REG - Land Sec. Group PLC - Final Results
16/05/2023 07:00
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RNS Number : 4858Z Land Securities Group PLC 16 May 2023
16 May 2023
LAND SECURITIES GROUP PLC ("Landsec")
Results for the year ended 31 March 2023
Continued operational and strategic momentum; well-positioned for new market
reality
Mark Allan, Chief Executive of Landsec, commented:
"Last year saw the most striking difference in performance between
occupational markets and investment markets that I can remember. In investment
markets, rapidly rising interest rates led to a sharp slowdown in transaction
activity and falling asset values as valuation yields rose, whereas from a
customer perspective, strong demand for Landsec's best-in-class space drove
consistently strong leasing, rising occupancy levels and growing rents across
all parts of our portfolio.
"Our strategy is based on two clear and simple principles: focus our resources
where we have sustainable competitive advantage and maintain a strong balance
sheet. We have done both and, as a result, were able to navigate the
challenges of the past twelve months very effectively. Our competitive
advantages remain the high quality of our portfolio, the strength of our
customer relationships and our ability to unlock complex opportunities.
Looking forward, we expect the combination of a 'higher for longer' interest
rate environment and the continuing concentration of customer demand on the
very best space to result in exciting opportunities and continued positive
rental growth for Landsec. Those competitive advantages will be more important
than ever."
Financial highlights
2023 2022 2023 2022
EPRA earnings (£m)(1)(2) 393 355 (Loss)/profit before tax (£m) (622) 875
EPRA EPS (pence)(1)(2) 53.1 48.0 Basic EPS (pence) (83.6) 117.4
EPRA NTA per share (pence)(1)(2) 936 1,063 Net assets per share (pence) 945 1,070
Total return on equity (%)(1)(2) (8.3) 10.5 Dividend per share (pence) 38.6 37.0
Group LTV ratio (%)(1)(2) 31.7 34.4 Net debt (£m) 3,348 4,254
¾ EPRA EPS(1)(2) of 53.1p, with underlying EPRA EPS excluding the benefit
of increased surrender premiums up 4.4% to 50.1p, driven by strong leasing and
6.0% LFL rental income growth
¾ Total dividend up 4.3% to 38.6p per share, in line with increase in
underlying earnings
¾ Loss before tax of £622m as a result of a -£848m, or -7.7%, movement in
portfolio value, as an average 50bps yield softening offset an overall 3.6%
ERV growth, leaving EPRA NTA per share(1) (2) down 11.9% to 936p and total
return on equity at -8.3%
¾ Net debt down £0.9bn due to successful disposal of £1.4bn of mature
offices, mostly in the City
¾ Sector-leading balance sheet strength, with AA/AA- credit rating, 7.0x
net debt/EBITDA, Group LTV(1)(2) down 2.7ppt to 31.7% and weighted average
debt maturity up from 9.1 to 10.3 years
¾ Expect EPRA EPS for current year to be broadly stable vs last year's
underlying 50.1 pence, as positive growth in operational performance offsets
impact of recent and further planned disposals
Operational highlights: building on strong operational momentum and delivering
on strategy
Strong operational performance, continued pace in execution on strategy, and
proven ability to unlock complex opportunities, underpinned by high-quality
portfolio and strong balance sheet, provide clear potential to further grow
attractive earnings yield and deliver 8-10% annual return on equity over time.
Central London: strong leasing momentum, reallocating capital towards higher
return assets
¾ Sold £1.4bn of mature offices, crystallising average 10% IRR despite
discount to last year's book value, taking total City office disposals over
last two years to £1.7bn and increasing West End/Southwark assets to 74% of
London portfolio
¾ Delivered continued strong leasing results as demand for high-quality
space in best locations remains high, with £48m of lettings completed or in
solicitors' hands, 5% ahead of valuers' assumptions, and occupancy up 110bps
to 95.9%, with West End office portfolio effectively full at 99.5% occupancy
¾ Drove 4.7% ERV growth due to strong letting activity, as rise in
valuation yields led to capital values softening 7.3%, with continued low to
mid single digit percent ERV growth expected for current year
¾ Current pipeline 60% pre-let or under offer ahead of near-term
completion, with recent lettings 11% ahead of ERV, providing confidence to
start two new schemes with expected 7.4% yield on cost and 12%+ yield on
£460m capex for delivery in supply-constrained 2025 window
Major retail destinations: capitalising on growing demand from brands for
best-in-class space
¾ Continued to deliver strong leasing momentum via differentiated
brand-focused platform, capitalising on 'flight to prime' and upsizing of key
brands, with £38m of letting signed or in solicitors' hands on average 9%
ahead of ERV and occupancy up 110bps to 94.3%
¾ Recorded 6.9% YoY sales growth, with like-for-like sales 4.4% above
2019/20 levels, as normalising consumer behaviour and improved profitability
is driving growing investment in stores by brands
¾ Delivered 0.9% ERV growth, yet valuations down 6.4% reflecting increase
in valuation yields based on valuers' sentiment, with low to mid single digit
percent ERV growth expected this year
¾ Secured remaining 50% of St David's, Cardiff via purchase of debt at
implied asset yield of 9.7%
Mixed-use urban neighbourhoods: unlocked opportunity to start on site with
first two schemes
¾ Secured resolution to grant planning consent for £1bn Finchley Road
scheme and signed drawdown agreement for first phase of land at Mayfield,
unlocking opportunity to start on site with enabling works at Finchley Road
and first phase of office development at Mayfield later this year
¾ Progressed preparations on rest of 10m sq ft pipeline and sold or
exchanged contracts to sell over half of c. £180m of non-core U+I assets
since acquisition in December 2021, 16% above book value
Underpinning our strategy: sector-leading capital base and clear action on
sustainability
¾ Further strengthened sector-leading balance sheet, with AA/AA- credit
rating; LTV down 2.7ppt to 31.7%; net debt/EBITDA of 7.0x at end of March;
average debt maturity up to 10.3 years post the issue of a £400m Green bond;
fully-hedged cost of debt of 2.7%; and no refinancing needs until 2026
¾ Progressing net zero transition investment plan, with 44% of office
portfolio expected to be rated EPC 'B' or higher by the summer vs 23% for
overall London office market, and announced target to reduce upfront embodied
carbon by 50% vs a typical development by 2030
¾ Launched Landsec Futures Fund to invest £20m over next 10 years to
enhance social mobility in our industry, to empower more people towards world
of work and deliver £200m of social value
1. An alternative performance measure. The Group uses a number of financial
measures to assess and explain its performance, some of which are considered
to be alternative performance measures as they are not defined under IFRS. For
further details, see the Financial review and table 14 in the Business
analysis section.
2. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Financial review. The condensed consolidated preliminary
financial information is prepared under UK adopted international accounting
standards (IFRSs and IFRICs) where the Group's interests in joint ventures are
shown collectively in the income statement and balance sheet, and all
subsidiaries are consolidated at 100%. Internally, management reviews the
Group's results on a basis that adjusts for these forms of ownership to
present a proportionate share. These metrics, including the Combined
Portfolio, is an example of this approach, reflecting our economic interest in
our properties regardless of our ownership structure. For further details, see
table 14 in the Business analysis section.
A live video webcast of the presentation will be available at 9.00am BST. A
downloadable copy of the webcast will then be available by the end of the day.
We will also be offering an audio conference call line, details are available
in the link below. Due to the large volume of callers expected, we recommend
that you dial into the call 10 minutes before the start of the presentation.
Please note that there will be an interactive Q&A facility on both the
webcast and conference call line.
Webcast link: https://webcast.landsec.com/2023-full-year-results
(https://urldefense.proofpoint.com/v2/url?u=https-3A__url.avanan.click_v2_-5F-5F-5Fhttps-3A_webcast.landsec.com_2023-2Dfull-2Dyear-2Dresults-5F-5F-5F.YXAxZTpzaG9yZWNhcDphOm86Mjk0ZjlhYzQxNzNlM2FkNzdmOTdmMzhmZDU5NGEwNzQ6Njo1OWVlOjg0OTVmMThmODJkNTRiZDA0NTUwNTliYzJmZWJjNzhmNDE4OWJkMjhmYjU5ZWIzNDcwYzVlYTYwYTYzMDYyZjY6aDpU&d=DwMGaQ&c=bKNseOHsszsRCtLFfd6XtA&r=9hJhqEYh-F2PiB4WkpCv0mK2C5wAHZhnEr0e7Qfhdf8&m=0wUQMSRT3Uakerp_HZr6qkZtgwqmAuJQ6fcGNbqOsuhZC5MtPqfQO4-zVniYrBaO&s=2ythpO_qKpdIQqcyL6PKa7iWhD6roWAY3xL8iwtVi9Y&e=)
Call title: Landsec Annual Results 2023
Forward-looking statements
These full year results, the latest Annual Report and Landsec's website may
contain certain 'forward-looking statements' with respect to Land Securities
Group PLC (the Company) and the Group's financial condition, results of its
operations and business, and certain plans, strategies, objectives, goals and
expectations with respect to these items and the economies and markets in
which the Group operates.
Forward-looking statements are sometimes, but not always, identified by their
use of a date in the future or such words as 'anticipates', 'aims', 'due',
'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans',
'targets', 'goal' or 'estimates' or, in each case, their negative or other
variations or comparable terminology. Forward-looking statements are not
guarantees of future performance. By their very nature forward-looking
statements are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. Many of these assumptions, risks and uncertainties
relate to factors that are beyond the Group's ability to control or estimate
precisely. There are a number of such factors that could cause actual results
and developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to,
changes in the political conditions, economies and markets in which the Group
operates; changes in the legal, regulatory and competition frameworks in which
the Group operates; changes in the markets from which the Group raises
finance; the impact of legal or other proceedings against or which affect the
Group; changes in accounting practices and interpretation of accounting
standards under IFRS, and changes in interest and exchange rates.
Any forward-looking statements made in these full year results, the latest
Annual Report or Landsec's website, or made subsequently, which are
attributable to the Company or any other member of the Group, or persons
acting on their behalf, are expressly qualified in their entirety by the
factors referred to above. Each forward-looking statement speaks only as of
the date it is made. Except as required by its legal or statutory obligations,
the Company does not intend to update any forward-looking statements.
Nothing contained in these full year results, the latest Annual Report or
Landsec's website should be construed as a profit forecast or an invitation to
deal in the securities of the Company.
Chief Executive's statement
Actively executing on our strategy. Well positioned in a changing market.
The strategy we launched in late 2020 was based on two key principles of
sustainable value creation: focusing our resources where we have a genuine
competitive advantage, and maintaining a strong balance sheet. Back then,
interest rates and property yields in many sectors were at or near all-time
low levels, making asset values in these sectors look expensive, yet since
then external market conditions have changed materially, in particular over
the last twelve months. Despite enduring customer demand driving rents and
occupancy higher, increasing interest rates meant the value of our portfolio
was down 7.7% for the year, as an average 50bps rise in valuation yields
offset an overall 3.6% ERV growth.
Whereas many slowed or paused activity in response, we have remained active,
pragmatic and future-focused in executing our strategy during the year. We
sold £1.4bn of London offices where our ability to add further value was
limited, bringing total office disposals since late 2020 to £2.2bn, with an
average yield of 4.4%, on average just 4% below book value. We selectively
invested where we saw value, for example buying the debt secured on St
David's, Cardiff at an implied property yield of 9.7%. We kept to programme on
new developments by committing to early works during the political turmoil in
the autumn whilst keeping flexibility on c. £400m of future spend, which we
now expect to commit to shortly. And we issued a £400m Green bond, to
pro-actively extend our sector-leading debt maturities even further.
Our areas of competitive advantage remain: i) our high quality portfolio; ii)
the strength of our customer relationships; and iii) our ability to unlock
complex opportunities through our development and asset management expertise.
Despite the change in market conditions, these strengths are clearly reflected
in our strong operational performance during the year and we expect these to
persist going forward.
This is supported by the strength of our capital base. With a 31.7% LTV and
net debt/EBITDA of 7.0x at the year-end our leverage is low; at 10.3 years our
average debt maturity is long; and we have no need to refinance any debt until
2026. We have also created more optionality in our attractive pipeline and as
a result of our strategic choices and decisive action since late 2020, we are
well placed to take advantage of the opportunities that will undoubtedly
emerge in a new higher rate, higher yield environment.
Delivering continued growth in operational results
As people choose to spend time together in inspiring places, be it to work,
shop or spend their leisure time, our customers increasingly focus on the best
space in the best locations to attract the right talent and consumers.
Building on the positive momentum our focus on growing customer relationships
has started to drive over the past three years, we have delivered further
growth in operational results.
EPRA EPS for the year increased to 53.1 pence, or 50.1 pence on an underlying
basis, excluding the benefit of a £22m increase in surrender premiums
received during the year. Underlying EPRA EPS was up 4.4% vs the prior year,
towards the high end of our guidance of low to mid-single digit percentage
growth. This was supported by growth in like-for-like net rental income of
6.0%, which more than offset the impact from our £1.4bn of disposals and our
significant deleveraging. In line with growth in underlying earnings, our
dividend for the year is up 4.3% to 38.6 pence, reflecting a dividend cover of
1.3 times.
Our strong leasing activity drove 3.6% ERV growth, with positive growth across
all four segments of our portfolio, reflecting its enduring appeal to
customers. Still, the sharp increase in bond yields over the past twelve
months put upwards pressure on valuation yields, leaving our overall portfolio
value down 7.7% for the year. Notwithstanding our strong operational results
and growth in earnings, EPRA NTA per share therefore was down 11.9% to 936
pence, resulting in a total return on equity of -8.3%.
Table 1: Highlights
Mar 2023 Mar 2022 Change %
EPRA earnings (£m)(1) 393 355 10.7
(Loss)/profit before tax (£m) (622) 875 (171.1)
Total return on equity (%) (8.3) 10.5 (18.8)
Basic (loss)/earnings per share (pence) (83.6) 117.4 (171.2)
EPRA earnings per share (pence)(1) 53.1 48.0 10.6
Underlying EPRA earnings per share (pence) (1,2) 50.1 48.0 4.4
Dividend per share (pence) 38.6 37.0 4.3
Combined portfolio (£m)(1) 10,239 12,017 (14.8)
IFRS net assets (£m) 7,072 7,991 (11.5)
EPRA Net Tangible Assets per share (pence) (1) 936 1,063 (11.9)
Adjusted net debt (£m)(1) 3,287 4,179 (21.3)
Group LTV ratio (%)(1) 31.7 34.4 (2.7)
Proportion of portfolio rated EPC 'B' or higher (%) 36 36
Average upfront embodied carbon reduction development pipeline (%) 36 n/a
Energy intensity reduction vs 2020 (%) 16.6 17.5
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information in the Financial
Review.
2. Excluding increase in surrender premiums received of £22m
Our strategy
Our strategy is focused on three areas - Central London offices, major retail
destinations and mixed-use urban neighbourhoods. Each of these benefits from
growing demand for high quality, sustainable space, which continues to drive
rental growth. Whilst the proportions of use differ, there is increasingly
more that unites these areas than divides them, as the lines between where
people want to work, live and spend their leisure time blur. What binds these
areas together is the enduring importance of a sense of place.
Whilst our strategic focus remains the right one, economic and financial
market conditions have changed materially over the past year. Interest rates
have risen sharply in response to higher inflation and credit conditions are
tightening, resulting in reduced lending and increased credit margins. It is
impossible for us to predict where interest rates will settle over time, but
taking a long term view, it seems clear to us that the ultra-low rates over
the prior decade were the aberration, not the adjustment over the past year.
This is important for a number of reasons. Firstly, the strategy we set out in
late 2020 was never built on a premise that low interest rates would persist
forever. Neither are our actions now based on the hope that markets will just
"return to normal" and interest rates come back down sharply if we wait long
enough. They might, but this seems unlikely to us and hope is not a strategy,
so we have not and will not base our decision-making on this. Our disposal of
£1.4bn of mature offices over the past year is testament to this.
Secondly, and most importantly, this adjustment plays directly to the
strengths we have been building since late 2020. At that time, it was
difficult for us to find value in a world where excess liquidity and zero
interest rates meant there was invariably someone prepared to borrow more at
artificially low costs and pay more. However, since last summer, property
values have been quick to adjust to the new reality of a higher cost of
capital, similar to equities and bonds. The full effect of increased borrowing
costs will likely only work its way through the system over time, but this
should lead to attractive opportunities for us.
Since late 2020 our focus has been on i) focusing our new investment where we
have a genuine competitive advantage that enables us to create long-term
value; ii) the sale of £2.2bn of London offices where yields were low and we
had little opportunity to add further value; and iii) maintaining capital
discipline. As a result, we are well placed now.
To further support this, improve scalability and increase pace, we started a
review of our operating model a year ago, with a view of creating a more
agile, efficient culture, with less internal complexity and more external
focus. We have built, or are on track to build, market-leading operating
platforms in each of the three areas we operate in. We have started to see the
benefits from this so despite high inflation, we expect overhead costs for the
current year to reduce slightly vs last year. Supplemented by ongoing
investment in our systems, we have clear visibility on the further
efficiencies this will drive over time.
Whilst part of the property market is busy looking backwards to deal with
leverage or refinancing issues, we have the rare opportunity to look forward
to future growth. Part of this will be funded by our significant headroom and
residual c. £1.6bn capital recycling programme. However, the extent of the
opportunity in our office and mixed-use pipelines, and for accretive external
growth, is such that this will likely exceed our own balance sheet capacity
over time. Capital discipline remains our priority, so we plan to explore
opportunities to enhance our own investment in future growth with other
sources of capital, to accelerate our overall growth, capitalise on the
platform value we are creating, and enhance our return on equity.
Creating value through our competitive advantages
Our value creation remains underpinned by our key competitive advantages: our
high quality portfolio; the strength of our customer relationships; and our
ability to unlock complex opportunities. Customer demand continues to
bifurcate, with growing demand for modern, sustainable space in those
locations with the best amenities in London and fewer, but bigger and better
stores in key locations in retail. Supply of both is limited, which is driving
growth in rental values across our core portfolio.
In London, where 74% of our portfolio is now located in the vibrant West End
and Southwark markets, up from 58% in 2020, we completed £43m of leases, on
average 3% above ERV, with a further £6m in solicitors hands, 19% ahead of
ERV. As a result, occupancy increased 110bps to 95.9% and at 99.5% occupancy
our West End offices are effectively full - both substantially ahead of the
wider market. This drove 4.7% ERV growth, which is at the high end of our
guidance. As demand for grade A space remains strong and supply is low, we
expect continued low to mid single digit percent ERV growth this year.
Across our major retail destinations, where we selectively expanded our
presence with our investments in Bluewater in late 2021 and St David's in
March, we signed £27m of new lettings, on average 8% above ERV. This was 35%
higher than the prior year and occupancy of 94.3% was up 110bps during the
year, highlighting the value our revitalised platform and growing brand
relationships are starting to drive. Despite cost of living challenges, we
continue to see few signs of any let-up in demand for space, with £11m of
lettings in solicitor's hands 11% above ERV, up 28% vs this time last year.
Our portfolio saw 0.9% ERV growth last year and we expect low to mid single
digit percentage ERV growth this year.
Our positive outlook for rental value growth reflects the high quality of our
portfolio, as we expect overall demand for space will continue to rationalise
in both retail and offices. We expect this will start to lead to a growing
divergence in asset pricing. Investment activity remains thin and so the
emerging stabilisation of values in recent months needs to be viewed in that
context, yet we expect values for the best assets to stabilise and return to
growth well before those where long-term structural demand is questionable.
This is supplemented by our ability to unlock complex opportunities, such as
the discounted purchase of the debt on St David's from two separate lenders;
the resolution to grant planning consent we obtained for our 1,800-homes
masterplan at Finchley Road; the deal we agreed with our JV partners at
Mayfield, which gives us full control of the first phase of this unique site;
our success at 21 Moorfields, where our well-timed sale crystallised £145m of
profit on cost; the 17.5-year lease extension with one of our top-10
customers, temporarily moving them across our estate whilst we undertake
net-zero upgrade works to their existing offices; or the pre-letting of 60% of
our current London pipeline well ahead of ERV.
Looking ahead, this also provides us with a clear competitive advantage in
terms of future opportunities. We now have a 1.1m sq ft consented office
pipeline in the West End and Southwark, deliverable into a window of a
significant shortage of sustainable Grade A supply, and we could potentially
start on site with two major mixed-use regeneration schemes later this year.
In addition, we continue to see value in major retail destinations, where
asset values have already repriced materially and our differentiated platform
provides us with the ability to drive income growth. We also anticipate
refinancing events could potentially unearth other opportunities, such as to
acquire and upgrade well-located London offices in need of repositioning.
Driving returns
We remain decisive in our capital allocation decisions - focusing squarely on
the future returns we expect our investments to generate, rather than any
historical book value. The £1.4bn of offices we sold during the year are a
good example of this. The two principal assets in this had generated an
attractive 10% IRR over the period we had held them, but our expected forward
return from the price on offer was in the mid-single digits. As this is below
our return ambitions and other investment opportunities available to us, such
as those outlined above, we decided to sell. We will maintain this clear
discipline in the future.
Overall, we now target a total return on equity of 8-10% over time, reflecting
a combination of income returns and capital growth driven by rental value
growth and development upside. Short-term market fluctuations in valuation
yields, which are outside of our control, mean that our return on equity is
unlikely to be exactly within this range every individual year, as we have
seen over the past twelve months, but this return target is what we base our
medium-term decisions on.
Within this, we are focused on growing our high-quality earnings. Income has
always been important, but especially so when valuations and hence NTAs
reflect a greater degree of subjectivity, given that market evidence is thin.
The fact that since last summer, our disposals made up c. 40% of all
investment activity in the City and that there have been no transactions in
major retail destinations underlines this. We are already in a strong position
on this, with an attractive earnings yield at NTA of over 5%. This has now
almost fully absorbed the reset in retail rents over the past few years, which
has been offset by the recovery from the pandemic and growth in London. For
the past year, this resulted in 4.4% growth in underlying EPRA EPS - towards
the high end of our guidance of low to mid single growth for the year.
Looking forward, higher interest costs and cost inflation are a headwind to
earnings across every sector, but this is compensated by the strengths of our
business and the successful execution of our strategy:
¾ our long 10.3-year debt maturity, which provides visibility and underpins
our sustainability of earnings;
¾ our capital recycling out of mature and subscale assets, into
developments or acquisitions which offer greater potential to add value and
generate higher income and total returns;
¾ our growth in like-for-like income, reflecting the strong demand for our
high-quality space, especially from next year onwards once the last
historically over-rented leases in retail have reset.
For the year to March 2024, we expect EPRA EPS to be broadly stable vs last
year's underlying level of 50.1 pence, as we expect the positive impact from
continued strong operational performance and like-for-like rental growth to be
more or less offset by the fact that we have been - and in the near term will
likely remain - a net seller of assets. This year we will also see the last
over-rented leases in retail resetting, the start-up cost of opening three new
Myo locations, and ongoing investment in our systems, which have a combined
impact on earnings of c. £10m. We therefore expect EPRA EPS to return to
growth for the year to March 2025. As our dividend cover is currently at the
high end of our 1.2-1.3x range, we expect our dividend to grow by a low single
digit percentage per year over these two years.
Delivering sustainably
Eighteen months ago we were the first UK REIT to set out a detailed net zero
transition investment plan. We continue to progress the implementation of
this, as delivery of this plan will ensure we stay ahead of the Minimum Energy
Efficiency Standard Regulations, which require a minimum EPC 'B' certification
by 2030, as well as other regulatory requirements. So far our work has been
focused on optimising building management systems and conducting the detailed
design to install air source heat pumps in our office buildings. This is on
track and the benefit of this in terms of higher EPC ratings will start to
become visible from 2025 onwards, once our first new air source heat pumps
become operational.
Shortly after the year-end, we also updated our carbon reduction targets to
align with the Science Based Targets Initiative's (SBTi) new Net-Zero
Standard, as we remain committed to reaching net-zero in the long term. We
have committed to a near-term target of reducing our direct and indirect
greenhouse gas emissions by 47% by 2030 from a 2020 baseline and have
committed to reach net zero by 2040 from the same baseline year. This target
now covers emissions from all sources, including all of our reported Scope 3
emissions such as the emissions from our development pipeline, supply chain
and customers.
During the year, the energy intensity of our portfolio increased marginally
compared to last year, when utilisation was lower in the first months of the
year after the emergence out of lockdown. Still our energy intensity was 16.6%
below pre-pandemic levels and 33.2% below our 2013/14 baseline, so we remain
firmly on track to reduce energy intensity by our targeted 45% by 2030. Aside
from our net zero investments, we continue to focus on energy efficiency
measures and have expanded the collaborative work with our largest customers
to help them identify ways to save energy.
Outlook
Our strategy continues to be grounded in our purpose; Sustainable places.
Connecting communities. Realising potential. In executing this, we continue to
be led by three things: delivering sustainably, delivering for our customers,
and being disciplined with our capital.
We expect global economic and financial uncertainty to remain elevated in the
near future. The transition from a decade of ultra-loose monetary policy to a
materially higher rate environment was never going to be a smooth one. The
reversal of decades of globalisation and associated inflationary pressures
will also continue to affect economic prospects, for the UK further
exacerbated by the impact of Brexit. Positively, the political situation in
the UK has stabilised somewhat since late last year and despite all
uncertainties, our strategic decisions since late 2020 mean we are in great
shape for any eventuality:
¾ our portfolio is well-located and its quality is high, which are decisive
factors for our customers;
¾ our balance sheet strength is sector-leading, with 7.0x net debt/EBITDA
and 10.3-year debt maturity;
¾ we have sold over £2bn of mature assets, creating capacity to invest in
higher-return opportunities;
¾ we have created an attractive and profitable pipeline, with flexibility
on future commitments.
Reflecting the continued strong demand for our best-in-class space, we expect
to see low to mid single digit ERV growth in London and major retail
destinations this year. We plan to continue to monetise assets where our
ability to add further value is limited, so taking into account that we will
likely sell more than we buy in the short term, we expect EPRA EPS for this
year to be broadly stable at last year's underlying level, before returning to
growth the year after. Having made considerable progress on our strategy over
the last couple of years, Landsec is well placed to drive long-term growth and
although we are mindful of the wider economic challenges, we are excited about
the future.
Operating and portfolio review
Overview
Our overall portfolio on a combined basis was valued at £10.2bn at the end of
March, which adjusted for disposals and new investments, was down £848m for
the year due to a softening of valuation yields, and is made up of the
following areas:
¾ Central London (61%): our modern, high-quality office (82%) and retail
and other commercial space (18%), located in the West End (68%), City (26%)
and Southwark (7%).
¾ Major retail destinations (18%): our investments in six shopping centres
and five retail outlets, with the seven largest assets comprising 85% of the
overall retail portfolio value, most of which are amongst the highest selling
locations for retailers in the UK.
¾ Mixed-use urban neighbourhoods (8%): our investments in mixed-use assets
and future development opportunities, focused on five sites in London,
Manchester and Glasgow, of which some still have a short-term use as retail
ahead of their medium-term redevelopment.
¾ Subscale (13%): assets in sectors where we have limited scale and which
we therefore intend to divest over time, split broadly equally between retail
parks, hotels and leisure assets.
Investment activity
When we set out our strategy in late 2020, we said we planned to sell c. £4bn
of mature London offices and assets in sectors which were subscale for us over
a period of circa six years, with a view to reinvest this into higher growth
opportunities over time. We have continued to make strong progress on this, so
2.5 years into this period, we have now sold £2.4bn, including £1.4bn over
the past year.
Our largest sale last year was the £809m disposal of our 21 Moorfields, EC2
development in September. The building is fully pre-let to Deutsche Bank for
25 years and therefore offered little room to add further value. The sale
represented a 9% discount to March book value, partly reflecting the fact that
construction had not yet completed, but crystallised a 25% profit on cost and
11% IRR since we acquired the site.
In January, we sold One New Street Square, EC4 for £350m. This building is
fully let to Deloitte for a further 14 years and, following a regear of the
lease at the start of the year, also offered little to room to add further
value. The price was 4% below the September valuation, yet crystallised a 10%
IRR since our acquisition of the site in 2005. At the start of the year, we
also sold 32-50 Strand, WC2 for £195m, following a 10-year lease regear with
the sole occupier, 15% above its prior book value. In addition, we sold £54m
of smaller non-core assets, 22% ahead of book value, and we have now sold or
exchanged contracts to sell over half of U+I's non-core assets for £98m, on
average 16% above book value.
Relative to £1.4bn of disposals, we spent £120m on acquisitions and £280m
on development capex last year. Our main purchase was the debt secured on 50%
of St David's, Cardiff via separate transactions with two lenders. This
allowed us to obtain 100% control of the shopping centre at a discount to the
£113m book value of our existing half of the asset and an implied initial and
equivalent yield of 9.7%. In addition, we spent a small amount on land
assembly deals around some of our major mixed-use projects.
We have now sold £2.2bn of the c. £2.5bn London offices we earmarked in
2020, at an average yield of 4.4% and a 4% discount to book value. This means
our London assets are now 74% in the West End and Southwark, with City
exposure down from 39% to 26% over the year. We are planning further disposals
this year, yet we expect future disposal activity to be more balanced towards
our subscale sectors.
Portfolio valuation
The sharp increase in interest rates during the year meant that transaction
volumes across global and UK property markets slowed materially. Yields reset
quickly as a result, especially during the second half of 2022. Despite ERV
growth across all key segments, this meant the value of our portfolio reduced
7.7%.
The value of our Central London portfolio was down 7.3% for the year. This
reflected a 42bps increase in yields to 4.9%, which was partly offset by 4.7%
growth in ERVs - at the high end of our guidance of low to mid single digit
ERV growth for the year. The value of our West End office (-8.0%) and retail
and other assets (+1.3%), which make up 74% of our London investment
portfolio, proved more resilient than our City offices (-15.4%). This
reflected our strong leasing activity in Victoria, driving 3.7% ERV growth and
strong growth at Piccadilly Lights. In the City, where we have sold £1.7bn of
offices since late 2020, ERV growth was 4.7%, which solely reflected a major
lease regear at a higher rent at New Street Square, with the associated
refurbishment works to facilitate this taken as a cost in the valuation.
Development values were down slightly (-3.0%), with ERV growth due to
successful lettings offset by softer valuation yields.
The value of our major retail assets reduced 6.4% during the year, despite our
successful leasing activity driving 0.9% ERV growth. Virtually all of this
movement occurred in the final quarter of the 2022 calendar year, as valuers
moved yields out by 40bps, mostly based on sentiment, as there were no
comparable transactions during the period. We ascribe more value to the
continued improvement in operational performance than "sentiment", so we
continue to focus on driving this. Reflecting the high income return, the
total return of our major retail assets was at 0.5% ahead of London (-3.4%)
and mixed-use (-2.8%).
In mixed-use, our completed assets at MediaCity were down 5.9%, as ERV growth
of 8.6% was offset by a 61bps increase in yields. Our future developments were
down 9.4%, reflecting the fact that these are mostly valued based on their
existing use and we manage the income on a short-term basis to maximise
flexibility for future development. In Subscale, hotel values were down
slightly (-3.1%), whilst retail parks were down 12.1% driven by 69bps yield
softening, following a strong 31.9% increase in values during the prior year.
The value of our leisure assets was down 17.7% reflecting concerns around the
largest tenant, Cineworld, although the news of its recapitalisation post the
year-end is a clear positive.
Table 2: Valuation analysis
Market value 31 March 2023 Surplus/ (deficit) FY valuation change H2 valuation change LFL rental value change(1) Net initial Topped up net initial Equivalent LFL equivalent yield change
yield
yield
yield
£m £m % % % % % % bps
West End offices 2,653 (222) (8.0) (4.0) 3.7 4.8 5.3 5.1 46
City offices 1,304 (234) (15.4) (7.4) 4.7 3.3 4.0 5.2 53
Retail and other 1,095 14 1.3 1.1 7.6 4.1 4.3 4.6 13
Developments 1,190 (37) (3.0) (2.5) n/a 0.3 0.3 4.6 n/a
Total Central London 6,242 (479) (7.3) (3.6) 4.7 4.3(2) 4.7(2) 4.9 42
Shopping centres 1,196 (60) (4.8) (5.8) 3.0 8.1 8.6 7.9 39
Outlets 684 (67) (8.9) (8.4) (2.5) 6.5 6.8 7.2 45
Total Major retail 1,880 (127) (6.4) (6.7) 0.9 7.5 7.9 7.6 40
Completed investment 389 (24) (5.9) (1.1) 8.6 5.4 5.4 6.4 61
Developments 426 (48) (9.4) (11.2) n/a 5.3 5.4 5.8 n/a
Total Mixed-use urban 815 (72) (7.8) (6.9) 8.6 5.4(2) 5.4(2) 6.1 61
Leisure 476 (99) (17.7) (15.5) (1.4) 8.0 8.1 8.3 116
Hotels 408 (13) (3.2) (8.1) 9.9 6.6 6.6 6.7 117
Retail parks 418 (58) (12.1) (7.1) 4.9 6.5 7.0 6.4 69
Total Subscale sectors 1,302 (170) (11.6) (10.6) 3.5 7.1 7.3 7.2 96
Total Combined Portfolio 10,239 (848) (7.7) (5.4) 3.6 5.4(2) 5.9(2) 5.8 50
1. Rental value change excludes units materially altered during the period.
2. Excluding developments
Looking ahead, whilst yields appear to have started to stabilise in recent
months, investment activity in reality remains thin across most sectors.
Investor demand is selective, so combined with the volatility in interest
rates and tightening of credit conditions the outlook remains uncertain,
although we expect values for prime assets to stabilise and return to growth
well before secondary. We also expect high yields in major retail destinations
to offer more resilience than lower yielding sectors. Reflecting the strong
demand for high-quality space and limited supply, we expect ERVs in London and
major retail to grow by a further low to mid single digit percentage this
year.
Leasing and operational performance
Central London
Despite the recent disruption from transport strikes, London continues to get
busier and office utilisation continues to gradually increase. We continue to
see a growing bifurcation in demand, with customers focussing on flexibility,
the best quality space in areas with the right amenities to attract key
talent, and sustainability. Across the London market, office take-up slowed in
the second half, ending the year at 11.8m sq ft - up 7% vs last year and just
4% below the 10-year average. Space under offer reduced to 3.2m sq ft vs a
10-year average of 3.4m sq ft and vacancy in the City remains high at 11.7%.
Conversely, vacancy in the West End, where c. 70% of our assets are located is
just 3.6% and down 70bps YoY. Overall, 67% of available space is second-hand,
as Grade A vacancy remains low at 1.7%.
Reflecting the strong demand for the best quality space, we signed 44 lettings
and renewals, totalling £43m of rent, on average 3% ahead of valuers'
assumptions, with a further £6m in solicitors' hands, 19% above valuers'
estimates. This included an upsized, new 17.5-year lease with Taylor Wessing
at New Street Square, in a deal where we are temporarily relocating them to a
different building on the estate where we are drawing up plans for medium term
redevelopment, whilst we decarbonise their existing building. In line with our
guidance, occupancy increased 110bps to 95.9%, with our West End offices
effectively full, at 99.5% occupancy. We continue to see strong demand for our
Myo flexible offer, with 123 Victoria Street 100% let and Dashwood 85% let, vs
98% and 64% a year ago. We plan to open three new Myo locations in autumn,
totalling 138,000 sq ft, with a further location to open next summer.
Looking forward, we have been clear in our expectation that more flexible ways
of working would reduce overall demand for office space in the UK. However, we
have also consistently said that the impact of this will not be evenly spread,
with large HQ type space and areas which lack the amenities that offer people
a reason to want to spend time there expected to see a much bigger impact.
This has started to play out and we expect this will continue. Across London
space marketed for subletting increased to 5.1m sq ft over the year, but 75%
of this is in the City, City Fringe and Docklands. In the West End and
Southwark, where assets are smaller and occupiers more diversified, demand
remains strong and Grade A supply is low. This continues to drive ERV growth
for the best assets, which continues to benefit our portfolio.
Major retail destinations
Customer demand for retail space in the best locations continues to grow.
Underlining the value of our major retail destinations for brands and
consumers, total retail sales across our portfolio grew 6.9% YoY and
like-for-like sales were 4.4% above 2019 levels. Footfall across our shopping
centres increased 12% and is now at 90% of pre-pandemic levels, compared to
83% for the UK market and 80% a year ago.
Consumer behaviour continues to gradually revert back to pre-Covid trends,
with online sales down and in-store sales up over the past year. For most
leading brands, online and physical channels are now firmly interconnected,
and a number of key brands such as Next and Inditex indicated recently that
online is no longer expected to grow as quickly as previously anticipated. The
increase in cost of capital and cost of doing business online has also led
many online pure-play retail models to shift their focus from growing market
share to growing profitability, increasing the cost for consumers to buy
online.
Whilst we expect brands continue to rationalise their overall store
footprints, their focus on 'fewer, bigger, better' stores continues to drive
growth in demand for space in our assets, as they upsize existing stores or
open new stores as they move from nearby locations to benefit from higher
footfall in a 'flight to prime'. Reflecting this, we completed 218 lettings
totalling £27m, up 35% vs the prior year, on average 8% above ERV. Close to
70% of the leases we signed during the year had some turnover linkage,
although the average turnover element was only 10% of the total rent. Overall,
53% of our leases now have some turnover component, with turnover rent making
up 12% of our total retail income. This turnover data provides us with
valuable insights and a unique competitive advantage in underwriting income
levels.
As a result, occupancy increased 110bps during the year to 94.3%. We continue
to monitor credit risks, but units in administration remain low at 0.4%, vs
0.5% a year ago. There have been no CVAs and minimal insolvencies, as the most
challenged businesses already folded during the pandemic. Whilst Cineworld
(less than 1% of annual rent in major retail destinations), filed for Chapter
11 bankruptcy protection in the US during the year, it continues to trade and
pay rent and agreed a recapitalisation shortly after the year-end.
Looking forward, despite the cost of living challenges consumers are faced
with, we continue to see few signs of any let-up in demand from brands, with
£11m of lettings in solicitor's hands, up 28% vs this time last year, on
average 11% above ERV. With sales in our shopping centres close to
pre-pandemic levels and rents having reset c. 35% during the pandemic,
operational profitability for brands further improved due to the c. 30%
reduction in business rates last month. With the last large over-rented
historical leases expected to reset this year, this is expected to underpin
solid like-for-like income growth from next year.
Mixed-use urban neighbourhoods
Our completed investment assets in mixed-use at present solely comprise our
investment in MediaCity, where occupancy increased 1.8% to 97.8%, with
lettings well ahead of ERV. The bulk of the income in our mixed-use
development assets relate to our three shopping centres in London and Glasgow.
This income is managed on a short-term basis to maximise our flexibility for
future development. This will eventually erode and be replaced by our new
schemes, but in the near term it compensates for the holding costs of these
sites as we prepare them for future development.
Table 3: Operational performance analysis
Annualised rental income Estimated rental value LFL Occupancy (1) LFL occupancy change (1) WAULT(1)
£m £m % ppt Years
West End offices 134 146 99.5 1.0 6.4
City offices 61 87 90.5 1.2 8.6
Retail and other 42 56 95.4 1.5 7.4
Developments 5 57 n/a n/a n/a
Total Central London 242 346 95.9 1.1 7.1
Shopping centres 114 123 94.7 1.9 4.5
Outlets 56 60 93.6 (0.2) 3.0
Total Major retail 170 183 94.3 1.1 4.1
Completed investment 24 26 97.8 1.8 9.2
Developments 28 31 n/a n/a n/a
Total Mixed-use urban 52 57 97.8 1.8 9.2
Leisure 51 50 95.5 (1.0) 10.3
Hotels 31 28 n/a n/a 8.2
Retail parks 28 30 98.6 2.1 4.7
Total Subscale sectors 110 108 97.7 0.3 8.0
Total Combined Portfolio 574 694 95.8 0.7 6.5
1. Excluding developments
Subscale sectors
Across our subscale portfolio, operational performance remained robust. We
completed £7m of retail park and leisure lettings, 10% above valuers'
assumptions, with a further £1m of rent in solicitors' hands, 5% above
valuers' assumptions, and overall occupancy increased 30bps. Our hotels, which
are fully let to Accor, saw occupancy rise to 94% of pre-Covid levels, up from
67% last year, driving a substantial increase in RevPAR.
Development pipeline
Central London
Demand for the best quality space remains strong. Our two on-site West End
schemes, n2 in Victoria and Lucent behind Piccadilly Lights, are set to
complete shortly and are 73% and 71% pre-let or in solicitors hands
respectively, with rents agreed over the last twelve months on average 11%
ahead of ERV. At the end of March, we completed The Forge, in Southwark. Our
Myo flexible offering will operate 35% of this space and is set to open in
autumn, and we are now in solicitors' hands on 11% of the remaining space.
Combined, these three projects are expected to generate an ERV of £39m once
fully let, which will support our near-term income growth.
During the year, we sold our development at 21 Moorfields in the City, which
we fully pre-let to Deutsche Bank, for £809m, ahead of its completion. This
crystallised a 25% profit on cost and 11% IRR since our acquisition of the
site in 2012.
Table 4: Committed development pipeline
Property Sector Size Estimated completion Net income/ ERV Market value Costs to complete Market value + future TDC Gross yield on MV + future TDC
date
£m
sq ft £m £m £m %
'000
Lucent, W1 Office/retail/residential 144 Aug-23 15 270 23 293 5.1
n2, SW1 Office 165 Jun-23 14 229 21 250 5.7
Total 309 29 499 44 543 5.4
As expected, we are seeing a slowdown in new development starts across the
London market, reflecting the increase in construction and finance costs, but
also the decline in available development finance. In previous periods of
economic uncertainty, new development starts ended up c. 30-90% below
originally expected levels and we believe this is likely to repeat this time.
As demand for the best, most sustainable space remains strong, this creates an
attractive window for us to deliver new space in 2025, when Grade A supply is
expected to be very low.
Last autumn, we decided to commit to the early works for the refurbishment of
Portland House, SW1 and Timber Square, SE1. At a cost of £55m, this allowed
us to maintain our programme for a delivery in late 2025, whilst keeping
flexibility on the residual c. £400m of capex at a time of high financial and
political uncertainty. Returns on both projects remain attractive, with gross
yields on cost of 7.4% and a yield on capex of 12%+, so supported by the
strong leasing success in our current pipeline, with recent lettings 11% ahead
of ERV, we therefore plan to commit to the full works on both imminently.
We also continue to progress our future pipeline, as we received planning
consent for Red Lion Court, SE1 in March; are currently seeking to enhance our
existing consent at Liberty of Southwark, SE1; and unlocked a future
opportunity at Southwark Bridge Road, SE1 adjacent to The Forge, through a
lease surrender we agreed in the second half of the year. This further adds to
the potential to create a unique cluster of highly sustainable offices in
Southwark, which is one of the most attractive areas of London in terms of
amenities. All combined, this provides us with a 2.0m sq ft future pipeline,
of which 1.1m sq ft is now consented.
Table 5: Future Central London pipeline
Property Sector Proposed Indicative TDC Indicative ERV Gross yield on TDC Potential start
date
sq ft £m £m % Planning status
'000
Near-term
Timber Square, SE1 Office 380 400 30 7.5 H1 2023 Consented
Portland House refurbishment, SW1 Office 300 380 28 7.3 H2 2023 Consented
Liberty of Southwark, SE1 Office/resi 220 250 16 7.4(1) H2 2024 Consented
Red Lion Court, SE1 Office 245 310 24 7.7 H2 2024 Consented
Total near-term 1,145 1,340 98 7.5
Medium-term
Nova Place, SW1 Office 40 2025 Design
Old Broad Street, EC2 Office 290 2025 Design
Hill House, EC4 Office 350 2026 Design
Southwark Bridge Road, SE1 Office 130 2025 Design
Total medium-term 810
Total future pipeline 1,955
1. Gross yield on cost adjusted for residential TDC
Mixed-use urban neighbourhoods
Consumer expectations on how we live, work and spend our leisure time continue
to evolve and demands on sustainability continue to grow, which means there is
a structural need to remodel many parts of the built environment, to make sure
they are fit for future needs. Located in attractive locations with strong
transport links in some of the fastest growing urban areas in the UK, our
pipeline is well placed to cater for this. The combination of U+I's
placemaking skills and Landsec's sustainability and development expertise
means we now have the platform to both deliver and curate thriving mixed-use
places and realise the long-term sustainable value from the future
opportunities we have created.
Our 10m sq ft mixed-use pipeline in London, Glasgow and Manchester has a total
development cost of c. £5bn, with a mix of residential, office and leisure
space deliverable across multiple phases over the next 10-15 years. The
current book value of these sites is modest compared to its potential upside,
at c. £330m, and given the c. 5% income yield on the current use of the
existing assets, its holding cost is modest. With unlevered IRR targets in the
low to mid-teens, this offers valuable optionality for growth.
We have made excellent progress during the year at our two most advanced
projects, which provides optionality to potentially start first works on site
over the next twelve months. At Mayfield, next to Manchester's main train
station, the new 6.5-acre public park opened in September and we agreed terms
with our JV partners for a drawdown of land for the first phases of
development. This allows us to develop 100% of the first phase, covering
around one-third of the overall project, ourselves and therefore paves the way
for a potential start on site with the first two office buildings totalling
320,000 sq ft later this year. The expected investment for this is c. £150m,
with an expected gross yield on cost of c. 8%.
At Finchley Road, in zone two, London, we secured a resolution to grant
planning consent at the end of March for our masterplan to develop 1,800 new
homes. Subject to further planning and land assembly workstreams being
satisfactorily progressed, this could allow us to start on site with enabling
works for our first major residential scheme later this year.
In Glasgow, we intend to submit the planning application for our mixed-use
masterplan shortly, which we expect to be determined in the first half of
2024. In Lewisham, south-east London, we maintain positive engagement with the
Council on our new residential-led masterplan, for which we are preparing to
submit a planning application later this year. At MediaCity, we are working
with our partner Peel on establishing the long-term vision for this site,
ahead of the future phases of its development.
Our good progress during the year has further added to the valuable
opportunity to build an attractive balance of income, development upside and
medium-term growth potential our pipeline provides. The mixed-use nature,
ability to phase capex, geographic spread of the pipeline, and the flexibility
to adapt to changes in demand all add to the balanced risk-profile of this
part of our business.
Table 6: Mixed-use urban neighbourhoods development pipeline
Property Landsec share Proposed Earliest start on site Number of blocks Estimated first/total scheme completion Indicative TDC Target yield on cost Planning status
% sq ft £m %
'000
Mayfield, Manchester 50-100 2,500 2023 18 2025/2032 800-950 7 - 8 Consented
MediaCity, Greater Manchester 75 1,900 2024 8 2026/2031 600-700 7 - 8 Consented
Finchley Road, NW3 100 1,400 2024 10 2027/2035 950-1,050 6 - 7 Consented
Buchanan Galleries, Glasgow 100 1,900 2025 9 2028/2036 1,000-1,100 7 - 8 Design
Lewisham, SE13 100 1,800 2026 14 2028/2037 1,100-1,300 6 - 7 Design
Total future pipeline 9,500 4,450-5,100
Delivering sustainably
During the year, we delivered a 16.6% reduction in energy intensity compared
to 2019/20. This was up 0.9% year-on-year, although this largely reflected
particularly low utilisation in the prior year in the early months of
emergence from the pandemic. At current levels, it is 33.2% below 2013/14
levels and therefore remains on track vs our target to reduce energy intensity
by 45% from this baseline by 2030.
At the start of this year, we updated our carbon reduction targets to align
with the Science Based Targets Initiative's (SBTi) new Net-Zero Standard.
Landsec was amongst the first companies worldwide to have our science-based
targets validated under the Net-Zero Standard, which is the world's first
framework for corporate net-zero target setting. In response to the new SBTi
standard, and in recognition of progress to date, we have committed to a
near-term target of reducing direct and indirect greenhouse gas emissions by
47% by 2030 from a 2020 base year and have committed to reach net zero by 2040
from the same base year. This significantly increases the scope of our
targets, as it now includes emissions from all sources, including all of our
Scope 3 emissions such as the emissions from our development pipeline, supply
chain and customers.
In late 2021 we were the first UK property company to launch our fully costed
net zero carbon transition plans. This plan will see us deliver our
science-based target and meet the Minimum Energy Efficiency Standard of EPC
'B' by 2030, with the expected cost for this already reflected in our current
portfolio valuation. 36% of our portfolio is already rated 'B' or higher,
including 38% of our office portfolio. The latter is down from 44% last year,
partly reflecting the sale of One New Street Square. We expect this to
increase to 44% in the coming months once our current pipeline completes and
this will increase further from 2025 onwards, as the benefits from our net
zero transition investment kicks in.
We remain on track with this plan and have now completed air source heat pump
feasibility studies for six offices, with four progressing to concept design
and two to detailed design. We have also completed the optimisation of
building management systems for 11 offices, and will be completing this for
two of our shopping centres this year. In addition, we have expanded our
energy audits from 15 to 25 of our largest customers, which combined cover 19%
of the energy use in our office portfolio. This identified potential annual
carbon and costs savings of 10-15% per customer and we plan to expand this to
the next 12 customers this year.
We continue to work on driving down upfront embodied carbon and during the
year we announced a target to reduce this by 50% vs a typical development by
2030, to below 500kgCO(2)e/sqm for offices and 400kgCO(2)e/sqm for
residential. We are already tracking an average 36% reduction in upfront
embodied carbon across our future pipeline, which equates to an average
upfront embodied carbon intensity of 640kgCO(2)e/sqm on our offices and
535kgCO(2)e/sqm for residential. To help us achieve our longer term targets,
during the year we signed up to the ConcreteZero Initiative where we commit to
using 100% net zero concrete by 2050 with ambitious interim targets. This
complements our existing membership of the SteelZero Initiative and sends a
clear signal of our commitment to net zero to our supply chain.
Near-term, at Timber Square, SE1 our plans show upfront embodied carbon
intensity of 535kgCO(2)e/sqm, reflecting the retention of part of the existing
structure, a highly optimised design and the use of low carbon cross laminated
timber. At Portland House, SW1, retaining the existing structure and upgrading
the existing façade has resulted in upfront embodied carbon intensity of
395kgCO(2)e/sqm. At Red Lion Court, SE1 we expect an upfront embodied carbon
intensity of c. 600kgCO(2)e/sqm, reflecting the retention of 35-40% of the
existing basement and piles and the use of a highly flexible concrete
structural solution with demountable timber infills. The Forge, SE1, which
recently completed, is the first building in the UK to be designed,
constructed and aspiring to operate in line with the UK Green Building Council
framework definition of a net zero carbon building.
Building on our strong track record of investing in our local communities, we
have enhanced our approach to community investment by launching the Landsec
Futures fund, last month. This is aimed at improving social mobility in the
real estate industry and will see us invest £20m over the next 10 years, to
empower 30,000 people towards the world of work and create £200m in social
value. This includes a bursary programme that provides financial support to
underrepresented young adults studying for a placemaking career, internships
within Landsec and a small grants programme for local charities and community
organisations in the areas we operate.
Creating the right culture and investing in our platforms
Our strong operational performance and continued progress on executing our
strategy over the past year clearly reflects the capability and dedication of
the substantial talent within Landsec. We continue to work on creating the
right culture and a more diverse organisation, which is key in getting the
most out of the valuable skills and expertise our teams harbour and in
successfully delivering our strategy over time.
With this in mind, we initiated an organisational review early last year aimed
at reducing internal complexity and becoming more agile, customer-oriented and
outward focused. This work built on previous changes in our retail team, where
we brought in significant experience and capabilities from international
retailer backgrounds to focus more on growing brand relationships and guest
experience, and our focus on retaining the unique placemaking and design
capability of U+I during its successful integration over the past twelve
months.
As a result of this organisational review, we made several changes, including
to our leadership team. We also reduced the number of layers in our
organisation and increased management reporting spans. This has improved our
efficiency and freed up resource to focus more on activities which drive value
for our customers, rather than on internal processes. In a sector which is
rapidly becoming more operational, this further underpins the value of our
operating platforms and their future growth potential.
Despite high inflation, this also meant we managed to keep overhead costs flat
over the past twelve months and although inflationary pressures remain
elevated, we expect overhead cost to be down slightly for the current year. In
early 2022 we also initiated significant investments in upgrading our systems
and data capability. We incurred £6m of cost for this during the year and
expect a broadly similar cost in the current year, but this is set to drive
further efficiency improvements for the year to March 2025 onwards.
Financial review
Overview
Global economic and financial market conditions have changed considerably over
the past year. The volatility this caused has, unsurprisingly, affected the
valuation of property and other asset classes across the globe, but we have
continued to focus on driving operational performance and executing our
strategy. Our success in this during the year has further strengthened our
strong balance sheet and quality of earnings and underpins our confidence in
our ability to grow earnings and dividend over time.
EPRA earnings for the year were up 10.7% to £393m, partly due to an increase
in surrender premiums received, which were up £22m vs the prior year. The two
main surrenders unlocked the opportunity for a major 17.5-year lease regear
elsewhere in our estate and two medium term developments. Like-for-like gross
rental income excluding these surrender premiums was up 6.0%, or 5.8% on a net
rental income basis. This reflects our strong leasing, growth in turnover
income in major retail destinations, higher variable income and continued
growth in income across our hotel portfolio.
Despite our significant disposals, underlying EPRA EPS, which excludes the 3.0
pence impact of the increase in surrender premiums, rose 4.4% to 50.1 pence,
towards the high end of our guidance for low to mid single digit percentage
growth. In line with growth in underlying earnings, our 38.6 pence dividend
for the year is up 4.3% vs the prior year. This reflects a dividend cover of
1.30x, in line with our policy to have dividends annually covered 1.2 to 1.3
times.
Although our successful leasing activity drove growth in occupancy and ERVs,
the value of our portfolio was down £848m as a result of an increase in
valuation yields, reflecting the rise in bond yields during the year. Despite
our growth in EPRA earnings, this resulted in an overall loss before tax of
£622m and basic EPS of -83.6 pence, compared to a profit of £875m in the
prior year. As a result, EPRA NTA per share reduced 11.9% to 936 pence, which
including dividends paid, resulted in a total return on equity of -8.3%.
Despite this, our decisive action during the year further strengthened our
strong capital base. We reduced net debt by £0.9bn to £3.3bn, so despite the
reduction in value of our portfolio, our LTV is down from 34.4% to 31.7%. This
is an imperfect measure to judge leverage, particularly so when investment
activity is low and the approach to valuations varies widely in different
markets, which is why in times like this we focus more on net debt/EBITDA as a
cash-on-cash measure. This stood at 7.0x at the end of March, down from 9.7x a
year ago, or 8.0x on a weighted average net debt basis, down from 8.6x twelve
months ago. We increased our average debt maturity to 10.3 years and with
£2.4bn of undrawn facilities, we have no need to refinance any maturing debt
until 2026, so our balance sheet is in excellent shape.
Presentation of financial information
The condensed consolidated preliminary financial information is prepared under
UK adopted international accounting standards (IFRSs and IFRICs) where the
Group's interests in joint ventures are shown collectively in the income
statement and balance sheet, and all subsidiaries are consolidated at 100%.
Internally, management reviews the Group's results on a basis that adjusts for
these forms of ownership to present a proportionate share. The Combined
Portfolio, with assets totalling £10.2bn, is an example of this approach,
reflecting our economic interest in our properties regardless of our ownership
structure.
Our key measure of underlying earnings performance is EPRA earnings, which
represents the underlying financial performance of the Group's property rental
business, which is our core operating activity. A full definition of EPRA
earnings is given in the Glossary. This measure is based on the Best Practices
Recommendations of the European Public Real Estate Association (EPRA) which
are metrics widely used across the industry to aid comparability and includes
our proportionate share of joint ventures' earnings. Similarly, EPRA Net
Tangible Assets per share is our primary measure of net asset value.
Measures presented on a proportionate basis are alternative performance
measures as they are not defined under IFRS. This presentation provides
additional information to stakeholders on the activities and performance of
the Group, as it aggregates the results of all the Group's property interests
which under IFRS are required to be presented across a number of line items in
the statutory financial statements. For further details see table 14 in the
Business analysis section.
Income statement
Our successful leasing activity and the high quality of our portfolio is
clearly reflected in the growth in income we have delivered. Compared to the
prior year, when the UK was just emerging out of lockdown at the start of the
period, this growth has been most prevalent in our major retail destinations;
our mixed-use assets, where some of our future projects have an existing
retail use; and our subscale sectors, which include our retail parks, leisure
and hotels, as trading in these areas returned to normal.
Table 7: Income statement (1)
Year ended Year ended
31 March 2023
31 March 2022
Central London Major retail Mixed-use urban Subscale sectors Total Central London Major retail Mixed-use urban Subscale sectors Total Change
£m £m £m £m £m £m £m £m £m £m £m
Gross rental income (2) 310 171 57 109 647 289 161 43 93 586 61
Net service charge expense (1) (8) (2) (1) (12) (1) (6) (2) (3) (12) -
Net direct property expenditure (19) (34) (11) (13) (77) (29) (26) (9) (12) (76) (1)
Movement in bad/doubtful debts provisions (1) 3 1 - 3 (1) 13 2 (2) 12 (9)
Segment net rental income 289 132 45 95 561 258 142 34 76 510 51
Net administrative expenses (84) (84) -
EPRA earnings before interest 477 426 51
Net finance expense (84) (71) (13)
EPRA earnings 393 355 38
Capital/other items
Valuation (deficit)/surplus (848) 413 (1,261)
(Loss)/gain on changes in finance leases (6) (6) -
(Loss)/profit on disposals (144) 115 (259)
Impairment charges (24) (6) (18)
Fair value movement on interest rate swaps 22 16 7
Other (12) (18) 14
(Loss)/profit before tax attributable to shareholders of the parent (619) 869 (1,488)
Non-controlling interests (3) 6 (9)
(Loss)/profit before tax (622) 875 (1,497)
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
2. Includes finance lease interest, after rents payable.
Net rental income
Overall gross rental income increased by £61m to £647m, which includes the
benefit of a £22m increase in surrender premiums received compared to the
prior year. This increase reflects a lease surrender we agreed at Southwark
Bridge Road to create optionality for a new redevelopment, adjacent to our
recent scheme at The Forge, and the lease restructuring with Deloitte at New
Street Square we agreed at the start of the year. The space this freed up
paved the way for another lease regear with a different major customer at the
estate and the successful disposal of One New Street Square in January.
Excluding the increase in surrender premiums, like-for-like gross rental
income was up £29m, or 6.0%. This included a £19m increase in variable rent,
which comprises income from hotels, Piccadilly Lights, parking and retail
turnover rent, as trading normalised relative to the pandemic effects in the
prior year.
Overall net rental income for the year increased by £51m to £561m. The
reversal of our bad and doubtful debt provisions was £3m, compared to £12m
in the prior year. Direct property expenditure increased by £1m, which
reflects a £7m increase due to acquisitions, offset by a £6m decrease in
direct property costs elsewhere in the portfolio. This reflects the benefit of
increased occupancy and our focus on costs. Net service charge expenditure was
stable compared to the prior year. The full year impact of our acquisitions in
late 2021 more than offset the impact from disposals during the past twelve
months, so overall the impact of investment activity on net rental income for
the year was £8m.
As a result, our gross to net margin was 86.7%. We expect this to improve on a
like-for-like basis, as void and letting costs reduce as occupancy continues
to grow. However, we expect the overall margin to reduce slightly this year,
reflecting the start-up cost of opening three new Myo locations and the
initial lease-up cost of our three London office developments which will be
completed by this summer.
Rent collections remain strong and are currently in line with this time last
year and pre-Covid levels. We have seen minimal insolvencies and no CVAs
during the period, although Cineworld, which makes up 2.0% of our annual rent,
entered Chapter 11 bankruptcy protection in the US. We have taken appropriate
provisions during the year and its recently announced recapitalisation now
provides a positive step forward, whilst all units in our portfolio continue
to trade and the company continues to pay rent.
Table 8: Net rental income(1)
£m
Net rental income for the year ended 31 March 2022 510
Gross rental income like-for-like movement in the period(2):
Increase in variable and turnover-based rents 19
Other movements 10
Total like-for-like gross rental income 29
Like-for-like net service charge expense -
Like-for-like net direct property expenditure 2
Like-for-like movement in bad and doubtful debts provisions (6)
Increase in surrender premiums received 22
Developments(2) (3)
Acquisitions since 1 April 2021(2) 19
Disposals since 1 April 2021(2) (11)
Net rental income for the year ended 31 March 2023 561
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
2. Gross rental income on a like-for-like basis and the impact of
developments, acquisitions and disposals exclude surrender premiums received.
Net administrative expenses
Despite the surge in UK inflation, our net administrative expenses were stable
vs the prior year at £84m, in line with our guidance. This includes the full
absorption of the additional administrative cost of the U+I acquisition at the
end of 2021 and reflects our continued focus on making sure our cost base is
right. This also includes £6m of costs reflecting an investment in upgrading
our systems and data capability, which based on updated IFRIC accounting
guidance is now expensed instead of capitalised. This is expected to reduce
from the year to March 2025, as this investment programme completes during
that year.
Although high wage inflation and general cost inflation continue to put upward
pressure on costs, we expect administrative expenses for this year to be down
slightly. This reflects the efficiency benefits of the organisational review
we undertook last year. We have identified clear opportunities to reduce costs
the years after, partly driven by our investments in technology, so we remain
on track to reduce our EPRA cost ratio towards the low 20's over time,
compared to 25.2% last year and 26.4% in the prior year.
Net finance expenses
Net interest costs increased £13m to £84m, principally due to higher gross
borrowings in the first half of the year, ahead of disposals during the year,
plus an increase in variable interest rates. At the start of last year, 70% of
our borrowings were fixed or hedged but following our disposals, we are now
fully hedged. We expect net interest costs to increase slightly in the current
year, reflecting a small increase in average borrowing costs.
Non-cash finance income, which includes the fair value movements on
derivatives, caps and hedging and which is not included in EPRA earnings,
increased from a net income of £16m in the prior year to a net income of
£23m over the past year. This is predominantly due to the fair value
movements of our interest-rate swaps as a result of the increase in interest
rates over the period.
Valuation of investment properties and loss on disposals
The independent external valuation of our Combined Portfolio showed a £848m
value reduction. Whilst the strong leasing evidence we created drove 3.6% ERV
growth and we delivered further profits on our current development pipeline,
the upside of this was more than offset by a market-wide softening of yields
due to the sharp rise in bond yields. We recognised a £144m loss on
disposals, mostly reflecting the discounts to historical book value on the
sale of 21 Moorfields and One New Street Square, partly offset by the premiums
to book value of the sale of 32-50 Strand and a leisure asset in north London.
IFRS loss after tax
Substantially all our activity during the year was covered by UK REIT
legislation, which means our tax charge for the year remained minimal.
Reflecting the increase in EPRA earnings, offset by the valuation shortfall,
IFRS loss after tax for the period was £622m, compared to a profit of £875m
in the prior period.
Net assets and return on equity
EPRA Net Tangible Assets, which principally reflects the value of our Combined
Portfolio less adjusted net debt, reduced to £6,967m, or 936 pence per share,
marking a 11.9% reduction for the year on a per share basis. Including
dividends paid, this means our total return on equity for the year was -8.3%.
Table 9: Balance sheet(1)
31 March 2023 31 March 2022
£m £m
Combined Portfolio 10,239 12,017
Adjusted net debt (3,287) (4,179)
Other net assets/(liabilities) 15 50
EPRA Net Tangible Assets 6,967 7,888
Shortfall of fair value over net investment in finance leases book value 6 6
Other intangible asset 2 2
Excess of fair value over trading properties book value (12) -
Fair value of interest-rate swaps 42 21
Net assets, excluding amounts due to non-controlling interests 7,005 7,917
Net assets per share 945p 1,070p
EPRA Net Tangible Assets per share (diluted) 936p 1,063p
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Table 10: Movement in EPRA Net Tangible Assets(1)
Diluted per share
£m pence
EPRA Net Tangible Assets at 31 March 2022 7,888 1,063
EPRA earnings 393 53
Like-for-like valuation movement (687) (92)
Development valuation movement (73) (10)
Impact of acquisitions/disposals (88) (12)
Total valuation deficit (848) (114)
Dividends (290) (39)
Loss on disposals (144) (22)
Other (32) (5)
EPRA Net Tangible Assets at 31 March 2023 6,967 936
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Net debt and leverage
Adjusted net debt, which includes our share of JV borrowings, reduced by
£892m to £3,287m during the year. This was principally driven by our £1.4bn
of disposals in London. We spent £120m on acquisitions, including the debt
secured against St David's in Cardiff. Capital expenditure on our portfolio
was £340m, reflecting our London office development programme, the
preparation of future developments and the investment in our existing assets.
We only have £90m committed capex left to spend, although we anticipate this
will increase in the coming months as we commit to the full refurbishment of
Portland House and our new development at Timber Square.
The other key elements behind the decrease in net debt are set out in our
statement of cash flows and note 9 to the financial statements, with the main
movements in adjusted net debt shown below. A reconciliation between net debt
and adjusted net debt is shown in note 13 of the financial statements.
Table 11: Movement in adjusted net debt(1)
£m
Adjusted net debt at 31 March 2022 4,179
Adjusted net cash inflow from operating activities (359)
Dividends paid 289
Capital expenditure 340
Acquisitions 120
Disposals (1,269)
Other (13)
Adjusted net debt at 31 March 2023 3,287
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Due to the reduction in borrowings, our net debt/EBITDA reduced to 7.0x based
on our net debt at the end of March, or 8.0x based on our weighted-average net
debt for the year. We target net debt/EBITDA to remain below 9x over time.
Group LTV which includes our share of JVs, reduced from 34.4% to 31.7%. This
remains well within our target range of 25% to 40% and in line with the low
30's level we said we expected for the foreseeable future.
Table 12: Net debt and leverage
31 March 2023 31 March 2022
Net debt £3,348m £4,254m
Adjusted net debt(1) £3,287m £4,179m
Interest cover ratio 4.5x 4.9x
Net debt/EBITDA (period-end) 7.0x 9.7x
Net debt/EBITDA (weighted average) 8.0x 8.6x
Group LTV(1) 31.7% 34.4%
Security Group LTV 33.0% 36.4%
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Financing
Our gross borrowings of £3,358m are diversified across various sources,
including £2,736m Medium Term Notes, £310m syndicated and bilateral bank
loans and £312m of commercial paper. Our MTN and bank loans form part of our
Security Group, which provide security on a floating pool of assets currently
valued at £9.6bn. This provides flexibility to include or exclude assets and
an attractive cost of funding, with our MTN currently rated AA and AA- with a
stable outlook respectively by S&P and Fitch.
The Security Group structure has a number of tiered covenants. Below 65% LTV,
these involve very limited operational restrictions, whilst a default only
occurs when LTV is more than 100% or the ICR falls below 1.0 times. With a
Security Group LTV of 33.0%, down from 36.4% in March, our portfolio could
withstand a c. 50% fall in value before we reach the 65% hurdle and 67% before
reaching 100%, whilst our EBITDA could fall 78% before we reach 1.0x ICR.
We have £2.4bn of undrawn facilities, which provides substantial flexibility.
The amount of borrowings which is fixed or hedged increased from 70% to 100%,
as we used the proceeds from our significant disposals during the period to
repay part of our floating debt, as planned. We expect this figure to come
down slightly as we repay some of our near-term maturities and continue to
target a medium-term range of c. 80-90% to keep some flexibility for potential
divestments.
In March, we issued our first Green bond, which is earmarked for the
investment in our near-term London pipeline. This raised £400m with a 9.5
year maturity at a margin of 133bps, representing an all-in cost of 4.875%.
Combined with the reduced utilisation of our revolving credit facilities, this
increased our average maturity of debt from 9.1 to 10.3 years, even though our
average cost of debt only rose slightly, to 2.7%.
We have £733m of debt maturing in the next two and a half years, but all of
this is more than covered by existing undrawn facilities, which means we have
no refinancing requirements until 2026.
Table 13: Available facilities(1)
31 March 2023 31 March 2022
£m £m
Medium Term Notes 2,736 2,341
Drawn bank debt 310 1,519
Outstanding commercial paper 312 499
Cash and cash equivalents(2) (74) (172)
Available undrawn facilities(2) 2,386 1,134
Total committed credit facilities 2,934 2,980
Weighted average maturity of debt 10.3 years 9.1 years
Percentage of borrowings fixed or hedged 100% 70%
Weighted average cost of debt 2.7% 2.4%
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
2. Cash and cash equivalents and available undrawn facilities have been
restated as at 31 March 2022 following a clarification by IFRIC on
classification of funds with externally imposed restrictions.
Outlook
Looking ahead, our strong capital base puts us in an excellent position to
take advantage of opportunities which will no doubt arise as the world
continues to adjust to the new reality of higher interest rates and tighter
credit conditions. Our strong credit profile and long 10.3-year average debt
maturity therefore provide clear visibility and underpin the resilience of our
attractive earnings profile.
We now target to deliver an 8-10% annual return on equity over time, driven by
a combination of growing income returns and capital growth from rental value
growth and development upside. Short term changes in valuation yields remain
beyond our control, which means we will not land precisely in this range every
single year, but our high-quality portfolio and the clear competitive
advantages of our operating platforms mean we are well placed to deliver this
over time. For the current year, we expect continued customer demand to drive
low to mid single digit growth in ERVs in London and major retail
destinations.
We expect EPRA EPS for the current year to be broadly stable vs last year's
50.1 pence underlying EPS. This reflects the fact that we expect the positive
impact from continued strong operational performance and like-for-like rental
growth to be more or less offset by the fact that we have been - and in the
near term will likely remain - a net seller of assets. It also fully absorbs
c. £10m of impact from the last over-rented retail leases resetting, Myo
start-up costs and IT systems investment this year. As such, we expect EPRA
EPS to return to growth the year after. As our current dividend cover is at
the high end of our 1.2-1.3x target range, we expect dividends to grow by a
low single digit percentage p.a. over these two years.
Principal risks and uncertainties
The Board undertakes a bi-annual assessment of the principal risks, taking
account of those that would threaten our business model, future performance,
solvency or liquidity as well as the Group's strategic objectives. From this,
the Group has identified ten principal risks and uncertainties and has
assessed how these are managed through a combination of strategic risk
management, mitigating controls, or insurance.
The Group's approach to the management and mitigation of these risks is
included in the 2023 Annual Report.
The table below sets out our ten principal risks, with explanations of changes
in the risk profile across the year. As Landsec has embarked on a number of
key change programmes during the year, it was deemed prudent to include the
risk of change projects not achieving the identified benefits as a new
principal risk.
Changes to our principal risks from half-year have been minor, as economic
headwinds have stabilised, but not abated, especially interest rates and
inflation. Whilst these factors put upward pressure on a number of risks,
Landsec has mitigated these pressures well and positioned itself strongly to
take advantage of future opportunities, through the sale of key assets such as
21 Moorfields in 2022, and the issue of our Green Bond in early 2023.
Risk description Change in year
Macroeconomic outlook ñ
Changes in the macro-economic environment result in reduced demand for space The UK economy has endured a tumultuous 2022/23, with inflation, interest rate
or deferral of decisions by retailer and office occupiers. Due to the length rises and high energy prices leading to a slow-down in the UK market - and
of build projects, the prevailing economic climate at initiation may be potential for recession. The risk increased in the first-half of the year and
different from that at completion. has softened in 2023, with inflation appearing to have peaked, and energy
prices falling.
Overall, the risk has increased over the course of the year. The net risk
remains in line with our 'flexible/cautious' appetite.
ò
Office occupier market
Structural changes in customer expectations leading to changing demand for The risk has reduced from the prior year, as businesses have defined and
office space and the consequent impact on income and asset values. Further, implemented new working practices, office occupancy has settled and demand for
the risk includes the inability to identify or adapt to changing markets in a prime space has strengthened.
timely manner.
Residual risk at year end was below our 'Flexible' appetite - reflecting our
view of the office occupier market outlook and opportunities for stronger
leasing terms in the coming year.
Retail and hospitality occupier market ó
Structural changes in consumer expectations leading to changes in demand for This risk has remained consistent as the impacts of the pandemic have levelled
retail or hospitality space and the consequent impact on income and asset - with online penetration falling from lockdown levels and growing
values. omni-channel business models. With the potential for recession, we continue to
monitor the risk.
Residual risk at year end was below our 'Flexible' appetite - reflecting our
view of the retail and hospitality market outlook and opportunities for
stronger leasing terms in the coming year.
Information security and cyber threat ò
Data loss or disruption to business processes, corporate systems or building The risk has reduced in the year, largely due to significant investment in,
management systems resulting in negative reputational, operational, and development of, our cyber capability - as validated by an independent
regulatory, or financial impact. review.
We continue to develop and invest in the wider information security and
cyber-control environment, and remain vigilant as the cyber threat landscape
continues to evolve.
Change projects New risk
Landsec is engaging in a number of important internal change programmes, The number and impact of active change projects at Landsec has resulted in
aiming to deliver operational and cultural benefits. There is a risk that increased risk associated with programmes not achieving identified outcomes.
these projects fail to deliver the identified benefits in a timely manner and
to budget.
Cultural change is a key element of the wider change portfolio, making it of
particular importance.
Capital allocation ó
Capital allocated to specific assets, sectors or locations does not yield the We have a clear view of the scale of the opportunity in each sector and
expected returns i.e. we are not effective in placing capital or recycling. relative returns achievable across Central London, major retail destinations
and mixed-use urban neighbourhoods.
The macroeconomic backdrop has put upward pressure on this risk and our
appetite in the last year was lower. We responded by de-risking our balance
sheet, with the sale of 21 Moorfields and other assets, a more flexible
approach to development commitments and the recent issue of Landsec's Green
Bond.
Over the course of the coming year, we expect the risk to increase towards our
desired appetite range, as we commit to developments and potentially deploy
capital in new investment opportunities.
Development strategy ó
We may be unable to generate expected returns as a result of changes in the The external factors that influence this risk, such as market conditions and
occupier market for a given asset during the course of the development, or inflation, have increased.
cost or time overruns on the scheme.
However, this is offset as three major development schemes are close to
completion.
Over the course of the coming year, we expect the risk to increase towards our
desired appetite range, as we commit to new developments.
Health and safety ó
Failure to identify, mitigate or react effectively to major health or safety The likelihood of a major health, safety or security incident has remained
incidents, leading to: constant throughout the year, with U+I and MediaCity properties now falling
under the wider Health and Safety regime following integration.
- Serious injury, illness or loss of life
- Criminal/civil proceedings
- Loss of stakeholder confidence
- Delays to building projects and access restrictions to our properties
resulting in loss of income
- Inadequate response to regulatory changes
- Reputational impact
People and skills ñ
Inability to attract, retain and develop the right people and skills to meet The risk has increased due to a combination of voluntary and forced attrition
our strategic objectives, grow enterprise value and meet shareholder due to ongoing transformation programmes.
expectations.
Further, the continuation of a buoyant post-pandemic employment market has
created an employee and candidate-led market with high levels of wage
inflation.
Climate-change transition ò
Climate-change risk has two elements: The transitional risks of climate change have continued to reduce as we have
reviewed and updated our fully costed net zero transition plan for the effects
- Our commitment to reducing Landsec's near and long-term carbon-reduction of inflation, and have begun the portfolio-decarbonisation planning.
targets by 2030 and 2040 is not met in time or achieved at a significantly
higher cost than expected, leading to regulatory, reputational and commercial
impact.
- Failure to ensure all new developments are net zero in construction and
operation, as defined by the emerging net zero standard for assets, leads to
an inability to service market demand for high-quality assets that meet the
highest environmental and wellbeing standards.
Statement of Directors' Responsibilities
The Annual Report 2023 will contain the following statements regarding
responsibility for the financial statements and business reviews included
therein.
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group and the
Company financial statements in accordance with the requirements of the
Companies Act 2006. Under the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules and Company law, group financial statements
are required to be prepared in accordance with UK adopted international
accounting standards (IFRSs and IFRICs). Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of the profit
and loss of the Group and the Company for that period.
In preparing these financial statements, the Directors are required to:
¾ select suitable accounting policies in accordance with IAS 8
'Accounting Policies, Changes in Accounting Estimates and Errors' and then
apply them consistently;
¾ make judgements and accounting estimates that are reasonable and
prudent;
¾ present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
¾ in respect of the group financial statements, state whether
international accounting standards in conformity with the requirements of the
Companies Act 2006 (and UK adopted international accounting standards) have
been followed, subject to any material departures disclosed and explained in
the financial statements;
¾ in respect of the Company financial statements, state whether
international accounting standards in conformity with the requirements of the
Companies Act 2006 have been followed, subject to any material departures
disclosed and explained in the financial statements;
¾ provide additional disclosures when compliance with the specific
requirements of UK adopted international accounting standards is insufficient
to enable users to understand the impact of particular transactions, other
events and conditions on the Group's and Company's financial position and
performance; and
¾ prepare the Group's and Company's financial statements on a going
concern basis, unless it is inappropriate to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and the Company, and to enable them to ensure that the Annual Report
complies with the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS regulation. They are also responsible for
safeguarding the assets of the Group and the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Directors' responsibility statement under the Disclosure and Transparency
Rules
Each of the Directors, whose names and functions appear below, confirm to the
best of their knowledge:
¾ the Group financial statements, which have been prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 (and UK adopted international
accounting standards) give a true and fair view of the assets, liabilities,
financial position, performance and cash flows of the Company and Group as a
whole; and
¾ the Strategic Report contained in the Annual Report includes a fair
review of the development and performance of the business and the position of
the Group and the Company, together with a description of the principal risks
and uncertainties faced by the Group and Company.
Directors' statement under the UK Corporate Governance Code
Each of the Directors confirm that to the best of their knowledge the Annual
Report taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's and Company's
position, performance, business model and strategy.
A copy of the financial statements of the Group is placed on the Company's
website. The Directors are responsible for the maintenance and integrity of
statutory and audited information on the Company's website at landsec.com.
Information published on the internet is accessible in many countries with
different legal requirements. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors of Land Securities Group PLC as at the date of this announcement
are as set out below:
¾ Cressida Hogg, Chairman, retiring from the Board on 16 May 2023*
¾ Sir Ian Cheshire, Chair Designate, assuming the role of Chair on 16
May 2023*
¾ Mark Allan, Chief Executive
¾ Vanessa Simms, Chief Financial Officer
¾ Edward Bonham Carter, Senior Independent Director*
¾ Nicholas Cadbury*
¾ Madeleine Cosgrave*
¾ Christophe Evain*
¾ Manjiry Tamhane*
¾ Miles Roberts*
*Non-executive Directors
The Statement of Directors' Responsibilities was approved by the Board of
Directors on 15 May 2023 and is signed on its behalf by:
Mark Allan
Vanessa Simms
Chief Executive Chief Financial
Officer
Financial statements
Income statement Year ended Year ended
31 March 2023
31 March 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
Notes £m £m £m £m £m £m
Revenue 5 726 65 791 647 32 679
Costs - movement in bad and doubtful debts provisions 6 2 - 2 13 - 13
Costs - other 6 (291) (93) (384) (273) (48) (321)
437 (28) 409 387 (16) 371
Share of post-tax profit/(loss) from joint ventures 12 29 (30) (1) 29 4 33
(Loss)/profit on disposal of investment properties - (144) (144) - 107 107
Profit on disposal of investment in joint ventures - - - - 2 2
Net (deficit)/surplus on revaluation of investment properties 10 - (827) (827) - 416 416
(Loss)/gain on changes in finance leases - (6) (6) - 6 6
Operating profit/(loss) 466 (1,035) (569) 416 519 935
Finance income 7 11 23 34 9 16 25
Finance expense 7 (84) (3) (87) (70) (15) (85)
Profit/(loss) before tax 393 (1,015) (622) 355 520 875
Taxation - -
(Loss)/profit for the year (622) 875
Attributable to:
Shareholders of the parent (619) 869
Non-controlling interests (3) 6
(622) 875
(Loss)/profit per share attributable to shareholders of the parent:
Basic (loss)/earnings per share 4 (83.6)p 117.4p
Diluted (loss)/earnings per share 4 (83.6)p 117.1p
Statement of comprehensive income Year ended Year ended
31 March 2023
31 March 2022
Total Total
£m £m
(Loss)/profit for the year (622) 875
Items that may be subsequently reclassified to the income statement:
Movement in cash flow hedges (1) (1)
Items that will not be subsequently reclassified to the income statement:
Movement in the fair value of other investments - (3)
Net re-measurement (loss)/gain on defined benefit pension scheme (12) 22
Deferred tax credit/(charge) on re-measurement above 3 (5)
Other comprehensive (loss)/income for the year (10) 13
Total comprehensive (loss)/income for the year (632) 888
Attributable to:
Shareholders of the parent (629) 882
Non-controlling interests (3) 6
(632) 888
Balance sheet Year ended 31 March
2023 2022
(restated)(1)
Notes £m £m
Non-current assets
Investment properties 10 9,658 11,207
Intangible assets 6 8
Net investment in finance leases 21 70
Investments in joint ventures 12 533 700
Investments in associates 3 4
Trade and other receivables 146 177
Other non-current assets 67 61
Total non-current assets 10,434 12,227
Current assets
Trading properties 11 118 145
Trade and other receivables 365 368
Monies held in restricted accounts and deposits 15 4 4
Cash and cash equivalents 16 41 146
Other current assets 4 5
Total current assets 532 668
Total assets 10,966 12,895
Current liabilities
Borrowings 14 (315) (541)
Trade and other payables (306) (320)
Other current liabilities (24) (11)
Total current liabilities (645) (872)
Non-current liabilities
Borrowings 14 (3,223) (4,012)
Trade and other payables (17) (8)
Other non-current liabilities (9) (12)
Total non-current liabilities (3,249) (4,032)
Total liabilities (3,894) (4,904)
Net assets 7,072 7,991
Equity
Capital and reserves attributable to shareholders
Ordinary shares 80 80
Share premium 318 317
Other reserves 13 9
Retained earnings 6,594 7,511
Equity attributable to shareholders of the parent 7,005 7,917
Equity attributable to non-controlling interests 67 74
Total equity 7,072 7,991
1. Cash and cash equivalents and monies held in restricted accounts and
deposits have been restated as at 31 March 2022 following clarification by
IFRIC on classification of funds with externally imposed restrictions.
The financial statements on pages 29 to 52 were approved by the Board of
Directors on 15 May 2023 and were signed on its behalf by:
M C Allan V K Simms
Directors
Statement of changes in equity Attributable to shareholders of the parent
Ordinary shares Share premium Other reserves Retained earnings Non-controlling interests Total
equity
Total
£m £m £m £m £m £m £m
At 1 April 2021 80 317 28 6,787 7,212 - 7,212
Total comprehensive income for the financial year - - - 882 882 6 888
Transactions with shareholders of the parent:
Share-based payments - - 2 2 4 - 4
Dividends paid to shareholders of the parent - - - (181) (181) - (181)
Transfer of treasury shares - - (21) 21 - - -
Total transactions with shareholders of the parent - - (19) (158) (177) - (177)
Acquisition of subsidiaries - - - - - 68 68
At 31 March 2022 80 317 9 7,511 7,917 74 7,991
Total comprehensive loss for the financial year - - - (629) (629) (3) (632)
Transactions with shareholders of the parent:
Share-based payments - 1 4 2 7 - 7
Dividends paid to shareholders of the parent - - - (290) (290) - (290)
Total transactions with shareholders of the parent - 1 4 (288) (283) - (283)
Dividends paid to non-controlling interests - - - - - (4) (4)
Total transactions with shareholders - 1 4 (288) (283) (4) (287)
At 31 March 2023 80 318 13 6,594 7,005 67 7,072
Statement of cash flows Year ended 31 March
2023 2022
(restated)
(1)
Notes £m £m
Cash flows from operating activities
Net cash generated from operations 9 356 448
Interest received 16 23
Interest paid (92) (84)
Rents paid (13) (8)
Capital expenditure on trading properties (6) (5)
Disposal of trading properties 18 8
Development income proceeds received 54 -
Other operating cash flows 9 (1)
Net cash inflow from operating activities 9 342 381
Cash flows from investing activities
Investment property development expenditure (253) (302)
Other investment property related expenditure (102) (42)
Acquisition of investment properties (2) (147)
Disposal of investment properties 1,269 265
Acquisition of subsidiaries, net of cash acquired (92) (399)
Cash distributions from joint ventures 12 14 22
Increase in monies held in restricted accounts and deposits - (4)
Net cash inflow/(outflow) from investing activities 834 (607)
Cash flows from financing activities
Proceeds from new borrowings (net of finance fees) 14 394 1,053
Repayment of bank debt 14 (1,407) (489)
Net cash in/(out)flow from derivative financial instruments 14 25 (3)
Dividends paid to shareholders of the parent 8 (289) (190)
Dividends paid to non-controlling interests (4) -
Other financing cash flows - (9)
Net cash (outflow)/inflow from financing activities (1,281) 362
(Decrease)/increase in cash and cash equivalents for the year (105) 136
Cash and cash equivalents at the beginning of the year 146 10
Cash and cash equivalents at the end of the year 16 41 146
1. Cash and cash equivalents and monies held in restricted accounts
and deposits have been restated as at 31 March 2022 following clarification by
IFRIC on classification of funds with externally imposed restrictions.
Notes to the financial statements
1. Basis of preparation and consolidation
Basis of preparation
These financial statements have been prepared on a going concern basis and in
accordance with UK adopted international accounting standards (IFRSs and
IFRICs), as applied in accordance with the provisions of the Companies Act
2006. The financial statements have been prepared in Pounds Sterling (rounded
to the nearest one million), which is the presentation currency of the Group
(Land Securities Group PLC and all its subsidiary undertakings), and under the
historical cost convention as modified by the revaluation of investment
property, financial assets at fair value through other comprehensive income
(without recycling), derivative financial instruments and pension assets.
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results ultimately may
differ from those estimates.
On 15 May 2023, the consolidated financial statements of the Group and this
preliminary announcement were authorised for issue in accordance with a
resolution of the Directors and will be delivered to the Registrar of
Companies following the Group's Annual General Meeting. Statutory accounts for
the year ended 31 March 2022 have been filed unqualified and do not contain
any statement under Section 498(2) or Section 498(3) of the Companies Act
2006. The annual financial information presented in this preliminary
announcement for the year ended 31 March 2023 is based on, and consistent
with, the financial information in the Group's audited financial statements
for the year ended 31 March 2022. The audit report on these financial
statements is unqualified and did not contain a statement under Section 498(2)
or 498(3) of the Companies Act 2006. This preliminary announcement does not
constitute statutory financial statements of the Group within the meaning of
Section 435 of the Companies Act 2006. While the information included in this
preliminary announcement has been prepared in accordance with the recognition
and measurement criteria of IFRS, this announcement does not itself contain
sufficient information to comply with IFRS.
A copy of the Group's Annual Report for the year ended 31 March 2022 can be
found on the website at landsec.com/investors.
Going concern
The impact of international and domestic political and economic events over
the course of the year has resulted in the UK facing a prolonged recessionary
period and therefore the Directors have continued to place additional focus on
the appropriateness of adopting the going concern assumption in preparing the
financial statements for the year ended 31 March 2023. The Group's going
concern assessment considers changes in the Group's principal risks (see pages
24-26) and is dependent on a number of factors, including our financial
performance and continued access to borrowing facilities. Access to our
borrowing facilities is dependent on our ability to continue to operate the
Group's secured debt structure within its financial covenants, which are
described in note 14.
In order to satisfy themselves that the Group has adequate resources to
continue as a going concern for the foreseeable future, the Directors have
reviewed base case, downside and reverse stress test models, as well as a cash
flow model which considers the impact of pessimistic assumptions on the
Group's operating environment (the 'mitigated downside scenario'). This
mitigated downside scenario reflects unfavourable macro-economic conditions, a
deterioration in our ability to collect rent and service charge from our
customers and removes uncommitted acquisitions, disposals and developments.
The Group's key metrics from the mitigated downside scenario as at the end of
the going concern assessment period, which covers the 16 months to 30
September 2024, are shown below alongside the actual position at 31 March
2023.
Key metrics Mitigated downside scenario
31 March 2023 30 September 2024
Security Group LTV 33.0% 39.2%
Adjusted net debt £3,287m £3,670m
EPRA net tangible assets £6,967m £6,021m
Available financial headroom £2.4bn £1.6bn
In our mitigated downside scenario, the Group has sufficient cash reserves,
with our Security Group LTV ratio remaining less than 65% and interest cover
above 1.45x, for a period of at least 16 months from the date of authorisation
of these financial statements. The value of our assets would need to fall from
31 March 2023 values by approximately a further 50% for LTV to reach 65%. The
Directors consider the likelihood of this occurring over the going concern
assessment period to be remote.
The Security Group requires earnings of at least £150m in the year ending 31
March 2024 for interest cover to remain above 1.45x in the mitigated downside
scenario, which would ensure compliance with the Group's covenant through to
the end of the going concern assessment period. Security Group earnings are
well above the level required to meet the interest cover covenant, and would
need to fall from 31 March 2023 values by over £300m for interest cover to
reach 1.45x. Therefore, the Directors do not anticipate a reduction in
Security Group earnings over the period ending 30 September 2024 to a level
that would result in a breach of the interest cover covenant.
The Directors have also considered a reverse stress-test scenario which
assumes no further rent will be received, to determine when our available cash
resources would be exhausted. Even under this extreme scenario, although
breaching the interest cover covenant, the Group continues to have sufficient
cash reserves to continue in operation throughout the going concern assessment
period.
Based on these considerations, together with available market information and
the Directors' knowledge and experience of the Group's property portfolio and
markets, the Directors have adopted the going concern basis in preparing these
financial statements for the year ended 31 March 2023.
Basis of consolidation and presentation of results
The consolidated financial statements for the year ended 31 March 2023
incorporate the financial statements of the Company and all its subsidiary
undertakings. Subsidiary undertakings are those entities controlled by the
Company. Control exists where an entity is exposed to variable returns and has
the ability to affect those returns through its power over the investee.
The results of subsidiaries and joint ventures acquired or disposed of during
the year are included from the effective date of acquisition or to the
effective date of disposal. Accounting policies of subsidiaries and joint
ventures which differ from Group accounting policies are adjusted on
consolidation.
Where instruments in a subsidiary held by third parties are redeemable at the
option of the holder, these interests are classified as a financial liability,
called the redemption liability. The liability is carried at fair value; the
value is reassessed at the balance sheet date and movements are recognised in
the income statement.
Where equity in a subsidiary is not attributable, directly or indirectly, to
the shareholders of the parent, this is classified as a non-controlling
interest. Total comprehensive income or loss and the total equity of the Group
are attributed to the shareholders of the parent and to the non-controlling
interests according to their respective ownership percentages.
Intra-group balances and any unrealised gains and losses arising from
intra-group transactions are eliminated in preparing the consolidated
financial statements. Unrealised gains arising from transactions with joint
ventures are eliminated to the extent of the Group's interest in the joint
venture concerned. Unrealised losses are eliminated in the same way, but only
to the extent that there is no evidence of impairment.
Our property portfolio is a combination of properties that are wholly owned by
the Group, part owned through joint arrangements and properties owned by the
Group but where a third party holds a non-controlling interest. Internally,
management review the results of the Group on a basis that adjusts for these
different forms of ownership to present a proportionate share. The Combined
Portfolio, with assets totalling £10.2bn, is an example of this approach,
reflecting the economic interest we have in our properties regardless of our
ownership structure. The Combined Portfolio comprises the investment
properties of the Group's subsidiaries, on a proportionately consolidated
basis when not wholly owned, together with our share of investment properties
held in our joint ventures (see Note 10). We consider this presentation
provides further understanding to stakeholders of the activities and
performance of the Group, as it aggregates the results of all of the Group's
property interests which under IFRS are required to be presented across a
number of line items in the statutory financial statements.
The same principle is applied to many of the other measures we discuss and,
accordingly, a number of our financial measures include the results of our
joint ventures and subsidiaries on a proportionate basis. Measures that are
described as being presented on a proportionate basis include the Group's
share of joint ventures on a line-by-line basis and are adjusted to exclude
the non-owned elements of our subsidiaries. This is in contrast to the Group's
statutory financial statements, where the Group's interest in joint ventures
is presented as one line on the income statement and balance sheet, and all
subsidiaries are consolidated at 100% with any non-owned element being
adjusted as a non-controlling interest or redemption liability, as
appropriate. Our joint operations are presented on a proportionate basis in
all financial measures.
EPRA earnings is the Group's measure of the underlying pre-tax profit of the
property rental business. EPRA earnings excludes all items of a capital
nature, such as valuation movements and profits and losses on the disposal of
investment properties, as well as exceptional items. The Group believes that
EPRA earnings provides additional understanding of the Group's operational
performance to shareholders and other stakeholder groups. A full definition of
EPRA earnings is given in the Glossary. The components of EPRA earnings are
presented on a proportionate basis in note 3. EPRA earnings is an alternative
performance measure.
2. Changes in accounting policies and standards
The accounting policies used in these financial statements are consistent with
those applied in the last annual financial statements, as amended where
relevant to reflect the adoption of new standards, amendments and
interpretations which became effective in the year.
Following clarification by IFRIC on the classification of monies held in
restricted accounts, monies that are restricted by use only are classified at
31 March 2023 as 'Cash and cash equivalents', whereas monies to which access
is restricted remain classified as 'Monies held in restricted accounts and
deposits'. The comparative balances have been restated where applicable to
reflect this change in classification. As a result, £18m of monies held in
restricted accounts has been reclassified to Cash and cash equivalents in the
Group balance sheet as at 31 March 2022 which increased the cash and cash
equivalent from £128m to £146m and decreased the restricted accounts from
£22m to £4m. Within the Group cash flow statement for the year ended 31
March 2022, this reclassification also resulted in the overall net movement in
Cash and cash equivalent from £128m to £136m, as well as the movements in
monies held in restricted accounts being classified as cash flows from
investing activities rather than financing activities as in prior year, based
on the nature of the accounts. As at 1 April 2021, the total value of the
reclassification is £10m which increased the Cash and cash equivalent from
£nil to £10m and decreased the restricted accounts from £10m to £nil. This
prior year restatement did not have any impact on the reported net assets, net
current assets or net profit or loss.
There has been no material impact on the financial statements of adopting any
other new standards, amendments and interpretations.
Amendments to IFRS
A number of new standards, amendments to standards and interpretations have
been issued but are not yet effective for the Group. The application of these
new standards, amendments and interpretations are not expected to have a
significant impact on the Group's income statement or balance sheet.
3. Segmental information
The Group's operations are in the UK and are managed across four operating
segments, being Central London, Major retail destinations (Major retail),
Mixed-use urban neighbourhoods (Mixed-use urban) and Subscale sectors.
The Central London segment includes all assets geographically located within
central London. Major retail destinations includes all regional shopping
centres and shops outside London and our outlets. The Mixed-use urban segment
includes those assets where we see the most potential for capital investment.
Subscale sectors mainly includes assets that will not be a focus for capital
investment and consists of leisure and hotel assets and retail parks. There
has been no change to the classification of these segments during the year to
31 March 2023.
Management has determined the Group's operating segments based on the
information reviewed by Senior Management to make strategic decisions. The
chief operating decision maker is the Executive Leadership Team (ELT),
comprising the Executive Directors and the Managing Directors. The information
presented to ELT includes reports from all functions of the business as well
as strategy, financial planning, succession planning, organisational
development and Group-wide policies.
The Group's primary measure of underlying profit before tax is EPRA earnings.
However, Segment net rental income is the lowest level to which the profit
arising from the ongoing operations of the Group is analysed between the four
segments. The administrative costs, which are predominantly staff costs for
centralised functions, are all treated as administrative expenses and are not
allocated to individual segments.
The Group manages its financing structure, with the exception of joint
ventures, on a pooled basis. Individual joint ventures may have specific
financing arrangements in place. Debt facilities and finance expenses,
including those of joint ventures, are managed centrally and are therefore not
attributed to a particular segment. Unallocated income and expenses are items
incurred centrally which are not directly attributable to one of the segments.
All items in the segmental information note are presented on a proportionate
basis.
Segmental results
2023 2022(2)
EPRA earnings Central London Major retail Mixed-use urban Subscale sectors Total Central London Major Mixed-use urban Subscale sectors Total
retail
£m £m £m £m £m £m £m £m £m £m
Rental income 313 179 58 107 657 287 167 43 89 586
Finance lease interest - - - 2 2 6 - - 2 8
Gross rental income (before rents payable) 313 179 58 109 659 293 167 43 91 594
Rents payable(1) (3) (8) (1) - (12) (4) (6) - 2 (8)
Gross rental income (after rents payable) 310 171 57 109 647 289 161 43 93 586
Service charge income 46 42 10 - 98 40 39 7 - 86
Service charge expense (47) (50) (12) (1) (110) (41) (45) (9) (3) (98)
Net service charge expense (1) (8) (2) (1) (12) (1) (6) (2) (3) (12)
Other property related income 15 10 3 3 31 13 11 2 2 28
Direct property expenditure (34) (44) (14) (16) (108) (42) (37) (11) (14) (104)
Movement in bad and doubtful debts provisions (1) 3 1 - 3 (1) 13 2 (2) 12
Segment net rental income 289 132 45 95 561 258 142 34 76 510
Other income 3 3
Administrative expense (82) (82)
Depreciation (5) (5)
EPRA earnings before interest 477 426
Finance income 11 9
Finance expense (84) (70)
Joint venture net finance expense (11) (10)
EPRA earnings attributable to shareholders of the parent 393 355
1. Included within rents payable is lease interest payable of £2m (2022:
£2m) for the Central London segment, £1m for the Mixed-use urban segment
(2022: £nil) and £1m (2022: £2m) for the Subscale segment.
2. A reconciliation from the Group income statement to the information
presented in the segmental results table for the year ended 31 March 2022 is
included in table 27.
The following table reconciles the Group's income statement to the segmental
results.
Reconciliation of segmental information note to statutory reporting
Year ended 31 March 2023
Group income statement Joint Adjustment for non-wholly owned subsidiaries (2) Total EPRA earnings Capital and other items
£m ventures(1) £m £m £m £m
£m
Rental income 612 53 (8) 657 657 -
Finance lease interest 2 - - 2 2 -
Gross rental income (before rents payable) 614 53 (8) 659 659 -
Rents payable (10) (2) - (12) (12) -
Gross rental income (after rents payable) 604 51 (8) 647 647 -
Service charge income 91 10 (3) 98 98 -
Service charge expense (100) (12) 2 (110) (110) -
Net service charge expense (9) (2) (1) (12) (12) -
Other property related income 29 2 - 31 31 -
Direct property expenditure (100) (10) 2 (108) (108) -
Movement in bad and doubtful debts provisions 2 1 - 3 3 -
Segment net rental income 526 42 (7) 561 561 -
Other income 3 - - 3 3 -
Administrative expenses (80) (2) - (82) (82) -
Depreciation, including amortisation of software (5) - - (5) (5) -
EPRA earnings before interest 444 40 (7) 477 477 -
Share of post-tax loss from joint ventures (1) 1 - - - -
Profit on disposal of trading properties 1 - - 1 - 1
Loss on disposal of investment properties(3) (144) - - (144) - (144)
Net (deficit)/surplus on revaluation of investment properties (827) (30) 9 (848) - (848)
Net development contract expenditure (9) - - (9) - (9)
Loss on changes in finance leases (6) - - (6) - (6)
Impairment of goodwill (5) - - (5) - (5)
Impairment of trading properties (19) - - (19) - (19)
Depreciation (3) - - (3) - (3)
Operating (loss)/profit (569) 11 2 (556) 477 (1,033)
Finance income 34 - 1 35 11 24
Finance expense (87) (11) - (98) (95) (3)
(Loss)/profit before tax (622) - 3 (619) 393 (1,012)
Taxation - - - -
(Loss)/profit for the year (622) - 3 (619)
1. Reallocation of the share of post-tax loss from joint ventures reported in
the Group income statement to the individual line items reported in the
segmental results table.
2. Removal of the non-wholly owned share of results of the Group's
subsidiaries. The non-wholly owned subsidiaries are consolidated at 100% in
the Group's income statement, but only the Group's share is included in EPRA
earnings reported in the segmental results table. The non-owned element of the
Group's subsidiaries are included in the 'Capital and other items' column
presented in the Group's income statement, together with items not directly
related to the underlying rental business such as investment properties
valuation changes, profits or losses on the disposal of investment properties,
the proceeds from, and costs of, the sale of trading properties, income from
and costs associated with development contracts, amortisation and impairment
of intangibles, and other attributable costs, arising on business
combinations.
3. Included in the loss on disposal of investment properties is a £9m charge
related to the provision for fire safety remediation works on properties no
longer owned by the Group but for which the Group is responsible for
remediating under the Building Safety Act 2022.
4. Performance measures
In the tables below, we present earnings per share attributable to
shareholders of the parent, calculated in accordance with IFRS, and net assets
per share attributable to shareholders of the parent together with certain
measures defined by the European Public Real Estate Association (EPRA), which
have been included to assist comparison between European property companies.
Three of the Group's key financial performance measures are EPRA earnings per
share, EPRA Net Tangible Assets per share and total return on equity, which
was previously referred to as total accounting return. There has been no
change to the calculation of this measure other than the change of name during
the year to 31 March 2023. Refer to Table 14 in the Business Analysis section
for further details on these alternative performance measures.
EPRA earnings, which is a tax adjusted measure of underlying earnings, is the
basis for the calculation of EPRA earnings per share. We believe EPRA earnings
and EPRA earnings per share provide further insight into the results of the
Group's operational performance to stakeholders as they focus on the rental
income performance of the business and exclude Capital and other items which
can vary significantly from year to year.
Earnings per share Year ended Year ended
31 March 2023
31 March 2022
Loss for the year EPRA earnings Profit for the year EPRA earnings
£m £m £m £m
(Loss)/profit attributable to shareholders of the parent (619) (619) 869 869
Valuation and loss/(profit) on disposals - 1,016 - (527)
Net finance income (excluded from EPRA earnings) - (21) - (1)
Impairment of goodwill - 5 - 6
Other - 12 - 8
(Loss)/profit used in per share calculation (619) 393 869 355
IFRS EPRA IFRS EPRA
Basic (loss)/earnings per share (83.6)p 53.1p 117.4p 48.0p
Diluted (loss)/earnings per share(1) (83.6)p 53.1p 117.1p 47.8p
1. In the year ended 31 March 2023, share options are excluded from the
weighted average diluted number of shares when calculating IFRS and EPRA
diluted (loss)/earnings per share because they are not dilutive.
Net assets per share 31 March 2023 31 March 2022
Net assets EPRA NDV EPRA NTA Net assets EPRA NDV EPRA NTA
£m £m £m £m £m £m
Net assets attributable to shareholders of the parent 7,005 7,005 7,005 7,917 7,917 7,917
Shortfall of fair value over net investment in finance leases book value - (6) (6) - (6) (6)
Deferred tax liability on intangible asset - - 1 - - 1
Goodwill on deferred tax liability - (1) (1) - (1) (1)
Other intangible asset - - (2) - - (2)
Fair value of interest-rate swaps - - (42) - - (21)
Excess of fair value of trading properties over book value - 12 12 - - -
Shortfall/(excess) of fair value of debt over book value (note 14) - 324 - - (107) -
Net assets used in per share calculation 7,005 7,334 6,967 7,917 7,803 7,888
IFRS EPRA NDV EPRA NTA IFRS EPRA NDV EPRA NTA
Net assets per share 945p n/a n/a 1,070p n/a n/a
Diluted net assets per share 942p 986p 936p 1,067p 1,052p 1,063p
Number of shares 2023 2022
Weighted average 31 March Weighted average 31 March
million million million million
Ordinary shares 751 751 751 751
Treasury shares (7) (7) (7) (7)
Own shares (4) (3) (4) (4)
Number of shares - basic 740 741 740 740
Dilutive effect of share options 4 3 2 2
Number of shares - diluted 744 744 742 742
Total return on equity is calculated as the cash dividends per share paid in
the year plus the change in EPRA NTA per share, divided by the opening EPRA
NTA per share. We consider this to be a useful measure for shareholders as it
gives an indication of the total return on equity over the year.
Total return on equity based on EPRA NTA Year ended Year ended
31 March 2023
31 March 2022
pence pence
(Decrease)/increase in EPRA NTA per share (127) 78
Dividend paid per share in the year (note 8) 39 25
Total return (a) (88) 103
EPRA NTA per share at the beginning of the year (b) 1,063 985
Total return on equity (a/b) (8.3)% 10.5%
5. Revenue
All revenue is classified within the 'EPRA earnings' column of the income
statement, with the exception of proceeds from the sale of trading properties,
income from development contracts and the non-owned element of the Group's
subsidiaries which are presented in the 'Capital and other items' column.
2023 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Rental income (excluding adjustment for lease incentives) 606 8 614 552 3 555
Adjustment for lease incentives (2) - (2) (18) - (18)
Rental income 604 8 612 534 3 537
Service charge income 88 3 91 77 1 78
Trading property sales proceeds - 22 22 - 27 27
Other property related income 29 - 29 25 - 25
Finance lease interest 2 - 2 8 - 8
Development contract income(1) - 32 32 - 1 1
Other income 3 - 3 3 - 3
Revenue per the income statement 726 65 791 647 32 679
The following table reconciles revenue per the income statement to the
individual components of revenue presented in note 3.
2023 2022
Group Joint ventures Adjustment for non-wholly owned subsidiaries Total Group Joint Adjustment Total
ventures
for non- wholly owned subsidiaries
£m £m £m £m £m £m £m £m
Rental income 612 53 (8) 657 537 52 (3) 586
Service charge income 91 10 (3) 98 78 9 (1) 86
Other property related income 29 2 - 31 25 3 - 28
Finance lease interest 2 - - 2 8 - - 8
Other income 3 - - 3 3 - - 3
Revenue in the segmental information note 737 65 (11) 791 651 64 (4) 711
Development contract income(1) 32 - - 32 1 - - 1
Trading property sales proceeds 22 - - 22 27 15 - 42
Revenue including Capital and other items 791 65 (11) 845 679 79 (4) 754
1. Development contract income for the year ended 31 March 2023 relates to the
income released from the contract liability recorded on the disposal of 21
Moorfields, recognised in line with costs incurred on the development in Note
6.
6. Costs
All costs are classified within the 'EPRA earnings' column of the income
statement, with the exception of the cost of sale of trading properties, costs
arising on development contracts, amortisation and impairments of intangible
assets, and other attributable costs, arising on business combinations and the
non-owned element of the Group's subsidiaries which are presented in the
'Capital and other items' column.
2023 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Rents payable 10 - 10 6 - 6
Service charge expense 98 2 100 88 2 90
Direct property expenditure 98 2 100 94 - 94
Administrative expenses 80 - 80 80 - 80
Impairment of trading properties - 19 19 - 6 6
Cost of trading property disposals - 21 21 - 25 25
Development contract expenditure(1) - 41 41 - 1 1
Depreciation, including amortisation of software 5 3 8 5 - 5
Impairment of goodwill - 5 5 - 6 6
Business combination costs - - - - 8 8
Costs - other per the income statement 291 93 384 273 48 321
Movement in bad and doubtful debts expense - rent (4) - (4) (9) - (9)
Movement in bad and doubtful debts expense - service charge 2 - 2 (4) - (4)
Total costs per the income statement 289 93 382 260 48 308
The following table reconciles costs per the income statement to the
individual components of costs presented in note 3.
2023 2022
Group Joint ventures Adjustment for non-wholly owned subsidiaries Total Group Joint Adjustment for non-wholly owned subsidiaries Total
ventures
£m £m £m £m £m £m £m £m
Rents payable 10 2 - 12 6 2 - 8
Service charge expense 100 12 (2) 110 90 10 (2) 98
Direct property expenditure 100 10 (2) 108 94 10 - 104
Administrative expenses 80 2 - 82 80 2 - 82
Depreciation, including amortisation of software 5 - - 5 5 - - 5
Movement in bad and doubtful debts expense - rent (9) 2 - (7)
(4) (1) - (5)
Movement in bad and doubtful debts expense - service charge (4) (1) - (5)
2 - - 2
Costs in the segmental information note 293 25 (4) 314 262 25 (2) 285
Impairment of trading properties 19 - - 19 6 - - 6
Cost of trading property disposals 21 - - 21 25 16 - 41
Development contract expenditure(1) 41 - - 41 1 - - 1
Depreciation 3 - - 3 - - - -
Impairment of goodwill 5 - - 5 6 - - 6
Business combination costs - - - - 8 - - 8
Costs including Capital and other items 382 25 (4) 403 308 41 (2) 347
1. Development contract expenditure for the year ended 31 March 2023 includes
expenditure related to the ongoing development of 21 Moorfields following the
sale of the property during the year.
7. Net finance expense
2023 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Finance income
Interest receivable from joint ventures 11 - 11 9 - 9
Fair value movement on interest-rate swaps - 23 23 - 16 16
11 23 34 9 16 25
Finance expense
Bond and debenture debt (68) - (68) (67) - (67)
Bank and other short-term borrowings (38) (2) (40) (19) - (19)
Other interest payable - (1) (1) (1) (15) (16)
(106) (3) (109) (87) (15) (102)
Interest capitalised in relation to properties under development 22 - 22 17 - 17
(84) (3) (87) (70) (15) (85)
Net finance (expense)/income (73) 20 (53) (61) 1 (60)
Joint venture net finance expense (11) (10)
Net finance expense included in EPRA earnings (84) (71)
Lease interest payable of £4m (2022: £4m) is included within rents payable
as detailed in note 3.
8. Dividends
Dividends paid Year ended 31 March
Pence per share 2023 2022
Payment date PID Non-PID Total £m £m
For the year ended 31 March 2021:
Third interim 30 March 2021 6.00 - 6.00
Final 23 July 2021 9.00 - 9.00 66
For the year ended 31 March 2022:
First interim 8 October 2021 7.00 - 7.00 52
Second interim 4 January 2022 8.50 - 8.50 63
Third interim 7 April 2022 8.50 - 8.50 63
Final 22 July 2022 13.00 - 13.00 96
For the year ended 31 March 2023:
First interim 7 October 2022 8.60 - 8.60 64
Second interim 3 January 2023 9.00 - 9.00 67
Gross dividends 290 181
Dividends in the statement of changes in equity 290 181
Timing difference on payment of withholding tax (1) 9
Dividends in the statement of cash flows 289 190
The third quarterly interim dividend of 9.0p per ordinary share, or £67m in
total (2022: 8.5p or £63m in total), was paid on 6 April 2023 as a Property
Income Distribution (PID). The Board has recommended a final dividend for the
year ended 31 March 2023 of 12.0p per ordinary share (2022: 13.0p) to be paid
as a PID. This final dividend will result in a further estimated distribution
of £90m (2022: £96m). Subject to shareholders' approval at the Annual
General Meeting, the final dividend will be paid on 21 July 2023 to
shareholders registered at the close of business on 16 June 2023.
The total dividend paid and recommended in respect of the year ended 31 March
2023 is 38.6p per ordinary share (2022: 37.0p) resulting in a total estimated
distribution of £288m (2022: £274m).
The first quarterly dividend for the year ending 31 March 2024 will be paid in
October 2023 and will be announced in due course.
A Dividend Reinvestment Plan (DRIP) has been available in respect of all
dividends paid during the year. The last day for DRIP elections for the final
dividend is close of business on 30 June 2023.
9. Net cash generated from operations
Reconciliation of operating (loss)/profit to net cash generated from
operations
2023 2022
£m £m
Operating (loss)/profit (569) 935
Adjustments for:
Net deficit/(surplus) on revaluation of investment properties 827 (416)
Loss/(gain) on changes in finance leases 6 (6)
Profit on disposal of trading properties (1) (2)
Loss/(profit) on disposal of investment properties 144 (107)
Profit on disposal of investment in joint ventures - (2)
Share of loss/(profit) from joint ventures and associates 1 (33)
Share-based payment charge 6 4
Impairment of goodwill 5 6
Rents payable 10 8
Depreciation and amortisation 5 5
Impairment of trading properties 19 6
Other - 1
453 399
Changes in working capital:
(Increase)/decrease in receivables (17) 28
(Decrease)/increase in payables and provisions (80) 21
Net cash generated from operations 356 448
Reconciliation to adjusted net cash inflow from operating activities 2023 2022
£m £m
Net cash inflow from operating activities 342 381
Joint ventures net cash inflow from operating activities 17 23
Adjusted net cash inflow from operating activities(1)(2) 359 404
1. Adjusted net cash inflow from operating activities is now presented
inclusive of cash flows from trading property activities, whereas previously
it had excluded these cash flows. The presentation for the year ended 31 March
2022 has been restated to reflect this change. Refer to the Glossary for the
definition of Adjusted net cash inflow from operating activities.
2. Includes cash flows relating to the interest in MediaCity which is not
owned by the Group, but is consolidated in the Group numbers.
10. Investment properties
2023 2022
£m £m
Net book value at the beginning of the year 11,207 9,607
Transfer from joint venture(1) 23 -
Acquired through acquisition of subsidiaries(2) 216 619
Acquisitions of investment properties 2 247
Capital expenditure 356 343
Capitalised interest 22 17
Net movement in head leases capitalised(3) (16) 62
Disposals(4)(5) (1,319) (98)
Net (deficit)/surplus on revaluation of investment properties (827) 416
Transfers to trading properties (6) (6)
Net book value at the end of the year 9,658 11,207
1. Recognition of property following the change in classification of Wind
Farms from a joint venture to subsidiary during the year. Refer to Note 12 for
further details.
2. Includes acquisition of the remaining 50% interest in St David's for cash
consideration of £113m, including the purchase of debt and subsequent
purchase of the entire share capital of the other Limited Partner, Intu The
Hayes Limited, on 24 March 2023. This has been accounted for as an asset
acquisition, with assets and liabilities acquired at the date of acquisition
consisting of investment property of £113m, cash of £11m, trade and other
receivables of £4m and trade and other payables of £12m. The acquisition
amount in the table above also includes the transfer of the investment
property held in the existing 50% interest in St David's from investment in
joint venture to wholly owned subsidiary.
3. See note 14 for details of the amounts payable under head leases and note 3
for details of the rents payable in the income statement.
4. Includes impact of disposals of finance leases.
5. Includes £766m impact of disposal of 21 Moorfields. Gross proceeds of
£742m (inclusive of development costs to go) were received following
adjustments to the headline price of £809m for rent top up and fit-out
contributions.
The market value of the Group's investment properties, as determined by the
Group's external valuers, differs from the net book value presented in the
balance sheet due to the Group presenting tenant finance leases, head leases
and lease incentives separately. The following table reconciles the net book
value of the investment properties to the market value.
2023 2022
Group Joint ventures(1) Adjustment for non-wholly owned subsidiaries Combined Portfolio Group Joint Adjustment Combined Portfolio
(excl. joint ventures)
(excl. joint ventures)
ventures(1)
for non-wholly owned subsidiaries
£m £m £m £m £m £m £m £m
Market value 9,743 635 (139) 10,239 11,362 800 (145) 12,017
Less: properties treated as finance leases (17) - - (17) (66) - - (66)
Plus: head leases capitalised 107 1 - 108 123 9 - 132
Less: tenant lease incentives (175) (35) - (210) (212) (38) - (250)
Net book value 9,658 601 (139) 10,120 11,207 771 (145) 11,833
Net (deficit)/surplus on revaluation of investment properties (827) (30) 9 (848) 416 (3) (4) 409
1. Refer to note 12 for a breakdown of this amount by entity.
The net book value of leasehold properties where head leases have been
capitalised is £1,723m (2022: £2,908m).
Investment properties include capitalised interest of £271m (2022: £249m).
The average rate of interest capitalisation for the year is 3.0% (2022: 2.5%).
The gross historical cost of investment properties is £8,280m (2022:
£8,604m).
11. Trading properties
Development land and infrastructure Residential Total
£m £m £m
At 1 April 2021 24 12 36
Transfer from investment properties - 6 6
Acquisitions 128 - 128
Capital expenditure 1 5 6
Disposals (25) - (25)
Impairment provision - (6) (6)
At 31 March 2022 128 17 145
Transfer from investment properties 6 - 6
Capital expenditure 6 (3) 3
Disposals (17) - (17)
(Impairment provision)/reversal of impairment (25) 6 (19)
At 31 March 2023 98 20 118
The cumulative impairment provision at 31 March 2023 in respect of Development
land and infrastructure was £25m (2022: £nil) and in respect of Residential
was £nil (2022: £6m).
12. Joint arrangements
The Group's principal joint arrangements are described below:
Joint ventures Percentage owned & voting rights(1) Business Year end date(2) Joint venture partner
segment
Held at 31 March 2023(3)(4)
Nova, Victoria(5) 50% Central London 31 March Suntec Real Estate Investment Trust
Southside Limited Partnership 50% Major retail 31 March Invesco Real Estate European Fund
Westgate Oxford Alliance Limited Partnership 50% Major retail, Subscale sectors 31 March The Crown Estate Commissioners
Harvest(6)(8) 50% Subscale sectors 31 March J Sainsbury plc
The Ebbsfleet Limited Partnership(8) 50% Subscale sectors 31 March Ebbsfleet Property Limited
West India Quay Unit Trust(8) 50% Subscale sectors 31 March Schroder UK Real Estate Fund
Mayfield(7)(8) 50% Mixed-use urban 31 March LCR Limited, Manchester City Council, Transport for Greater Manchester
Curzon Park Limited(8) 50% Subscale sectors 31 March Derwent Developments (Curzon) Limited
Plus X Holdings Limited(8) 50% Subscale sectors 31 March Paul David Rostas, Matthew Edmund Hunter
Landmark Court Partnership Limited(8) 51% Central London 31 March TTL Landmark Court Properties Limited
Joint operation Ownership interest Business Year end date(3) Joint operation partners
segment
Held at 31 March 2023
Bluewater, Kent 48.75% Major retail 31 March M&G Real Estate and GIC
Royal London Asset Management
Aberdeen Standard Investments
1. Investments under joint arrangements are not always represented by an equal
percentage holding by each partner. In a number of joint ventures that are not
considered principal joint ventures and therefore not included in the table
above, the Group holds a majority shareholding but has joint control and
therefore the arrangement is accounted for as a joint venture.
2. The year end date shown is the accounting reference date of the joint
arrangement. In all cases, the Group's accounting is performed using financial
information for the Group's own reporting year and reporting date.
3. During the year to 31 March 2023, Wind Farms are no longer classified as a
joint venture and are consolidated together with other subsidiary
undertakings. Wind Farms includes DS Renewables LLP, Hendy Wind Farm Limited
and Rhoscrowther Wind Farm Limited.
4. On 24 March 2023 the Group acquired the remaining 50% interest in St
David's Limited Partnership. From that date, the results of the operations
from St David's are consolidated together with other subsidiary undertakings.
Results from its operations prior to that date are included as share of profit
or loss from joint ventures. For further details on the acquisition refer to
note 10.
5. Nova, Victoria includes the Nova Limited Partnership, Nova Residential
Limited Partnership, Nova GP Limited, Nova Business Manager Limited, Nova
Residential (GP) Limited, Nova Residential Intermediate Limited, Nova Estate
Management Company Limited, Nova Nominee 1 Limited and Nova Nominee 2 Limited.
6. Harvest includes Harvest 2 Limited Partnership, Harvest Development
Management Limited, Harvest 2 Selly Oak Limited, Harvest 2 GP Limited and
Harvest GP Limited.
7. Mayfield includes Mayfield Development Partnership LP and Mayfield
Development (General Partner) Limited.
8. Included within Other in subsequent tables.
All of the Group's joint arrangements listed above have their principal place
of business in the United Kingdom. All of the Group's principal joint
arrangements own and operate investment property, with the exception of The
Ebbsfleet Limited Partnership which is a holding company and Harvest which is
engaged in long-term development contracts. The activities of all the Group's
principal joint arrangements are therefore strategically important to the
business activities of the Group.
All joint ventures listed above are registered in England and Wales with the
exception of Southside Limited Partnership and West India Quay Unit Trust
which are registered in Jersey.
Joint ventures Year ended 31 March 2023
Nova, Southside Limited Partnership St. David's Limited Partnership Westgate Oxford Alliance Partnership Other Total Total
Victoria
Comprehensive income statement 100% 100% 100% 100% 100% 100% Group share
£m £m £m £m £m £m £m
Revenue(1) 49 10 33 34 4 130 65
Gross rental income (after rents payable) 36 10 25 27 4 102 51
Net rental income 36 7 16 22 2 83 42
EPRA earnings before interest 35 6 15 22 2 80 40
Finance expense (17) (6) - - - (23) (11)
Net finance expense (17) (6) - - - (23) (11)
EPRA earnings 18 - 15 22 2 57 29
Capital and other items
Net (deficit)/surplus on revaluation of investment properties (67) 1 6 (8) 8 (60) (30)
(Loss)/profit before tax (49) 1 21 14 10 (3) (1)
Post-tax (loss)/profit (49) 1 21 14 10 (3) (1)
Total comprehensive (loss)/income (49) 1 21 14 10 (3) (1)
Group share of (loss)/profit before tax (24) - 10 7 6 (1)
Group share of post-tax (loss)/profit (24) - 10 7 6 (1)
Group share of total comprehensive (loss)/income (24) - 10 7 6 (1)
1. Revenue includes gross rental income (before rents payable), service charge
income, other property related income and income from development contracts.
Joint ventures Year ended 31 March 2022
Nova, Southside Limited Partnership St. David's Limited Partnership Westgate Other Total Total
Victoria
Oxford
Alliance Partnership
Comprehensive income statement 100% 100% 100% 100% 100% 100% Group share
£m £m £m £m £m £m £m
Revenue(1) 45 11 33 37 6 132 64
Gross rental income (after rents payable) 36 10 25 26 6 103 52
Net rental income 29 11 17 25 - 82 41
EPRA earnings before interest 29 10 15 24 (1) 77 39
Finance expense (13) (6) - - - (19) (10)
Net finance expense (13) (6) - - - (19) (10)
EPRA earnings 16 4 15 24 (1) 58 29
Capital and other items
Net surplus/(deficit) on revaluation of investment properties 16 (1) (20) (2) - (7) (3)
Profit on disposal of investment properties - - - - 12 12 8
Loss on disposal of trading properties - - - - (2) (2) (1)
Profit/(loss) before tax 32 3 (5) 22 9 61 33
Post-tax profit/(loss) 32 3 (5) 22 9 61 33
Total comprehensive income/(loss) 32 3 (5) 22 9 61 33
Group share of profit/(loss) before tax 16 2 (3) 11 7 33
Group share of post-tax profit/(loss) 16 2 (3) 11 7 33
Group share of total comprehensive income/(loss) 16 2 (3) 11 7 33
1. Revenue includes gross rental income (before rents payable), service charge
income, other property related income and income from development contracts.
Joint ventures 31 March 2023
Nova, Victoria Southside Limited Partnership St. David's Limited Partnership Westgate Oxford Other Total Total
Alliance Partnership
Balance sheet 100% 100% 100% 100% 100% 100% Group share
£m £m £m £m £m £m £m
Investment properties(1) 748 134 - 225 98 1,205 601
Non-current assets 748 134 - 225 98 1,205 601
Cash and cash equivalents 36 3 - 23 7 69 35
Other current assets 64 9 - 13 68 154 78
Current assets 100 12 - 36 75 223 113
Total assets 848 146 - 261 173 1,428 714
Trade and other payables and provisions (22) (10) - (14) (48) (94) (48)
Current liabilities (22) (10) - (14) (48) (94) (48)
Non-current liabilities (131) (145) - - - (276) (138)
Non-current liabilities (131) (145) - - - (276) (138)
Total liabilities (153) (155) - (14) (48) (370) (186)
Net assets/(liabilities) 695 (9) - 247 125 1,058 528
Comprised of:
Net assets 695 - - 247 125 1,067 533
Accumulated losses recognised as net liabilities(2) - (9) - - - (9) (5)
Market value of investment properties(1) 807 134 - 233 98 1,272 635
Net cash/(debt) (3) 36 3 - 23 7 69 35
Joint ventures 31 March 2022
Nova, Victoria Southside Limited Partnership St. David's Limited Partnership Westgate Other Total Total
Oxford
Alliance Partnership
Balance sheet 100% 100% 100% 100% 100% 100% Group share
£m £m £m £m £m £m £m
Investment properties(1) 815 133 235 236 132 1,551 771
Non-current assets 815 133 235 236 132 1,551 771
Cash and cash equivalents 27 4 10 12 10 63 31
Other current assets 63 7 13 14 53 150 105
Current assets 90 11 23 26 63 213 136
Total assets 905 144 258 262 195 1,764 907
Trade and other payables and provisions (22) (10) (9) (10) (12) (63) (44)
Current liabilities (22) (10) (9) (10) (12) (63) (44)
Non-current liabilities (139) (145) (22) (3) (131) (440) (168)
Non-current liabilities (139) (145) (22) (3) (131) (440) (168)
Total liabilities (161) (155) (31) (13) (143) (503) (212)
Net assets/(liabilities) 744 (11) 227 249 52 1,261 695
Comprised of:
Net assets 744 - 227 249 52 1,272 700
Accumulated losses recognised as net liabilities(2) - (11) - - - (11) (5)
Market value of investment properties(1) 870 133 226 247 124 1,600 800
Net cash/(debt) (3) 27 2 (6) 12 4 39 19
1. The difference between the book value and the market value of investment
properties is the amount recognised in respect of lease incentives, head
leases capitalised and properties treated as finance leases, where applicable.
2. The Group's share of accumulated losses of a joint venture interest are
recognised as net liabilities where there is an obligation to provide for
these losses.
3. Excludes funding provided by the Group and its joint venture partners.
Joint ventures Nova, Southside St. David's Limited Partnership Westgate Other Total
Limited Partnership
Victoria Oxford
Alliance Partnership
Net investment Group share Group share Group share Group share Group share Group share
£m £m £m £m £m £m
At 1 April 2021 351 (7) 124 125 32 625
Total comprehensive income/(loss) 16 2 (3) 11 7 33
Acquisitions - - - - 54 54
Non-cash contributions 5 - - - - 5
Cash distributions - - (8) (11) (3) (22)
At 31 March 2022 372 (5) 113 125 90 695
Total comprehensive (loss)/income (24) - 10 7 6 (1)
Cash distributions - - (4) (8) (2) (14)
Other distributions - - - - (7) (7)
Disposals and transfers from joint arrangements - - (119) - (25) (144)
Other non-cash movements - - - - (1) (1)
At 31 March 2023 348 (5) - 124 61 528
Comprised of:
At 31 March 2022
Non-current assets 372 - 113 125 90 700
Non-current liabilities(1) - (5) - - - (5)
At 31 March 2023
Non-current assets 348 - - 124 61 533
Non-current liabilities(1) - (5) - - - (5)
1. The Group's share of accumulated losses of a joint venture interest are
recognised as net liabilities where there is an obligation to provide for
these losses.
13. Capital structure
2023 2022(3)
Group Joint ventures Adjustment for non-wholly owned subsidiaries Combined Group Joint ventures Adjustment for non-wholly owned subsidiaries Combined
£m £m £m £m £m £m £m £m
Property portfolio
Market value of investment properties 9,743 635 (139) 10,239 11,362 800 (145) 12,017
Trading properties and long-term contracts 118 - - 118 145 1 146
-
Total property portfolio (a) 9,861 635 (139) 10,357 11,507 801 (145) 12,163
Net debt
Borrowings 3,431 - (73) 3,358 4,430 3 (73) 4,360
Monies held in restricted accounts and deposits (4) - 1 (3) (4) - (4)
-
Cash and cash equivalents (41) (35) 2 (74) (146) (31) 5 (172)
Fair value of interest-rate swaps (44) - 2 (42) (21) - 2 (19)
Fair value of foreign exchange swaps and forwards 6 - - 6 (5) - (5)
-
Net debt (b) 3,348 (35) (68) 3,245 4,254 (28) (66) 4,160
Less: Fair value of interest-rate swaps 44 - (2) 42 21 - (2) 19
Adjusted net debt (c) 3,392 (35) (70) 3,287 4,275 (28) (68) 4,179
Adjusted total equity
Total equity (d) 7,072 - (67) 7,005 7,991 - (74) 7,917
Fair value of interest-rate swaps (44) - 2 (42) (21) - 2 (19)
Adjusted total equity (e) 7,028 - (65) 6,963 7,970 - (72) 7,898
Gearing (b/d) 47.3% 46.3% 53.2% 52.5%
Adjusted gearing (c/e) 48.3% 47.2% 53.6% 52.9%
Group LTV (c/a) 34.4% 31.7% 37.2% 34.4%
EPRA LTV(1) 33.2% 35.5%
Security Group LTV 33.0% 36.4%
Weighted average cost of debt(2) 2.7% 2.7% 2.4% 2.4%
1. EPRA LTV is a new measure introduced by EPRA in the current year. The EPRA
measure differs from the Group LTV as it includes net payables and
receivables, and includes trading properties at fair value and debt
instruments at nominal value rather than book value. EPRA LTV was not
presented in the financial statements as at 31 March 2022 as the measure had
not yet been introduced. EPRA LTV would have been presented as 35.5% at 31
March 2022.
2. The weighted average cost of debt is calculated based on historical average
rates of gross debt for the period. The weighted average cost of debt as at 31
March 2022 has been restated to reflect average rates of gross debt for the
period, rather than average rates of net debt used in the calculation in
previous periods.
3. Cash and cash equivalents and monies held in restricted accounts and
deposits have been restated as at 31 March 2022 following a clarification by
IFRIC on classification of funds with externally imposed restrictions. There
was no impact on computed net debt, adjusted net debt, gearing, adjusted
gearing, Group LTV and Security Group LTV.
14. Borrowings
2023 2022
Secured/ Fixed/ Effective Nominal/ notional value Fair Book value Nominal/ notional value Fair Book value
unsecured
floating
interest rate
value
value
£m
£m £m
£m
% £m £m
Current borrowings
Commercial paper
Sterling Unsecured Floating SONIA + margin - - - 140 140 140
Euro Unsecured Floating SONIA + margin 167 167 167 217 217 217
US Dollar Unsecured Floating SONIA + margin 145 145 145 142 142 142
Euro loan note Unsecured Fixed 4.8 - - - 30 30 30
Syndicated and bilateral bank debt Secured Floating SONIA + margin - - - 2 2 2
Syndicated and bilateral bank debt Secured Floating Euribor + margin - - - 10 10 10
Total current borrowings 312 312 312 541 541 541
Amounts payable under head leases 3.4 3 3 3 - - -
Tot current borrowings including amounts payable under head leases 541 541 541
315 315 315
Non-current borrowings
Medium term notes (MTN)
A10 4.875% MTN due 2025 Secured Fixed 5.0 10 10 10 10 10 10
A12 1.974% MTN due 2026 Secured Fixed 2.0 400 389 400 400 399 399
A4 5.391% MTN due 2026 Secured Fixed 5.4 17 17 17 17 18 17
A5 5.391% MTN due 2027 Secured Fixed 5.4 87 87 87 87 93 87
A16 2.375% MTN due 2027 Secured Fixed 2.5 350 317 348 350 351 348
A6 5.376% MTN due 2029 Secured Fixed 5.4 65 66 65 65 74 65
A13 2.399% MTN due 2031 Secured Fixed 2.4 300 263 299 300 299 299
A7 5.396% MTN due 2032 Secured Fixed 5.4 77 79 77 77 107 77
A17 4.875% MTN due 2034 Secured Fixed 5.0 400 406 394 - - -
A11 5.125% MTN due 2036 Secured Fixed 5.1 50 50 50 50 68 50
A14 2.625% MTN due 2039 Secured Fixed 2.6 500 378 494 500 491 494
A15 2.750% MTN due 2059 Secured Fixed 2.7 500 312 495 500 497 495
2,756 2,374 2,736 2,356 2,407 2,341
Syndicated and bilateral bank debt Secured Floating SONIA + margin 383 383 383 1,546 1,546 1,546
Syndicated and bilateral bank debt Secured Floating Euribor + margin - - - 2 2 2
Total non-current borrowings 3,139 2,757 3,119 3,904 3,955 3,889
Amounts payable under head leases Unsecured Fixed 3.4 104 142 104 123 164 123
Total non-current borrowings including amounts payable under head leases 4,027 4,119 4,012
3,243 2,899 3,223
Total borrowing including amounts payable under head leases 4,568 4,660 4,553
3,558 3,214 3,538
Total borrowings excluding amounts payable under head leases 4,445 4,496 4,430
3,451 3,069 3,431
Reconciliation of the movement in borrowings 2023 2022
£m £m
At the beginning of the year 4,553 3,516
Bank debt assumed through acquisition of subsidiaries - 403
Proceeds from new borrowings - 1,053
Repayment of bank debt (1,407) (489)
Issue of MTNs (net of finance fees) 394 -
Foreign exchange movement on non-Sterling borrowings 14 8
Movement in amounts payable under head leases (16) 62
At 31 March 3,538 4,553
Reconciliation of movements in liabilities arising from financing activities 2023
Non-cash changes
At the beginning of the year Cash flows Foreign exchange movements Other changes in fair values Other changes At the end
of the year
£m £m £m £m £m £m
Borrowings 4,553 (1,013) 14 - (16) 3,538
Derivative financial instruments (26) 25 (14) (23) - (38)
4,527 (988) - (23) (16) 3,500
2022
Borrowings 3,516 564 8 - 465 4,553
Derivative financial instruments 3 (3) (8) (12) (6) (26)
3,519 561 - (12) 459 4,527
Medium term notes
The MTNs are secured on the fixed and floating pool of assets of the Security
Group. The Security Group includes investment properties, development
properties, the X-Leisure fund, and the Group's investment in Westgate Oxford
Alliance Limited Partnership, Nova, Victoria and Southside Limited
Partnership, in total valued at £9.6bn at 31 March 2023 (31 March 2022:
£11.2bn). The secured debt structure has a tiered operating covenant regime
which gives the Group substantial flexibility when the loan-to-value and
interest cover in the Security Group are less than 65% and more than 1.45x
respectively. If these limits are exceeded, the operating environment becomes
more restrictive with provisions to encourage a reduction in gearing. The
interest rate of each MTN is fixed until the expected maturity, being two
years before the legal maturity date of the MTN. The interest rate for the
last two years may either become floating on a SONIA basis plus an increased
margin (relative to that at the time of issue), or subject to a fixed coupon
uplift, depending on the terms and conditions of the specific notes.
The effective interest rate is based on the coupon paid and includes the
amortisation of issue costs. The MTNs are listed on the Irish Stock Exchange
and their fair values are based on their respective market prices.
During the year, the Group did not purchase any MTNs (2022: none).
At 31 March 2023, the Group's committed facilities totalled £3,007m (31 March
2022: £3,022m).
Syndicated and bilateral bank debt Authorised Drawn Undrawn
Maturity as at 2023 2022 2023 2022 2023 2022
31 March 2023
£m £m £m £m £m £m
Syndicated debt 2022 - 12 - 12 - -
Syndicated debt 2024-27 2,782 2,785 383 1,393 2,399 1,392
Bilateral debt 2026 225 225 - 155 225 70
3,007 3,022 383 1,560 2,624 1,462
All syndicated and bilateral facilities are committed and secured on the
assets of the Security Group, with the exception of facilities secured on the
assets at MediaCity (of which £292m was drawn at 31 March 2023 and £294m
drawn at 31 March 2022). During the year ended 31 March 2023, the amounts
drawn under the Group's facilities decreased by £1,177m.
The terms of the Security Group funding arrangements require undrawn
facilities to be reserved where syndicated and bilateral facilities mature
within one year, or when commercial paper is issued. The total amount of cash
and available undrawn facilities, net of commercial paper, at 31 March 2023
was £2,353m (31 March 2022: £1,109m, restated following the IFRIC
clarification on the classification of funds with externally imposed
restrictions during the year).
15. Monies held in restricted accounts and deposits
2023 2022
(restated)
(1)
£m £m
Cash at bank and in hand - -
Short-term deposits 4 4
4 4
1. Monies held in restricted accounts and deposits have been restated as at 31
March 2022 following a clarification by IFRIC on classification of funds with
externally imposed restrictions.
The credit quality of monies held in restricted accounts and deposits can be
assessed by reference to external credit ratings of the counterparty where the
account or deposit is placed.
2023 2022
(restated)
(1)
£m £m
Counterparties with external credit ratings
A+ 4 -
A - 4
4 4
1. Monies held in restricted accounts and deposits have been restated as at 31
March 2022 following a clarification by IFRIC on classification of funds with
externally imposed restrictions.
16. Cash and cash equivalents
2023 2022
(restated)
(1)
£m £m
Cash at bank and in hand 41 146
41 146
1. Cash and cash equivalents have been restated as at 31 March 2022 following
a clarification by IFRIC on classification of funds with externally imposed
restrictions.
The credit quality of cash and cash equivalents can be assessed by reference
to external credit ratings of the counterparty where the account or deposit is
placed.
2023 2022
(restated)
(1)
£m £m
Counterparties with external credit ratings
A+ 34 130
A 6 14
A- 1 1
BBB+ - 1
41 146
1. Cash and cash equivalents have been restated as at 31 March 2022 following
a clarification by IFRIC on classification of funds with externally imposed
restrictions.
The Group's cash and cash equivalents and bank overdrafts are subject to cash
pooling arrangements. The following table provides details of cash balances
and bank overdrafts which are subject to offsetting agreements.
2023 2022 (restated)(1)
Gross amounts of financial assets Gross amounts of financial liabilities Net amounts recognised in the balance sheet Gross amounts of financial assets Gross amounts of financial liabilities Net amounts recognised in the balance sheet
£m £m £m £m £m £m
Assets
Cash and cash equivalents 101 (60) 41 152 (6) 146
101 (60) 41 152 (6) 146
1. Cash and cash equivalents have been restated as at 31 March 2022 following
a clarification by IFRIC on classification of funds with externally imposed
restrictions.
17. Events after the reporting period
Since 31 March 2023, the Group sold or exchanged contracts to sell certain
interests in trading properties acquired as part of the U+I Group PLC in the
previous financial year.
No other significant events occurred after the reporting period but before the
financial statements were authorised for issue.
Alternative performance measures
Table 14: Alternative performance measures
The Group has applied the European Securities and Markets Authority (ESMA)
'Guidelines on Alternative Performance Measures' in these results. In the
context of these results, an alternative performance measure (APM) is a
financial measure of historical or future financial performance, position or
cash flows of the Group which is not a measure defined or specified in IFRS.
The table below summarises the APMs included in these results and where the
reconciliations of these measures can be found. The definitions of APMs are
included in the Glossary.
Alternative performance measure Nearest IFRS measure Reconciliation
EPRA earnings Profit/loss before tax Note 3
EPRA earnings per share Basic earnings/loss per share Note 4
EPRA diluted earnings per share Diluted earnings/loss per share Note 4
EPRA Net Tangible Assets Net assets attributable to shareholders Note 4
EPRA Net Tangible Assets per share Net assets attributable to shareholders Note 4
Total return on equity n/a Note 4
Adjusted net cash inflow from operating activities Net cash inflow from operating activities Note 9
Combined Portfolio Investment properties Note 10
Adjusted net debt Borrowings Note 13
Group LTV n/a Note 13
EPRA LTV n/a Note 13
EPRA disclosures
Table 15: EPRA net asset measures
EPRA net asset measures 31 March 2023
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
Net assets attributable to shareholders 7,005 7,005 7,005
Shortfall of fair value over net investment in finance lease book value (6) (6) (6)
Deferred tax liability on intangible asset 1 1 -
Goodwill on deferred tax liability (1) (1) (1)
Other intangible asset - (2) -
Fair value of interest-rate swaps (42) (42) -
Excess of fair value of debt over book value (note 14) - - 324
Excess of fair value of trading properties over book value 12 12 12
Purchasers' costs(1) 617 - -
Net assets used in per share calculation 7,586 6,967 7,334
EPRA NRV EPRA NTA EPRA NDV
Diluted net assets per share 1,020p 936p 986p
31 March 2022
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
Net assets attributable to shareholders 7,917 7,917 7,917
Shortfall of fair value over net investment in finance lease book value (6) (6) (6)
Deferred tax liability on intangible asset 1 1 -
Goodwill on deferred tax liability (1) (1) (1)
Other intangible asset - (2) -
Fair value of interest-rate swaps (21) (21) -
Excess of fair value of debt over book value (note 14) - - (107)
Purchasers' costs(1) 698 - -
Net assets used in per share calculation 8,588 7,888 7,803
EPRA NRV EPRA NTA EPRA NDV
Diluted net assets per share 1,157p 1,063p 1,052p
1. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
Table 16: EPRA performance measures
31 March 2023
Measure Definition for EPRA measure Notes EPRA
measure
EPRA earnings Recurring earnings from core operational activity 4 £393m
EPRA earnings per share EPRA earnings per weighted number of ordinary shares 4 53.1p
EPRA diluted earnings per share(1) EPRA diluted earnings per weighted number of ordinary shares 4 53.1p
EPRA Net Tangible Assets (NTA) Net assets adjusted to exclude the fair value of interest-rate swaps, 4 £6,967m
intangible assets and excess of fair value over net investment in finance
lease book value
EPRA Net Tangible Assets per share Diluted Net Tangible Assets per share 4 936p
EPRA net disposal value (NDV) Net assets adjusted to exclude the fair value of debt and goodwill on deferred 4 £7,334m
tax and to include excess of fair value over net investment in finance lease
book value
EPRA net disposal value per share Diluted net disposal value per share 4 986p
EPRA loan-to-value (LTV) (2) Ratio of adjusted net debt, including net payables, to the sum of the net 13 33.2%
assets, including net receivables, of the Group, its subsidiaries and joint
ventures, all on a proportionate basis, expressed as a percentage
Table
Voids/vacancy rate ERV of vacant space as a % of ERV of Combined Portfolio excluding the 17 4.2%
development programme(3)
Net initial yield (NIY) Annualised rental income less non-recoverable costs as a % of market value 19 4.9%
plus assumed purchasers' costs(4)
Topped-up NIY NIY adjusted for rent free periods(4) 19 5.2%
Cost ratio(5) Total costs as a percentage of gross rental income (including direct vacancy 20 25.2%
costs)(5)
Total costs as a percentage of gross rental income (excluding direct vacancy 20 21.0%
costs)(5)
1. In the year ended 31 March 2023, share options are excluded from the
weighted average diluted number of shares when calculating EPRA diluted
earnings per share because they are not dilutive, based on IFRS loss for the
year.
2. EPRA LTV is a new measure introduced by EPRA in the current year. The EPRA
measure differs from the Group LTV presented in Note 13 as it includes net
payables and receivables, and includes trading properties at fair value and
debt instruments at nominal value rather than book value. EPRA LTV was not
presented in the financial statements as at 31 March 2022 as the measure had
not yet been introduced. EPRA LTV would have been presented as 35.5% at 31
March 2022.
3. This measure reflects voids in the Combined Portfolio excluding only
properties under development.
4. This measure relates to the Combined Portfolio, excluding properties
currently under development, and are calculated by our external valuer.
Topped-up NIY reflects adjustments of £39m for rent free periods and other
incentives.
5. This measure is calculated based on gross rental income after rents payable
and excluding costs recovered through rents but not separately invoiced of
£9m.
Table 17: EPRA vacancy rate
The EPRA vacancy rate is based on the ratio of the estimated market rent for
vacant properties versus total estimated market rent, for the Combined
Portfolio excluding properties under development. There are no significant
distorting factors influencing the EPRA vacancy rate.
31 March 2023
£m
ERV of vacant properties 26
ERV of Combined Portfolio excluding properties under development 617
EPRA vacancy rate (%) 4.2
Table 18: Change in net rental income from the like-for-like portfolio
2023 2022 Change
£m £m £m %
Central London 251 225 26 12
Major retail 120 137 (17) (12)
Subscale sectors 95 74 21 28
466 436 30 7
Table 19: EPRA Net initial yield (NIY) and Topped-up NIY
31 March 2023
£m
Combined Portfolio 10,239
Trading properties 130
Less: Properties under development, trading properties under development and (1,158)
land
Like-for-like investment property portfolio, proposed and completed 9,211
developments, and completed trading properties
Plus: Allowance for estimated purchasers' costs 559
Grossed-up completed property portfolio valuation (a) 9,770
EPRA annualised cash passing rental income(1) 532
Net service charge expense(2) (15)
Void costs and other deductions (40)
EPRA Annualised net rent(1) (b) 477
Plus: Rent-free periods and other lease incentives (annualised) 35
Topped-up annualised net rents (c) 512
EPRA NIY (b/a) 4.9%
EPRA Topped-up NIY (c/a) 5.2%
1. EPRA Annualised cash passing rental income and EPRA annualised net rent as
calculated by the Group's external valuer.
2. Including costs recovered through rents but not separately invoiced.
Table 20: Cost analysis
2023 2022
Total Cost ratio %(1) Total Cost ratio %(1)
£m £m
Gross rental income (before rents payable) 659 594
Costs recovered through rents but not separately invoiced (9) (7)
Adjusted gross rental income 650 587
£m Rents payable (12) (8)
Gross rental income (before rents payable) 659 EPRA gross rental income 638 579
Rents payable (12)
Gross rental income (after rents payable) 647 Direct Managed operations 10 10
Net service charge expense (12) property Tenant default (3) (12)
Net direct property expenditure (77) costs Void related costs 27 25
Bad and doubtful debts expense 3 £86m Other direct property costs 48 47
Segment net rental income 561 Development expenditure 14 11
Net indirect expenses (84) Net indirect
Segment profit before finance expense 477 expenses((2)) Asset management, 74 79
administration and
compliance
Net finance expense - Group (73) £84m
Net finance expense - joint ventures (11)
EPRA earnings Total (incl. direct vacancy costs) 170 160
393
Costs recovered through rents (9) (7)
EPRA costs (incl. direct vacancy costs) 161 25.2 153 26.4
Less: Direct vacancy costs (27) (25)
EPRA (excl. direct vacancy costs) 134 21.0 128 22.1
1. Percentages represent costs divided by EPRA gross rental income.
2. Net indirect expenses amounting to £18m (2022: £8m) have been capitalised
as development costs and are excluded from table 20.
Table 21: Acquisitions, disposals and capital expenditure
Year ended Year ended
31 March 2023
31 March 2022
Investment properties Group (excl. joint ventures) Joint Adjustment for non-wholly owned subsidiaries(1) Combined Combined
ventures
Portfolio
Portfolio
£m
£m
£m £m £m
Net book value at the beginning of the year 11,207 771 (145) 11,833 10,342
Transfer from joint venture 23 (12) - 11 -
Acquisitions 218 5 - 223 757
Capital expenditure 356 (13) (3) 340 350
Capitalised interest 22 - - 22 17
Net movement in head leases capitalised (16) (9) - (25) 62
Disposals (1,319) (111) - (1,430) (98)
Net (deficit)/surplus on revaluation of investment properties (827) (30) 9 (848) 409
Transfer to trading properties (6) - - (6) (6)
Net book value at the end of the year 9,658 601 (139) 10,120 11,833
(Loss)/profit on disposal of investment properties (144) - - (144) 115
Trading properties £m £m £m £m £m
Net book value at the beginning of the year 145 1 - 146 36
Acquisitions - - - - 145
Transfer from investment properties 6 - - 6 6
Capital expenditure 3 - - 3 6
Disposals (17) (1) - (18) (41)
Movement in impairment (19) - - (19) (6)
Net book value at the end of the year 118 - - 118 146
Profit on disposal of trading properties 1 - - 1 1
Acquisitions, development and other capital expenditure Investment Trading Combined Combined
properties(1) properties Portfolio Portfolio
£m £m £m £m
Acquisitions(2) 223 - 223 902
Development capital expenditure(3) 280 (2) 278 310
Other capital expenditure 60 5 65 46
Capitalised interest 22 - 22 17
Acquisitions, development and other capital expenditure 585 3 588 1,275
Disposals £m £m
Net book value - investment property disposals 1,430 98
Net book value - trading property disposals 18 41
Net book value - other net assets 52 8
(Loss)/profit on disposal - investment properties (144) 115
Profit on disposal - trading properties 1 1
Other (3) -
Total disposal proceeds 1,354 263
1. See EPRA analysis of capital expenditure table 22 for further details.
2. Properties acquired in the year.
3. Development capital expenditure for investment properties comprises
expenditure on the future development pipeline and completed developments.
Table 22: EPRA analysis of capital expenditure
Year ended 31 March 2023
Other capital expenditure
Acquisitions(1) Development capital expenditure(2) Incremental lettable space(3) No incremental lettable space Tenant improvements Total Capitalised interest Total capital expenditure - Combined Portfolio Total capital expenditure - joint ventures Adjustment for non-wholly owned subsidiaries Total capital expenditure -
£m £m £m £m £m £m £m £m (Group share) £m Group
£m
£m
Central London
West End offices - - - 3 3 6 - 6 - - 6
City offices - - - 19 - 19 - 19 - - 19
Retail and other - - - 2 2 4 - 4 - - 4
Developments - 264 - - - - 22 286 - - 274
Total Central London - 264 - 24 5 29 22 315 - - 303
Major retail
Shopping centres 216 - - 7 2 9 - 225 (1) - 226
Outlets - - 1 1 7 9 - 9 - - 9
Total Major retail 216 - 1 8 9 18 - 234 (1) - 235
Mixed-use urban
Completed investment - - - 6 - 6 - 6 - (3) 9
Developments 7 16 - - - - - 23 (6) - 29
Total Mixed-use urban 7 16 - 6 - 6 - 29 (6) (3) 38
Subscale sectors
Leisure - - - 2 2 4 - 4 (1) - 5
Hotels - - - - - - - - - - -
Retail parks - - - 1 2 3 - 3 - - 3
Total Subscale sectors - - - 3 4 7 - 7 (1) - 8
Total capital expenditure 223 280 1 41 18 60 22 573 (8) (3) 584
Timing difference between accrual and cash basis (131) 1 3 (135)
Total capital expenditure on a cash basis 442 (7) - 449
1. Investment properties acquired in the year.
2. Expenditure on the future development pipeline and completed developments.
3. Capital expenditure where the lettable area increases by at least 10%.
Table 23: Top 12 occupiers at 31 March 2023
% of Group rent(1)
Central Government 5.8
Accor 5.4
Deloitte 2.4
Cineworld 2.0
Boots 1.7
Taylor Wessing 1.4
Peel 1.1
BBC 1.1
M&S 1.0
Sainsbury's 1.0
H&M 1.0
Next 0.9
24.8
1. On a proportionate basis.
Table 24: Committed and future development pipeline and trading property
development schemes at 31 March 2023
Central London
Property Description Ownership Size Letting Market value Net income/ ERV Estimated completion Total development costs to date Forecast total development cost
of use
interest
status
£m
date
% sq ft
% £m £m £m
Committed development pipeline
Lucent, W1 Office 100 121,000 19 270 15 Aug 2023 231 254
Retail 20,000
Residential 3,000
n2, SW1 Office 100 165,000 66 229 14 Jun 2023 176 207
Property Description of use Ownership interest % Proposed sq ft Potential start date
Future development pipeline
Timber Square, SE1 Office 100 380,000 2023
Portland House, SW1 Office 100 300,000 2023
Liberty of Southwark, SE1 Office/ Residential 100 220,000 2024
Red Lion Court, SE1 Office 100 245,000 2024
Property Description Ownership Size Number Sales exchanged by unit Estimated completion Total development costs to date Forecast total development cost
of use
interest
date
% sq ft of units % £m £m
Trading property development schemes
Castle Lane, SW1 Residential 100 52,000 89 99 Jan 2024 14 47
Mixed-use urban
Property Ownership interest % Proposed sq ft Potential start date
Future development pipeline
Mayfield, Manchester 50-100 2,500,000 2023
MediaCity, Greater Manchester 75 1,900,000 2024
Finchley Road, NW3 100 1,400,000 2024
Buchanan Galleries, Glasgow 100 1,900,000 2025
Lewisham, SE13 100 1,800,000 2026
Where the property is not 100% owned, floor areas and letting status shown
above represent the full scheme whereas all other figures represent our
proportionate share. Letting % is measured by ERV and shows letting status at
31 March 2023. Trading property development schemes are excluded from the
future development pipeline.
Total development cost
Refer to the Glossary for definition.
Net income/ERV
Net income/ERV represents headline annual rent on let units plus ERV at 31
March 2023 on unlet units, both after rents payable.
Table 25: Combined Portfolio analysis
Total portfolio analysis
Market value(1) Valuation Rental income(1) Annualised rental income(2) Net estimated rental value(3)
movement(1)
31 March 2023 31 March 2022 (Deficit)/ surplus Surplus/ (deficit) 31 March 2023 31 March 2022 31 March 2023 31 March 2022 31 March 2023 31 March 2022
£m £m £m % £m £m £m £m £m £m
Central London
West End offices 2,653 3,013 (222) (8.0) 140 138 134 135 146 147
City offices 1,304 1,928 (234) (15.4) 76 75 61 76 87 101
Retail and other 1,095 1,131 14 1.3 76 70 42 47 56 54
Developments(6) 1,190 1,709 (37) (3.0) 21 10 5 10 57 112
Total Central London 6,242 7,781 (479) (7.3) 313 293 242 268 346 414
Major retail
Shopping centres 1,196 1,141 (60) (4.8) 120 111 114 108 123 101
Outlets 684 743 (67) (8.9) 59 56 56 56 60 61
Total Major retail 1,880 1,884 (127) (6.4) 179 167 170 164 183 162
Mixed-use urban
Completed investment 389 409 (24) (5.9) 24 10 24 24 26 24
Developments(6) 426 486 (48) (9.4) 34 33 28 29 31 32
Mixed-use urban 815 895 (72) (7.8) 58 43 52 53 57 56
Subscale sectors
Leisure 476 569 (99) (17.7) 51 46 51 49 50 51
Hotels 408 422 (13) (3.2) 30 16 31 16 28 25
Retail parks 418 466 (58) (12.1) 28 29 28 29 30 29
Total Subscale sectors 1,302 1,457 (170) (11.6) 109 91 110 94 108 105
Combined Portfolio 10,239 12,017 (848) (7.7) 659 594 574 579 694 737
Properties treated as finance leases (2) (8)
Combined Portfolio 10,239 12,017 (848) (7.7) 657 586
Represented by:
Investment portfolio 9,603 11,217 (813) (7.9) 603 534 536 531 655 687
Share of joint ventures 636 800 (35) (5.5) 54 52 38 48 39 50
Combined Portfolio 10,239 12,017 (848) (7.7) 657 586 574 579 694 737
Total portfolio
analysis
Notes:
Net initial yield(4) Equivalent yield(5) 1. Refer to Glossary for definition.
31 March 2023 Movement in like-for-like(7) 31 March 2023 Movement in like-for-like(7)
% bps % bps 2. Annualised rental income is annual 'rental income' (as defined in the
Central London Glossary) at the balance sheet date, except that car park and
West End offices 4.8 55 5.1 46 commercialisation income are included on a net basis (after deduction for
City offices 3.3 (33) 5.2 53 operational outgoings). Annualised rental income includes temporary lettings.
Retail and other 4.1 (33) 4.6 13
Developments(6) 0.3 - 4.6 - 3. Net estimated rental value is gross estimated rental value, as
Total Central London 3.5 39 4.9 42 defined in the Glossary, after deducting expected rent payable.
Major retail
Shopping centres 8.1 21 7.9 39 4. Net initial yield - refer to Glossary for definition. This
Outlets 6.5 63 7.2 45 calculation includes all properties including those sites with no income.
Total Major retail 7.5 15 7.6 40
Mixed-use urban 5. Equivalent yield - refer to Glossary for definition. Future
Completed investment 5.4 28 6.4 61 developments are excluded from the calculation of equivalent yield on the
Development(6) 5.3 n/a 5.8 n/a Combined Portfolio.
Total Mixed-use urban 5.3 28 6.1 61
Subscale sectors 6. Comprises the development pipeline - refer to Glossary for
Leisure 8.0 130 8.3 116 definition.
Hotels 6.6 249 6.7 117
Retail parks 6.5 87 6.4 69 7. The like-for-like portfolio - refer to Glossary for definition.
Total Subscale sectors 7.1 147 7.2 96
Combined Portfolio 4.8 41 5.8 50
Represented by:
Investment portfolio 4.7 n/a 5.6 n/a
Share of joint ventures 5.6 n/a 5.8 n/a
Combined Portfolio 4.6 n/a 5.8 n/a
1. Refer to Glossary for definition.
2. Annualised rental income is annual 'rental income' (as defined in the
Glossary) at the balance sheet date, except that car park and
commercialisation income are included on a net basis (after deduction for
operational outgoings). Annualised rental income includes temporary lettings.
3. Net estimated rental value is gross estimated rental value, as
defined in the Glossary, after deducting expected rent payable.
4. Net initial yield - refer to Glossary for definition. This
calculation includes all properties including those sites with no income.
5. Equivalent yield - refer to Glossary for definition. Future
developments are excluded from the calculation of equivalent yield on the
Combined Portfolio.
6. Comprises the development pipeline - refer to Glossary for
definition.
7. The like-for-like portfolio - refer to Glossary for definition.
Table 26: Lease lengths
Weighted average unexpired lease term at 31 March 2023
Like-for-like portfolio Like-for-like portfolio, completed developments and acquisitions
Mean(1) Mean(1)
Years Years
Central London
West End offices 6.4 6.4
City offices 8.6 8.6
Retail and other 7.4 7.4
Total Central London 7.1 7.1
Major retail
Shopping centres 4.5 4.5
Outlets 3.0 3.0
Total Major retail 4.0 4.1
Mixed-use urban - 9.2
Subscale sectors
Leisure 10.3 10.3
Hotels 8.2 8.2
Retail parks 4.7 4.7
Total Subscale sectors 8.0 8.0
Combined Portfolio 6.4 6.5
1. Mean is the rent weighted average of the unexpired lease term across all
leases (excluding short-term leases). Term is defined as the earlier of tenant
break or expiry.
Table 27: Reconciliation of segmental information note to statutory reporting
for the year ended 31 March 2022
Year ended 31 March 2022
Group income statement Joint Adjustment for non-wholly owned subsidiaries(2) Total EPRA Capital and other items
£m ventures(1) £m £m earnings £m
£m £m
Rental income 537 52 (3) 586 586 -
Finance lease interest 8 - - 8 8 -
Gross rental income (before rents payable) 545 52 (3) 594 594 -
Rents payable (6) (2) - (8) (8) -
Gross rental income (after rents payable) 539 50 (3) 586 586 -
Service charge income 78 9 (1) 86 86 -
Service charge expense (90) (10) 2 (98) (98) -
Net service charge expense (12) (1) 1 (12) (12) -
Other property related income 25 3 - 28 28 -
Direct property expenditure (94) (10) - (104) (104) -
Movement in bad and doubtful debt provisions 13 (1) - 12 12 -
Segment net rental income 471 41 (2) 510 510 -
Other income 3 - - 3 3 -
Administrative expenses (80) (2) - (82) (82) -
Depreciation (5) - - (5) (5) -
EPRA earnings before interest 389 39 (2) 426 426 -
Share of post-tax profit from joint ventures 33 (33) - - - -
Net surplus/(deficit) on revaluation of investment properties 416 (3) (4) 409 - 409
Profit on disposal of investment properties 107 8 - 115 - 115
Profit on disposal of joint ventures 2 - - 2 - 2
Profit/(loss) on disposal of trading properties 2 (1) - 1 - 1
Gain on modification of finance lease 6 - - 6 - 6
Movement in impairment charge on trading properties (6) - - (6) - (6)
Impairment of goodwill (6) - - (6) - (6)
Business combination costs (8) - - (8) - (8)
Operating profit/(loss) 935 10 (6) 939 426 513
Finance income 25 - - 25 9 16
Finance expense (85) (10) - (95) (80) (15)
Profit/(loss) before tax 875 - (6) 869 355 514
Taxation - - - -
Profit/(loss) for the year 875 - (6) 869
1. Reallocation of the share of post-tax loss from joint ventures reported in
the Group income statement to the individual line items reported in the
segmental information note.
2. Removal of the non-wholly owned share of results of the Group's
subsidiaries. The non-wholly owned subsidiaries are consolidated at 100% in
the Group's income statement, but only the Group's share is included in EPRA
earnings reported in the segmental information note.
Table 28: Property Income Distribution (PID) calculation
Year ended Year ended
31 March 2023
31 March 2022
£m £m
(Loss)/profit before tax per income statement (622) 875
Accounting profit on residual operations (67) (62)
(Loss)/profit attributable to tax-exempt operations (689) 813
Adjustments
Capital allowances (43) (36)
Capitalised interest (22) (15)
Revaluation deficit/(gain) 848 (409)
Tax exempt disposals 142 (117)
Capital expenditure 5 4
Other tax adjustments (27) (28)
Goodwill amortisation and impairment 5 9
Estimated tax-exempt income for the year 219 221
PID thereon (90%) 197 199
As a REIT, our income and capital gains from qualifying activities are exempt
from corporation tax. 90% of this income must be distributed as a Property
Income Distribution and is taxed at the shareholder level to give a similar
tax position to direct property ownership. Non-qualifying activities, such as
sales of trading properties, are subject to corporation tax. This year, there
was no net tax charge (2022: £nil).
The table above provides a reconciliation of the Group's loss before tax to
its estimated tax exempt income, 90% of which the Company is required to
distribute as a PID to comply with REIT regulations.
The Company has 12 months after the year end to make the minimum distribution.
Accordingly, PID dividends paid in the year may relate to the distribution
requirements of previous periods. The table below sets out the dividend
allocation for the years ended 31 March 2023 and 31 March 2022:
PID allocation Ordinary Total
dividend
dividend
Year ended Year ended Pre-31
31 March 2023
31 March 2022
March 2022
£m £m
£m £m £m
Dividends paid in year to 31 March 2022 - 67 - - 67
Dividends paid in year to 31 March 2023 158 132 - - 290
Minimum PID to be paid by 31 March 2024 39 - n/a n/a n/a
Total PID required 197 199
The Group has met all the REIT requirements, including the payment by 31 March
2023 of the minimum Property Income Distribution (PID) for the year ended 31
March 2022. The forecast minimum PID for the year ended 31 March 2023 is
£197m, which must be paid by 31 March 2024. The Group has already made PID
dividends relating to 31 March 2023 of £158m, leaving £39m to be paid in the
coming year.
Our latest tax strategy can be found on our corporate website. In the year,
the total taxes we incurred and collected were £134m (2022: £154m), of which
£38m (2022: £57m) was directly borne by the Group including environmental
taxes, business rates and stamp duty land tax. The Group has a low tax risk
rating from HMRC.
Investor information
1. Company website: landsec.com (http://www.landsec.com)
The Group's half-yearly and annual reports to shareholders, results
announcements and presentations, are available to view and download from the
Company's website. The website also provides details of the Company's current
share price, the latest news about the Group, its properties and operations,
and details of future events and how to obtain further information.
2. Registrar: Equiniti Group PLC
Enquiries concerning shareholdings, dividends and changes in personal details
should be referred to the Company's registrar, Equiniti Group PLC (Equiniti),
in the first instance. They can be contacted using the details below:
Telephone:
- 0371 384 2128 (from the UK)
- +44 121 415 7049 (from outside the UK)
- Lines are ordinarily open from 08:30 to 17:30, Monday to Friday,
excluding UK public holidays.
Correspondence address:
Equiniti Group PLC
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Information on how to manage your shareholding can be found at
https://help.shareview.co.uk (https://help.shareview.co.uk) . If you are not
able to find the answer to your question within the general Help information
page, a personal enquiry can be sent directly through Equiniti's secure e-form
on their website. Please note that you will be asked to provide your name,
address, shareholder reference number and a valid e-mail address.
Alternatively, shareholders can view and manage their shareholding through the
Landsec share portal which is hosted by Equiniti - simply visit
https://portfolio.shareview.co.uk (https://portfolio.shareview.co.uk) and
follow the registration instructions.
3. Shareholder enquiries
If you have an enquiry about the Company's business or about something
affecting you as a shareholder (other than queries which are dealt with by the
Registrar), please email Investor Relations (see details in 8. below).
4. Share dealing services: https://shareview.co.uk
(http://www.shareview.co.uk)
The Company's shares can be traded through most banks, building societies and
stockbrokers. They can also be traded through Equiniti. To use their service,
shareholders should contact Equiniti: 0345 603 7037 from the UK. Lines are
ordinarily open Monday to Friday 08:00 to 16:30 for dealing and until 18:00
for enquiries, excluding UK public holidays.
5. Dividends
The Board has recommended a final dividend for the year ended 31 March 2023 of
12p per ordinary share to be paid as Property Income Distribution (PID).
Subject to shareholders' approval at the Annual General Meeting, the final
dividend will be paid on 21 July 2023 to shareholders registered at the close
of business on 16 June 2023. The last date for Dividend Reinvestment Plan
(DRIP) elections will be 30 June 2023. The total dividend paid and payable in
respect of the year ended 31 March 2023 is 38.6p (2022: 37p).
The first quarterly dividend for the year ending 31 March 2024 will be paid in
October 2023 and will be announced in due course.
6. Dividend related services
Dividend payments to UK shareholders - Dividend mandates
Dividends are no longer paid by cheque. Shareholders whose dividends have
previously been paid by cheque will need to have their dividends paid directly
into their personal bank or building society account or alternatively
participate in our Dividend Reinvestment Plan (see below) to receive dividends
in the form of additional shares. To facilitate this, please contact Equiniti
or complete a mandate instruction available on our website: landsec.com
(http://www.landsec.com) /investors and return it to Equiniti.
Dividend payments to overseas shareholders - Overseas Payment Service (OPS)
Dividends are no longer paid by cheque. Shareholders need to request that
their dividends be paid directly to a personal bank account overseas. For more
information, please contact Equiniti or download an application form online at
https://shareview.co.uk (http://www.shareview.co.uk) .
Dividend Reinvestment Plan (DRIP)
A DRIP is available from Equiniti. This facility provides an opportunity by
which shareholders can conveniently and easily increase their holding in the
Company by using their cash dividends to buy more shares. Participation in the
DRIP will mean that your dividend payments will be reinvested in the Company's
shares and these will be purchased on your behalf in the market on, or as soon
as practical after, the dividend payment date.
You may only participate in the DRIP if you are resident in the UK.
For further information (including terms and conditions) and to register for
any of these dividend-related services, simply visit www.shareview.co.uk
(http://www.shareview.co.uk) .
7. Financial reporting calendar
2023
Financial year end 31 March
Preliminary results announcement 16 May
Half-yearly results announcement 14 November
8. Investor relations enquiries
For investor relations enquiries, please contact Edward Thacker, Head of
Investor Relations at Landsec, by telephone on +44 (0)20 7413 9000 or by email
at enquiries@landsec.com.
Glossary
Adjusted net cash inflow from operating activities
Net cash inflow from operating activities including the Group's share of our
joint ventures' net cash inflow from operating activities.
Adjusted net debt
Net debt excluding cumulative fair value movements on interest-rate swaps and
amounts payable under head leases. It generally includes the net debt of
subsidiaries and joint ventures on a proportionate basis.
Book value
The amount at which assets and liabilities are reported in the financial
statements.
Combined Portfolio
The Combined Portfolio comprises the investment properties of the Group's
subsidiaries, on a proportionately consolidated basis when not wholly owned,
together with our share of investment properties held in our joint ventures.
Development pipeline
The development programme together with future developments.
Dividend Reinvestment Plan (DRIP)
The DRIP provides shareholders with the opportunity to use cash dividends
received to purchase additional ordinary shares in the Company immediately
after the relevant dividend payment date. Full details appear on the Company's
website.
EPRA
European Public Real Estate Association.
EPRA earnings
Profit before tax, excluding profits on the sale of non-current assets and
trading properties, profits on development contracts, valuation movements,
fair value movements on interest-rate swaps and similar instruments used for
hedging purposes, debt restructuring charges, and any other items of an
exceptional nature.
EPRA loan-to- value (LTV)
Ratio of adjusted net debt, including net payables, to the sum of the net
assets, including net receivables, of the Group, its subsidiaries and joint
ventures, all on a proportionate basis, expressed as a percentage. The
calculation includes trading properties at fair value and debt at nominal
value.
EPRA net disposal value (NDV) per share
Diluted net assets per share adjusted to remove the impact of goodwill arising
as a result of deferred tax, and to include the difference between the fair
value and the book value of the net investment in tenant finance leases and
fixed interest rate debt.
EPRA net initial yield
EPRA net initial yield is defined within EPRA's Best Practice Recommendations
as the annualised rental income based on the cash rents passing at the balance
sheet date, less non-recoverable property operating expenses, divided by the
gross market value of the property. It is consistent with the net initial
yield calculated by the Group's external valuer.
EPRA Net Reinstatement Value (NRV) per share
Diluted net assets per share adjusted to remove the cumulative fair value
movements on interest-rate swaps and similar instruments, the carrying value
of deferred tax on intangible assets and to include the difference between the
fair value and the book value of the net investment in tenant finance leases
and add back purchasers' costs.
EPRA Net Tangible Assets (NTA) per share
Diluted net assets per share adjusted to remove the cumulative fair value
movements on interest-rate swaps and similar instruments, the carrying value
of goodwill arising as a result of deferred tax and other intangible assets,
deferred tax on intangible assets and to include the difference between the
fair value and the book value of the net investment in tenant finance leases.
Equivalent yield
Calculated by the Group's external valuer, equivalent yield is 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 non-recoverable expenditure
but ignoring future changes in capital value. The calculation assumes rent is
received annually in arrears.
ERV - Gross estimated rental value
The estimated market rental value of lettable space as determined biannually
by the Group's external valuer. For investment properties in the development
programme, which have not yet reached practical completion, the ERV represents
management's view of market rents.
Fair value movement
An accounting adjustment to change the book value of an asset or liability to
its market value.
Finance lease
A lease that transfers substantially all the risks and rewards of ownership
from the Group as lessor to the lessee.
Gearing
Total borrowings, including bank overdrafts, less short-term deposits,
corporate bonds and cash, at book value, plus cumulative fair value movements
on financial derivatives as a percentage of total equity. For adjusted
gearing, see note 13.
Gross market value
Market value plus assumed usual purchaser's costs at the reporting date.
Head lease
A lease under which the Group holds an investment property.
Interest Cover Ratio (ICR)
A calculation of a company's ability to meet its interest payments on
outstanding debt. It is calculated using EPRA earnings before interest,
divided by net interest (excluding the fair value movement on interest-rate
swaps, foreign exchange swaps, capitalised interest and interest on the
pension scheme assets and liabilities). The calculation excludes joint
ventures.
Interest-rate swap
A financial instrument where two parties agree to exchange an interest rate
obligation for a predetermined amount of time. These are generally used by the
Group to convert floating-rate debt or investments to fixed rates.
Investment portfolio
The investment portfolio comprises the investment properties of the Group's
subsidiaries on a proportionately consolidated basis where not wholly owned.
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, the value of the incentive
is spread over the non-cancellable life of the lease.
Like-for-like portfolio
The like-for-like portfolio includes all properties which have been in the
portfolio since 1 April 2021 but excluding those which are acquired or sold
since that date. Properties in the development pipeline and completed
developments are also excluded.
Loan-to-value (LTV)
Group LTV is the ratio of adjusted net debt, including subsidiaries and joint
ventures, to the sum of the market value of investment properties and the book
value of trading properties of the Group, its subsidiaries and joint ventures,
all on a proportionate basis, expressed as a percentage. For the Security
Group, LTV is the ratio of net debt lent to the Security Group divided by the
value of secured assets.
Market value
Market value is determined by the Group's external valuer, in accordance with
the RICS Valuation Standards, as an opinion of the estimated amount for which
a property should exchange on the date of valuation between a willing buyer
and a willing seller in an arm's-length transaction after proper marketing.
Net assets per share
Equity attributable to owners divided by the number of ordinary shares in
issue at the end of the year. Net assets per share is also commonly known as
net asset value per share (NAV per share).
Net initial yield
Net initial yield is a calculation by the Group's external valuer of the yield
that would be received by a purchaser, based on the Estimated Net Rental
Income expressed as a percentage of the acquisition cost, being the market
value plus assumed usual purchasers' costs at the reporting date. The
calculation is in line with EPRA guidance. Estimated Net Rental Income is
determined by the valuer and is based on the passing cash rent less rent
payable at the balance sheet date, estimated non-recoverable outgoings and
void costs including service charges, insurance costs and void rates.
Net rental income
Net rental income is the net operational income arising from properties, on an
accruals basis, including rental income, finance lease interest, rents
payable, service charge income and expense, other property related income,
direct property expenditure and bad debts. Net rental income is presented on a
proportionate basis.
Net zero carbon building
A building for which an overall balance has been achieved between carbon
emissions produced and those taken out of the atmosphere, including via offset
arrangements. This relates to operational emissions for all buildings while,
for a new building, it also includes supply-chain emissions associated with
its construction.
Passing rent
The estimated annual rent receivable as at the reporting date which includes
estimates of turnover rent and estimates of rent to be agreed in respect of
outstanding rent review or lease renewal negotiations. Passing rent may be
more or less than the ERV (see over-rented, reversionary and ERV). Passing
rent excludes annual rent receivable from units in administration save to the
extent that rents are expected to be received. Void units at the reporting
date are deemed to have no passing rent. Although temporary lets of less than
12 months are treated as void, income from temporary lets is included in
passing rents.
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.
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.
Rental income
Rental income is as reported in the income statement, on an accruals basis,
and adjusted for the spreading of lease incentives over the term certain of
the lease in accordance with IFRS 16 (previously, SIC-15). It is stated gross,
prior to the deduction of ground rents and without deduction for operational
outgoings on car park and commercialisation activities.
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 (or fall) once the
rent reaches the ERV.
Security Group
Security Group is the principal funding vehicle for the Group and properties
held in the Security Group are mortgaged for the benefit of lenders. It has
the flexibility to raise a variety of different forms of finance.
SONIA
The Sterling Overnight Index Average reflects the average overnight interest
rate paid by banks for unsecured sterling transactions with a range of
institutional investors. It is calculated based on actual transactions and is
often used as a reference rate in bank facilities.
Topped-up net initial yield
Topped-up net initial yield is a calculation by the Group's external valuer.
It is calculated by making an adjustment to net initial yield in respect of
the annualised cash rent foregone through unexpired rent-free periods and
other lease incentives. The calculation is consistent with EPRA guidance.
Total return on equity
Dividend paid per share in the year plus the change in EPRA Net Tangible
Assets per share, divided by EPRA Net Tangible Assets per share at the
beginning of the year.
Total cost ratio
Total cost ratio represents all costs included within EPRA earnings, other
than rents payable, financing costs and provisions for bad and doubtful debts,
expressed as a percentage of gross rental income before rents payable adjusted
for costs recovered through rents but not separately invoiced.
Total development cost (TDC)
Total development cost refers to the book value of the site at the
commencement of the project, the estimated capital expenditure required to
develop the scheme from the start of the financial year in which the property
is added to our development programme, together with capitalised interest,
being the Group's borrowing costs associated with direct expenditure on the
property under development. Interest is also capitalised on the purchase cost
of land or property where it is acquired specifically for redevelopment. The
TDC for trading property development schemes excludes any estimated tax on
disposal.
Trading properties
Properties held for trading purposes and shown as current assets in the
balance sheet.
Vacancy rates
Vacancy rates are expressed as a percentage of ERV and represent all unlet
space, including vacant properties where refurbishment work is being carried
out and vacancy in respect of pre-development properties, unless the scale of
refurbishment is such that the property is not deemed lettable. The screen at
Piccadilly Lights, W1 is excluded from the vacancy rate calculation as it will
always carry advertising although the number and duration of our agreements
with advertisers will vary.
Valuation surplus/deficit
The valuation surplus/deficit represents the increase or decrease in the
market value of the Combined Portfolio, adjusted for net investment and the
effect of accounting for lease incentives under IFRS 16 (previously SIC-15).
The market value of the Combined Portfolio is determined by the Group's
external valuer.
Voids
Voids are expressed as a percentage of ERV and represent all unlet space,
including voids where refurbishment work is being carried out and voids in
respect of pre-development properties. Temporary lettings for a period of one
year or less are also treated as voids. The screen at Piccadilly Lights, W1 is
excluded from the void calculation as it will always carry advertising
although the number and duration of our agreements with advertisers will vary.
Commercialisation lettings are also excluded from the void calculation.
Weighted average unexpired lease term
The weighted average of the unexpired term of all leases other than short-term
lettings such as car parks and advertising hoardings, temporary lettings of
less than one year, residential leases and long ground leases.
Yield shift
A movement (negative or positive) in the equivalent yield of a property asset.
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