to do so and we therefore
adjust our net assets accordingly. At 30 September 2007, adjusted diluted net
assets per share were 2236p per share, an increase of 2.5% from 31 March 2007.
Table 5 summarises the main differences between net assets and our adjusted
measure together with the key movements over the periods.
Table 5: Net assets
Six months Six months
ended ended
30 30 Year ended
September September 31 March
2007 2006 2007
£m £m £m
Net assets at the beginning of the period 10,791.3 7,493.9 7,493.9
Adjusted earnings 170.8 154.7 330.0
Revaluation surpluses on ongoing and completed
development properties * 174.2 188.1 331.4
Revaluation (deficits) / surpluses on investment
properties (excluding Trillium) * (43.4) 485.3 710.1
Revaluation (deficits) / surpluses on Trillium
investment properties * (8.8) 0.2 (10.1)
Profits on non-current asset disposal * 81.7 47.7 105.2
Interest charges not included in adjusted earnings * (7.5) (6.1) (13.0)
Tax (charge) / credits not included in adjusted
earnings - (10.1) 2,074.7
Profit after tax 367.0 859.8 3,528.3
Dividends paid (159.5) (133.8) (223.0)
Other reserve movements (75.8) (28.2) (7.9)
Net assets at the end of the period 10,923.0 8,191.7 10,791.3
Deferred tax on investment properties - 151.5 -
Deferred tax on net revaluation surpluses - 2,007.7 -
Mark-to-market on interest rate hedges (14.5) 1.1 (23.6)
Debt adjusted to nominal value (516.8) (369.3) (519.1)
Adjusted net assets at the end of the period 10,391.7 9,982.7 10,248.6
* These amounts are post-tax
Drivers of performance
A key driver of the increase in our net assets is the underlying performance
of our investment portfolio, which includes our share of joint ventures (see
Table 6).
The positive valuation surplus on our investment portfolio was wholly
attributable to the success of our development programme in that the valuation
surplus on the development programme of £174.2m exceeded the surplus on our
overall investment portfolio at £130.8m.
On the like-for-like portfolio which excludes developments and acquisitions
and so allows for performance comparison of income growth and yield change
over time, there was a small valuation deficit for the six months of £37.8m or
0.4%. As expected there has been a re-pricing of property investments which
has seen yields rise and capital values fall. This re-pricing would in itself
have decreased capital values on our like-for-like portfolio by some 4.6%, but
it was largely offset by continuing rental value growth of 4.6% over the six
month period.
As stated, our development programme, including our share of joint ventures
and those properties completed and let in the six months, produced a valuation
surplus of 5.9% or £174.2m. We have an estimated further spend of £851m on the
projects currently underway which, when complete and fully let, will produce
£160m of annual income (at today's estimated rental value). Capital
expenditure on proposed developments could total a further £882m if we proceed
with these schemes, which are held as part of the investment portfolio and
have a current carrying value of £555m. The figures given for capital
expenditure represent the Group's actual or forecast cash outlays on
developments, excluding land values and capitalised interest. The total
development cost for the full development pipeline is £3.7bn, of which £2.3bn
relates to our current development programme.
The net reversionary potential of the like-for-like portfolio at the half year
end was 14.6% compared to 10.6% six months ago. Void levels on our
like-for-like Retail Portfolio have increased over the six months from 3.9% to
4.0%, but still stand well below the UK average void level for retail
properties as measured on the IPD Quarterly Index of 5.9% (September 2007). On
our like-for-like London Portfolio, void levels have decreased from 4.8% to
4.4%.
Table 6: Valuation and rental income summary
Rental
income
for
the
Rental six Rental
Open Open Open income months income
market market market for the ended for the
value at value at value at six 31 six
Valuation months March months
30 31 March 30 surplus / ended 30 ended 30
September September (deficit) September 2007 September
2007 2007 2006 (1) 2007 (1) (1) 2006 (1)
£m £m £m % £m £m £m
Shopping centres and
shops 3,120.4 3,173.9 3,138.8 (2.1) 92.0 90.7 87.9
Retail warehouses 1,963.5 2,033.1 2,023.8 (4.2) 43.5 42.5 41.6
London retail 1,024.1 1,005.8 964.8 1.3 21.6 23.3 22.7
London offices 3,860.9 3,702.6 3,449.1 2.9 94.6 95.4 95.5
Other 733.3 727.7 696.2 (1.2) 13.5 13.7 12.8
Like-for-like investment
portfolio (2) 10,702.2 10,643.1 10,272.7 (0.4) 265.2 265.6 260.5
Completed developments 1,307.5 1,166.1 963.9 4.5 17.6 17.3 9.2
Acquisitions 1,149.9 631.7 463.4 (0.5) 20.5 15.1 5.5
Disposals and
restructured interests - 869.3 1,679.7 - 15.2 32.6 42.7
Development programme
(3) 1,883.6 1,442.3 1,060.1 6.9 10.3 11.9 18.4
Combined portfolio 15,043.2 14,752.5 14,439.8 0.9 328.8 342.5 336.3
Adjustment for finance
leases (5.8) (6.3) (6.3)
Combined portfolio 323.0 336.2 330.0
Notes:
1. The valuation surplus / (deficit) and rental income are stated after
adjusting for the effect of spreading rents and rent free periods over the
duration of leases in accordance with IFRS but before restating for finance
leases.
2. Properties that have been in the combined portfolio for the whole of the
current and previous financial periods.
3. Development programme comprising projects which are completed but less than
95% let, developments on site, committed developments (approved projects with
the building contract let), and authorised developments (projects approved by
the Board, but for which the contract has not yet been let).
Table 7 details the top six performing properties over £50m in each sector by
revaluation surplus together with an explanation of the key drivers of their
performance, which primarily relate to development activity in London
Portfolio and rental value growth for the Retail Portfolio.
Table 7: Top six performing properties over £50m for Retail and London Portfolio
Valuation Valuation
surplus surplus
Retail Portfolio % Description London Portfolio % Description
Corby Town Centre 4.6 Rental value New Street
growth Square, EC4 19.8 Development
Princesshay, 4.0 Development Bankside 2&3,
Exeter SE1 15.8 Development
Gunwharf Quays, 2.3 Rental income 140 Aldersgate,
Portsmouth growth EC1 9.3 Rental value growth
Buchanan 1.1 Rental income Selborne House, Potential
Galleries, growth SW1 development
Glasgow 9.2 opportunity
Westwood Cross, 1.0 Rental value 70/88 Oxford
Thanet growth Street, W1 6.8 Rental value growth
The Mall, 1.0 Rental value Dashwood House,
Stratford growth EC2 6.4 Development
Cash flow, net debt and gearing
During the period, our cash expenditure exceeded cash receipts by £776.5m, and
as a result net debt increased to £5,864.4m (31 March 2007: £5,087.9m). During
the six months we paid the REIT conversion charge of £316.2m, and in total we
invested £1,126.7m in our properties and PPP assets including £552.7m on
investment property acquisitions and £246.2m on development. The development
expenditure, which includes land acquisitions but excludes our share of joint
ventures and capitalised interest, was spent principally on New Street Square,
EC4, Queen Anne's Gate, SW1, in London and shopping centre developments in
Exeter and Livingston. In Trillium, we spent £153.0m on property acquisitions
(primarily Accor hotels), £35.8m on Norwich Union and DVLA buildings and
contributed £61.0m to the disposal group for further PPP acquisitions.
Cash receipts during the six months totalled £799.4m from investment portfolio
property disposals, which included Whitefriars, Canterbury, Greater London
House, NW1 and New London House, EC3. This excludes the £193.4m received on
the disposal of East Kilbride Shopping Centre, where the majority of the
proceeds were used to repay debt in the Scottish Retail Property joint
venture. A further £30.6m was received from the sale of operating properties.
We advanced a net £29.8m to our joint ventures, including £71.7m invested in
shopping centre developments in Bristol and Cardiff, which was largely offset
by £43.1m received on disposals, the largest of which was East Kilbride
Shopping Centre.
The factors contributing to the increase in net debt of £776.5m are shown in
Table 8 below:
Table 8: Cash flow and net debt
Six months Six months
ended ended
30 30 Year ended
September September 31 March
2007 2006 2007
£m £m £m
Operating cash inflow after interest and tax (excluding
REIT conversion charge) 86.0 174.1 361.5
REIT conversion charge (316.2) - -
Dividends paid (159.5) (133.8) (223.0)
Investment property acquisitions (552.7) (473.4) (523.7)
Property Partnerships property acquisitions (153.0) (12.4) (416.5)
Development and refurbishment capital expenditure (318.9) (206.6) (532.6)
Investment in finance lease receivables (Norwich Union
and DVLA) (35.8) (18.9) (43.3)
Investment in properties (1,060.4) (711.3) (1,516.1)
Acquisition of SMIF and IIC - - (919.0)
(Investment in) / receipts from the disposal group (61.0) - 25.0
Other capital expenditure (5.3) (9.1) (18.8)
Total capital expenditure (1,126.7) (720.4) (2,428.9)
Disposals 855.3 334.2 869.8
Joint ventures (29.8) (38.4) 50.0
Purchase of share capital (81.1) (35.7) (36.2)
Other movements (4.5) 5.1 4.8
Increase in net debt (776.5) (414.9) (1,402.0)
Opening net debt (5,087.9) (3,685.9) (3,685.9)
Closing net debt (5,864.4) (4,100.8) (5,087.9)
As a result of the increase in net debt, gearing has increased from 47.1% to
53.7%. Details of the Group's gearing are set out in Table 9, which also shows
the impact of joint venture debt, although the lenders to our joint ventures
have no recourse to the Group for repayment.
Table 9: Gearing
30 31 March
September
2007 2007
£m % %
Gearing - on book value of balance sheet debt 53.7 47.1
Adjusted gearing * 61.4 54.7
Adjusted gearing * - as above plus notional share of joint venture
debt 63.6 58.8
* Book value of balance sheet debt increased to recognise nominal value of
debt on refinancing in 2004 divided by adjusted net asset value.
Our interest cover ratio, excluding our share of joint ventures, has fallen
from 2.43 times for the year ended 31 March 2007 to 1.82 times for the six
months ended 30 September 2007. This reduction arises because we do not
recognise our share of the underlying net income of the PPP projects within
SMIF, but we do include the interest cost of the loan associated with its
acquisition. If the interest on the SMIF acquisition loan is excluded from the
calculation, interest cover is then 2.20 times. Under the rules of the REIT
regime, we need to maintain an interest cover ratio in the exempt business of
at least 1.25 times to avoid paying tax. As calculated under the REIT
regulations, our interest cover ratio for the exempt business for the six
months to 30 September 2007 was approximately 2.6 times.
During the course of the six months, we arranged £650.0m of committed
bilateral bank facilities. The facilities are for 364 days with an option to
extend by a further year.
Hedging
We use derivative products to manage our interest rate exposure, and have a
hedging policy which requires at least 80% of our existing debt plus our net
committed capital expenditure to be at fixed interest rates for the coming
five years. Specific hedges are also used in geared joint ventures to fix the
interest exposure on limited recourse debt. At 30 September 2007 we had
£1,055.1m of active interest rate hedges in place, and our debt was 84% fixed.
Consequently, based on debt levels at 30 September 2007, a 1% rise in interest
rates would increase full year interest charges by approximately £10m.
Taxation
As a consequence of the Group's conversion to REIT status, income and capital
gains from our qualifying property rental business are now exempt from UK
corporation tax. Accordingly, the tax charge for the period has fallen to
£8.2m (six months ended 30 September 2006: £318.4m including £269.0m of
deferred tax on revaluation gains), representing tax payable on `residual'
trading and other taxable activities, the majority of which arose in Trillium.
Risks and uncertainties
The operational risks facing the Group for the remaining six months of the
financial year are consistent with those outlined in the Annual Report for the
year ended 31 March 2007. The outlook for the property market and the economy
is weaker than in March 2007, but the risk mitigants listed in the 2007 Annual
Report are still appropriate. Our development letting risk exposure has
reduced materially since March 2007 as a result of the progress we have made
on development lettings over the half year.
Related party transactions
Transactions with related parties during the six months ended 30 September
2007 are disclosed in note 27. These transactions have not had a material
impact on the financial position or the results of the Group.
Business Analysis
Investment Portfolio
The investment properties in our Retail Portfolio and London Portfolio
business units make up the majority of our Investment Portfolio. The
Investment Portfolio includes a pro-rata share of our property joint ventures,
but excludes investment properties within our property outsourcing business,
Trillium.
The market value of the investment property interests in the Investment
Portfolio totalled £15,043.2m at 30 September 2007 (31 March 2007:
£14,752.5m). Detailed breakdowns by sector, including comprehensive analyses
of the Group's valuation, rental income and yield profiles follow in the
Investment Portfolio analysis. The aggregate of the market values of those
investment properties held by the Group, excluding joint ventures and
Trillium, as at 30 September 2007 was £13,550.1m (31 March 2007: £13,114.8m).
The valuation of the freehold and leasehold investment properties in the
Investment Portfolio at 30 September 2007 was undertaken by Knight Frank LLP
as External Valuer. The valuations were in accordance with the Royal
Institution of Chartered Surveyors Appraisal and Valuation Standards and the
International Valuation Standards. The valuation of each property was on the
basis of market value, subject to the assumptions that investment properties
would be sold subject to any existing leases and that properties held for
development would be sold with vacant possession in existing condition. The
External Valuer's opinion of market value was primarily derived using recent
comparable market transactions on arm's length terms.
There follows a number of tables which give further detail of the underlying
performance of the combined portfolio:
Table 10: Top 12 property holdings
Total value £4.5bn
(30.1% of combined portfolio)
Values in excess of £250.0m
Cardinal Place, SW1
New Street Square, EC4
50 Queen Anne's Gate, SW1
White Rose Centre, Leeds
Bullring, Birmingham
Bankside 2&3, SE1
Gunwharf Quays, Portsmouth
Princesshay, Exeter
Times Square, EC4
Arundel Great Court and Howard Hotel, WC2
Portland House, SW1
Thomas More Square Estate, E1
Table 11: Income statement - rental income reconciliation
Six
Six months Six
Other months Other ended Other months
Retail London investment ended 30 Retail London investment 31 Retail London investment ended 30
Port Port port September Port Port port March Port Port port September
-folio -folio -folio 2007 -folio -folio -folio 2007 -folio -folio -folio 2006
£m £m £m £m £m £m £m £m £m £m £m £m
Combined
portfolio 183.1 131.8 13.9 328.8 195.5 131.9 15.1 342.5 193.1 129.4 13.8 336.3
Central
London shops
(excluding
Metro
Shopping
Fund LP) (23.6) 23.6 - - (26.1) 26.1 - - (25.6) 25.6 - -
Inner London
offices in
Metro
Shopping
Fund LP 0.4 (0.4) - - 0.4 (0.4) - - 0.4 (0.4) - -
Rest of UK
offices 0.8 - (0.8) - 0.9 - (0.9) - 1.1 - (1.1) -
Allocation
of other 3.0 5.3 (8.3) - 6.3 4.1 (10.4) - 4.3 3.5 (7.8) -
Less:
finance
lease
adjustment (1.7) (4.1) - (5.8) (2.2) (4.1) - (6.3) (2.2) (4.1) - (6.3)
Segmental
analysis 162.0 156.2 4.8 323.0 174.8 157.6 3.8 336.2 171.1 154.0 4.9 330.0
Table 12: Open market value reconciliation
Other Other Other
invest 30 invest invest 30
Retail London -ment September Retail London -ment Retail London -ment September
Port Port port 2007 Port Port port 31 March Port Port port 2006
-folio -folio -folio -folio -folio -folio 2007 -folio -folio -folio
£m £m £m £m £m £m £m £m £m £m £m £m
Combined
portfolio 7,591.2 6,859.3 592.7 15,043.2 8,060.7 6,102.9 588.9 14,752.5 8,061.3 5,750.9 627.6 14,439.8
Central
London shops
(excluding
Metro
Shopping
Fund LP) (1,213.9) 1,213.9 - - (1,182.6) 1,182.6 - - (1,121.2) 1,121.2 - -
Inner London
offices in
Metro
Shopping
Fund LP 19.5 (19.5) - - 21.0 (21.0) - - 19.0 (19.0) - -
Rest of UK
offices 83.2 - (83.2) - 90.1 - (90.1) - 90.8 - (90.8) -
Allocation
of other 246.7 206.4 (453.1) - 235.5 198.3 (433.8) - 287.6 186.7 (474.3) -
Segmental
analysis 6,726.7 8,260.1 56.4 15,043.2 7,224.7 7,462.8 65.0 14,752.5 7,337.5 7,039.8 62.5 14,439.8
Table 13: Gross estimated rental value reconciliation
Other 30 Other 31 Other 30
Retail London investment September Retail London investment March Retail London investment September
Port Port port 2007 Port Port port 2007 Port Port port 2006
-folio -folio -folio -folio -folio -folio -folio -folio -folio
£m £m £m £m £m £m £m £m £m £m £m £m
Combined
portfolio 478.1 434.2 27.2 939.5 512.4 394.3 28.1 934.8 479.7 374.0 28.7 882.4
Central
London shops
(excluding
Metro
Shopping
Fund LP) (71.3) 71.3 - - (70.7) 70.7 - - (58.3) 58.3 - -
Inner London
offices in
Metro
Shopping
Fund LP 1.0 (1.0) - - 1.0 (1.0) - - 0.9 (0.9) - -
Rest of UK
offices 3.2 - (3.2) - 4.7 - (4.7) - 5.2 - (5.2) -
Allocation
of other 9.5 10.8 (20.3) - 8.5 10.7 (19.2) - 12.5 5.5 (18.0) -
Segmental
analysis 420.5 515.3 3.7 939.5 455.9 474.7 4.2 934.8 440.0 436.9 5.5 882.4
Table 14: Top 12 occupiers
Current
gross rent
roll
%
Central Government 10.2
Deloitte 4.0
Metropolitan Police Authority 3.0
Taveta Limited (Arcadia Group) 1.7
DSG International PLC 1.6
J Sainsbury PLC 1.5
The Boots Company PLC 1.5
H&M 1.3
Eversheds Properties Limited 1.3
M&S Group PLC 1.3
Taylor Wessing (European law firm) 1.2
The Home Retail Group PLC (Argos and Homebase) 1.2
Total 29.8
Includes share of joint venture properties
Table 15: % Portfolio by value and number of property holdings at 30 September 2007
Value Number of
£m % properties
0 - 9.99 1.5 68
10 - 24.99 2.3 22
25 - 49.99 9.0 35
50 - 99.99 18.2 39
100 - 149.99 18.2 22
150 - 199.99 8.7 7
200 + 42.1 20
Total 100.0 213
Includes share of joint venture properties
Table 16: Combined portfolio value by location
Shopping
centres and Retail
shops warehouses Offices Other Total
% % % % %
Central inner and outer London 8.5 0.7 48.2 0.6 58.0
South East and Eastern 4.5 3.4 - 0.6 8.5
Midlands 3.4 1.7 - - 5.1
Wales and South West 3.8 1.3 0.1 - 5.2
North, North West, Yorkshire and
Humberside 7.9 5.5 0.3 0.2 13.9
Scotland and Northern Ireland 2.9 1.5 - 0.4 4.8
No region (i.e. indirects) 4.5 - - - 4.5
Total 35.5 14.1 48.6 1.8 100.0
% figures calculated by reference to the combined portfolio value of £15.0bn.
Table 17: Average rents as at 30 September 2007
Average
rent Average ERV
£/m2 £/m2
Retail
Shopping centres and shops N/A N/A
Retail warehouses (including supermarkets) 187 207
Offices
Central and inner London 332 382
Average rent and estimated rental value have not been provided where it is
considered that the figures would be potentially misleading (i.e. where there
is a combination of analysis on rents on an overall and Zone A basis in the
retail sector or where there is a combination of uses, or small sample sizes).
This is not a like-for-like analysis with the previous year. Excludes
properties in the development programme and voids.
Table 18: Like-for-like reversionary potential as at 30 September 2007
30
September 31 March
2007 2007
% of rent % of rent
Reversionary potential roll roll
Gross reversions 15.8 12.1
Over-rented (1.2) (1.5)
Net reversionary potential 14.6 10.6
The reversion is calculated with reference to the gross secure rent roll after
the expiry of rent free periods on those properties which fall under the
like-for-like definition as set out in the notes to the combined portfolio
analysis. Reversionary potential excludes additional income from the letting
of voids. Of the over-rented income, 59.6% is subject to a lease expiry or
break clause in the next five years.
Trillium
Table 19: Trillium contract analysis
Six months ended 30
September 2007
Barclays Telereal Accor Royal Other
Contract DWP NorwichUnion DVLA (1) II (2) Mail (3) (4) Total
Contract length term (years) 20.0 25.0 20.0 20.0 4.5 84.0 15.0
Mar Jun Mar Mar Mar Mar Mar
Expiry date 2018 2029 2025 2024 2010 2091 2022
Income statement £m £m £m £m £m £m £m £m £m
Unitary charge 268.2 6.1 4.4 0.1 - 12.2 2.1 3.1 296.2
Third party (sublet) income 5.7 0.4 - 0.8 - - 0.8 0.5 8.2
Capital projects 37.2 0.1 3.1 - - - - 0.8 41.2
Other revenue 5.7 0.2 0.6 - 21.9 - - 2.1 30.5
Finance lease income - 3.3 1.2 - - - - - 4.5
Gross property income 316.8 10.1 9.3 0.9 21.9 12.2 2.9 6.5 380.6
Rents payable (81.0) (1.8) (1.0) - - - - - (83.8)
Service partners
(maintenance, facilities,
etc) (83.3) (1.7) (2.0) - - - - (0.5) (87.5)
Life cycle maintenance costs (10.6) (0.6) (0.2) - - (0.2) - - (11.6)
Capital projects (36.3) (0.1) (2.8) - - - - - (39.2)
Other costs, including
overheads (44.9) (0.7) (1.5) - (14.3) (0.4) (0.8) (18.0) (80.6)
Bid costs - - - - - - - (3.1) (3.1)
Depreciation (15.5) (0.4) - - - - - (1.1) (17.0)
Underlying operating profit
/ (loss) 45.2 4.8 1.8 0.9 7.6 11.6 2.1 (16.2) 57.8
Profit on sale of
non-current assets 14.1 - - - - - - 11.0 25.1
Net (deficit) / surplus on
revaluation of investment
properties - - - (2.9) - (5.9) (0.6) 0.6 (8.8)
Segment profit / (loss) 59.3 4.8 1.8 (2.0) 7.6 5.7 1.5 (4.6) 74.1
Capital expenditure
Life cycle maintenance costs
capitalised 5.5 0.8 - - - 3.1 - - 9.4
Estates costs capitalised 3.0 - - - - - - - 3.0
Book value of assets at 30
September 2007
Investment in associate - - - - - - - 5.2 5.2
Investment properties - - - 25.0 - 440.4 97.2 9.6 572.2
Operating properties 490.5 43.9 - - - - - - 534.4
Notes:
1. Barclays sale and leaseback terms include a tenant break clause in December
2014, with annual breaks until expiry
2. Accor sale and leaseback terms include a tenant break clause every 12 years
with the first in 2019
3. Royal Mail sale and leaseback terms include 12 tenants who have a break
clause in March 2012 and 164 tenants with a break clause in March 2017
4. Other includes new business and corporate overheads, SPV's, management
income and profit on the disposal of Meterfit (£10.0m) which was previously
classified as an asset held for sale.
Table 20: Trillium contract analysis at 30 September 2007
Norwich Telereal Royal
Floor space (000m2) DWP Union DVLA Barclays II Accor Mail Other Total
Client occupied 1,944.4 107.0 16.2 11.4 - 229.5 92.7 14.2 2,415.4
Third party (sublet) 95.0 5.3 - 17.5 - - 91.8 - 209.6
Vacant 208.6 1.6 - 8.1 - - 64.8 - 283.1
Total 2,248.0 113.9 16.2 37.0 - 229.5 249.3 14.2 2,908.1
Freeholds / valuable
leaseholds 808.1 38.9 - 11.4 - 229.5 128.5 14.2 1,230.6
Leaseholds 1,439.9 75.0 16.2 25.6 - - 120.8 - 1,677.5
Total 2,248.0 113.9 16.2 37.0 - 229.5 249.3 14.2 2,908.1
Estate managed but not
transferred 73.9 8.7 86.6 - 150.0 - - - 319.2
Table 21: Trillium vacation allowance and portfolio activity - DWP
Floor space (000m2) 30
31 March September
2007 Acquisitions Vacations* Lettings Disposals 2007
Client occupied 1,996.0 14.4 (57.1) - (8.9) 1,944.4
Third party (sublet) 81.0 - (1.4) 21.1 (5.7) 95.0
Vacant 244.2 - 58.5 (21.1) (73.0) 208.6
Total 2,321.2 14.4 - - (87.6) 2,248.0
Freeholds / valuable
leaseholds 840.0 1.6 - - (33.5) 808.1
Leaseholds 1,481.2 12.8 - - (54.1) 1,439.9
Total 2,321.2 14.4 - - (87.6) 2,248.0
Estate managed but not
transferred 78.7 - (4.8) - - 73.9
* Includes core vacations
30
31 March September
2007 2007
Vacation allowance used
to date 392.7 439.3
Available allowance 130.5 117.5
Future allowance * 164.4 164.4
* The future allowance relates to the period commencing 1 April 2008
Table 22: Trillium portfolio activity - Barclays
Floor space (000m2) 30
31 March September
2007 Acquisitions Vacations* Lettings Disposals 2007
Client occupied 11.4 - - - - 11.4
Third party (sublet) 18.1 - (1.2) 0.6 - 17.5
Vacant 7.5 - 1.2 (0.6) - 8.1
Total 37.0 - - - - 37.0
Freeholds / valuable
leaseholds 11.3 - - - - 11.3
Leaseholds 25.7 - - - - 25.7
Total 37.0 - - - - 37.0
* Includes lease surrenders, lease expiries and disposals
Table 23: Trillium portfolio activity - Royal Mail
Floor space (000m2) 30
31 March September
2007 Acquisitions Vacations Lettings Disposals 2007
Client occupied 92.7 - - - - 92.7
Third party (sublet) 94.1 - (6.5) 4.2 - 91.8
Vacant 68.5 - 6.5 (4.2) (6.0) 64.8
Total 255.3 - - - (6.0) 249.3
Freeholds / valuable
leaseholds 128.5 - - - - 128.5
Leaseholds 126.8 - - - (6.0) 120.8
Total 255.3 - - - (6.0) 249.3
Table 24: Trillium number of people by occupation
As at 30 September 2007 Total
Asset management 92
Call centre 69
Capital projects 142
Quality assurance 28
Facilities management 387
Human resources / Finance 116
Business development and commercial 84
Total 918
Directors' statement of responsibilities
The Directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by
the European Union, and that the Interim Announcement herein includes a fair
review of the information as required by 4.2.7 and 4.2.8 of the Disclosure and
Transparency Rules.
The Directors of Land Securities Group PLC are stated in the Group's Annual
Report for the year ended 31 March 2007.
By the order of the Board
P M Dudgeon
Secretary
14 November 2007
Independent review report to Land Securities Group PLC
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half yearly financial report for the six months ended 30
September 2007, which comprises the consolidated income statement,
consolidated interim balance sheet, statement of recognised income and
expense, cash flow statement and related notes. We have read the other
information contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in Note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half yearly financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the Company's members as a body for the purpose of the Disclosure and
Transparency Rules of the Financial Services Authority and for no other
purpose. We do not, in producing this report, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent
in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half yearly
financial report for the six months ended 30 September 2007 is not prepared,
in all material respects, in accordance with International Accounting Standard
34 as adopted by the European Union and the Disclosure and Transparency Rules
of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
14 November 2007
Notes:
1. The maintenance and integrity of the Land Securities Group PLC web site is
the responsibility of the Directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the interim
report since it was initially presented on the web site
2. Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
Financial Statements
Unaudited consolidated income statement for the six months ended 30 September
2007
Six Six
months months Year
Six months Six months ended Six months Six months ended Year ended Year ended ended 31
ended 30 ended 30 30 Sept ended 30 ended 30 30 Sept 31 March 31 March March
Sept 2007 Sept 2007 2007 Sept 2006 Sept 2006 2006 2007 2007 2007
Before Before Before
exceptional Exceptional exceptional Exceptional exceptional Exceptional
items items Total items items Total items items Total
Notes £m £m £m £m £m £m £m £m £m
Income: Group and
share of joint
ventures 807.6 - 807.6 853.9 - 853.9 1,722.7 - 1,722.7
Less: share of
joint ventures'
income 13 (72.9) - (72.9) (39.5) - (39.5) (81.6) - (81.6)
Group revenue 2 734.7 - 734.7 814.4 - 814.4 1,641.1 - 1,641.1
Costs 2 (450.4) - (450.4) (515.1) - (515.1) (1,046.2) - (1,046.2)
284.3 - 284.3 299.3 - 299.3 594.9 - 594.9
Profit on
disposal of
non-current
properties 2 79.0 - 79.0 33.6 - 33.6 118.2 - 118.2
Profit on
disposal of a PPP
project 2 10.0 - 10.0 - - - - - -
Net surplus on
revaluation of
investment
properties 2 145.5 - 145.5 896.7 - 896.7 1,307.6 - 1,307.6
Operating profit 518.8 - 518.8 1,229.6 - 1,229.6 2,020.7 - 2,020.7
Interest expense 3 (142.3) - (142.3) (114.7) - (114.7) (233.3) - (233.3)
Interest income 3 8.5 - 8.5 4.2 - 4.2 12.4 - 12.4
385.0 - 385.0 1,119.1 - 1,119.1 1,799.8 - 1,799.8
Share of the
(losses) /
profits of joint
ventures
(post-tax) 13 (9.8) - (9.8) 59.1 - 59.1 81.3 98.0 179.3
Profit before tax 2 375.2 - 375.2 1,178.2 - 1,178.2 1,881.1 98.0 1,979.1
Income tax
(expense) /
credit 5 (8.2) - (8.2) (318.4) - (318.4) (445.0) 1,994.2 1,549.2
Profit for the
financial period
attributable to
equity
shareholders 25 367.0 - 367.0 859.8 - 859.8 1,436.1 2,092.2 3,528.3
Earnings per share *
Basic earnings per 78.57p
share 7 183.25p 753.59p
Diluted earnings per 78.35p
share 7 182.51p 750.54p
* adjusted earnings per share are given in note 7
Unaudited consolidated statement of recognised income and expense for the six
months ended 30 September 2007
Six Six Year
months months ended
ended 30 ended 30 31
September September March
2007 2006 2007
£m £m £m
Actuarial losses on defined benefit pension schemes (1.1) (3.5) (1.3)
Deferred tax on actuarial losses on defined benefit pension
schemes - 1.0 1.0
Fair value movement on cash flow hedges taken to equity - Group 0.2 2.6 6.7
Fair value movement on cash flow hedges taken to equity - joint
ventures 2.4 1.9 11.8
Deferred tax on fair value movement on cash flow hedges taken to
equity - Group - (0.7) (1.6)
Deferred tax on fair value movement on cash flow hedges taken to
equity - joint ventures - (0.6) (2.3)
Net gains recognised directly in equity 1.5 0.7 14.3
Profit for the financial period 367.0 859.8 3,528.3
Total recognised income and expense attributable to equity
shareholders 368.5 860.5 3,542.6
Unaudited consolidated balance sheet at 30 September 2007
30 30
September September 31 March
2007 2006 2007
Notes £m £m £m
Non-current assets
Investment properties 9 13,308.8 12,852.6 12,891.7
Property, plant and equipment
Property Partnerships properties 9 1,106.6 573.9 979.1
Other property, plant and equipment 9 75.0 75.4 78.2
9 14,490.4 13,501.9 13,949.0
Net investment in finance leases 10 296.2 247.0 262.4
Goodwill 11 129.6 34.3 129.6
Investments in Public Private Partnership contracts 12 21.0 - -
Investments in joint ventures 13 1,361.2 928.3 1,338.8
Total non-current assets 16,298.4 14,711.5 15,679.8
Current assets
Trading properties and long-term development contracts 14 175.2 156.9 148.3
Trade and other receivables 15 635.7 577.9 641.8
Cash and short-term deposits 16 31.4 25.2 52.7
Total current assets (excluding non-current assets
classified as held for sale) 842.3 760.0 842.8
Non-current assets classified as held for sale 17 2,568.9 - 2,420.3
Total current assets 3,411.2 760.0 3,263.1
Total assets 19,709.6 15,471.5 18,942.9
Current liabilities
Short-term borrowings and overdrafts 18 (1,258.7) (437.0) (1,683.2)
Trade and other payables 19 (956.1) (630.6) (783.9)
Current tax liabilities (187.4) (229.0) (535.8)
Total non-current liabilities (excluding liabilities
directly associated with non-current assets classified as
held for sale) (2,402.2) (1,296.6) (3,002.9)
Liabilities directly associated with non-current assets
classified as held for sale 17 (1,655.9) - (1,601.0)
Total current liabilities (4,058.1) (1,296.6) (4,603.9)
Non-current liabilities
Provisions 20 (80.9) (57.3) (80.7)
Borrowings 21 (4,637.1) (3,689.0) (3,457.4)
Net pension benefit obligations 22 (6.2) (9.5) (5.6)
Deferred tax liabilities 23 (4.3) (2,227.4) (4.0)
Total non-current liabilities (4,728.5) (5,983.2) (3,547.7)
Total liabilities (8,786.6) (7,279.8) (8,151.6)
Net assets 10,923.0 8,191.7 10,791.3
Equity
Ordinary shares 25 47.1 47.0 47.0
Own shares 25 (22.0) (18.6) (14.5)
Share-based payments 25 8.3 8.9 7.9
Share premium 25 52.9 47.9 51.5
Capital redemption reserve 25 30.5 30.5 30.5
Retained earnings 25 10,806.2 8,076.0 10,668.9
Total shareholders' equity 10,923.0 8,191.7 10,791.3
The financial statements on pages 35 to 60 were approved by the Board of Directors
on 14 November 2007 and were signed on its behalf by:
F W Salway M F Greenslade
Directors
Unaudited consolidated cash flow statement for the six months ended 30
September 2007
30 30 30 30
September September September September 31 March 31 March
2007 2007 2006 2006 2007 2007
Notes £m £m £m £m £m £m
Net cash generated from operations
Cash generated from operations 26 282.6 335.3 682.4
Interest paid (163.9) (121.4) (237.5)
Interest received 8.5 3.8 12.4
Funding pension scheme deficit (1.1) (1.6) (3.9)
Taxation (includes REIT conversion
charge) (356.3) (42.0) (91.9)
Net cash (outflow) / inflow from
operations (230.2) 174.1 361.5
Cash flows from investing activities
Investment property development
expenditure (246.2) (158.2) (429.4)
Acquisition of investment properties (552.7) (473.4) (523.7)
Other investment property related
expenditure (63.2) (35.9) (77.2)
Acquisition of properties by Property
Partnerships (153.0) (12.4) (416.5)
Capital expenditure by Property
Partnerships (9.5) (12.5) (26.0)
Capital expenditure on properties (1,024.6) (692.4) (1,472.8)
Disposal of non-current investment
properties 799.4 319.5 841.0
Disposal of non-current operating
properties 30.6 14.7 28.8
Net expenditure on properties (194.6) (358.2) (603.0)
Disposal of a PPP project 25.3 - -
Net expenditure on non-property related
non-current assets (5.3) (9.1) (18.8)
Net cash outflow from capital
expenditure (174.6) (367.3) (621.8)
Receivable finance leases acquired (35.8) (18.9) (43.3)
Receipts in respect of receivable
finance leases 1.4 1.5 3.8
Net loans (to) / from joint ventures
and cash contributed (83.0) (45.3) 10.8
Distributions from joint ventures 53.2 6.9 39.2
Net cash advanced to disposal group (61.0) - (372.6)
Acquisitions of Group undertakings (net
of cash acquired) - - (521.4)
Net cash used in investing activities (299.8) (423.1) (1,505.3)
Cash flows from financing activities
Issue of shares 1.5 4.8 8.4
Purchase of own share capital (81.1) (35.7) (36.2)
Increase in debt 693.5 424.5 1,433.9
Decrease in finance leases payable (1.0) (1.2) (2.2)
Dividends paid to ordinary shareholders (159.5) (133.8) (223.0)
Net cash inflow from financing
activities 453.4 258.6 1,180.9
(Decrease) / increase in cash and cash
equivalents for the period (76.6) 9.6 37.1
Notes to the Financial Statements
1. Basis of preparation
The interim financial information comprises the consolidated balance sheets as
at 30 September 2007, 30 September 2006 and 31 March 2007 and related
consolidated statements of income, cash flow, and recognised income and
expense and the related notes for periods then ended.
The interim financial information contained in this report is unaudited and
does not constitute statutory accounts within the meaning of Section 240 of
the Companies Act 1985. The Annual Report and Accounts for the year ended 31
March 2007, which were prepared under International Financial Reporting
Standards (IFRS) as adopted by the European Union, received an unqualified
auditors' report and did not contain a statement under Section 237(2) or (3)
of the Companies Act 1985 and have been filed with the Registrar of Companies.
The unaudited interim financial information has been prepared in accordance
with Disclosure and Transparency Rules of the Financial Services Authority and
with IAS34 Interim Financial Reporting, as adopted by the EU, and on the basis
of the accounting policies set out in the Group's Annual Report and Accounts
for the year ended 31 March 2007. The Group's Annual Report and Accounts
refers to new Standards, Amendments to Standards and Interpretations, none of
which have had a material impact on these financial statements.
2. Segmental information
Six Six
Six Six Six months Six months months Six Six Six months Six months months
months months ended 30 ended 30 ended months months ended 30 ended 30 ended
ended 30 ended 30 Sept 2007 Sept 2007 30 Sept ended 30 ended 30 Sept 2006 Sept 2006 30 Sept
Sept 2007 Sept 2007 2007 Sept 2006 Sept 2006 2006
Other Other
Retail London investment Property Retail London investment Property
Portfolio Portfolio portfolio Partnerships Total Portfolio Portfolio portfolio Partnerships Total
Income
statements £m £m £m £m £m £m £m £m £m £m
Rental income 129.9 156.2 4.8 - 290.9 139.2 154.0 4.9 - 298.1
Service charge
income 22.3 22.3 0.2 - 44.8 24.2 21.8 0.4 - 46.4
Property
services income - - - 380.6 380.6 - - - 395.5 395.5
Trading property
sale proceeds - - - - - - 12.7 27.6 - 40.3
Long-term
development
contract income - - 13.9 - 13.9 - - 29.5 - 29.5
Finance lease
interest 1.6 2.9 - - 4.5 1.7 2.9 - - 4.6
Revenue 153.8 181.4 18.9 380.6 734.7 165.1 191.4 62.4 395.5 814.4
Rents payable (6.0) (2.6) - (83.8) (92.4) (5.6) (2.7) - (88.3) (96.6)
Other direct
property or
contract
expenditure (30.4) (29.9) (0.5) (210.7) (271.5) (34.3) (31.1) (0.7) (233.9) (300.0)
Indirect
property or
contract
expenditure (17.7) (14.9) (2.7) (8.2) (43.5) (17.6) (16.0) (2.4) (6.3) (42.3)
Long-term
development
contract
expenditure - - (12.9) - (12.9) - - (20.1) - (20.1)
Bid costs - - - (3.1) (3.1) - - - (1.4) (1.4)
Cost of sales of
trading
properties - - - - - - (10.7) (20.8) - (31.5)
Depreciation (1.2) (2.4) (0.2) (17.0) (20.8) (0.8) (2.5) (0.2) (13.8) (17.3)
Underlying
operating profit 98.5 131.6 2.6 57.8 290.5 106.8 128.4 18.2 51.8 305.2
Profit on
disposal of
non-current
properties 25.0 38.6 0.3 15.1 79.0 4.1 20.9 0.1 8.5 33.6
Profit on
disposal of a
PPP project - - - 10.0 10.0 - - - - -
Net (deficit) /
surplus on
revaluation of
investment
properties (126.9) 283.2 (2.0) (8.8) 145.5 283.9 611.3 1.2 0.3 896.7
Segment result (3.4) 453.4 0.9 74.1 525.0 394.8 760.6 19.5 60.6 1,235.5
Unallocated
expenses (6.2) (5.9)
Operating profit 518.8 1,229.6
Net finance
costs (133.8) (110.5)
385.0 1,119.1
Share of the
(losses) /
profits of joint
ventures
(post-tax) (9.8) 59.1
Profit before
tax from
continuing
activities 375.2 1,178.2
Included within rents payable is finance lease interest payable of £0.9m (30
September 2006: £1.0m; 31 March 2007: £1.9m) and £1.5m (30 September 2006:
£1.6m; 31 March 2007: £3.1m) respectively for Retail Portfolio and London
Portfolio.
Of the share of the results of joint ventures (post-tax) a loss of £15.9m (30
September 2006: profit £58.2m; 31 March 2007: profit £182.5m) is attributable
to Retail Portfolio, profit of £6.0m (30 September 2006: £0.9m; 31 March 2007:
£nil) is attributable to Other investment portfolio, and a profit of £0.1m (30
September 2006: £nil; 31 March 2007: loss £3.2m) is attributable to Property
Partnerships.
All the Group's operations are in the UK and are organised into four main
business segments against which the Group reports its primary segment
information. These are Retail Portfolio, London Portfolio, Other investment
portfolio and Property Partnerships.
Year ended 31 March 2007
Retail Other
London investment Property
Portfolio Portfolio portfolio Partnerships Total
Income statements £m £m £m £m £m
Rental income 279.2 311.6 8.7 - 599.5
Service charge income 46.8 48.6 0.3 - 95.7
Property services income - - - 785.9 785.9
Trading property sale proceeds - 33.1 29.0 1.7 63.8
Long-term development contract income - 28.9 51.8 - 80.7
Finance lease interest 3.5 5.9 - 6.1 15.5
Revenue 329.5 428.1 89.8 793.7 1,641.1
Rents payable (11.3) (4.9) - (179.9) (196.1)
Other direct property or contract expenditure (67.7) (62.1) (0.8) (469.0) (599.6)
Indirect property or contract expenditure (31.6) (30.9) (5.8) (16.3) (84.6)
Long-term development contract expenditure - (26.1) (40.3) - (66.4)
Bid costs - - - (2.8) (2.8)
Cost of sales of trading properties (0.1) (28.7) (20.9) (0.5) (50.2)
Depreciation (1.5) (4.9) (0.1) (26.4) (32.9)
Underlying operating profit 217.3 270.5 21.9 98.8 608.5
Profit on disposal of non-current properties 28.5 81.7 0.5 7.5 118.2
Net surplus / (deficit) on revaluation of investment
properties 293.6 1,022.0 5.6 (13.6) 1,307.6
Segment result 539.4 1,374.2 28.0 92.7 2,034.3
Unallocated expenses (13.6)
Operating profit 2,020.7
Net finance costs (220.9)
1,799.8
Share of the profit of joint ventures (post-tax) 179.3
Profit before tax from continuing activities 1,979.1
3. Net finance costs
Six Six Year
months months ended
ended 30 ended 30 31
September September March
2007 2006 2007
£m £m £m
Interest expense
Bond and debenture debt (97.9) (80.8) (173.1)
Bank borrowings (65.0) (39.9) (89.6)
Other interest payable (0.5) (2.1) (1.2)
Fair value (losses) / profits on interest rate swaps (4.2) 4.2 15.4
Provision discounting (note 20) (0.8) - (1.0)
Amortisation of bond exchange de-recognition (note 21) (2.3) (8.6) (17.1)
Expected return on pension scheme assets 4.3 4.4 8.6
Interest on pension scheme liabilities (3.9) (3.8) (7.6)
Net financing income on pension scheme 0.4 0.6 1.0
(170.3) (126.6) (265.6)
Interest capitalised in relation to properties under development 28.0 11.9 32.3
Total interest expense (142.3) (114.7) (233.3)
Interest income
Short-term deposits 1.1 0.4 1.5
Other interest receivable 0.8 2.0 2.4
Interest receivable from joint ventures 6.6 1.8 8.5
Total interest income 8.5 4.2 12.4
Net finance costs (133.8) (110.5) (220.9)
Included within rents payable (note 2) is finance lease interest payable of
£2.4m (30 September 2006: £2.6m; 31 March 2007: £5.0m).
4. Exceptional items
Six Six Year
months months ended
ended 30 ended 30 31
September September March
2007 2006 2007
£m £m £m
Deferred taxation released within joint ventures on conversion to
a Real Estate Investment Trust - - 98.0
Exceptional items before tax - - 98.0
Deferred taxation released on conversion to a Real Estate
Investment Trust - - 2,309.2
Real Estate Investment Trust conversion charge - - (315.0)
- - 2,092.2
On entering the REIT regime an entry charge equal to 2% of the aggregate
market value of the properties associated with the qualifying rental business
was payable. Deferred tax accrued at the date of conversion in respect of the
assets and liabilities of the qualifying rental business was released to the
income statement in the year ended 31 March 2007, as the relevant temporary
differences would no longer be taxable on reversal. An equivalent release of
deferred taxation was also made by the joint ventures, of which the Group
share was £98.0m.
5. Income tax expense
Six Six
months months Year
ended 30 ended 30 ended 31
September September March
2007 2006 2007
£m £m £m
Current tax
Corporation tax expense for the period 6.7 48.5 68.8
Adjustment in respect of prior periods 1.2 - (0.6)
Corporation tax in respect of property disposals - 10.3 32.0
Real Estate Investment Trust conversion charge - - 315.0
Total current tax expense 7.9 58.8 415.2
Deferred tax
Origination and reversal of timing differences 0.3 15.0 32.9
Released in respect of property disposals - (24.4) (18.8)
On valuation surplus - 269.0 330.7
Released on conversion to a Real Estate Investment Trust - - (2,309.2)
Total deferred tax expense / (credit) 0.3 259.6 (1,964.4)
Total income tax expense / (credit) in the income statement 8.2 318.4 (1,549.2)
The tax for the period is lower than the standard rate of
corporation tax in the UK (30%).
The differences are explained below:
Profit on activities before taxation 375.2 1,178.2 1,979.1
Profit on activities multiplied by rate of corporation tax in the
UK of 30% 112.6 353.5 593.7
Effects of:
Deferred tax released in respect of property disposals - (24.4) (18.8)
Corporation tax on disposal of non-current assets - - 6.0
Joint venture accounting adjustments 7.1 (14.3) (44.2)
Prior period corporation tax adjustments 1.2 - (0.6)
Prior period deferred tax adjustments - - 1.1
Non-allowable expenses and non-taxable items 9.6 3.6 7.9
Real Estate Investment Trust conversion charge - - 315.0
Deferred tax released on conversion to a Real Estate Investment
Trust - - (2,309.2)
Exempt property rental profits in the six months ended 30
September 2007 (99.6) - -
Exempt property gains in the six months ended 30 September 2007 (22.7) - -
Exempt property rental profits in the three months ended 31 March
2007 - - (89.8)
Exempt property gains in the three months ended 31 March 2007 - - (10.3)
Total income tax expense / (credit) in the income statement (as
above) 8.2 318.4 (1,549.2)
Land Securities Group PLC elected for group Real Estate Investment Trust
(REIT) status with effect from 1 January 2007. As a result the Group no longer
pays UK corporation tax on the profits and gains from qualifying rental
business in the UK provided it meets certain conditions. Non-qualifying
profits and gains of the Group continue to be subject to corporation tax as
normal.
The calculation of the Group's tax expense and liability necessarily involves
a degree of estimation and judgement in respect of certain items whose tax
treatment cannot be finally determined until a formal resolution has been
reached with the relevant tax authorities. If all such issues are resolved in
the Group's favour, provisions established in previous periods of up to
£225.0m could be released in the future.
6. Dividends
Six Six Year
months months ended
ended 30 ended 30 31
September September March
2007 2006 2007
£m £m £m
Ordinary dividends paid
Final dividend for the year ended 31 March 2007 (34.00p per share) 159.5 - -
Final dividend for the year ended 31 March 2006 (28.55p per share) - 133.8 133.8
Interim dividend for the year ended 31 March 2007 (19.00p per
share) - - 89.2
159.5 133.8 223.0
The Board has proposed a second quarterly dividend of 16.00p per share in
addition to the first quarterly dividend of 16.00p paid on 26 October 2007
(interim dividend for the year ended 31 March 2007: 19.00p). It will be paid
on 7 January 2008 to shareholders who are on the Register of Members on 7
December 2007.
7. Earnings per share
Six Six
months months Year
ended 30 ended 30 ended 31
SeptemberSeptember March
2007 2006 2007
£m £m £m
Profit for the financial period 367.0 859.8 3,528.3
Revaluation (surpluses) / deficits net of deferred taxation -
Group (145.5) (627.7) (976.9)
Revaluation (surpluses) / deficits net of deferred taxation -
joint ventures 23.5 (45.9) (54.5)
(Profits) / losses on non-current property disposals after
current and deferred tax - Group (79.0) (47.7) (105.2)
Profit on non-current property disposals after current and
deferred ta x - joint ventures 7.3 - -
Profit on disposal of PPP projects (10.0) - -
Mark-to-market adjustment on interest rate swaps (net of deferred
tax) 4.2 (4.3) (13.7)
Deferred tax arising from capital allowances on investment
properties - 6.7 11.7
Deferred tax arising from capitalised interest on investment
properties - 3.4 5.8
Real Estate Investment Trust conversion charge - - 315.0
Deferred tax released on conversion to a Real Estate Investment
Trust - Group - - (2,309.2)
Deferred tax released on conversion to a Real Estate Investment
Trust - joint ventures - - (98.0)
EPRA adjusted earnings 167.5 144.3 303.3
Eliminate effect of debt restructuring charges (net of taxation) 1.0 4.4 13.4
Eliminate effect of bond exchange de-recognition (net of deferred
tax) 2.3 6.0 13.3
Adjusted earnings 170.8 154.7 330.0
No. m No. m No. m
Weighted average number of ordinary shares 470.4 469.5 469.8
Effect of own shares and treasury shares (3.3) (0.3) (1.6)
Weighted average number of ordinary shares after adjusting for
own shares 467.1 469.2 468.2
Effect of dilutive share options 1.3 1.9 1.9
Weighted average number of ordinary shares adjusted for dilutive
instruments 468.4 471.1 470.1
pence pence pence
Basic earnings per share 78.57 183.25 753.59
Diluted earnings per share 78.35 182.51 750.54
Adjusted earnings per share 36.57 32.97 70.48
Adjusted diluted earnings per share 36.46 32.84 70.20
EPRA adjusted diluted earnings per share 35.76 30.63 64.52
Management have chosen to disclose adjusted earnings per share in order to
provide an indication of the Group's underlying business performance.
Accordingly, it excludes the effect of all exceptional items, debt
restructuring charges and other items of a capital nature (excluding trading
properties and long-term contract profits) as indicated above. In addition,
the corporation tax charge arising from the conversion to a REIT, and the
deferred tax released following the conversion to a REIT, have also been
excluded due to their size and incidence. Further, prior to the conversion to
a REIT, the deferred tax arising on capital allowances in respect of
investment properties was eliminated as experience had shown that these
allowances are not in practice repayable, and deferred tax on capitalised
interest was also added back as this was effectively a permanent difference.
An EPRA measure has been included to assist comparison between European
property companies. Management believe our measure of adjusted diluted
earnings per share is more indicative of underlying performance.
8. Net assets per share
30 30
September September 31 March
2007 2006 2007
£m £m £m
Net assets attributable to equity shareholders 10,923.0 8,191.7 10,791.3
Cumulative mark-to-market adjustment on interest rate swaps (net
of deferred tax) - Group (10.4) 0.6 (14.4)
Cumulative mark-to-market adjustment on interest rate swaps (net
of deferred tax) - joint ventures (4.1) 0.5 (9.2)
Deferred tax arising on revaluation surpluses - 2,007.7 -
Deferred tax arising from capital allowances on investment
properties - 119.9 -
Deferred tax arising from capitalised interest on investment
properties - 31.6 -
EPRA adjusted net assets 10,908.5 10,352.0 10,767.7
Reverse bond exchange de-recognition adjustment (net of deferred
tax) (516.8) (369.3) (519.1)
Adjusted net assets attributable to equity shareholders 10,391.7 9,982.7 10,248.6
Reinstate bond exchange de-recognition adjustment (net of deferred
tax) 516.8 369.3 519.1
Cumulative mark-to-market adjustment on interest rate swaps (net
of deferred tax) - Group 10.4 (0.6) 14.4
Cumulative mark-to-market adjustment on interest rate swaps (net
of deferred tax) - joint ventures 4.1 (0.5) 9.2
Fair value of debt (341.4) (656.2) (511.5)
EPRA triple net assets value 10,581.6 9,694.7 10,279.8
No. m No. m No. m
Number of ordinary shares 470.5 469.9 470.4
Effect of own shares and treasury shares (6.9) (1.0) (2.1)
Number of ordinary shares after adjusting for own shares 463.6 468.9 468.3
Effect of dilutive share options 1.1 1.8 1.6
Number of ordinary shares adjusted for dilutive instruments 464.7 470.7 469.9
pence pence pence
Net assets per share 2356 1747 2304
Diluted net assets per share 2351 1740 2297
Adjusted net assets per share 2242 2129 2188
Adjusted diluted net assets per share 2236 2121 2181
EPRA measure - adjusted diluted net assets per share 2347 2199 2291
EPRA measure - diluted triple net assets per share 2277 2060 2188
Adjusted net assets per share excludes the deferred tax arising on revaluation
surpluses, mark-to-market adjustments on financial instruments used for
hedging purposes and the bond exchange de-recognition adjustment as management
consider that this better represents the expected future cash flows of the
Group. Prior to REIT entry, the deferred tax arising on capital allowances in
respect of investment properties was excluded as experience had shown that
these allowances do not in practice crystallise. Deferred tax on capitalised
interest was also added back as this was effectively a permanent difference.
This is no longer the case since the Group became a REIT on 1 January 2007.
EPRA measures have been included to assist comparison between European
property companies. We believe our measure of adjusted net assets attributable
to equity shareholders is more indicative of underlying performance.
9. Non-current assets
Property Property Property Property
investment investment investment Partnerships Other
Operating Other
Total and property,
Portfolio Development investment investment plant and
management programme properties properties equipment Total
£m £m £m £m £m £m
Net book value at 31 March 2006 10,211.2 1,229.3 11,440.5 563.2 73.6 12,077.3
Properties transferred from portfolio
management into the development programme
during the period (at 1 April 2006 valuation) (6.4) 6.4 - - - -
Developments completed, let and transferred
from the development programme into portfolio
management during the period 32.5 (32.5) - - - -
Property acquisitions 461.1 12.3 473.4 - - 473.4
Capital expenditure 35.9 148.8 184.7 24.9 9.1 218.7
Capitalised interest - 10.9 10.9 - - 10.9
Disposals (145.3) (5.3) (150.6) (6.2) - (156.8)
Surrender premiums received (1.0) - (1.0) - - (1.0)
Depreciation (1.7) - (1.7) (8.3) (7.3) (17.3)
Surplus on revaluation 648.8 247.6 896.4 0.3 - 896.7
Net book value at 30 September 2006 11,235.1 1,617.5 12,852.6 573.9 75.4 13,501.9
Properties transferred from portfolio
management into the development programme
during the period (at 1 April 2006 valuation) (212.6) 212.6 - - - -
Developments completed, let and transferred
from the development programme into portfolio
management during the period 28.3 (28.3) - - - -
Property acquisitions 48.9 1.4 50.3 440.7 - 491.0
Capital expenditure 41.3 273.3 314.6 2.3 9.9 326.8
Capitalised interest - 18.9 18.9 - - 18.9
Disposals (498.2) (0.3) (498.5) (16.8) (0.2) (515.5)
Transfer to joint ventures (266.5) - (266.5) - - (266.5)
Surrender premiums received (2.9) - (2.9) - - (2.9)
Depreciation (1.6) - (1.6) (7.1) (6.9) (15.6)
Surplus / (deficit) on revaluation 235.6 189.2 424.8 (13.9) - 410.9
Net book value at 31 March 2007 10,607.4 2,284.3 12,891.7 979.1 78.2 13,949.0
Properties transferred from portfolio
management into the development programme
during the period (at 1 April 2007 valuation) (21.9) 21.9 - - - -
Developments completed, let and transferred
from the development programme into portfolio
management during the period 1,230.5 (1,230.5) - - - -
Property acquisitions 546.2 - 546.2 153.0 - 699.2
Capital expenditure 62.7 301.7 364.4 12.4 5.3 382.1
Capitalised interest - 26.6 26.6 - - 26.6
Disposals (652.2) - (652.2) (17.5) - (669.7)
Surrender premiums received (3.3) - (3.3) - - (3.3)
Depreciation (1.5) - (1.5) (10.8) (8.5) (20.8)
Transferred to trading properties - (17.4) (17.4) (0.8) - (18.2)
(Deficit) / surplus on revaluation (23.0) 177.3 154.3 (8.8) - 145.5
Net book value at 30 September 2007 11,744.9 1,563.9 13,308.8 1,106.6 75.0 14,490.4
The following table reconciles the net book value of the investment properties
excluding those within Property Partnerships to their market value. The
components of the reconciliation are included within their relevant balance
sheet headings.
Property investment
Total
Portfolio Development investment
management programme properties
£m £m £m
Net book value at 30 September 2006 11,235.1 1,617.5 12,852.6
Plus: amount included in prepayments in respect of lease incentives 87.5 24.6 112.1
Less: head leases capitalised (note 24) (64.4) (8.4) (72.8)
Plus: properties treated as finance leases 178.1 - 178.1
Market value at 30 September 2006 - Group 11,436.3 1,633.7 13,070.0
Market value at 30 September 2006 - plus: share of joint ventures
(note 13) 1,369.8
Market value at 30 September 2006 - Group and share of joint ventures 14,439.8
Net book value at 31 March 2007 10,607.4 2,284.3 12,891.7
Plus: amount included in prepayments in respect of lease incentives 93.6 37.4 131.0
Less: head leases capitalised (note 24) (61.6) (9.4) (71.0)
Plus: properties treated as finance leases 163.1 - 163.1
Market value at 31 March 2007 - Group 10,802.5 2,312.3 13,114.8
value at 31 March 2006 - plus: share of joint ventures (note 13) 1,637.7
Market value at 31 March 2007 - Group and share of joint ventures 14,752.5
Net book value at 30 September 2007 11,744.9 1,563.9 13,308.8
Plus: amount included in prepayments in respect of lease
incentives 144.8 15.0 159.8
Less: head leases capitalised (note 24) (66.8) (3.3) (70.1)
Plus: properties treated as finance leases 151.6 - 151.6
Market value at 30 September 2007 - Group 11,974.5 1,575.6 13,550.1
Market value at 30 September 2007 - plus: share of joint
ventures (note 13) 1,493.1
Market value at 30 September 2007 - Group and share of
joint ventures 15,043.2
30 30
September September 31
2007 2006 March 2007
£m £m £m
Capital commitments 229.7 312.2 726.6
10. Net investment in finance leases
30 30
September September 31 March
2007 2006 2007
£m £m £m
Non-current
Finance leases - gross receivables 621.4 582.0 603.9
Unearned finance income (351.7) (364.4) (368.0)
Unguaranteed residual value 26.5 29.4 26.5
296.2 247.0 262.4
Current
Finance leases - gross receivables 16.6 14.7 14.6
Unearned finance income (12.3) (10.8) (10.9)
4.3 3.9 3.7
Total net investment in finance leases 300.5 250.9 266.1
Gross receivables from finance leases:
Not later than one year 16.6 14.7 14.6
Later than one year but not more than five years 127.1 109.8 116.7
More than five years 494.3 472.2 487.2
638.0 596.7 618.5
Unearned future finance income (364.0) (375.2) (378.9)
Unguaranteed residual value 26.5 29.4 26.5
Net investment in finance leases 300.5 250.9 266.1
The Group has leased out a number of investment properties under finance
leases ranging between 15 and 100 years in duration. These are accounted for
as finance lease receivables rather than investment properties. The fair value
of the Group's finance lease receivables approximates to the carrying amount.
11. Goodwill
30 30
September September 31 March
2007 2006 2007
£m £m £m
At the beginning of the period 129.6 34.3 34.3
Arising on acquisitions during the period - - 83.2
Transferred on acquisition of a joint venture (note 13) - - 12.1
At the end of the period 129.6 34.3 129.6
Represented by:
Gross goodwill recognised 214.5 119.2 214.5
Total accumulated impairment losses (84.9) (84.9) (84.9)
129.6 34.3 129.6
12. Investments in Public Private Partnership contracts
30 30
September September 31 March
2007 2006 2007
£m £m £m
At the beginning of the period - - -
Investments during the period 21.0 - -
At the end of the period 21.0 - -
During the six months ended 30 September 2007 a number of PPP contracts were
acquired independent from the disposal group. These PPP contracts relate to
assets currently under construction.
13. Investments in joint ventures
Six months ended 30 September 2007 and at 30 September 2007
Scottish The
Summary Retail Martineau The Bull
financial Property Metro St David's Galleries Ring Fen Farm
information of Limited Shopping Buchanan Limited Limited Limited Bristol Developm'ts Other
Group's share of Partnership Fund LP Partnership Partnership Partnership Partnership Alliance Limited (1) Total
joint ventures £m £m £m £m £m £m £m £m £m £m
Income statement
Rental income 7.6 6.8 4.8 2.5 0.8 7.4 1.7 - 0.8 32.4
Service charge
income 1.6 1.5 0.3 0.4 0.2 1.3 - - 0.1 5.4
Property
services income - - - - - - - - 0.1 0.1
Trading property
sale proceeds - - - - - - - 35.0 - 35.0
Revenue 9.2 8.3 5.1 2.9 1.0 8.7 1.7 35.0 1.0 72.9
Rents payable (0.1) - - - - - - - - (0.1)
Other direct
property
expenditure (3.0) (1.8) (0.7) (0.6) (0.4) (2.2) (0.1) (0.1) (0.2) (9.1)
Indirect
property
expenditure (0.6) (0.5) - - - - - - - (1.1)
Cost of sales of
trading
properties - - - - - - - (26.8) - (26.8)
5.5 6.0 4.4 2.3 0.6 6.5 1.6 8.1 0.8 35.8
(Loss) / profit
on disposal of
non-current
properties (7.7) - - - 0.4 - - - - (7.3)
Net (deficit) /
surplus on
revaluation of
investment
properties (10.9) (5.1) 2.0 - (0.1) (5.1) (2.9) - (1.4) (23.5)
Operating (loss)
/ profit (13.1) 0.9 6.4 2.3 0.9 1.4 (1.3) 8.1 (0.6) 5.0
Net finance
(costs) / income (4.2) (6.4) (1.7) 0.3 - - - 0.3 (0.1) (11.8)
(Loss) / profit
before tax (17.3) (5.5) 4.7 2.6 0.9 1.4 (1.3) 8.4 (0.7) (6.8)
Income tax
expense - (0.6) - - - - - (2.4) - (3.0)
(Loss) / profit
after tax (17.3) (6.1) 4.7 2.6 0.9 1.4 (1.3) 6.0 (0.7) (9.8)
Balance sheet
Investment
properties (2) 143.8 298.3 187.8 239.7 31.4 314.9 236.9 - 31.7 1,484.5
Current assets 15.6 9.0 7.0 127.1 2.4 10.6 15.1 18.4 32.8 238.0
159.4 307.3 194.8 366.8 33.8 325.5 252.0 18.4 64.5 1,722.5
Current
liabilities (3.5) (7.2) (4.6) (20.9) (0.6) (9.6) (15.6) (5.1) (6.2) (73.3)
Non-current
liabilities (61.8) (210.1) - (0.2) (0.6) - (2.4) (12.9) - (288.0)
(65.3) (217.3) (4.6) (21.1) (1.2) (9.6) (18.0) (18.0) (6.2) (361.3)
Net assets 94.1 90.0 190.2 345.7 32.6 315.9 234.0 0.4 58.3 1,361.2
Capital
commitments 0.2 1.0 1.4 50.5 0.7 53.0 7.4 0.2 - 114.4
Market value of
investment
properties (2) 142.6 296.5 192.0 239.8 30.8 320.0 239.8 - 31.6 1,493.1
Net investment
At 1 April 2007 145.8 95.3 188.6 308.1 27.4 321.1 198.6 - 53.9 1,338.8
Cash contributed - 1.5 0.3 - 4.3 - - - 5.2 11.3
Share of
post-tax results (17.3) (6.1) 4.7 2.6 0.9 1.4 (1.3) 6.0 (0.7) (9.8)
Distributions (37.5) - (3.4) - - - - (5.6) (0.1) (46.6)
Fair value
movement on cash
flow hedges
taken to equity 3.1 (0.7) - - - - - - - 2.4
Loan advances - - - 35.0 - - 38.4 - - 73.4
Loan repayments - - - - - (6.6) (1.7) - - (8.3)
At 30 September
2007 94.1 90.0 190.2 345.7 32.6 315.9 234.0 0.4 58.3 1,361.2
Notes:
1. Other principally includes the Martineau Limited Partnership, the Ebbsfleet
Limited Partnership, the A2 Limited Partnership, Parc Tawe and Investors in
the Community (IIC).
2. The difference between the book value and the market value is the amount
included in prepayments in respect of lease incentives, head leases
capitalised and properties treated as finance leases.
3. The proportion of ownership of the joint ventures are as stated in the
Annual Report for the year ended 31 March 2007, which is available from
www.landsecurities.com
Six months ended 30 September 2006 and at 30 September 2006
Summary
financial Scottish The
information Retail St David's Martineau The Bull
of Group's Property Metro Limited Galleries Ring Fen Farm
share of Limited Shopping Buchanan Partnership Limited Limited Bristol Developm'ts
joint Partnership Fund LP Partnership Partnership Partnership Alliance Limited Other(1) Total
ventures £m £m £m £m £m £m £m £m £m £m
Income statement
Rental income 10.8 6.5 4.6 - 0.8 7.4 1.7 - 0.9 32.7
Service
charge income 2.0 1.5 0.8 - 0.1 1.1 - - 0.2 5.7
Property
services
income - - - - - - - - 1.1 1.1
Revenue 12.8 8.0 5.4 - 0.9 8.5 1.7 - 2.2 39.5
Rents payable (0.1) - - - - - - - - (0.1)
Other direct
property
expenditure (4.2) (2.0) (1.3) - (0.5) (2.0) (0.1) - (2.0) (12.1)
Indirect
property
expenditure (1.0) (0.1) - - - (0.1) (0.1) - (0.4) (1.7)
7.5 5.9 4.1 - 0.4 6.4 1.5 - (0.2) 25.6
Net surplus
on
revaluation
of investment
properties 10.2 18.4 10.8 - 2.5 18.7 4.4 - 0.7 65.7
Operating
profit /
(loss) 17.7 24.3 14.9 - 2.9 25.1 5.9 - 0.5 91.3
Net finance
(costs) /
income (5.8) (4.3) (1.8) - - 0.1 0.1 - (0.1) (11.8)
Profit before
tax 11.9 20.0 13.1 - 2.9 25.2 6.0 - 0.4 79.5
Income tax
expense (3.1) (6.1) (3.2) - (0.8) (5.6) (1.3) - (0.3) (20.4)
Profit after
tax 8.8 13.9 9.9 - 2.1 19.6 4.7 - 0.1 59.1
Balance sheet
Investment
properties
(2) 356.0 294.7 184.7 - 25.4 314.4 155.6 - 33.3 1,364.1
Current
assets 12.8 6.3 4.4 30.9 2.5 11.9 12.2 - 39.9 120.9
368.8 301.0 189.1 30.9 27.9 326.3 167.8 - 73.2 1,485.0
Current
liabilities (14.1) (5.7) (2.1) (8.6) (0.6) (5.3) (6.5) - (5.7) (48.6)
Non-current
liabilities (221.5) (184.3) - - - - (2.4) - (0.3) (408.5)
Deferred tax (17.2) (16.0) (6.5) - (2.1) (49.2) (8.2) - (0.4) (99.6)
(252.8) (206.0) (8.6) (8.6) (2.7) (54.5) (17.1) - (6.4) (556.7)
Net assets 116.0 95.0 180.5 22.3 25.2 271.8 150.7 - 66.8 928.3
Capital
commitments 0.5 0.2 0.4 - 0.1 0.9 110.0 - 0.2 112.3
Market value
of investment
properties
(2) 349.8 292.9 188.5 - 26.6 320.0 158.7 - 33.3 1,369.8
Net
investment
At 1 April
2006 105.2 81.0 173.0 0.8 23.1 259.3 118.5 - 68.6 829.5
Cash
contributed - 0.8 - 21.5 - - - - - 22.3
Share of
post-tax
results 8.8 13.9 9.9 - 2.1 19.6 4.7 - 0.1 59.1
Distributions - - (2.4) - - - - - (4.5) (6.9)
Fair value
movement on
cash flow
hedges taken
to equity 2.0 (0.7) - - - - - - - 1.3
Loan advances - - - - - - 29.8 - 2.6 32.4
Loan
repayments - - - - - (7.1) (2.3) - - (9.4)
At 30
September
2006 116.0 95.0 180.5 22.3 25.2 271.8 150.7 - 66.8 928.3
Notes:
1. Other principally includes the Martineau Limited Partnership, the Ebbsfleet
Limited Partnership, the A2 Limited Partnership, Parc Tawe and Investors in
the Community (IIC).
2. The difference between the book value and the market value is the amount
included in prepayments in respect of lease incentives, head leases
capitalised and properties treated as finance leases.
3. The proportion of ownership of the joint ventures are as stated in the
Annual Report for the year ended 31 March 2007, which is available from
www.landsecurities.com.
Year ended 31 March 2007 and at 31 March 2007
Summary Scottish The
financial Retail Martineau The Bull
information of Property Metro St David's Galleries Ring Fen Farm
Group's share Limited Shopping Buchanan Limited Limited Limited Bristol Developm'ts Other
of joint Partnership Fund LP Partnership Partnership Partnership Partnership Alliance Limited (1) Total
ventures £m £m £m £m £m £m £m £m £m £m
Income statement
Rental income 20.6 13.3 10.2 2.0 1.4 15.1 3.3 - 1.7 67.6
Service charge
income 4.5 3.2 1.4 0.2 0.3 2.6 - - 0.2 12.4
Property
services income - - - - - - - - 1.6 1.6
Revenue 25.1 16.5 11.6 2.2 1.7 17.7 3.3 - 3.5 81.6
Rents payable (0.2) - - - (0.1) - - - - (0.3)
Other direct
property
expenditure (8.4) (4.3) (2.4) (0.4) (0.8) (4.5) (0.2) - (3.8) (24.8)
Indirect
property
expenditure (1.4) (1.0) (0.1) - - (0.2) (0.1) - (0.9) (3.7)
Depreciation - - - - - - - - (0.1) (0.1)
15.1 11.2 9.1 1.8 0.8 13.0 3.0 - (1.3) 52.7
Profit on
disposal of
non-current
properties - - - - - - - - 0.2 0.2
Net surplus on
revaluation of
investment
properties 6.3 23.0 10.2 2.6 2.0 23.8 6.9 - 0.3 75.1
Operating
profit / (loss) 21.4 34.2 19.3 4.4 2.8 36.8 9.9 - (0.8) 128.0
Net finance
(costs) /
income (11.7) (10.9) (3.4) 0.2 0.2 0.1 0.4 - (0.4) (25.5)
Profit / (loss)
before tax 9.7 23.3 15.9 4.6 3.0 36.9 10.3 - (1.2) 102.5
Income tax
(expense) /
credit
- ordinary (2.7) (6.2) (3.5) (1.2) (0.6) (5.6) (1.1) - (0.3) (21.2)
- exceptional 17.7 16.9 6.9 1.2 1.9 44.9 8.1 - 0.4 98.0
Profit / (loss)
after tax 24.7 34.0 19.3 4.6 4.3 76.2 17.3 - (1.1) 179.3
Balance sheet
Investment
properties (2) 357.2 301.0 185.1 213.2 25.0 319.6 197.3 - 32.9 1,631.3
Current assets 15.2 9.8 7.5 116.3 3.0 10.7 15.5 - 27.1 205.1
372.4 310.8 192.6 329.5 28.0 330.3 212.8 - 60.0 1,836.4
Current
liabilities (4.5) (5.2) (4.0) (21.2) (0.6) (9.2) (11.8) - (5.3) (61.8)
Non-current
liabilities (222.1) (210.3) - (0.2) - - (2.4) - (0.8) (435.8)
(226.6) (215.5) (4.0) (21.4) (0.6) (9.2) (14.2) - (6.1) (497.6)
Net assets 145.8 95.3 188.6 308.1 27.4 321.1 198.6 - 53.9 1,338.8
Capital
commitments 0.6 1.1 1.3 1.9 - - 129.3 - - 134.2
Market value of
investment
properties (2) 351.4 299.3 189.3 213.3 26.2 325.0 200.5 - 32.7 1,637.7
Net investment
At 1 April 2006 105.2 81.0 173.0 0.8 23.1 259.3 118.5 - 68.6 829.5
Properties
contributed - - - 267.6 - - - - - 267.6
Cash
contributed 9.5 6.8 1.4 35.1 - 0.3 - - 2.5 55.6
Cost of
acquisition - - - - - - - - 0.5 0.5
Share of
post-tax
results 24.7 34.0 19.3 4.6 4.3 76.2 17.3 - (1.1) 179.3
Distributions - (29.6) (5.1) - - - - - (4.5) (39.2)
Fair value
movement on
cash flow
hedges taken to
equity 6.4 3.1 - - - - - - - 9.5
Transferred to
goodwill - - - - - - - - (12.1) (12.1)
Loan advances - - - - - - 67.0 - - 67.0
Loan repayments - - - - - (14.7) (4.2) - - (18.9)
At 31 March
2007 145.8 95.3 188.6 308.1 27.4 321.1 198.6 - 53.9 1,338.8
Notes:
1. Other principally includes the Martineau Limited Partnership, the Ebbsfleet
Limited Partnership, the A2 Limited Partnership, Parc Tawe and Investors in
the Community (IIC).
2. The difference between the book value and the market value is the amount
included in prepayments in respect of lease incentives, head leases
capitalised and properties treated as finance leases.
3. The proportion of ownership of the joint ventures are as stated in the
Annual Report for the year ended 31 March 2007, which is available from
www.landsecurities.com
14. Trading properties and long-term development contracts
30 30
September September 31 March
2007 2006 2007
£m £m £m
Trading properties 175.2 140.0 148.3
Amount recoverable under long-term development contracts less
payments on account - 16.9 -
175.2 156.9 148.3
The amounts for contracts in progress at the balance sheet date
are as follows:
Contract revenue recognised as revenue in the period 13.9 29.5 80.7
Contract costs incurred and recognised profits (less recognised
losses) to date 239.7 448.1 494.8
Advances received (249.8) (440.9) (504.1)
(10.1) 7.2 (9.3)
Plus: gross amount due to customers for contract work (included in
accruals and deferred income) 10.1 9.7 9.3
Gross amount due from customers for contract work - 16.9 -
15. Trade and other receivables
30 30
September September 31 March
2007 2006 2007
£m £m £m
Trade receivables - Property investment 57.4 60.2 26.4
Trade receivables - Property Partnerships 78.0 94.4 96.2
Property sales receivables 17.0 6.4 78.6
Other receivables 113.2 93.2 100.5
Prepayments and accrued income 365.8 319.8 336.4
Finance leases receivable within one year (note 10) 4.3 3.9 3.7
635.7 577.9 641.8
Trade receivables are net of provisions for doubtful debts of £21.6m
(30 September 2006: £17.3m; 31 March 2007: £26.6m).
16. Cash and short-term deposits 30 30
September September 31 March
2007 2006 2007
£m £m £m
Cash at bank and in hand 28.9 15.5 32.4
Short-term deposits 2.5 9.7 20.3
31.4 25.2 52.7
For the purposes of the consolidated cash flow statement, cash and cash
equivalents comprise the following:
Cash at bank and in hand 28.9 15.5 32.4
Short-term deposits 2.5 9.7 20.3
Bank overdraft (note 18) (55.3) - -
(23.9) 25.2 52.7
The effective interest rate on short-term deposits was 5.6% (30 September
2006: 4.4%; 31 March 2007: 8.0%) and the deposits have an average maturity of
3 days (30 September 2006: 3 days; 31 March 2007: 30 days).
17. Non-current assets classified as held for sale
30 30
September September 31 March
2007 2006 2007
£m £m £m
Non-current assets classified as held for sale 2,568.9 - 2,420.3
Liabilities directly associated with non-current assets classified
as held for sale (1,655.9) - (1,601.0)
913.0 - 819.3
SMIF was acquired on 5 February 2007 for £517.0m. SMIF includes a number of
PPP contracts which the Group acquired exclusively with a view to being resold
to third-party investors, while maintaining a minority share. The Group
announced at the time of the acquisition that these PPP contracts would be
sold, and an Investment Bank has been appointed to execute the disposal
strategy. The PPP contracts are available for immediate sale in their present
condition, although a new fund or similar vehicle will be created for the
purposes of the disposal. The divestment is expected to complete prior to 31
March 2008. Accordingly, these PPP contracts have been designated as a
disposal group. The net carrying value of the disposal group is based on its
fair value less costs to sell at the date of acquisition, as adjusted to
reflect cash advanced to the disposal group to enable it to repay external
debt (£397.6m) and net cash invested in the disposal group (£118.7m). The
disposal group represents a discontinued operation, and the Group has not
recognised any profits or losses in respect of this discontinued operation for
the period from acquisition to 30 September 2007. SMIF is held in the Property
Partnerships segment.
18. Short-term borrowings and overdrafts
30 30
September September 31 March
2007 2006 2007
£m £m £m
Bank overdraft (note 21) 55.3 - -
Borrowings falling due within one year (note 21) 1,212.5 447.4 1,687.4
Bond exchange de-recognition adjustment falling due within one
year (note 21) (11.2) (12.5) (6.3)
Amounts payable under finance leases falling due within one year
(notes 21 and 24) 2.1 2.1 2.1
1,258.7 437.0 1,683.2
19. Trade and other payables
30 30
September September 31 March
2007 2006 2007
£m £m £m
Trade payables 38.8 29.8 26.7
Capital payables 131.4 75.8 77.9
Other payables 49.1 68.9 37.7
Accruals and deferred income 621.8 456.1 526.6
Loans from joint venture 115.0 - 115.0
956.1 630.6 783.9
Capital payables represent amounts due under contracts to purchase properties,
which were unconditionally exchanged at the period end, and for work completed
on investment properties but not paid for at the financial period end.
Deferred income principally relates to rents received in advance.
20. Provisions
Onerous
Dilapidations leases Other Total
At 1 April 2006 23.1 19.8 15.3 58.2
Charged to income statement for the period 0.1 0.5 5.9 6.5
Utilised in the period (5.0) (2.4) - (7.4)
At 30 September 2006 18.2 17.9 21.2 57.3
Charged / (credited) to income statement for the period 5.8 (1.0) 1.2 6.0
Release of discount charged to net finance costs (note 3) - 1.0 - 1.0
Utilised in the period (3.1) (2.3) (2.4) (7.8)
On acquisition of Royal Mail property portfolio - 24.2 - 24.2
At 31 March 2007 20.9 39.8 20.0 80.7
Charged to income statement for the period 0.3 - 4.3 4.6
Release of discount charged to net finance costs (note 3) - 0.8 - 0.8
Utilised in the period - (5.2) - (5.2)
At 30 September 2007 21.2 35.4 24.3 80.9
Dilapidations
Provision for dilapidations is made in respect of certain leasehold properties
where the Group anticipates incurring future expenditure at the end of the
lease. The provision is calculated on those leases that expire within the next
five years or where the lease has already expired and the liability has not
yet been settled. The amounts provided are based on the current estimate of
the future costs determined on the basis of the present condition of the
relevant properties. Settlement of the amounts provided occurs once agreement
is reached with the parties to the lease.
Onerous leases
An onerous lease provision is established in respect of leasehold properties
that are unoccupied or the expected future rental income is not expected to
meet the Group's rental obligations. The provisions are based on assumptions
about expected future rentals and voids. This provision will be settled as the
net rental obligations develop. The provision may vary based on reassessment
of the relevant assumptions as circumstances change and new obligations are
established.
Other
Other provisions include liabilities arising from the contractual arrangements
with clients that include specific performance measurement targets and life
cycle capital expenditure requirements. Settlement of the amounts provided
follows agreement with the clients. It is expected that most of the other
provisions will be utilised within the next three years.
21. Borrowings
At 30 September 2007
Weighted
average Excess
time for of fair
Book which value
Nominal value Book Total Effective interest Fair over
value of value of book Fixed / interest rate is value book
(7) Secured Unsecured value floating rate fixed (10) value
£m £m £m £m (9) % Years £m £m
Sterling
4.625 per cent Notes due
2013 (1) 300.0 299.7 - 299.7 Fixed 4.6 5.4 287.1 (12.6)
5.292 per cent Notes due
2015 (1) 391.5 390.8 - 390.8 Fixed 5.3 8.2 378.8 (12.0)
4.875 per cent Notes due
2019 (1) 400.0 395.9 - 395.9 Fixed 4.9 12.1 366.4 (29.5)
5.425 per cent Notes due
2022 (1) 255.3 254.5 - 254.5 Fixed 5.4 14.5 245.6 (8.9)
4.875 per cent Notes due
2025 (1) 300.0 297.0 - 297.0 Fixed 4.9 17.5 271.4 (25.6)
5.391 per cent Notes due
2026 (1) 210.7 209.8 - 209.8 Fixed 5.4 18.4 200.9 (8.9)
5.391 per cent Notes due
2027 (1) 611.3 608.4 - 608.4 Fixed 5.4 19.5 582.2 (26.2)
5.376 per cent Notes due
2029 (1) 317.9 316.3 - 316.3 Fixed 5.4 22.0 303.5 (12.8)
5.396 per cent Notes due
2032 (1) 322.9 321.0 - 321.0 Fixed 5.4 24.9 307.2 (13.8)
5.125 per cent Notes due
2036 (1) 500.0 498.5 - 498.5 Fixed 5.1 28.4 464.3 (34.2)
Bank facility due 2010 15.5 15.5 - 15.5 Floating 6.5 0.1 15.5 -
Euro Commercial Paper
(2) 29.7 - 29.7 29.7 Floating 6.1 0.5 29.7 -
DWP term loan (3) 134.1 134.1 - 134.1 Floating 6.1 0.5 134.1 -
Syndicated bank debt (4) 1,380.0 1,380.0 - 1,380.0 Floating 6.2 0.1 1,380.0 -
Bilateral facility (5) 855.6 855.6 - 855.6 Floating 6.3 - 855.6 -
Acquisition loan notes
(6) 112.7 - 112.7 112.7 Floating 4.6 - 112.7 -
Bank overdraft 55.3 - 55.3 55.3 Floating - - 55.3 -
Money market borrowings 89.2 89.2 - 89.2 Floating 6.2 0.2 89.2 -
6,281.7 6,066.3 197.7 6,264.0 6,079.5 (184.5)
Euro
Syndicated bank debt 27.4 27.4 - 27.4 Floating 4.4 0.3 27.4 -
Bilateral facility 27.9 27.9 - 27.9 Floating 4.5 - 27.9 -
Euro Commercial Paper 29.3 - 29.3 29.3 Floating 6.6 0.1 29.3 -
(2)
84.6 55.3 29.3 84.6 84.6 -
US Dollars
Euro Commercial Paper
(2) 5.4 - 5.4 5.4 Floating 6.0 - 5.4 -
Amounts payable under
finance leases 70.1 70.1 - 70.1 Fixed 5.5 87.8 79.2 9.1
6,441.8 6,191.7 232.4 6,424.1 6,248.7 (175.4)
Fair value of derivative
instruments
Interest rate swaps
Qualifying hedges 168.2 - (2.6) (2.6) 5.1 5.9 (2.6) -
Non-qualifying hedges 1,565.0 - (7.8) (7.8) 5.1 3.1 (7.8) -
Foreign currency swaps -
qualifying hedges 34.7 - (1.1) (1.1) 6.5 0.1 (1.1) -
1,767.9 - (11.5) (11.5) (11.5) -
Bond exchange
de-recognition (516.8) - (516.8) - 516.8
Total borrowings 5,674.9 220.9 5,895.8 6,237.2 341.4
Less: bank overdraft
(note 18) (55.3)
Less: borrowings falling
due within one year (4)
(note 18) (1,212.5)
Plus: bond exchange
de-recognition falling
due within one year
(note 18) 11.2
Less: amounts payable
under finance leases
falling due within one
year (notes 18 and 24) (2.1)
Non-current borrowings 4,637.1
During the six months ended 30 September 2007 the Group issued £22,952.0m and
repaid £22,076.7m of debt securities.
At 30 September 2006
Weighted Excess
average of
time for fair
which value
Nominal Book Book Total Effective interest Fair over
value value of value of book Fixed / interest rate is value book
(7) Secured Unsecured value floating rate fixed (10) value
£m £m £m £m (9) % Years £m £m
Sterling
5.016 per cent Notes due
2007 (1) 181.7 181.7 - 181.7 Fixed 5.0 0.6 181.5 (0.2)
4.625 per cent Notes due
2013 (1) 300.0 299.5 - 299.5 Fixed 4.6 6.4 293.6 (5.9)
5.292 per cent Notes due
2015 (1) 391.5 390.6 - 390.6 Fixed 5.3 9.2 395.6 5.0
4.875 per cent Notes due
2019 (1) 400.0 395.5 - 395.5 Fixed 4.9 13.1 393.5 (2.0)
5.425 per cent Notes due
2022 (1) 255.3 254.4 - 254.4 Fixed 5.4 15.5 266.1 11.7
4.875 per cent Notes due
2025 (1) 300.0 296.8 - 296.8 Fixed 4.9 18.5 296.8 -
5.391 per cent Notes due
2026 (1) 210.7 209.7 - 209.7 Fixed 5.4 19.4 223.4 13.7
5.391 per cent Notes due
2027 (1) 611.3 608.3 - 608.3 Fixed 5.4 20.5 649.7 41.4
5.376 per cent Notes due
2029 (1) 317.9 316.2 - 316.2 Fixed 5.4 23.0 341.3 25.1
5.396 per cent Notes due
2032 (1) 322.9 320.9 - 320.9 Fixed 5.4 25.9 350.2 29.3
Bank facility due 2010 15.5 15.4 - 15.4 Floating 5.4 0.1 15.4 -
DWP term loan (3) 245.4 235.0 - 235.0 Floating 5.2 0.5 245.4 10.4
Syndicated bank debt (4) 800.0 800.0 - 800.0 Floating 5.1 - 800.0 -
Acquisition loan notes
(5) 120.7 - 120.7 120.7 Floating 4.1 - 120.7 -
Money market borrowings 135.2 - 135.2 135.2 Floating 5.0 - 135.2 -
4,608.1 4,324.0 255.9 4,579.9 4,708.4 128.5
Amounts payable under
finance leases 72.8 72.8 - 72.8 Fixed 5.5 86.2 90.6 17.8
4,680.9 4,396.8 255.9 4,652.7 4,799.0 146.3
Fair value of derivative
instruments
Interest rate swaps
Qualifying hedges 243.2 - 1.7 1.7 5.1 7.1 1.7 -
Non-qualifying hedges 805.0 - (0.8) (0.8) 4.9 2.9 (0.8) -
1,048.2 - 0.9 0.9 0.9 -
Bond exchange
de-recognition (527.6) - (527.6) - 527.6
Total borrowings 3,869.2 256.8 4,126.0 4,799.9 673.9
Less: borrowings falling
due within one year (4)
(note 18) (447.4)
Plus: bond exchange
de-recognition falling
due within one year
(note 18) 12.5
Less: amounts payable
under finance leases
falling due within one
year (notes 18 and 24) (2.1)
Non-current borrowings 3,689.0
At 31 March 2007
Weighted Excess
average of
time for fair
Book which value
Nominal value Book Effective interest Fair over
value of value of Fixed / interest rate is value book
(7) Secured Unsecured Total book value floating rate fixed (10) value
£m £m £m £m (9) % Years £m £m
Sterling
5.016 per cent Notes due
2007 (1) 181.7 181.7 - 181.7 Fixed 5.0 0.1 181.6 (0.1)
4.625 per cent Notes due
2013 (1) 300.0 299.6 - 299.6 Fixed 4.6 5.9 288.5 (11.1)
5.292 per cent Notes due
2015 (1) 391.5 390.7 - 390.7 Fixed 5.3 8.7 384.3 (6.4)
4.875 per cent Notes due
2019 (1) 400.0 395.7 - 395.7 Fixed 4.9 12.6 379.1 (16.6)
5.425 per cent Notes due
2022 (1) 255.3 254.4 - 254.4 Fixed 5.4 15.0 255.4 1.0
4.875 per cent Notes due
2025 (1) 300.0 296.9 - 296.9 Fixed 4.9 18.0 286.2 (10.7)
5.391 per cent Notes due
2026 (1) 210.7 209.8 - 209.8 Fixed 5.4 18.9 213.2 3.4
5.391 per cent Notes due
2027 (1) 611.3 608.3 - 608.3 Fixed 5.4 20.0 614.8 6.5
5.376 per cent Notes due
2029 (1) 317.9 316.2 - 316.2 Fixed 5.4 22.5 324.5 8.3
5.396 per cent Notes due
2032 (1) 322.9 321.0 - 321.0 Fixed 5.4 25.4 331.3 10.3
5.125 per cent Notes due
2036 (1) 500.0 498.4 - 498.4 Fixed 5.1 28.9 498.0 (0.4)
Bank facility due 2010 15.5 15.5 - 15.5 Floating 5.7 0.1 15.5 -
Euro Commercial Paper
(2) 139.2 - 139.2 139.2 Floating 5.4 - 139.2 -
DWP term loan (3) 173.1 173.1 - 173.1 Floating 5.7 0.5 173.1 -
Syndicated bank debt (4) 183.0 183.0 - 183.0 Floating 5.5 - 183.0 -
Bilateral facility (5) 885.6 885.6 - 885.6 Floating 5.9 0.4 885.6 -
Acquisition loan notes
(6) 114.4 - 114.4 114.4 Floating 4.4 0.5 114.4 -
Money market borrowings 192.0 - 192.0 192.0 Floating 5.5 0.1 192.0 -
5,494.1 5,029.9 445.6 5,475.5 5,459.7 (15.8)
Euro
Bilateral facility 26.9 26.9 - 26.9 Floating 4.0 0.2 26.9 -
Euro Commercial Paper 41.1 - 41.1 41.1 Floating 5.6 0.3 41.1 -
(2)
68.0 26.9 41.1 68.0 68.0 -
Swiss Francs
Euro Commercial Paper
(2) 21.0 - 21.0 21.0 Floating 5.5 - 21.0 -
Yen
Euro Commercial Paper
(2) 38.8 - 38.8 38.8 Floating 5.4 - 38.8 -
Amounts payable under
finance leases 71.0 71.0 - 71.0 Fixed 5.5 86.9 79.2 8.2
5,692.9 5,127.8 546.5 5,674.3 5,666.7 (7.6)
Fair value of derivative
instruments
Interest rate swaps
Qualifying hedges 195.6 - (2.4) (2.4) 4.9 3.2 (2.4) -
Non-qualifying hedges 1,205.0 - (12.0) (12.0) 5.1 10.1 (12.0) -
Foreign currency swaps -
qualifying hedges 100.9 - (0.2) (0.2) 5.8 0.3 (0.2) -
1,501.5 - (14.6) (14.6) (14.6) -
Bond exchange
de-recognition (519.1) - (519.1) - 519.1
Total borrowings 4,608.7 531.9 5,140.6 5,652.1 511.5
Less: borrowings falling
due within one year (4)
(note 18) (1,687.4)
Plus: bond exchange
de-recognition falling
due within one year
(note 18) 6.3
Less: amounts payable
under finance leases
falling due within one
year (notes 18 and 24) (2.1)
Non-current borrowings 3,457.4
1. The Notes and the committed bank facilities are secured on a fixed and
floating pool of assets (the Security Group). This grants the Group's
investors security over a pool of investment properties valued at £12.4bn at
30 September 2007 (30 September 2006: £10.9bn; 31 March 2007: £11.6bn). The
amount borrowed against these assets was £5,964.2m (30 September 2006:
£4,396.8m; 31 March 2007: £5,126.9m). The secured debt structure has a tiered
covenant regime which gives the Group substantial operational flexibility when
the loan to value and interest rate cover in the Security Group are less than
65% and more than 1.45 times respectively. If these limits are exceeded,
operational restrictions increase significantly and could act as an incentive
to reduce gearing.
2. Euro Commercial Paper is unsecured. However, the amount drawn is required
to be supported by an unutilised committed bank facility, which is a secured
facility.
3. The DWP term loan was refinanced in December 2006 and expires in December
2017. It is secured on the freehold and long leasehold properties acquired
from the Department of Work and Pensions. The carrying amount of the
properties concerned was £363.4m at 30 September 2007 (30 September 2006:
£391.8m; 31 March 2007: £380.4m).
4. At 30 September 2007, the Group had a £1.5bn syndicated bank facility. In
August 2006, the Group refinanced its syndicated bank facility with the effect
of extending its maturity to August 2013. The facility is committed and
secured on the assets of the Security Group. The maturity profile is
calculated on the basis that it is the Group's intention to retain the
existing loans or that the existing loans will be refinanced or rescheduled
with the same financial institutions under the terms of the facility.
5. In December 2006 the Group entered into a £1.0bn bilateral facility
relating to the acquisition of SMIF, which is due to mature in December 2007,
although the Group has an option to extend it by a further year.
6. The acquisition loan notes were issued by Retail Property Holdings Trust
Limited, a subsidiary of the Group, as partial consideration for the purchase
of Tops Estates PLC and the LxB portfolio. The notes are unsecured, however,
they have the benefit of a commercial bank guarantee. Interest is calculated
with reference to six month LIBOR. The notes are due to be redeemed in 2015,
although the holders of the notes can request redemption in full at the next
interest payment date with at least 30 days notice. Accordingly, the notes
have been classified as current liabilities.
7. For foreign currency amounts, the nominal/notional value is the Sterling
equivalent of the principal amount at the period end dates.
8. On 3 November 2004, a debt refinancing was completed resulting in the Group
exchanging all of its outstanding bond and debenture debt for new Notes. The
new Notes do not meet the IAS 39 requirement to be substantially different
from the debt that it replaced. Consequently the book value of the new Notes
is reduced to the book value of the original debt (`the bond exchange
de-recognition adjustment'). The adjustment will be amortised to zero over the
life of the new Notes.
9. Before the effect of derivative instruments.
10. The Group's Notes are listed on the Irish Stock Exchange and their fair
values are based on their respective market prices. The fair value of interest
rate swaps is based on the market price of comparable instruments at the
balance sheet date. The fair values of short-term deposits, loans and
overdrafts are assumed to approximate to their book values, as are the values
of longer-term, floating rate bank loans.
The interest rate and currency profiles of the Group's borrowings, after
taking into account the effect of the foreign currency swaps and interest rate
swaps, are set out below:
31
30 Sept 30 Sept 30 Sept March 31
30 Sept 30 Sept 30 Sept 2006 2006 2006 2007 31 March March
2007 £m 2007 £m 2007 £m £m £m £m £m 2007 £m 2007 £m
Fixed Floating Fixed Floating Fixed Floating
rate rate Total rate rate Total rate rate Total
£m £m £m £m £m £m £m £m £m
Sterling 5,395.2 973.6 6,368.8 4,204.4 448.3 4,652.7 5,439.8 207.6 5,647.4
Euro - 55.3 55.3 - - - - 26.9 26.9
5,395.2 1,028.9 6,424.1 4,204.4 448.3 4,652.7 5,439.8 234.5 5,674.3
The maturity profiles of the Group's borrowings are as follows:
31
30 Sept 30 Sept 30 Sept March 31
30 Sept 30 Sept 30 Sept 2006 2006 2006 2007 31 March March
2007 £m 2007 £m 2007 £m £m £m £m £m 2007 £m 2007 £m
Fixed Floating Fixed Floating Fixed Floating
rate rate Total rate rate Total rate rate Total
£m £m £m £m £m £m £m £m £m
One year or less, or on
demand 243.0 1,028.9 1,271.9 193.4 255.9 449.3 1,457.2 234.5 1,691.7
More than one year but
no more than two years 2.2 - 2.2 15.8 - 15.8 2.3 - 2.3
More than two years but
no more than five years 22.0 - 22.0 65.8 - 65.8 22.0 - 22.0
More than five years 5,128.0 - 5,128.0 3,929.4 192.4 4,121.8 3,958.3 - 3,958.3
5,395.2 1,028.9 6,424.1 4,204.4 448.3 4,652.7 5,439.8 234.5 5,674.3
The expiry periods of the Group's undrawn committed borrowing facilities are:
30 30
September September 31 March
2007 2006 2007
£m £m £m
More than two years but no more than five years 2.1 702.0 2.0
More than five years 743.0 - 1,317.0
745.1 702.0 1,319.0
The maturity profiles of the Group's derivative instruments are as follows:
30 Sept 30 Sept 30 Sept 31 March 31
30 Sept 30 Sept 30 Sept 2006 2006 2006 2007 31 March March
2007 £m 2007 £m 2007 £m £m £m £m £m 2007 £m 2007 £m
Interest Foreign Interest Foreign Interest Foreign
rate currency rate currency rate currency
swaps swaps Total swaps swaps Total swaps swaps Total
£m £m £m £m £m £m £m £m £m
One year or less, or on
demand 299.4 34.7 334.1 29.5 - 29.5 274.9 100.9 375.8
More than one year but
no more than two years 171.6 - 171.6 283.0 - 283.0 178.9 - 178.9
More than two years but
no more than five years 1,183.5 - 1,183.5 610.8 - 610.8 867.3 - 867.3
More than five years 78.7 - 78.7 124.9 - 124.9 79.5 - 79.5
1,733.2 34.7 1,767.9 1,048.2 - 1,048.2 1,400.6 100.9 1,501.5
Financial risk management
Financial risk factors
The Group's operations and debt financing expose it to a variety of financial
risks that include the effects of changes in debt market prices, credit risks,
liquidity and interest rates.
Interest rate risk
The Group uses interest rate swaps and similar instruments (forward rate
agreements, forward starting swaps, and gilt locks) to manage its interest
rate exposure. With property and interest rate cycles typically of four to
seven years duration, the Group's target is to have a minimum of 80% of
anticipated debt at fixed rates of interest and 20% floating over this
timeframe. Due to a combination of factors, principally the high level of
certainty required under IAS 39 `Financial Instruments: Recognition and
Measurement', hedging instruments used in this context often do not qualify
for hedge accounting.
Credit risk
The Group's principal financial assets are bank balances and cash, trade and
other receivables, finance lease receivables and short-term investments. The
Group's credit risk is primarily attributable to its trade and finance lease
receivables. The 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 all amounts due
according to the original terms of the receivables concerned. The credit risk
on liquid funds and derivative financial instruments is limited due to the
Group's policy of monitoring counterparty exposures. The Group has no
significant concentration of credit risk, with exposure spread over a large
number of counterparties.
Liquidity risk
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 planned future investments.
22. Net pension benefit obligations
30 30
September September 31 March
2007 2006 2007
£m £m £m
Analysis of the movement in the balance sheet deficit
At the beginning of the period 5.6 6.5 6.5
Charge to operating profit 1.0 1.7 2.7
Expected return on plan assets (4.3) (4.4) (8.6)
Interest on schemes' liabilities 3.9 3.8 7.6
Employer contributions (1.1) (1.6) (3.9)
Actuarial losses 1.1 3.5 1.3
At the end of the period 6.2 9.5 5.6
23. Deferred taxation
Accelerated
tax Capitalised Revaluation
depreciation interest surplus Other Total
£m £m £m £m £m
Deferred tax liabilities
At 1 April 2006 (147.9) (26.5) (1,664.2) (154.7) (1,993.3)
Net (charge) / credit to income statement for the
period (9.2) (3.6) (269.0) 3.1 (278.7)
Released in respect of property disposals during the
period 3.6 - 20.8 - 24.4
Deferred tax on acquisition of a company - - - (0.3) (0.3)
At 30 September 2006 (153.5) (30.1) (1,912.4) (151.9) (2,247.9)
Net charge to income statement for the period (8.5) (2.5) (61.7) (2.3) (75.0)
(Charged) / released in respect of property
disposals during the period (2.5) - 11.7 - 9.2
Released on conversion to a Real Estate Investment
Trust 160.1 31.7 1,962.4 155.1 2,309.3
At 31 March 2007 (4.4) (0.9) - 0.9 (4.4)
Net charge to income statement for the period (0.3) - - - (0.3)
At 30 September 2007 (4.7) (0.9) - 0.9 (4.7)
Pension
Tax losses Hedges deficit Other Total
£m £m £m £m £m
Deferred tax assets
At 1 April 2006 12.2 2.3 2.0 9.0 25.5
Net charge to income statement for the period (3.6) (1.3) (0.4) - (5.3)
(Credited) / charged to equity - (0.7) 1.0 - 0.3
At 30 September 2006 8.6 0.3 2.6 9.0 20.5
Net charge to income statement for the period (2.8) (1.8) - - (4.6)
Released in respect of property disposals during the
period (5.8) - - (9.0) (14.8)
Released on conversion to a Real Estate Investment
Trust - 2.4 (2.2) - 0.2
Credited to equity - (0.9) - - (0.9)
At 31 March 2007 and at 30 September 2007 - - 0.4 - 0.4
30 30
September September 31 March
2007 2006 2007
£m £m £m
Deferred tax is provided as follows:
Excess of capital allowances over depreciation - investment properties - 119.9 -
Excess of capital allowances over depreciation - operating properties 4.7 33.6 4.4
Capitalised interest - investment properties - 27.3 -
Capitalised interest - operating properties 0.9 2.8 0.9
Revaluation surpluses - own - 1,829.1 -
Revaluation surpluses - acquired - 83.3 -
Tax losses - (8.6) -
Other temporary differences (1.3) 140.0 (1.3)
Total deferred tax 4.3 2,227.4 4.0
24. Obligations under finance leases
30 30
September September 31 March
2007 2006 2007
£m £m £m
The minimum lease payments under finance leases fall due as follows:
Not later than one year 6.9 7.0 6.9
Later than one year but not more than five years 26.4 27.2 26.7
More than five years 423.5 432.6 425.9
456.8 466.8 459.5
Future finance charges on finance leases (386.7) (394.0) (388.5)
Present value of finance lease liabilities (notes 9 and 21) 70.1 72.8 71.0
The present value of finance lease liabilities is as follows:
Not later than one year (notes 18 and 21) 2.1 2.1 2.1
Later than one year but not more than five years 8.7 8.8 8.8
More than five years 59.3 61.9 60.1
70.1 72.8 71.0
The fair value of the Group's lease obligations, using a discount rate of
5.5%, is £79.2m (30 September 2006: £90.6m; 31 March 2007: £79.2m).
25. Total shareholders' equity
Share- Capital Retained
Ordinary Own based Share redemption earnings
shares shares payments premium reserve * Total
£m £m £m £m £m £m £m
At 1 April 2006 46.9 (3.4) 6.3 43.2 30.5 7,370.4 7,493.9
Exercise of options 0.1 - - 4.7 - - 4.8
Fair value movement on cash flow - - - - -
hedges - Group 1.9 1.9
Fair value movement on cash flow - - - - -
hedges - joint ventures 1.3 1.3
Fair value of share-based payments - - 2.6 - - - 2.6
Own shares acquired - (15.2) - - - (21.1) (36.3)
Actuarial losses on defined benefit - - - - -
pension schemes (2.5) (2.5)
Dividend paid (note 6) - - - - - (133.8) (133.8)
Profit for the financial period - - - - - 859.8 859.8
At 30 September 2006 47.0 (18.6) 8.9 47.9 30.5 8,076.0 8,191.7
Exercise of options - - - 3.6 - - 3.6
Fair value movement on cash flow
hedges - Group - - - - - 3.2 3.2
Fair value movement on cash flow
hedges - joint ventures - - - - - 8.2 8.2
Fair value of share-based payments - - 3.0 - - - 3.0
Own shares acquired - 0.1 - - - - 0.1
Cost of shares awarded to employees - 4.0 (4.0) - - - -
Actuarial gains on defined benefit
pension schemes - - - - - 2.2 2.2
Dividend paid (note 6) - - - - - (89.2) (89.2)
Profit for the financial period - - - - - 2,668.5 2,668.5
At 31 March 2007 47.0 (14.5) 7.9 51.5 30.5 10,668.9 10,791.3
Exercise of options 0.1 - - 1.4 - - 1.5
Fair value movement on cash flow
hedges - Group - - - - - 0.2 0.2
Fair value movement on cash flow
hedges - joint ventures - - - - - 2.4 2.4
Fair value of share-based payments - - 2.3 - - - 2.3
Own shares acquired - (9.4) - - - (71.7) (81.1)
Cost of shares awarded to employees - 1.9 (1.9) - - - -
Actuarial losses on defined benefit
pension schemes - - - - - (1.1) (1.1)
Dividend paid (note 6) - - - - - (159.5) (159.5)
Profit for the financial period - - - - - 367.0 367.0
At 30 September 2007 47.1 (22.0) 8.3 52.9 30.5 10,806.2 10,923.0
* Included within retained earnings is £17.2m (30 September 2006: £0.3m loss;
31 March 2007: £14.6m gain) of gains in respect of cash flow hedges.
Own shares represent the cost of shares purchased in Land Securities Group PLC
by the Employee Share Ownership Plan (ESOP) which is operated by the Group in
respect of its commitment to the Deferred Bonus Shares Scheme. The number of
shares held by the ESOP at 30 September 2007 was 1,320,086 (30 September 2006:
961,057; 31 March 2007: 895,771).
In July 2006 and 2007 the shareholders at the Annual General Meeting
authorised the acquisition of shares issued by the Company representing up to
10% of its share capital to be held as treasury shares. At 30 September 2007
the Group owned 5,446,000 (30 September 2006: 1,225,000; 31 March 2007:
1,225,000) shares with a market value of £91.7m (30 September 2006: £24.1m; 31
March 2007: £25.9m).
26. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
30 30
September September 31 March
2007 2006 2007
£m £m £m
Cash generated from operations
Profit for the financial period 367.0 859.8 3,528.3
Income tax expense / (credit) 8.2 318.4 (1,549.2)
Profit before tax 375.2 1,178.2 1,979.1
Share of losses / ( profits) of joint ventures (post-tax) 9.8 (59.1) (179.3)
385.0 1,119.1 1,799.8
Interest income (8.5) (4.2) (12.4)
Interest expense 142.3 114.7 233.3
Operating profit 518.8 1,229.6 2,020.7
Adjustments for:
Depreciation 20.8 17.3 32.9
Profit on disposal of non-current properties (79.0) (33.6) (118.2)
Profit on disposal of a PPP project (10.0) - -
Net surplus on revaluation of investment properties (145.5) (896.7) (1,307.6)
Pension scheme charge 1.0 1.7 2.7
Changes in working capital:
(Increase) / decrease in trading properties and long-term
development contracts (7.3) 100.0 110.1
Increase in receivables (52.6) (135.7) (121.6)
Increase in payables and provisions 36.4 52.7 63.4
Net cash generated from operations 282.6 335.3 682.4
27. Related party transactions
Subsidiaries
In accordance with IAS 27 `Consolidated and Separate Financial Statements',
transactions between the Company and its subsidiaries, which are related
parties of the Company, have been eliminated on consolidation and are not
disclosed in this note.
Joint ventures
As disclosed in note 13, the Group has investments in a number of joint
ventures. Details of transactions and balances between the Group and its joint
ventures are disclosed as follows:
30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept
2007 2007 2007 2007 2006 2006 2006 2006
Net Amounts Amounts Net Amounts Amounts
investments owed by owed to investments owed by owed to
into joint joint joint into joint joint joint
Revenues ventures ventures ventures Revenues ventures ventures ventures
£m £m £m £m £m £m £m £m
Scottish Retail Property
Limited Partnership 0.4 (37.5) - (3.5) 0.9 - 0.3 (3.8)
Metro Shopping Fund LP 0.1 1.5 - (2.6) 0.1 0.8 - (1.8)
Buchanan Galleries Partnership 1.8 (3.1) 0.1 - 1.8 (2.4) 0.2 -
St David's Limited Partnership 2.4 35.0 - (126.6) 0.4 21.5 16.5 -
Martineau Galleries Limited
Partnership 0.1 4.3 0.1 - 0.1 - 0.3 -
The Bull Ring Limited
Partnership - (6.6) - - - (7.1) - -
Bristol Alliance 3.9 36.7 - (1.4) 1.6 27.5 - (1.9)
Martineau Limited Partnership - - - - - (0.5) - -
A2 Limited Partnership - (0.1) - - - - - -
Parc Tawe - - - - - (4.0) - -
Hungate - 1.8 - - - - - -
Countryside - 3.4 - - - - - -
Investors in the Community - - - - - 2.6 - -
Ebbsfleet Limited Partnership - - 0.2 - - - - -
Fen Farm Developments Limited - (5.6) 15.4 - - - - -
8.7 29.8 15.8 (134.1) 4.9 38.4 17.3 (7.5)
31 March 31 March 31 March 31 March
2007 2007 2007 2007
Net Amounts Amounts
investments owed by owed to
into joint joint joint
Revenues ventures ventures ventures
£m £m £m £m
Scottish Retail Property Limited Partnership 1.5 9.5 0.2 (7.6)
Metro Shopping Fund LP 0.5 (22.8) - (0.1)
Buchanan Galleries Partnership 3.6 (3.7) 0.3 -
St David's Limited Partnership 1.9 302.7 20.6 (115.5)
Martineau Galleries Limited Partnership 0.2 - 0.1 -
The Bull Ring Limited Partnership - (14.5) - -
Bristol Alliance 5.1 62.8 4.3 (1.9)
Martineau Limited Partnership - (0.5) - -
A2 Limited Partnership - - - -
Parc Tawe - (4.0) - -
Hungate - 1.6 - -
Countryside - 0.9 - -
Investors in the Community - (4.7) - -
Ebbsfleet Limited Partnership - - - -
Fen Farm Developments Limited - - - -
12.8 327.3 25.5 (125.1)
Further detail of the above transactions and balances can be seen in note 13.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the applicable categories
specified in IAS 24 `Related Party Disclosures':
30 30 31
September September March
2007 2006 2007
£m £m £m
Short-term employee benefits 1.4 1.5 6.1
Post-employment benefits 0.3 0.3 0.9
Share-based payments 1.1 1.3 2.4
Compensation for loss of office - - 0.7
2.8 3.1 10.1
The amount shown as compensation for loss of office represents the maximum
potential amount assuming no mitigation.
28. Events after the balance sheet date
Subsequent to 30 September 2007, the Group completed the acquisition of a
number of PPP contracts from AMEC following the expiry of joint venture
partners pre-emption rights for £89.4m.
Glossary
Adjusted earnings per share (EPS)
Earnings per share based on revenue profit plus profits on trading properties
and long-term development contracts all after tax.
Adjusted net asset value (NAV) per share
NAV per share adjusted to add back deferred tax associated with investment
properties and capitalised interest, the adjustment arising from the
de-recognition of the bond exchange, together with cumulative mark-to-market
adjustment arising on interest swaps and similar instruments used for hedging
purposes. After REIT conversion, the adding back of deferred tax is no longer
relevant.
Book value
The amount at which assets and liabilities are reported in the financial
statements.
Combined portfolio
The combined portfolio is our wholly-owned investment property portfolio
combined with our share of the value of properties held in joint ventures, but
excludes any investment properties owned by Land Securities Trillium. Unless
stated these are the pro-forma numbers we use when discussing the investment
property business.
Development pipeline
The Group's development programme together with any proposed schemes that are
not yet included in the development programme but which are more likely to
proceed than not.
Development programme
The Group's development programme comprises projects which are completed but
less than 95% let; developments on site; committed developments (being
projects which are approved and the building contract let); and authorised
developments (those projects approved by the Board for which the building
contract has not yet been let). For reporting purposes we retain properties in
the programme until they are 95% let.
Development surplus
Excess of latest valuation over the total development cost (TDC).
Diluted figures
Reported amount adjusted to include the effects of potential shares issuable
under employee share schemes.
Earnings per share (EPS)
Profit after taxation attributable to ordinary shareholders divided by the
weighted average number of ordinary shares in issue during the year.
EPRA
European Public Real Estate Association.
Equivalent yield
The internal rate of return from an investment property, based on the gross
outlays for the purchase of a property (including purchase costs), reflecting
reversions to current market rent, and such items as voids and expenditures
but disregarding potential changes in market rents and reflecting the actual
cash flow rents.
Estimated rental value (ERV)
The estimated market rental value of lettable space as determined biannually
by the Group's valuers. This will normally be different to the rent being
paid.
Exceptional item
An item of income or expense that is deemed to be sufficiently material,
either by its size or nature, to require separate disclosure.
Finance lease
A lease that transfers substantially all the risks and rewards of ownership
from the lessor to the lessee.
Gearing (net)
Total borrowings, including bank overdrafts, less short-term deposits,
corporate bonds and cash, at book value, plus non-equity shareholders' funds
as a percentage of equity shareholders' funds.
Gross income yield
The annual net rent on investment properties expressed as a percentage of the
valuation ignoring costs of purchase or sale.
Head lease
A lease under which the Group holds an investment property.
Initial yield
Annualised net rents on investment properties expressed as a percentage of the
acquisition cost.
Interest rate swap
A financial instrument where two parties agree to exchange an interest rate
obligation for a predetermined amount of time. These are used by the Group to
convert floating rate debt to fixed rates.
Investment portfolio
The investment portfolio comprises the Group's wholly-owned investment
properties together with the properties held for development but excludes
Trillium properties.
Joint venture
An entity in which the Group holds an interest on a long-term basis and is
jointly controlled by the Group and one or more venturers under a contractual
arrangement whereby decisions on financial and operating policies essential to
the operation, performance and financial position of the venture require each
venturer's consent.
Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically the
incentive will be an initial rent-free period, or a cash contribution to
fit-out or similar costs. For accounting purposes, under IFRS, the value of
the rent-free period is spread over the non-cancellable life of the lease.
LIBOR
The London Interbank Offered Rate, the interest rate charged by one bank to
another for lending money.
Like-for-like portfolio
Properties that have been in the investment or combined portfolio for the
whole of the current and previous financial year.
London Portfolio
This business includes all London offices and Central London retail, but
excludes those assets held in the Metro Shopping Fund LP.
Mark-to-market adjustment
An accounting adjustment to change the book value of an asset or liability to
its market value.
Net asset value (NAV) per share
Total equity divided by the number of ordinary shares in issue at the period
end.
Open market value
Open market value is an opinion of the best price at which the sale of an
interest in the property would complete unconditionally for cash consideration
on the date of valuation (as determined by the Group's external valuers). In
accordance with usual practice, the Group's external valuers report valuations
net, after the deduction of the prospective purchaser's costs, including stamp
duty, agent and legal fees.
Operating properties
Properties acquired and managed by Land Securities Trillium as part of its
property outsourcing contracts with third parties and which do not meet the
accounting definition of investment property.
Other investment portfolio
This comprises all other investment properties not included in Retail or
London Portfolio.
Outline planning consent
This gives consent in principle for a development, and covers matters such as
use and building mass. Full details of the development scheme must be provided
in an application for full planning consent, including detailed design,
external appearance and landscaping before a project can proceed. An outline
planning permission will lapse if full planning permission is not granted
within three years.
Private Finance Initiative (PFI)
A particular form of PPP, that is a government or public authority initiative
to acquire private financing for public sector infrastructure.
Property income distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out of qualifying
profits. A REIT is required to distribute at least 90% of its qualifying
profits as a PID to its shareholders.
Public Private Partnership (PPP)
A partnership that brings together, for mutual benefit, a public body and a
private company in a long-term joint venture for the purpose of delivering
public projects or services.
Qualifying activities/Qualifying assets
The ownership (activity) of property (assets) which is held to earn rental
income and qualifies for tax-exempt treatment (income and capital gains) under
UK REIT legislation.
Real Estate Investment Trust (REIT)
A REIT must be a publicly quoted company with at least three quarters of its
profits and assets derived from a qualifying property rental business. Income
and capital gains from the property rental business are exempt from tax but
the REIT is required to distribute at least 90% of those profits to
shareholders. Corporation tax is payable on non-qualifying activities in the
normal way.
Retail Portfolio
This business includes our shopping centres, shops, retail warehouse
properties and assets held in retail joint ventures but not Central London
retail.
Return on average capital employed
Group profit before interest, plus joint venture profit before tax, divided by
the average capital employed (defined as shareholders' funds plus net debt).
Return on average equity
Group profit before tax plus joint venture tax divided by the average equity
shareholders' funds.
Revenue profit
Profit before tax, excluding profits on the sale of non-current asset and
trading properties, profits on long-term development contracts, revaluation
surpluses, mark-to-market adjustments on interest rate swaps and similar
instruments used for hedging purposes, the adjustment to interest payable
resulting from the amortisation of the bond exchange de-recognition, debt
restructuring charges and any exceptional items.
Reversionary or under-rented
Space where the passing rent is below the ERV.
Reversionary yield
The anticipated yield to which the initial yield will rise once the rent
reaches the ERV.
Total business return
Dividend per share, plus the increase in adjusted diluted net asset value per
share, divided by the adjusted diluted net asset value per share at the
beginning of the period.
Total development cost (TDC)
All capital expenditure on a project including the opening book value of the
property on commencement of development, together with all finance costs less
residential proceeds.
Total property return
Valuation surplus, profit / (loss) on property sales and net rental income in
respect of investment properties expressed as a percentage of opening book
value, together with the time weighted value for capital expenditure incurred
during the current period, on the investment property portfolio.
Total shareholder return
The growth in value of a shareholding over a specified period, assuming that
dividends are reinvested to purchase additional units of the stock.
Trading properties
Properties held for trading purposes and shown as current assets in the
balance sheet.
Turnover rent
Rental income which is related to an occupier's turnover.
Underlying operating profit
Operating profit before profit on disposal of non-current properties,
revaluation of investment properties, and exceptional items stated within
operating profit.
Unitary charge
The basic payment received by Land Securities Trillium under a property
outsourcing contract.
Voids
The area in a property or portfolio, excluding developments, which are
currently available for letting.
Weighted average cost of capital (WACC)
Weighted average cost of debt and notional cost of equity, used as a benchmark
to assess investment returns.
Yield shift
A movement (negative or positive) in the equivalent yield of a property asset.
Zone A
A means of analysing and comparing the rental value of retail space by
dividing it into zones parallel with the main frontage. The most valuable
zone, Zone A, is at the front of the unit. Each successive zone is valued at
half the rate of the zone in front of it.
END
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