REG - Land Sec. Group PLC - Half-year Report
15/11/2022 07:00
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RNS Number : 3700G Land Securities Group PLC 15 November 2022
15 November 2022
LAND SECURITIES GROUP PLC ("Landsec")
Results for the half year ended 30 September 2022
Strong strategic and operational momentum leave Landsec well placed in
changing market
Mark Allan, Chief Executive of Landsec, commented:
"The strategy we launched two years ago was underpinned by two key principles
of sustainable value creation: focusing our resources on where we have genuine
competitive advantage, and preserving our strong balance sheet. At the time,
interest rates and property yields were very low, so asset values in many
sectors looked expensive. Acting on this, we sold nearly £2bn of mature, low
yielding assets while focusing new investment exclusively on opportunities
where we saw clear value, or situations which offered long term optionality.
Our competitive advantages remain our high-quality portfolio, our strong
customer relationships, and the ability to unlock complex opportunities
through our unique expertise, all of which is evidenced by our strong
operational performance in the half year. Our business remains underpinned by
a strong balance sheet, with a low 31% LTV, long 9.8-year average debt
maturity and no need to refinance any debt until 2026. The successful
execution of our strategy therefore means we are not only well placed for more
challenging market conditions, but also have optionality to take advantage of
new opportunities that will no doubt emerge as property markets continue to
adjust to a new reality."
Financial highlights
30 Sep 2022 Prior period ((1)) 30 Sep 2022 Prior period ((1))
EPRA earnings (£m)(2)(3) 197 180 (Loss)/profit before tax (£m) (192) 275
EPRA EPS (pence)(2)(3) 26.6 24.3 Basic EPS (pence) (25.7) 37.2
EPRA NTA per share (pence)(2)(3) 1,010 1,063 Net assets per share (pence) 1,023 1,070
Total accounting return (%) (2.9) 3.7 Dividend per share (pence) 17.6 15.5
Group LTV ratio (%)(2)(3) 31.1 34.4 Net debt (£m) 3,475 4,254
¾ EPRA EPS(2)(3) up 9.5% to 26.6p, supported by strong leasing and 8.3% LFL
rental income growth
¾ Total accounting return of -2.9%, reflecting softening of London yields
due to rising interest rates
¾ EPRA NTA per share(2) (3) down 5.0% to 1,010p, driven by a -2.9% movement
in portfolio value
¾ Group LTV(2)(3) down to 31.1% (Mar-22: 34.4%) following £1bn of mature
London office disposals
¾ Loss before tax of £192m (2021: £275m profit), with growth in earnings
offset by market yield shift
¾ Total dividend up 13.5% to 17.6p per share, supported by increase in
earnings
¾ Weighted average debt maturity up to 9.8 years (Mar-22: 9.1 years),
providing solid financial base
Operational highlights: continued operational momentum, maintaining strong
capital base
Positive leasing performance in Central London offices and major retail
destinations, despite general macro challenges, highlight high quality of
Landsec platform and portfolio, with strong progress on executing strategy
since late 2020 creating balance sheet resilience and optionality for future
growth.
Central London: strong leasing momentum and maintaining optionality to drive
future growth
¾ Sold £1.0bn of mature offices, including 21 Moorfields development which
crystallised 25% profit on cost, bringing total London office disposals over
last two years to £1.8bn at an average yield of 4.35%
¾ Delivered strong leasing, with £41m of lettings completed or in
solicitor's hand, 3% ahead of valuers' assumptions, and current occupancy
stable vs March at 95.1%, as demand for high-quality space remains resilient,
notwithstanding a 4.4% softening in values due to general market yield shift
¾ Only £110m capex left to spend on committed pipeline which is set to
generate £38m ERV once fully let, 38% of which is pre-let or under offer,
with lettings over past six months 11% ahead of ERV
¾ Maintained optionality on near-term pipeline, which could deliver 1.1m sq
ft of Grade A space at yield on cost of 7%+ into a market which is expected to
see a sharp reduction in new supply
Major retail destinations: continued strong leasing, as high-quality
destinations return to growth
¾ Differentiated focus on brand and guest relationships continues to
deliver results, capitalising on 'flight to prime' and upsizing of key brands,
with 6.3% YoY sales growth and like-for-like sales 3.6% above 2019 levels, as
consumer behaviour is reverting back to pre-pandemic trend
¾ Built further on growing leasing momentum, with £27m of lettings signed
or in solicitors' hands on average 12% ahead of ERV, up from 2% for the year
to March 2022, driving 120bps increase in occupancy since March to 94.4% and
underpinning resilience in valuations, with values up 0.4%
Mixed-use urban neighbourhoods: progressing preparations, creating future
optionality
¾ Progressed preparation of 9.0m sq ft future mixed-use pipeline, with
signing of drawdown agreement for first phase of office development at
Mayfield and detailed planning for first phase at MediaCity
¾ No existing capex commitments but potential to start first phases at
Mayfield, MediaCity and, subject to planning, Finchley Road in 2023, providing
optionality for future growth at limited holding cost
¾ U+I and Landsec teams integrated and sold or exchanged contracts to sell
almost half of c. £180m of non-core U+I assets since acquisition in December
2021, on average 22% above book value
Underpinning our strategy: capital discipline and decisive action on
sustainability
¾ Further strengthened capital base, with LTV down from 34.4% to 31.1%;
average debt maturity up from 9.1 to 9.8 years; 84% of debt hedged, with an
overall average cost of 2.7%; strong credit profile; and no need to refinance
any debt until 2026 given existing £1.8bn undrawn facilities
¾ Secured £2.0bn of disposals since late 2020, ahead of plan to sell c.
£4bn of assets over six years, with potential further disposals to increase
optionality for future opportunities, as value of subscale portfolio remains
relatively resilient at -1.2%
¾ Continued to progress net zero transition investment plan, with 43% of
office portfolio already rated EPC 'B' or higher vs 15% for wider London
office market, and announced target to reduce embodied carbon by 50% vs a
typical development by 2030
¾ Announced Realising Potential Fund to invest £20m over next 10 years to
enhance social mobility in our industry, to empower 30,000 people towards
world of work and deliver £200m of social value
1. Prior period measures are for the six months ended 30 September 2021 other
than EPRA NTA per share, net assets per share, Group LTV ratio and net debt,
which are as at 31 March 2022.
2. 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.
3. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Financial review.
A live video webcast of the presentation will be available at 9.00am GMT. 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/2022-half-year-results
(https://webcast.landsec.com/2022-half-year-results)
Call title: Landsec half year results 2022
Forward-looking statements
These half 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 half 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 half 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
Successful execution on strategy. Well placed in changing markets.
When we launched our strategy two years ago, it was underpinned by two key
principles of sustainable value creation: focusing our resources on where we
have genuine competitive advantage, and preserving a strong balance sheet. At
that time, interest rates and property yields in many sectors were at or close
to all-time lows hence asset values in these sectors looked expensive. As a
result, we focused on selling mature London office assets where our ability to
add further value was limited and since then have sold £1.8bn of such assets,
at an average yield of 4.35% and, on average, just 1% below book value.
From a new investment perspective, we focused only on opportunities where we
saw clear value, such as our acquisition of a further 18.75% stake in
Bluewater at an 8.15% initial yield and a 75% stake in MediaCity at a 5.8%
yield, or situations which offered long term optionality, such as our
acquisition of U+I, which added to our pipeline of mixed-use, multi-phased
urban regeneration projects.
External market conditions have changed considerably over the last two years
and especially since the start of this year. More so than ever, 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 development and asset management expertise. These
strengths are clearly evident in our strong operational performance in the
first half of this year and we expect these to remain so going forward.
This remains underpinned by our balance sheet strength. Our leverage is low,
with a 31% LTV and net debt/EBITDA of 8.7x; our average debt maturity is long
at 9.8 years and we have no need to refinance any debt until 2026, taking into
account our existing credit facilities; and remaining capex commitments are
only £127m, or 1% of our portfolio value. As a result of the successful
execution of our strategy, Landsec is not only well placed to weather
challenging market conditions but also to take advantage of opportunities that
will undoubtedly emerge as markets adjust to a higher rate, higher yield
reality.
Strong operational performance. Resilient financial position.
Our operational performance over the six months to September 2022 has been
positive, building further on the growing momentum delivered by our proactive
focus on growing customer relationships. This is underpinned by the high
quality of our portfolio, as people choose to spend time together in inspiring
places, be it to work, shop or spend their leisure time. This is increasingly
driving decision making for our customers, as they focus on the best space to
attract their staff and customers.
Our operational results reflect this, with positive leasing in London and
growth in occupancy and sales in retail. EPRA EPS for the half year was up
9.5% to 26.6 pence, supported by 8.3% growth in like-for-like gross rental
income and 6.2% growth in like-for-like net rental income, whilst an increase
in surrender premiums received driven by a lease regear in the prior year
added 1.3 pence to EPS. The dividend for the half year is 17.6 pence, up 13.5%
vs last year, reflecting a dividend cover over the period of 1.5 times.
Whilst our operational performance and growth in earnings were strong, our
total accounting return for the period was -2.9%. The material increase in
bond yields since March has started to put upward pressure on property yields,
principally for those assets where yields were lowest. In the sectors we are
in, this principally affected London offices, vindicating our decision to sell
£1.8bn of mature assets over the past two years. Our solid leasing activity
drove 1.8% ERV growth yet our overall portfolio value was down 2.9%, with a
small 0.4% increase in retail valuations offset by a 4.4% reduction in London.
Reflecting all this, EPRA NTA per share was down 5.0% to 1,010 pence.
Table 1: Highlights
Sep 2022 Sep 2021 Change %
EPRA earnings (£m)(1) 197 180 9.4
(Loss)/profit before tax (£m) (192) 275 (170)
Total accounting return (%) (2.9) 3.7 (6.6)
Basic (loss)/earnings per share (pence) (25.7) 37.2 (169)
EPRA earnings per share (pence)(1) 26.6 24.3 9.5
Dividend per share (pence) 17.6 15.5 13.5
Sep 2022 Mar 2022 Change %
Combined portfolio (£m)(1) 10,929 12,017 (9.1)
IFRS net assets (£m) 7,639 7,991 (4.4)
EPRA Net Tangible Assets per share (pence) (1) 1,010 1,063 (5.0)
Adjusted net debt (£m)(1) 3,441 4,179 (17.7)
Group LTV ratio (%)(1) 31.1 34.4 (3.3)
Proportion of portfolio rated EPC 'B' or higher (%) 37 36
Embodied carbon reduction development pipeline (%) 23.8 20.7
Energy intensity reduction vs 2020 (%) 16.9 17.5
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information in the Financial
Review.
Our strategy in a rapidly changing environment
Global economic and financial market conditions have changed significantly
since our full year results in May. Interest rates across the board have
surged in response to rising inflation, with the central bank support that
artificially depressed these for most of the past decade now in reverse. It is
difficult to assess where interest rates will settle in the medium term, but
it seems clear that in a long term context, the ultra-low rate environment of
the past decade was the aberration - not the adjustment we have seen this
year.
This will likely have a lasting impact on asset values, be it equities, bonds
or real estate. In public markets price adjustment is, as usual, well ahead of
private markets, but in real estate it is well underway too now and, in our
view, will likely continue. The psychology of investing in any financial asset
means markets always overshoot, to the upside or downside, rather than
smoothly revert to a new fair value.
Importantly, the strategy we set out in late 2020 was never based on a
persistent low rate environment. This is why we said we would i) focus our
investment on sectors where we have a genuine competitive advantage that helps
us create long-term value, rather than sectors which happened to be in vogue
at the time and where record-low yields are now rapidly correcting; ii) over
time sell c. £2.5bn of mature London assets where yields were low, of which
we have sold £1.8bn now; and iii) maintain capital discipline.
Our strategic focus on sustainable value creation in three key areas, Central
London offices, major retail destinations and mixed-use urban neighbourhoods,
remains the right one. Demand in each area remains resilient, underpinned by
the strength of our customer relationships and high quality portfolio.
We are however mindful that financial market conditions have changed. As such,
capital recycling will likely slow, although we remain pragmatic and are not
holding on to yesterday's hope value. The fact that 75% of our residual c.
£2bn capital recycling programme is focused on a range of sectors which for
us were subscale, rather than assets where forward returns were modest puts us
in a good place.
In terms of future investment, we are focused on maximising optionality in our
future pipeline. For London, we plan to let early works packages on two office
schemes with a total cost of c. £55m, which will allow us to maintain
programme for delivery in what we expect to be a very supply-constrained
market in 2025, whilst buying an extra 6-9 months of time before we have to
commit to a full development. In mixed-use, we have no commitments and the
holding cost of our five main development sites is modest given the 6% income
yield on the current use of these, but we retain optionality to start the
first phases of Mayfield and MediaCity in early/mid 2023. We are open to new
acquisitions, but financial discipline remains our priority. Pricing might
well be better in 12-18 months than it is today, so returns will need to
reflect this.
Our strategy remains 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.
To support this execution and drive pace, we initiated a review of our
operating model six months ago with the aim of creating a culture which is
more agile and efficient, with less internal complexity and more external
focus. This will allow us to make the most of the substantial talent within
Landsec, whose strong capability and dedication is key to our success. We have
already made a number of changes and once completed by the year-end, this will
improve our efficiency. With a strong capital base, high quality existing
portfolio, and significant optionality in our pipeline, this will leave us
well placed to drive longer term growth, notwithstanding the near-term
economic challenges.
Central London - growing customer focus on quality supports further ERV growth
Central London comprises 61% of our overall portfolio by value. 63% of this is
located in the West End, with a further 6% in Southwark and 31% in the City,
down from 39% at the start of the year. In a market where customers
increasingly focus on flexibility, the best quality space which offers the
right amenities to attract talent, and buildings which have the right
sustainability credentials, we are well positioned; 48% of our assets have
been developed over the past ten years vs c. 20% for the overall market, and
43% of our offices have an EPC rating of 'B' or higher vs 15% for the market.
Reflecting this, following record leasing last year, leasing activity remained
strong, with £10m of lettings on average 1% above valuers' assumptions, and a
further £31m in solicitors' hands, 3% ahead of valuers' assumptions. Current
occupancy is stable vs March, at 95.1%, which means our vacancy is roughly
half that of the London market. We continue to see a gradual increase in
office utilisation, as London continues to get busier, and strong interest in
our expanding Myo flexible offer.
Sustained demand for high-quality space drove 2.8% ERV growth, supporting our
expectation for ERVs to grow by a low to mid single digit percentage this
year. Unsurprisingly, rising bond yields put upward pressure on property
yields, with equivalent yields up 21bps to 4.7%, leading to a 4.4% value
reduction. We expect yields to soften further, yet how much is reliant on
where rates settle. We expect the impact of this on values will continue to be
partly offset by ERV growth, as Grade A space remains in short supply.
We significantly de-risked our current development pipeline via the £809m
sale of 21 Moorfields, which despite a 9% discount to March book value,
crystallised a 25% profit on cost. Our three other committed schemes are
expected to produce an ERV of £38m once fully let, with just £110m of capex
left to spend. Demand remains encouraging, with 38% of this space let or under
offer and the £9m of lettings which we agreed terms on since our FY results
in May were on average 11% ahead of ERV. We intend to start early works on
Timber Square and Portland House shortly, with a modest c. £55m initial
commitment, keeping flexibility on the residual c. £400m capex until mid-next
year while markets remain unsettled.
Major retail destinations - continued leasing momentum drives growth in prime
locations
Major retail destinations comprise 18% of our portfolio, split c. 60/40%
between prime shopping centres and outlets. Building on the positive momentum
we created during the previous financial year, operational performance over
the first half of the year has been strong. Highlighting the attraction of our
high-quality destinations, sales were up 6.3% vs last year and LFL sales are
now 3.6% above pre-Covid levels.
For many leading brands, online and physical channels are now firmly
inter-connected, so we continue to see existing brands upsize, new brands
opening stores in our assets as they move from nearby locations to benefit
from higher footfall, and digital native brands opening stores to grow
customer connectivity and experience. Consumer behaviour has gradually
reverted back to pre-Covid trends, with online sales down and in-store sales
growing over the past six months. Indeed, both Shopify and Next recently
reported that the material acceleration in online sales during the pandemic
turned out to be only temporary.
Given the inflationary pressure on margins for many brands, both online and
physical, we expect that the rationalisation of the tail-end of brands' store
portfolios will further accelerate. This adds to the challenges for secondary
retail locations, where there remains a significant excess of space, yet
brands' focus on fewer, but bigger and better stores, mean prime destinations
continue to get stronger.
Supported by the investment in our team over the past year and our
differentiated focus on growing brand relationships and guest experience, the
above trends are clearly visible across our portfolio. We delivered a 120bps
increase in occupancy since March to 94.4% and we signed £12m of new
lettings, on average 20% above ERV, with a further £15m in solicitor's hands
7% above ERV. This means that over the past 18 months we have now let or
re-let 23% of our total retail rent, on average 8% above ERV. We recognise
that the economic pressures facing consumers could lead to some let-up in this
strong leasing momentum over the coming months, although we are seeing little
sign of this yet. Our positive operational performance meant values were up
0.4% over the six months, with the high c. 7-8% yield on prime shopping
centres in particular still providing an attractive buffer vs higher interest
rates.
Mixed-use urban neighbourhoods - progressing significant pipeline of future
opportunities
Our portfolio of mixed-use urban neighbourhood assets makes up 8% of our
overall portfolio, split roughly evenly between our standing investments in
MediaCity, Greater Manchester and five future regeneration projects in London,
Manchester and Glasgow. Given their existing use, the majority of these
projects are income producing with a blended yield of 6%, minimising their
holding cost whilst we prepare for future development. Comprising a mix of
residential, office and leisure space, the overall GDV of these schemes is in
excess of £4bn with a potential staged delivery of individual phases over the
next 10-15 years.
There remains a structural need to remodel many parts of today's built
environment to make sure they are fit for changing consumer expectations with
respect to how we live, work and spend our leisure time and to increasing
sustainability demands. Situated in attractive locations with strong transport
links in some of the fastest growing urban areas in the UK, our pipeline
remains well placed to cater for these demands. At the same time, Landsec's
sustainability and development expertise, combined with the now fully
integrated U+I team's placemaking skills, means we are well positioned to
deliver this.
We have continued to make good progress in terms of preparing our pipeline,
through planning and other pre-development activities. This means we now have
optionality to start the first phases at Mayfield and MediaCity in early/mid
2023. However, the changes in capital market conditions have a clear impact on
our underwriting assumptions, so any decision to start these will have to
reflect an appropriate level of return, with target IRRs in the low to
mid-teens. We continue to make good progress on planning at our
residential-led scheme at Finchley Road, with a decision expected in the
second half of the financial year.
Sustainability and energy efficiency
We continue to progress the net zero transition investment plan we set out a
year ago. We are on track to complete the concept design for installing air
source heat pumps for four offices and progress the detailed design for the
first two buildings, and to optimise the building management systems across
our offices this year. Delivery of our investment plan will ensure we
transition to net zero and stay ahead of the Minimum Energy Efficiency
Standard Regulations, which require a minimum EPC 'B' certification by 2030,
as well as other regulatory requirements, and the cost to achieve EPC 'B' is
already reflected in our valuations.
We delivered a 17% reduction in energy intensity for the first half of 2022/23
compared with 2019/20. This represents a 32% reduction against our 2013/14
baseline, so we remain on track vs our 2030 target to reduce energy intensity
by 45%. We will continue to drive down our energy consumption with a
combination of energy efficiency measures alongside our net zero transition
investment programme.
We started working with our largest customers last year to help them identify
opportunities to save energy and have expanded this during the period. Given
the rise in energy costs, this has become even more relevant. Our retail
customers typically purchase their energy directly, but where we purchase
energy on behalf of customers, costs have been fully hedged for the current
and next financial years and 40% hedged for the year after, limiting the
impact on their overall cost base.
Outlook
Looking ahead, we anticipate global economic uncertainty to remain elevated.
Decades of globalisation, fuelling growth and depressing inflation, have
started to go into reverse, with rising geopolitical tensions adding to risks
around energy reliance and supply chains. Positively, the turbulence in UK
politics in late summer has started to normalise, although political stability
remains fragile.
Still, it is clear that London remains a top global city which continues to
attract new businesses and talent; that the future of major retail
destinations is more positive than most, including many retailers themselves,
thought two years ago; and that there remains a structural need to remodel
city centres in a sustainable way. It is difficult to say where interest rates
will settle and whilst we think this is unlikely to be where they have been
for the past decade, our strategic decisions over the past two years mean we
are in excellent shape for any eventuality:
¾ our portfolio quality is high, which has increasingly become a decisive
factor for customers;
¾ our balance sheet is strong, with an LTV of 31% and no refinancing needs
until 2026;
¾ we have sold nearly £2bn of mature, low-yielding assets most at risk of
repricing;
¾ we have an attractive pipeline of opportunities with full flexibility on
any future commitments.
Despite the uncertain economic outlook, our long 9.8-year average debt
maturity provides visibility and underpins the sustainability of our earnings.
We continue to expect underlying EPRA EPS for this year to grow by a low to
mid-single digit percentage, excluding the benefit from increased surrender
premiums which were up £10m in the first half of the year, and we expect
dividend for the full year to grow in line with underlying EPRA EPS. Beyond
FY23, the exact shape of earnings progression will rely on the pace of future
disposals and reinvestments, but our strategy and strong capital base continue
to offer the potential to grow earnings and total accounting return over time.
Operating and portfolio review
Overview
Our combined portfolio was valued at £10.9bn as of September, comprising the
following segments:
¾ Central London (61%): our high-quality office (84%) and retail and other
commercial space (16%), located in the West End (63%), City (31%) and
Southwark (6%). Of our investment assets, 48% has been developed in the last
ten years, compared to c. 20% for the overall London office market.
¾ Major retail destinations (18%): our investments in six shopping centres
and five retail outlets, with the seven largest assets comprising 83% 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, with a broadly equal split between
retail parks, hotels and leisure assets.
Investment activity
We made significant progress on our objective to recycle capital out of mature
assets during the period, with a view to reinvest this into higher growth
opportunities over time. In late 2020, we said we intended to sell a combined
c. £4bn of London offices and assets in sectors which were subscale for us
over a period of circa six years. Two years later, we have now sold £2.0bn,
including £1.0bn over the past half year.
Our largest sale was the £809m disposal of our 21 Moorfields, EC2 development
project in September. The building is fully pre-let to Deutsche Bank for 25
years and therefore offered little room to add further value. The total
consideration represented a 9% discount to March book value, partly reflecting
the fact that construction will only complete in March 2023, but crystallised
a 25% profit on cost. Shortly after the March 2022 year-end we also sold 32-50
Strand, WC2 for £195m, 15% above its prior book value.
As a result, we have now sold £1.8bn of mature London offices over the past
two years, at an average yield of 4.35% and 1% discount to book value. Since
the acquisition of U+I late last year, we have also sold or exchanged
contracts to sell close to half of its non-core assets for £85m, on average
22% above book value. We have not made any material acquisitions during the
period.
Looking ahead, we expect capital recycling will slow given increased
uncertainty in global capital markets. The residual c. £2bn of assets
earmarked for disposal over the next four years are broadly equally split
between four sectors, allowing us to tap into different pools of demand.
Furthermore, for 75% of this c. £2bn our intention to sell purely reflects a
lack of scale, rather than any caution on forward returns. Our strong capital
base means we can therefore afford to be selective, although we remain
pragmatic about value given the opportunities additional cash could
potentially provide over the next 12-18 months.
Portfolio valuation
The rise in interest rates over the period meant that transaction volumes
across global and UK property markets slowed considerably during the half year
and that, especially over the last few months, pricing started to adjust. This
adjustment has been most pronounced in sectors where yields compressed most
during prior years, such as logistics, or for assets which had been valued as
bond-like income.
Against this backdrop, our portfolio value reduced by 2.9% over the period.
Our Central London portfolio value was down 4.4%, with a 21bps increase in
yields. This was partly offset by 2.8% growth in ERVs, with 2.2% growth in the
West End driven by our strong letting evidence in Victoria, which makes up the
lion share of our London portfolio. City ERVs were up 3.3%, principally
reflecting a major lease regear at a higher rent, with associated
refurbishment works now taken as cost in the valuation. As a result, West End
values (-4.2%) were more resilient than City (-9.7%). Developments were
broadly stable, as our successful pre-letting activity drove an increase in
ERVs, offsetting a softening of valuation yields.
Despite the challenging macro backdrop, the value of our retail portfolio was
up 0.4%. Shopping centre values rose 1.1%, as our continued positive letting
activity drove 2.4% ERV growth. Yields remained stable at 7.4% and, following
their correction in recent years, continue to offer a healthy margin over
funding costs. Outlet values were down slightly at -0.6%, partly reflecting a
small reduction in turnover income following strong sales last year, driven by
the clearance of excess stock post lockdowns.
In mixed-use, the value of our completed assets at MediaCity was down 4.8% as
yields moved out 18bps, offsetting a 2.0% increase since our acquisition at
the FY valuation in March. The rest of our mixed-use assets, which principally
comprise our future development schemes, were up in value by 2.0%, partly
driven by valuation upside at Mayfield. The value of our subscale assets was
down 1.2%, as positive growth in the value of our hotel portfolio (+5.3%)
reflecting their strong operational performance, was offset by a modest
softening in leisure values (-2.6%) and principally retail parks (-5.4%),
which saw a softening in yields following their 31.9% increase in value over
the prior twelve months.
Looking ahead, we expect valuation yields to continue to see upward pressure
from rising funding costs, especially for those sectors where they are lowest.
For us, this principally affects London offices, even though we expect that in
the West End and Southwark part of the impact on value of this will be offset
by further rental value growth, as Grade A availability remains scarce. We
expect the impact on other parts of our portfolio to be less and shopping
centre values in particular to remain much more resilient, given their high
initial yields and increasing visibility on their sustainability of income.
Table 2: Valuation analysis
Market value 30 Sep 2022 Surplus/ (deficit) Valuation movement LFL rental value change(1) Net initial Topped-up net initial Equivalent Movement in LFL equivalent yield
yield
yield
yield
£m £m % % % % % bps
West End offices 2,761 (116) -4.2 2.2 4.6 5.0 4.8 21
City offices 1,746 (183) -9.7 3.3 3.3 4.0 4.9 27
Retail and other 1,089 2 0.2 2.7 4.2 4.4 4.6 14
Developments 1,102 (7) -0.6 n/a 0.3 0.3 4.5 -
Total Central London 6,698 (304) -4.4 2.8 4.1(2) 4.6(2) 4.7 21
Shopping centres 1,150 12 1.1 2.4 7.7 8.1 7.4 5
Outlets 740 (5) -0.6 -0.9 5.9 6.0 6.7 -4
Total Major retail 1,890 7 0.4 1.1 7.0 7.3 7.1 1
Completed investment 393 (20) -4.8 n/a 5.3 5.3 5.9 18
Developments 497 11 2.0 n/a 5.2 5.3 5.3 -
Total Mixed-use urban 890 (9) -1.0 n/a 5.3(2) 5.3(2) 5.6 18
Leisure 563 (14) -2.6 -0.4 6.9 7.0 7.2 27
Hotels 444 23 5.3 -1.1 5.2 5.2 5.5 -1
Retail parks 444 (26) -5.4 1.8 6.1 6.4 6.0 29
Total Subscale sectors 1,451 (17) -1.2 0.1 6.1 6.2 6.3 17
Total Combined Portfolio 10,929 (323) -2.9 1.8 5.1(2) 5.4(2) 5.4 19
1. Rental value change excludes units materially altered during the period.
2. Excluding developments
Leasing and operational performance
Central London
Across the Central London market, office take-up increased 78% YoY to 12.4m sq
ft, in line with the 10-year average. Space under offer is broadly stable
since March and, at 3.8m sq ft, remains ahead of the 3.4m sq ft 10-year
average. Vacancy came down slightly, from 9.0% to 8.3%, although 79% of this
is second-hand space, of which a large part does not necessarily fit today's
customer and sustainability requirements. Vacancy remains elevated in the City
at 12.2%, yet fell 0.7ppt to 3.9% in the West End.
Against this backdrop, we signed ten lettings and renewals in Central London,
totalling £10m of rent, on average 1% ahead of valuers' assumptions, with a
further £31m in solicitors' hands, 3% above valuers' estimates. Overall,
office lettings were 2% above ERV. Retail lettings were at a 5% premium, as
demand picked up materially, with office utilisation gradually increasing and
tourism up significantly compared to last year. Overall occupancy was down
30bps to 94.8% at the end of September, but has increased back to 95.1% since
the period-end. We also continue to see good demand for our Myo flexible
space, with 123 Victoria Street 98% let and Dashwood 86% let, vs 98% and 64%
six months ago, which supports our plans to open four new Myo locations,
totalling 160,000 sq ft, over the next 18 months.
Looking forward, we expect more flexible ways of working will reduce overall
demand for office space in the UK, although the impact of this will not be
evenly spread. We expect large HQ type space and areas which offer little
reason to visit beyond doing a job to see a much bigger impact than places
which offer exciting amenities for people to give them a reason to want to
spend time there. We continue to see good demand for the high quality space we
offer, with current negotiations on new lettings on average ahead of ERV, so
we expect our high occupancy will further improve in the second half.
Major retail destinations
Demand for retail space in prime locations has continued to grow. Total retail
sales across our portfolio grew 6.3% YoY and LFL sales are now 3.6% above 2019
levels, highlighting the value of our major retail destinations for brands and
consumers. At the same time, online sales have fallen back to pre-pandemic
trends, as consumer behaviour continues to normalise. Many leading brands now
recognise online and physical channels as fully inter-connected, as e.g. Next
and Shopify recently commented that the surge in online sales as a result of
Covid which many thought to be permanent has proven to be only temporary.
The growth in sales across our portfolio relative to the sharp c. 35% reset in
income over the years to FY21 means the affordability of our space for brands
has improved significantly, at a time that the cost of doing business online
has increased materially. Whilst we expect brands will continue to rationalise
their store footprints and potentially even accelerate this, with inflation
putting pressure on marginal stores, their focus on 'fewer, bigger, better'
stores has started to drive a tangible return to growth for our assets.
We completed 103 lettings totalling £12m in the first half of this year,
ahead of the same period last year, on average a marked 20% ahead of ERV. This
was partly driven by three sizeable outlet lettings at more than double the
ERV, but even excluding these, the average premium vs ERV was still a material
15%, including a 7% premium for shopping centre lettings. In addition, we have
a further £15m of lettings in solicitors' hands, on average 7% ahead of ERV,
with shopping centre leases 8% ahead.
Close to 80% of the 103 leases we signed during the half year had some
turnover linkage, although the average turnover element was only 15% of the
overall rent, so even the fixed base rent was well above ERV. On an overall
basis, c. 40% of our leases now have a turnover component, with turnover rent
making up 17% of our overall retail income. This growing insight in turnover
provides us with valuable data and, across a nation-wide portfolio, a unique
insight in underwriting sustainable income levels.
As a result, since March, occupancy has increased 120bps to 94.4%. We continue
to monitor credit risks in our portfolio, but units in administration remain
low at 0.5%, in line with March. There have been no CVAs and minimal
insolvencies during the period, as many of the most challenged business models
already folded during the pandemic. We note that Cineworld, which makes up
0.6% of the annual rent of our major retail destinations, has filed for
Chapter 11 bankruptcy protection in the US, although it continues to trade and
pay rent. Footfall across our shopping centres increased 21% YoY and is now at
86% of pre-pandemic levels, compared to 82% for the UK market and up from 80%
six months ago.
Looking forward, we are mindful consumers face significant headwinds as a
result of macro-economic challenges, but given our strong letting pipeline we
expect occupancy to grow further in the second half. Moreover, the stark
contrast between sales in our shopping centres which are now close to
pre-pandemic levels vs rents which are c. 35% lower and values which are 63%
down since 2017, means the outlook for income and values in our view remains
attractive.
Mixed-use urban neighbourhoods
At present, the completed investment assets in our mixed-use portfolio solely
comprise our investment in MediaCity, which we acquired in late 2021. Over
half of the income is RPI linked with caps and collars at 2-5%, securing
future income growth. Occupancy remained stable during the period, but since
the period-end this has increased to 97.5%. Our mixed-use development assets
include our three shopping centres in London and Glasgow which are held for
future development, but where the existing income is managed on a short-term
basis to maximise our flexibility to obtain access for development.
Subscale sectors
The operational performance of our subscale assets remained robust, despite
some slowdown in leisure compared to the reopening bounce last year. We
completed £2m of retail park and leisure lettings across 14 deals during the
half year, 10% above valuers' assumptions, with a further £5m of rent in
solicitors' hands, 11% above valuers' assumptions, and overall occupancy was
broadly stable. Our hotels, which are all let to Accor, have seen occupancy
rise to 94% of pre-pandemic levels, up from 67% last year, which drove a
material increase in RevPAR.
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 132 143 98.4 - 6.5
City offices 79 104 90.3 -1.0 7.8
Retail and other 43 54 94.1 -0.2 7.6
Developments 5 64 n/a n/a n/a
Total Central London 259 365 94.8 -0.3 7.0
Shopping centres 106 104 93.9 1.1 4.2
Outlets 57 61 95.2 1.4 3.2
Total Major retail 163 165 94.4 1.2 3.9
Completed investment 24 24 n/a n/a 9.7
Developments 29 32 n/a n/a n/a
Total Mixed-use urban 53 56 n/a n/a 9.7
Leisure 50 51 95.6 -0.9 10.4
Hotels 25 25 n/a - 8.7
Retail parks 29 29 97.4 0.9 4.3
Total Subscale sectors 104 105 97.3 -0.1 8.0
Total Combined Portfolio 579 691 95.1 - 6.4
1. Excluding developments
Investing in sustainability, people and culture
A year ago, we were the first UK property company to announce a fully costed
net zero carbon transition plan, which would see us invest £135m of capex in
our existing portfolio by 2030 to deliver our science based target and meet
the Minimum Energy Efficiency Standard of EPC 'B' by 2030. Since then, we have
completed air source heat pump feasibility studies for six offices, with four
progressing to concept design and one to detailed design. We have also
completed building management system optimisations for five offices, with a
further seven to be completed this financial year, where we are identifying on
average a 10% annual energy saving. In addition, we are on track to expand the
energy audits with 15 of our largest customers, which identified annual carbon
and costs savings of 10-15%, to an additional ten customers. Highlighting its
quality, 43% of our office portfolio is already rated 'B' or higher, which
compares to 15% for the overall office market.
We continue to work on reducing embodied carbon in our future pipeline, in
line with our target to reduce this by 50% vs a typical development by 2030,
to below 500kgCO(2)e/sqm for offices. To help achieve this target, we have
recently 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
strong market signal of our commitment to net zero to our supply chain.
Our plans for Timber Square, SE1 already show an 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
Red Lion Court, SE1 we expect an 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 completes later this year,
remains on track to be the first building in the UK to be designed and
operated in line with the UK Green Building Council framework definition of a
net zero carbon building. Combined with Liberty of Southwark, these schemes
will create an attractive new green office cluster in Southwark.
In May, we also announced our Realising Potential fund which 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. We will launch this in April 2023,
including a bursary programme that will provide financial support to
underrepresented young adults studying for a placemaking career and a small
grants programme that will provide grants to local charities and community
organisations in the areas we operate,
Whilst we invest in building a sustainable business, we also need to make sure
we build a culture which is right for the future. To that extent, we started
an organisation-wide review six months ago with the aim to reduce internal
complexity and become more agile, customer service-oriented and outward
focused. This builds on the changes to our retail team last year, where we
brought in experience and capabilities from international retailer backgrounds
to focus more on growing brand relationships and guest experience, and the
successful retention of the U+I team's unique placemaking and design
capability.
We have already made a number of changes as a result, including a number of
leadership changes, and we expect further changes in the second half. This
will help improve our overall efficiency, but more importantly, changing the
culture of our business is key to creating a more diverse organisation which
can harness the skills and experience of all of the substantial talent within
Landsec, in order to successfully deliver on our strategy in the long term.
Development pipeline
Central London
The £809m sale of 21 Moorfields substantially reduced our development
exposure and crystallised a healthy 25% profit on cost. As a result, our
committed pipeline now comprises three schemes, which are set to produce an
ERV of £38m once fully let, with just £110m capex left to spend. Reflecting
our strong leasing activity, the combined ERV increased by 3% since March, of
which 38% is let or under offer, with active negotiations on further lettings.
All three projects are set to complete over the next nine months, with costs
and timelines broadly maintained over the past six months, despite market wide
pressures from inflation, supply chain disruption and labour shortages.
Table 4: Committed development pipeline
Property Sector Size Estimated completion Net income/ ERV Market value Capital expenditure to complete Market value + future TDC Gross yield on MV + future TDC
date
£m
sq ft £m £m £m %
'000
The Forge, SE1 Office/retail 140 Dec-22 10 155 18 174 5.5
Lucent, W1 Office/retail/residential 144 Mar-23 14 222 41 265 5.3
n2, SW1 Office 165 Jun-23 14 172 51 227 6.2
Total 449 38 549 110 666
The rise in construction cost and, more recently, sharp rise in development
finance costs is likely to result in a significant reduction in near-term
development starts in London. During previous periods of economic uncertainty,
new starts ended up c. 30-90% below originally expected levels and we believe
this could well repeat over the next twelve months. As such, we think this
could create an attractive window to deliver new space in 2025, when new
supply of Grade A space is likely to be low.
We are confident that the quality of our future pipeline and its
sustainability credentials is well positioned for future demand, but are
mindful that in periods of economic uncertainty demand can be cyclical. In the
near term, we are therefore focused on maintaining optionality. For the two
schemes which are ready to go, Timber Square, SE1 and the refurbishment of
Portland House, SW1 this means we plan to commit to early works at a total
cost of c. £55m shortly, which allows us to maintain a timeline of potential
delivery in late 2025, whilst keeping flexibility on committing to the
residual c. £400m capex investment. With rents achieved on our current
pipeline since May 11% ahead of valuers' assumptions, we expect a gross yield
on cost of 7%+ for both projects and a yield on incremental expenditure of
10%+.
Table 5: Future Central London development 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, SW1 Office 300 380 28 7.4 H1 2023 Consented
Liberty of Southwark, SE1 Office/resi 200 245 15 7.2(1) H1 2023 Consented
Red Lion Court, SE1 Office 230 320 23 7.2 H1 2024 Planning application
Total near-term 1,110 1,345 96 7.3
Longer-term
Nova Place, SW1 Office 50 2024 Design
Old Broad Street, EC2 Office 290 2025 Design
Hill House, EC4 Office 325 2025 Design
Total longer-term 665
Total future pipeline 1,775
1. Gross yield on cost adjusted for residential TDC
Mixed-use urban neighbourhoods
Our 9.0m sq ft mixed-use urban neighbourhoods pipeline continues to offer
significant growth potential in locations where structural demand
characteristics remain positive. The integration of the Landsec and U+I teams
into a combined regeneration business is now complete and we remain on track
in terms of preparing our pipeline, whilst maintaining optionality on future
commitments.
At Mayfield, 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 from the JV, once we intend to start on site. At MediaCity, we
obtained detailed planning for the first 263,000 sq ft office building in
October, which means we could potentially start both projects in early to mid
2023.
At Finchley Road, NW3, we expect a decision on the planning application which
we submitted in January 2022 by the financial year-end and we have made
further progress on our vacant possession strategy. Subject to planning, we
could therefore start enabling works as soon as next year. In Glasgow, we have
concluded the first rounds of public consultation and now expect to submit a
planning application by the year-end. In Lewisham, SE13 we have continued our
positive engagement with the Council on a new masterplan and are preparing to
submit an application for this next year.
As such, our mixed-use pipeline provides a valuable opportunity to build an
attractive balance of income, development upside and medium term growth
potential. The flexibility to phase capex, mixed-use nature and geographic
spread of the pipeline all add to its balanced risk-profile, as we retain
flexibility to adapt to changes in demand. As land values are much lower in
the regions than in London, we are mindful that development returns are more
sensitive to yield movements and construction costs, although this is partly
mitigated by the fact that margins and yields on cost tend to be higher.
Whilst we continue to prepare our pipeline, we maintain flexibility on future
capital commitments to make sure we achieve our targeted low to mid-teens IRR.
The current book value of the pipeline below of c. £350m is modest compared
to its potential upside and given the blended 6.4% income yield on the
meanwhile use of part of the existing assets, its holding cost is low. As
such, this provides valuable optionality for future growth.
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 2023 8 2025/2030 550-650 7 - 8 Consented
Finchley Road, NW3 100 1,400 2023 10 2026/2034 950-1,200 6 - 7 Application
Buchanan Galleries, Glasgow 100 1,400 2024 11 2027/2035 600-750 7 - 8 Design
Lewisham, SE13 100 1,800 2025 14 2028/2037 1,100-1,300 6 - 7 Design
Total future pipeline 9,000 4,000-4,850
Financial review
Overview
Our positive operational performance is reflected in a meaningful increase in
EPRA earnings, which was up 9.4% to £197m, primarily driven by a £24m
increase in net rental income, partly reflecting a £10m increase in surrender
premiums received. Like-for-like gross rental income excluding surrender
premiums was up 8.3%, or 6.2% on a net rental income basis. This reflects our
positive leasing performance, primarily in major retail destinations, and
continued growth in income across our hotel portfolio. As a result, EPRA EPS
increased 9.5% to 26.6 pence. This allows us to pay a second interim dividend
of 9.0 pence, bringing the total dividend for the half year to 17.6 pence, up
13.5% vs the prior year. Our policy remains to have dividends annually covered
1.2 to 1.3 times by EPRA earnings.
Despite this strong operational result, our overall financial performance was
impacted by a £323m reduction in the value of our Combined Portfolio, as
market yield shift in London more than offset the ERV growth our leasing
activity delivered and the upside from our successful development activity. As
a result, our total accounting return was -2.9%, with a loss before tax of
£192m, compared to a profit of £275m in the prior year. After dividends paid
during the period, EPRA NTA per share reduced 5.0% to 1,010 pence.
Nevertheless, our actions during the half year further strengthened our robust
capital base. Adjusted net debt fell from £4.2bn to £3.4bn due to our
successful disposals, so as a result, our LTV reduced from 34.4% to 31.1%. Our
weighted average net debt/EBITDA stands at a modest 8.7 times and we expect
this to reduce to c. 8 times by the year-end, reflecting the full year benefit
of our recent disposals. Our average debt maturity increased to 9.8 years and
with £1.8bn 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
IFRS 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 results of the Group on a basis
that adjusts for these forms of ownership to present a proportionate share.
The Combined Portfolio, with assets totalling £10.9bn, is an example of this
approach, reflecting the economic interest we have 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 positive income growth reflects our successful asset management and the
resilience our high-quality portfolio provides, with quality becoming an
increasingly important driver for customers. We have seen rental income grow,
principally in major retail destinations; mixed-use, where some of our future
projects have an existing retail use; and subscale sectors, which include our
retail parks, leisure and hotels, as trading in these segments continued to
normalise relative to last year, when the UK had just emerged out of lockdown
at the start of the period.
Table 7: Income statement (1)
Six months ended Six months ended
30 September 2022
30 September 2021
Central London Major retail Mixed-use urban Subscale sectors Total Central London Major retail Mixed-use urban Subscale sectors Total Change
Table £m £m £m £m £m £m £m £m £m £m £m
Gross rental income (2) 160 84 28 53 325 148 74 17 43 282 43
Net service charge expense (1) (6) (1) (1) (9) - (3) (1) (2) (6) (3)
Net direct property expenditure (11) (15) (6) (6) (38) (9) (9) (3) (4) (25) (13)
Movement in bad and doubtful debts provisions 1 3 (4) - - (2) 5 1 (1) 3 (3)
Segment net rental income 8 149 66 17 46 278 137 67 14 36 254 24
Net administrative expenses (41) (41) -
EPRA earnings before interest 237 213 24
Net finance expense (40) (33) (7)
EPRA earnings 197 180 17
Capital/other items
Valuation (deficit)/surplus (323) 81
(Loss)/gain on changes in finance leases (6) 6
(Loss)/profit on disposals (92) 6
Impairment charges (8) -
Fair value movement on interest rate swaps 48 2
Other (6) -
(Loss)/profit before tax attributable to shareholders of the parent (190) 275
Non-controlling interests (2) -
(Loss)/profit before tax (192) 275
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
Net rental income for the half year increased by £24m to £278m.
Like-for-like gross rental income rose £19m, or 8.3%, and the net impact of
our investment activity was up £10m. Bad and doubtful debt charges were nil,
compared to a £3m reversal of provisions last year. Variable rent, which
includes income from hotels, Piccadilly Lights, parking and retail turnover
rent, increased £14m as trading has continued to normalise. We received £19m
of surrender premiums during the period vs £9m in the prior period. This
principally reflected a £15m premium in relation to the lease restructuring
with Deloitte at New Street Square, EC4, at the end of last year. The space
this freed up provides flexibility for asset management initiatives across the
wider estate, whilst we work up medium term redevelopment plans.
Whilst there were minimal insolvencies and no new CVAs during the period, we
note that Cineworld, which makes up 1.8% of our annual rent, has filed for
Chapter 11 bankruptcy protection in the US. We have taken appropriate
provisions during the half year and will await the outcome of this process,
but all assets in our portfolio continue to trade and the company continues to
pay rent.
Direct property expenditure increased by £13m, of which almost half was
driven by acquisitions. Like-for-like direct property costs increased £7m.
This reflected a combination of higher letting fees, due to our increased
letting activity; higher utilisation of our assets given that at the start of
the prior period, the UK was still in lockdown; and some element of cost
inflation. Net service charge expenditure increased £3m, which principally
reflects a reconciliation of prior year charges. As a result, our gross to net
ratio was 85.5%, but we expect this to improve as void and letting costs
reduce as occupancy improves further.
Table 8: Net rental income(1)
£m
Net rental income for the six months ended 30 September 2021 254
Gross rental income like-for-like movement in the period(2):
Increase in variable and turnover-based rents 14
Other movements 5
Total like-for-like gross rental income 19
Like-for-like net service charge expense (2)
Like-for-like net direct property expenditure (7)
Like-for-like movement in bad and doubtful debts provisions 3
Surrender premiums received 10
Developments(2) (9)
Acquisitions since 1 April 2021(2) 16
Disposals since 1 April 2021(2) (6)
Net rental income for the six months ended 30 September 2022 278
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
Net administrative expenses were flat at £41m, in line with our view that
admin costs for the full year will be largely stable vs last year. Despite the
increase in cost due to the impact of the U+I acquisition, c. £5m of annual
IT and data related costs reflecting an investment in upgrading our systems
and data capability which due to updated IFRIC accounting guidance is now
expensed instead of capitalised, and wage inflation, this reflects our
continued focus on making sure our overall cost base is right. We still
anticipate administrative expenses for next year to reduce compared to the
current year.
Our EPRA cost ratio for the period was 26.2% in line with the full year last
year. Elevated wage inflation and general cost inflation are putting upward
pressure on costs, but the actions we have taken to reduce our cost base mean
we are on track to improve this ratio towards the low 20's over time through a
combination of a reduction in administrative expenses and an improvement in
gross to net rent margin.
Net finance expenses
Net interest costs increased £7m to £40m, principally due to our
acquisitions last year which resulted in an increase in average gross
borrowings for the period, ahead of the disposal of 21 Moorfields at the end
of the half year, plus some increase in variable interest rates. At the start
of the period, 70% of our borrowings were fixed or hedged, but in line with
our expectations, borrowings reduced due to our disposals, so hedging
increased to 84% at the period-end. With much lower borrowings in the second
half, we still expect net interest costs for the full year to be only slightly
higher than the £71m for last year.
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 £2m in the prior period to a net income of
£48m for the last six months. 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 profit on disposals
The independent external valuation of our Combined Portfolio showed a £323m
value reduction. Whilst the strong leasing evidence we created drove 1.8% ERV
growth and we delivered further profits on our committed pipeline, the upside
of this was offset by a market-wide softening of yields due to the sharp rise
in bond yields. This principally affected our London portfolio, as the value
of our major retail, mixed-use and subscale assets has been more resilient.
We recognised a £92m loss on disposals, mostly reflecting the sale of 21
Moorfields and an element of development provisions, offset by the sale of
32-50 Strand. The March valuation of Strand already reflected part of the 15%
premium to book value on the sale. The sale of 21 Moorfields reflected a 9%
discount to book value, but crystallised a 25% development profit and
significantly reduced our LTV.
IFRS profit after tax
Substantially all our activity during the year was covered by UK REIT
legalisation, 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 £192m, compared to a profit of £275m
in the prior period.
Total accounting return
EPRA Net Tangible Assets, which principally reflects the value of our Combined
Portfolio less adjusted net debt, reduced to £7,504m, or 1,010 pence on a per
share basis, marking a 5.0% reduction since March. Including dividends paid,
this means our total accounting return for the half year was -2.9%.
Table 9: Balance sheet(1)
30 September 2022 31 March 2022
£m £m
Combined Portfolio 10,929 12,017
Adjusted net debt (3,441) (4,179)
Other net assets/(liabilities) 16 50
EPRA Net Tangible Assets 7,504 7,888
Shortfall of fair value over net investment in finance leases book value 1 6
Other intangible asset 2 2
Excess of fair value over trading properties book value (7) -
Fair value of interest-rate swaps 69 21
Net assets, excluding amounts due to non-controlling interests 7,569 7,917
Net assets per share 1,023p 1,070p
EPRA Net Tangible Assets per share (diluted) 1,010p 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 197 27
Like-for-like valuation movement (307) (41)
Development valuation movement 3 -
Impact of acquisitions/disposals (19) (3)
Total valuation deficit (323) (44)
Dividends (155) (21)
Loss on disposals (92) (13)
Other (11) (2)
EPRA Net Tangible Assets at 30 September 2022 7,504 1,010
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Net debt and LTV
During the half year, adjusted net debt, which includes our share of JV
borrowings, reduced by £738m to £3,441m. This was principally driven by the
£1bn disposal of two mature London office assets, 32-50 Strand and 21
Moorfields. We made no material acquisitions, but capital expenditure on our
Combined Portfolio was £195m, reflecting our London office development
programme, the preparation of future developments and the investment in our
current portfolio. We only have £127m committed capex left to spend and
retain full flexibility on any potential new development starts.
The other key elements behind the increase 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.
Due to the reduction in borrowings, our Group LTV which includes our share of
JVs, reduced from 34.4% to 31.1%. 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. We continue to look for opportunities to recycle capital
but our strong balance sheet and limited capital commitments mean we can
afford to be selective.
Table 11: Net debt and LTV
30 September 2022 31 March 2022
Net debt £3,475m £4,254m
Adjusted net debt(1) £3,441m £4,179m
Group LTV(1) 31.1% 34.4%
Security Group LTV 32.5% 36.4%
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Table 12: Movement in adjusted net debt(1)
£m
Adjusted net debt at 31 March 2022 4,179
Adjusted net cash inflow from operating activities (168)
Dividends paid 155
Capital expenditure 141
Acquisitions 2
Disposals (870)
Other 2
Adjusted net debt at 30 September 2022 3,441
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Financing
Our gross borrowings of £3,541m are diversified across various sources,
including £2,341m Medium Term Notes, £0.8bn syndicated and bilateral bank
loans and £424m 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 £10.2bn. 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 32.5%, down from 36.4% in March, our portfolio could
withstand a 50% fall in value before we reach the 65% hurdle and 68% before
reaching 100%.
We have £1.8bn of undrawn facilities, which provides substantial flexibility.
The amount of borrowings which is fixed or hedged increased to 84%, 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 remain within an
80-90% range, to keep some flexibility for potential divestments.
The reduction in utilisation of our revolving credit facilities following our
disposals over the period, meant that our average maturity of debt increased
to 9.8 years, even though we did not issue any new debt during the period. As
expected, our average cost of debt increased slightly to 2.7% due to the
increase in variable rates. We only have £733m of debt maturing in the next
three years, but all of this is more than covered by existing undrawn
facilities, which means we have no refinancing requirements until 2026. All in
all, our strong financial base therefore offers clear visibility,
sustainability of earnings and significant optionality for future
opportunities.
Table 13: Available facilities(1)
30 September 2022 31 March 2022
£m £m
Medium Term Notes 2,341 2,341
Drawn bank debt 776 1,519
Outstanding commercial paper 424 499
Cash and cash equivalents (80) (157)
Available undrawn facilities 1,814 1,119
Total committed credit facilities 2,934 2,980
Weighted average maturity of debt 9.8 years 9.1 years
Percentage of borrowings fixed or hedged 84% 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.
Principal risks and uncertainties
The principal risks of the business were set out on pages 60-69 of the 2022
Annual Report that was published in May. The Board has reviewed these risks
again and concluded that they remain relevant. In reviewing Landsec's risk
landscape, the Board concluded that key change projects failing to deliver the
expected benefits, especially those that relate to cultural changes, should be
included within our principal risks.
Many of the risks disclosed in the Annual Report have evolved over the first
half of 2022/23 due largely to the increasing volatility and uncertainty in
the UK economy. Unsurprisingly, the macro-economic outlook remains our highest
rated risk, with inflation and rising interest rates having an impact on
valuations, capital costs and our investment and development strategies.
Our principal risks are summarised as follows:
Macro-economic Outlook and Capital Allocation - The current economic climate
in the UK is increasingly uncertain and business confidence has fallen
significantly as a result of high inflation and interest rate rises. This has
impacted consumers and resulted in a cost of living crisis and the threat of
recession. For Landsec, this impacts asset yields and therefore valuations,
our cost-base, including the cost of completing development projects, and our
ability to recycle assets. It may also give rise to opportunities to acquire
assets.
Office Occupier Market - Our premium office products have continued to perform
well and occupancy and valuations have held up better than "secondary office"
space. Tenants continue to pay rents and our portfolio team have seen positive
demand for this space which is well regarded in the market. Uncertainty around
the demand for office space appears to have levelled out as the hybrid working
model adopted by many organisations has become embedded.
Retail and Hospitality Occupier Market - The split between online and physical
retail sales has fluctuated in recent years and this in turn impacted demand
for retail space. However, footfall and sales in retail locations have
improved over the past six months, especially at our premium retail
destinations. Cinemas have been an area of concern, with Cineworld recently
filing for Chapter 11 bankruptcy protection in the US. The potential for
recession and resurgence of Covid-19 in winter 2022/23 could further challenge
our retail business.
Change Programmes - With a number of important internal change programmes
underway, it is crucial that the benefits identified, especially those that
relate to cultural changes, are realised in order to deliver our strategic
objectives.
Development Strategy - Fluctuating demand for existing and future office space
continues to be uncertain. This, coupled with supply chain and inflationary
pressures, is likely to impact our investment and development activity in the
short to medium term.
Information and Cyber Security - Significant emphasis has been placed on this
risk since year end, with investment in improving our controls and resilience,
which is partially offset by the ever increasing external threat.
The three other principal risks (people and skills; health and safety; and
climate change transition) have all remained stable in the six months since
year end.
Statement of Directors' Responsibilities
Each of the Directors, whose names and functions appear below, confirm to the
best of their knowledge that the condensed consolidated interim financial
statements have been prepared in accordance with IAS 34, 'Interim Financial
Reporting', as contained in UK adopted international accounting standards and
that the interim management report herein includes a fair review of the
information required by the Disclosure and Transparency Rules (DTR), namely:
¾ DTR 4.2.7 (R): an indication of important events that have occurred
during the six month period ended 30 September 2022 and their impact on the
condensed interim financial statements and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and
¾ DTR 4.2.8 (R): any related party transactions in the six month period
ended 30 September 2022 that have materially affected, and any changes in the
related party transactions described in the 2022 Annual Report that could
materially affect, the financial position or performance of the enterprise
during that period.
The Directors of Land Securities Group PLC as at the date of this announcement
are as set out below:
¾ Cressida Hogg, Chairman*
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
A list of the current Directors is maintained on the Land Securities Group PLC
website at landsec.com.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial information differs from legislation in other jurisdictions.
By order of the Board
Mark Allan
Vanessa Simms
Chief Executive Chief Financial
Officer
Independent review report to Land Securities Group PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2022 which comprises consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated statement of
cash flows and the related notes to the financial statements 1 to 17. We have
read the other information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
14 November 2022
Financial statements
Unaudited income statement Six months ended Six months ended
30 September 2022
30 September 2021
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
Notes £m £m £m £m £m £m
Revenue 5 360 34 394 314 1 315
Costs - movement in bad and doubtful debts provisions 6 - - - 7 - 7
Costs - other 6 (143) (45) (188) (124) (1) (125)
217 (11) 206 197 - 197
Share of post-tax profit/(loss) from joint ventures 12 14 1 15 12 (13) (1)
(Loss)/profit on disposal of investment properties - (92) (92) - 6 6
Net (deficit)/surplus on revaluation of investment properties 10 - (331) (331) - 94 94
(Loss)/gain on changes in finance leases - (6) (6) - 6 6
Operating profit/(loss) 231 (439) (208) 209 93 302
Finance income 7 6 51 57 4 2 6
Finance expense 7 (40) (1) (41) (33) - (33)
Profit/(loss) before tax 197 (389) (192) 180 95 275
Taxation - - - - - -
Profit/(loss) attributable to shareholders 197 (389) (192) 180 95 275
Attributable to:
Shareholders of the parent (190) 275
Non-controlling interests (2) -
(192) 275
(Loss)/profit per share attributable to shareholders:
Basic (loss)/earnings per share 4 (25.7)p 37.2p
Diluted (loss)/earnings per share 4 (25.7)p 37.1p
Unaudited statement of comprehensive income Six months ended Six months ended
30 September 2022
30 September 2021
Total Total
£m £m
(Loss)/profit for the period (192) 275
Items that will not be subsequently reclassified to the income statement:
Movement in the fair value of other investments - (2)
Net re-measurement (loss)/gain on defined benefit pension scheme (2) 1
Deferred tax charge on defined benefit pension scheme - (1)
Other comprehensive loss for the period (2) (2)
Total comprehensive (loss)/income for the period (194) 273
Attributable to:
Shareholders of the parent (192) 273
Non-controlling interests (2) -
(194) 273
Unaudited balance sheet 30 September 31 March
2022 2022
(restated)(1)
Notes £m £m
Non-current assets
Investment properties 10 10,187 11,207
Intangible assets 7 8
Net investment in finance leases 20 70
Investments in joint ventures 12 678 700
Investments in associates 4 4
Trade and other receivables 168 177
Other non-current assets 99 61
Total non-current assets 11,163 12,227
Current assets
Trading properties 11 135 145
Trade and other receivables 385 368
Monies held in restricted accounts and deposits 1 4
Cash and cash equivalents 47 146
Other current assets 28 5
Total current assets 596 668
Total assets 11,759 12,895
Current liabilities
Borrowings 14 (424) (541)
Trade and other payables (358) (320)
Other current liabilities (13) (11)
Total current liabilities (795) (872)
Non-current liabilities
Borrowings 14 (3,302) (4,012)
Trade and other payables (9) (8)
Other non-current liabilities (14) (12)
Total non-current liabilities (3,325) (4,032)
Total liabilities (4,120) (4,904)
Net assets 7,639 7,991
Equity
Capital and reserves attributable to shareholders
Ordinary shares 80 80
Share premium 317 317
Other reserves 10 9
Retained earnings 7,162 7,511
Equity attributable to shareholders of the parent 7,569 7,917
Equity attributable to non-controlling interests 70 74
Total equity 7,639 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 26 to 47 were approved by the Board of
Directors on 14 November 2022 and were signed on its behalf by:
M C Allan V K Simms
Directors
Unaudited 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 period - - - 273 273 - 273
Transactions with shareholders of the parent:
Share-based payments - - (1) 1 - - -
Dividends paid to shareholders of the parent - - - (66) (66) - (66)
Transfer of treasury shares - - (21) 21 - - -
Total transactions with shareholders of the parent - - (22) (44) (66) - (66)
At 30 September 2021 80 317 6 7,016 7,419 - 7,419
Total comprehensive income for the financial period - - - 609 609 6 615
Transactions with shareholders of the parent:
Share-based payments - - 3 1 4 - 4
Dividends paid to shareholders of the parent - - - (115) (115) - (115)
Total transactions with shareholders of the parent - - 3 (114) (111) - (111)
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 period - - - (192) (192) (2) (194)
Transactions with shareholders of the parent:
Share-based payments - - 1 2 3 - 3
Dividends paid to shareholders of the parent - - - (159) (159) - (159)
Total transactions with shareholders of the parent - - 1 (157) (156) - (156)
Dividends paid to non-controlling interests - - - - - (2) (2)
Total transactions with shareholders - - 1 (157) (156) (2) (158)
At 30 September 2022 80 317 10 7,162 7,569 70 7,639
Unaudited statement of cash flows Six months ended
30 September
2022 2021
(restated) (1)
Notes £m £m
Cash flows from operating activities
Net cash generated from operations 9 196 202
Interest paid (86) (46)
Interest received 13 7
Rents paid (5) (4)
Capital expenditure on trading properties (12) -
Disposal of trading properties 7 -
Development income proceeds received 54 -
Other operating cash flows 9 (1)
Net cash inflow from operating activities 176 158
Cash flows from investing activities
Investment property development expenditure (132) (127)
Other investment property related expenditure (26) (33)
Acquisition of investment properties (2) -
Disposal of investment properties 870 52
Cash distributions from joint ventures 12 2 2
Other investing cash flows (2) (1)
Net cash in/(out)flow from investing activities 710 (107)
Cash flows from financing activities
Proceeds from new borrowings (net of finance fees) - 192
Repayment of borrowings 14 (858) (142)
Net cash in/(out)flow from derivative financial instruments 14 27 (1)
Dividends paid to shareholders 8 (155) (75)
Dividends paid to non-controlling interests (2) -
Decrease in monies held in restricted accounts and deposits 3 -
Net cash outflow from financing activities (985) (26)
(Decrease)/increase in cash and cash equivalents for the period (99) 25
Cash and cash equivalents at the beginning of the period 146 10
Cash and cash equivalents at the end of the period 47 35
1. Cash and cash equivalents and monies held in restricted accounts and
deposits have been restated as at 30 September 2021 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
This condensed consolidated interim financial information (financial
statements) for the six months ended 30 September 2022 has been prepared on a
going concern basis and in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and IAS 34 'Interim Financial
Reporting' as contained in UK adopted international accounting standards
(IFRS).
The condensed consolidated interim financial information does not comprise
statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 March 2022, prepared in
accordance with UK adopted international accounting standards (IFRSs and
IFRICs) and in conformity with the Companies Act 2006, were approved by the
Board of Directors on 16 May 2022 and delivered to the Registrar of Companies.
The report of the auditor on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain any statement under
section 498(2) or (3) of the Companies Act 2006. The condensed consolidated
interim financial information has been reviewed, not audited, and should be
read in conjunction with the Group's annual financial statements for the year
ended 31 March 2022.
In preparing the condensed consolidated interim financial information, the
Group has considered the impact of climate change and concluded that climate
change did not have a material impact on the financial reporting judgements
and estimates.
This condensed consolidated interim financial information was approved for
issue by the Directors on 14 November 2022.
Going concern
The impact of recent international and domestic political and economic events
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. The Group's going concern assessment considers changes in the
Group's principal risks (see page 22) 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 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 31 March
2024, are shown below alongside the actual position at 30 September 2022.
Key metrics 30 September 2022 31 March 2022
latest mitigated downside scenario
mitigated downside scenario
30 September 2022 31 March 2024 30 September 2023
Security Group LTV 32.5% 42.3% 38.9%
Adjusted net debt £3,441m £3,644m £4,363m
EPRA Net Tangible Assets £7,504m £5,121m £7,266m
Available financial headroom £1.8bn £1.8bn £1.2bn
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
30 September 2022 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 before interest of at least £150m in the
full year ending 30 September 2023 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 in the six months to 30 September 2022 are already
above the level required to meet the interest cover covenant for the year
ending 31 March 2023. Therefore, the Directors do not anticipate a reduction
in Security Group earnings over the period ending 31 March 2024 to a level
that would result in a breach of the interest cover covenant.
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 period ended 30 September 2022.
Presentation of results
The Group income statement is presented in a columnar format, split into those
items that relate to EPRA earnings and Capital and other items. The Total
column represents the Group's results presented in accordance with IFRS; the
other columns provide additional information. This is intended to reflect the
way in which the Group's senior management review the results of the business
and to aid reconciliation to the segmental information.
A number of the financial measures used internally by the Group to measure
performance include the results of partly-owned subsidiaries and joint
ventures on a proportionate basis. Measures that are described as being 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. These measures are non-GAAP measures and therefore not presented
in accordance with IFRS. This is in contrast to the condensed consolidated
interim financial information presented in these half year results, where the
Group applies equity accounting to its interest in joint ventures and
associates, presenting its interest collectively in the income statement and
balance sheet, and consolidating all subsidiaries 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 used internally by the Group.
2. Significant accounting policies
The condensed consolidated interim financial information has been prepared on
the basis of the accounting policies, significant judgements and estimates as
set out in the notes to the Group's annual financial statements for the year
ended 31 March 2022, as amended where relevant to reflect the new standards,
amendments and interpretations which became effective in the period. Following
clarification by IFRIC on the classification of monies held in restricted
accounts, monies that are restricted by use only are classified at 30
September 2022 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. There has been no material impact on
the financial statements of adopting any other new standards, amendments and
interpretations.
3. Segmental information
The Group's operations are all 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 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.
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 after 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 and non-wholly owned subsidiaries, on a pooled basis. Individual
joint ventures and non-wholly owned subsidiaries 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 results note are presented on a proportionate
basis. The following table reconciles the Group's income statement to the
segmental results.
Reconciliation of segmental information note to interim reporting
Six months ended 30 September 2022
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 307 27 (4) 330 330 -
Finance lease interest 1 - - 1 1 -
Gross rental income (before rents payable) 308 27 (4) 331 331 -
Rents payable (5) (1) - (6) (6) -
Gross rental income (after rents payable) 303 26 (4) 325 325 -
Service charge income 43 5 (1) 47 47 -
Service charge expense (51) (6) 1 (56) (56) -
Net service charge expense (8) (1) - (9) (9) -
Other property related income 13 1 - 14 14 -
Direct property expenditure (48) (5) 1 (52) (52) -
Movement in bad and doubtful debts provisions - - - - - -
Segment net rental income 260 21 (3) 278 278 -
Other income 1 - - 1 1 -
Administrative expenses (38) (1) - (39) (39) -
Depreciation (3) - - (3) (3) -
EPRA earnings before interest 220 20 (3) 237 237 -
Share of post-tax profit from joint ventures 15 (15) - - - -
Profit on disposal of trading properties 1 - - 1 - 1
Loss on disposal of investment properties(3) (92) - - (92) - (92)
Net (deficit)/surplus on revaluation of investment properties (331) 1 7 (323) - (323)
Loss on changes in finance leases (6) - - (6) - (6)
Impairment of goodwill (5) - - (5) - (5)
Impairment of trading properties (8) - - (8) - (8)
Depreciation (2) - - (2) - (2)
Operating (loss)/profit (208) 6 4 (198) 237 (435)
Finance income 57 - (2) 55 6 49
Finance expense (41) (6) - (47) (46) (1)
(Loss)/profit before tax (192) - 2 (190) 197 (387)
Taxation - - - -
(Loss)/profit for the period (192) - 2 (190)
1. Reallocation of the share of post-tax profit 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 long-term 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 for the period
ended 30 September 2022 is a £7m 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.
Segmental results
Six months ended Six months ended
30 September 2022
30 September 2021(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 160 88 28 54 330 146 77 17 42 282
Finance lease interest 1 - - - 1 4 - - 1 5
Gross rental income (before rents payable) 161 88 28 54 331 150 77 17 43 287
Rents payable(1) (1) (4) - (1) (6) (2) (3) - - (5)
Gross rental income (after rents payable) 160 84 28 53 325 148 74 17 43 282
Service charge income 22 20 5 - 47 20 19 2 - 41
Service charge expense (23) (26) (6) (1) (56) (20) (22) (3) (2) (47)
Net service charge expense (1) (6) (1) (1) (9) - (3) (1) (2) (6)
Other property related income 6 6 1 1 14 6 6 1 1 14
Direct property expenditure (17) (21) (7) (7) (52) (15) (15) (4) (5) (39)
Movement in bad and doubtful debts provisions 1 3 (4) - - (2) 5 1 (1) 3
Segment net rental income 149 66 17 46 278 137 67 14 36 254
Other income 1 3
Administrative expense (39) (41)
Depreciation (3) (3)
EPRA earnings before interest 237 213
Finance income 6 4
Finance expense (40) (33)
Joint venture net finance expense (6) (4)
EPRA earnings attributable to shareholders of the parent 197 180
1. Included within rents payable is lease interest payable of £1m (2021:
£2m) for the Central London segment.
2. A reconciliation from the Group income statement to the information
presented in the segmental results table for the six months to 30 September
2021 is included in table 25.
4. Performance measures
In the tables below, we present earnings per share and net assets per share
attributable to shareholders of the parent, calculated in accordance with
IFRS, 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 accounting return.
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 period to period.
Earnings per share Six months ended Six months ended
30 September 2022
30 September 2021
Loss for the period EPRA earnings Profit for the period EPRA earnings
£m £m £m £m
(Loss)/profit attributable to shareholders of the parent (190) (190) 275 275
Valuation and loss/(profit) on disposals - 435 - (93)
Net finance income (excluded from EPRA earnings) - (48) - (2)
(Loss)/profit used in per share calculation (190) 197 275 180
IFRS EPRA IFRS EPRA
Basic (loss)/earnings per share (25.7)p 26.6p 37.2p 24.3p
Diluted (loss)/earnings per share(1) (25.7)p 26.5p 37.1p 24.3p
1. In the six months ended 30 September 2022, share options are excluded from
the weighted average diluted number of shares when calculating IFRS diluted
loss per share because they are not dilutive.
Net assets per share 30 September 2022 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 7,569 7,569 7,569 7,917 7,917 7,917
Shortfall of fair value over net investment in finance leases book value - (1) (1) - (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 - - (69) - - (21)
Excess of fair value of trading properties over book value - 7 7 - - -
Shortfall/(excess) of fair value of debt over book value - 373 - - (107) -
Net assets used in per share calculation 7,569 7,947 7,504 7,917 7,803 7,888
IFRS EPRA NDV EPRA NTA IFRS EPRA NDV EPRA NTA
Net assets per share 1,023p n/a n/a 1,070p n/a n/a
Diluted net assets per share 1,019p 1,070p 1,010p 1,067p 1,052p 1,063p
Number of shares Six months ended 30 September 2022 Six months ended 31 March 2022
30 September 2022
30 September 2021
Weighted average
Weighted average
million million million million
Ordinary shares 751 751 751 751
Treasury shares (7) (7) (7) (7)
Own shares (4) (4) (4) (4)
Number of shares - basic 740 740 740 740
Dilutive effect of share options 3 3 1 2
Number of shares - diluted 743 743 741 742
Total accounting return is calculated as the cash dividends per share paid in
the period 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 period.
Total accounting return based on EPRA NTA Six months ended Six months ended
30 September 2022
30 September 2021
pence pence
(Decrease)/increase in EPRA NTA per share (53) 27
Dividend paid per share in the period (note 8) 22 9
Total return (a) (31) 36
EPRA NTA per share at the beginning of the period (b) 1,063 985
Total accounting return (a/b) (2.9)% 3.7%
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 long-term development contracts and the non-owned element of the
Group's subsidiaries which are presented in the 'Capital and other items'
column.
Six months ended Six months ended
30 September 2022
30 September 2021
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) 306 4 310 269 - 269
Adjustment for lease incentives (3) - (3) (11) - (11)
Rental income 303 4 307 258 - 258
Service charge income 42 1 43 36 - 36
Trading property sales proceeds - 15 15 - - -
Other property related income 13 - 13 12 - 12
Finance lease interest 1 - 1 5 - 5
Long-term development contract income(1) - 14 14 - 1 1
Other income 1 - 1 3 - 3
Revenue per the income statement 360 34 394 314 1 315
The following table reconciles revenue per the income statement to the
individual components of revenue presented in the segmental results table in
note 3.
Six months ended Six months ended
30 September 2022
30 September 2021
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
Rental income 307 27 (4) 330 258 24 - 282
Service charge income 43 5 (1) 47 36 5 - 41
Other property related income 13 1 - 14 12 2 - 14
Finance lease interest 1 - - 1 5 - - 5
Other income 1 - - 1 3 - - 3
Revenue in the segmental information note 365 33 (5) 393 314 31 - 345
Long-term development contract income(1) 14 - - 14 1 - - 1
Trading property sales proceeds 15 - - 15 - - - -
Revenue including Capital and other items 394 33 (5) 422 315 31 - 346
1. Development contract income for the six months to 30 September 2022 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. Cost
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 long-term development contracts, amortisation and impairments of
intangible assets, 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.
Six months ended Six months ended
30 September 2022
30 September 2021
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Rents payable 5 - 5 4 - 4
Service charge expense 50 1 51 42 - 42
Direct property expenditure 47 1 48 34 - 34
Administrative expenses 38 - 38 41 - 41
Depreciation 3 2 5 3 - 3
Cost of trading property disposals - 14 14 - - -
Long-term development contract expenditure(1) - 14 14 - 1 1
Impairment of goodwill - 5 5 - - -
Impairment of trading properties - 8 8 - - -
Costs - other per the income statement 143 45 188 124 1 125
Movement in bad and doubtful debts provisions - rent - - - (3) - (3)
Movement in bad and doubtful debts provisions - service charge - - - (4) - (4)
Total costs per the income statement 143 45 188 117 1 118
The following table reconciles costs per the income statement to the
individual components of costs presented in the segmental results table in
note 3.
Six months ended Six months ended
30 September 2022
30 September 2021
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 5 1 - 6 4 1 - 5
Service charge expense 51 6 (1) 56 42 5 - 47
Direct property expenditure 48 5 (1) 52 34 5 - 39
Administrative expenses 38 1 - 39 41 - - 41
Depreciation 3 - - 3 3 - - 3
Movement in bad and doubtful debts provisions - rent - - - - (3) 4 - 1
Movement in bad and doubtful debts provisions - service charge - - - - (4) - - (4)
Costs in the segmental information note 145 13 (2) 156 117 15 - 132
Cost of trading property disposals 14 - - 14 - - - -
Long-term development contract expenditure(1) 14 - - 14 1 - - 1
Impairment of goodwill 5 - - 5 - - - -
Impairment of trading properties 8 - - 8 - - - -
Depreciation 2 - - 2 - - - -
Costs including Capital and other items 188 13 (2) 199 118 15 - 133
1. Development contract expenditure for the six months to 30 September 2022
relates to the ongoing development of 21 Moorfields following the sale of the
property during the period.
The Group's costs include employee costs for the period of £37m (2021:
£33m), of which £3m (2021: £3m) is within service charge expense, £6m
(2021: £nil) is within direct property expenditure and £28m (2021: £30m) is
within administrative expenses.
7. Net finance expense
Six months ended Six months ended
30 September 2022
30 September 2021
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 6 - 6 4 - 4
Fair value movement on interest-rate swaps - 51 51 - 2 2
6 51 57 4 2 6
Finance expense
Bond and debenture debt (34) - (34) (33) - (33)
Bank and other short-term borrowings (20) (1) (21) (7) - (7)
(54) (1) (55) (40) - (40)
Interest capitalised in relation to properties under development 14 - 14 7 - 7
(40) (1) (41) (33) - (33)
Net finance (expense)/income (34) 50 16 (29) 2 (27)
Joint venture net finance expense (6) (4)
Net finance expense included in EPRA earnings (40) (33)
Lease interest payable of £1m (2021: £2m) is included within rents payable
as detailed in note 3.
8. Dividends
Dividends paid Six months ended 30 September
Pence per share 2022 2021
Payment date PID Non-PID Total £m £m
For the year ended 31 March 2021:
Final 23 July 2021 9.00 - 9.00 66
For the year ended 31 March 2022:
Third interim 7 April 2022 8.50 - 8.50 63
Final 22 July 2022 13.00 - 13.00 96
Gross dividends 159 66
Dividends in the statement of changes in equity 159 66
Timing difference on payment of withholding tax (4) 9
Dividends in the statement of cash flows 155 75
On 7 October 2022, the Company paid a first interim dividend in respect of the
current financial year of 8.6p per ordinary share (2021: 7.0p), wholly as a
Property Income Distribution (PID), representing £64m in total (2021: £52m).
The Board has declared a second interim dividend of 9.0p per ordinary share to
be payable wholly as a PID (2021: 8.5p) on 3 January 2023 to shareholders
registered at the close of business on 24 November 2022.
A Dividend Reinvestment Plan (DRIP) has been available in respect of all
dividends paid during the period. The last day for DRIP elections for the
second interim dividend is close of business on 8 December 2022.
9. Net cash generated from operations
Reconciliation of operating (loss)/profit to net cash generated from Six months ended Six months ended
operations
30 September 2022
30 September 2021
£m £m
Operating (loss)/profit (208) 302
Adjustments for:
Net deficit/(surplus) on revaluation of investment properties 331 (94)
Loss/(gain) on changes in finance leases 6 (6)
Profit of disposal of trading properties (1) -
Loss/(profit) on disposal of investment properties 92 (6)
Share of (profit)/loss from joint ventures (15) 1
Share-based payment charge 3 1
Rents payable 5 4
Depreciation 5 3
Development contract income (14) -
Other 9 1
213 206
Changes in working capital:
Increase in receivables (7) (11)
(Decrease)/increase in payables and provisions (10) 7
Net cash generated from operations 196 202
Reconciliation to adjusted net cash inflow from operating activities Six months ended Six months ended
30 September 2022
30 September 2021
£m £m
Net cash inflow from operating activities 176 158
Joint ventures net cash (out)/inflow from operating activities (8) 14
Adjusted net cash inflow from operating activities(1) 168 172
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 cashflows. There were no cash flows from trading
property activities in the period to 30 September 2021, therefore there has
been no change to the presentation for that period. Refer to the Glossary for
the definition of Adjusted net cash inflow from operating activities.
10. Investment properties
Six months ended Six months ended Six months ended
30 September 2022
31 March 2022
30 September 2021
£m £m £m
Net book value at the beginning of the period 11,207 9,822 9,607
Transfer from joint venture 23 - -
Acquired through acquisition of group of subsidiaries - 619 -
Acquisitions of investment properties 2 247 -
Net movement in head leases capitalised(1) (11) 63 (1)
Capital expenditure 187 180 163
Capitalised interest 14 10 7
Disposals(2)(3) (904) (56) (42)
Net (deficit)/surplus on revaluation of investment properties (331) 322 94
Transfers to trading properties - - (6)
Net book value at the end of the period 10,187 11,207 9,822
1. See note 14 for details of the amounts payable under head leases and note 6
for details of the rents payable in the income statement.
2. Includes impact of disposals of finance leases.
3. 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 fair value of investment properties at 30 September 2022 was determined by
the Group's external valuers, CBRE, JLL and Savills. The valuations are in
line with RICS standards and were arrived at by reference to market evidence
of transactions for similar properties. The valuations performed by the
independent valuers are reviewed internally by senior management and relevant
people within the business. This includes discussions of the assumptions used
by the external valuers, as well as a review of the resulting valuations.
Discussions about the valuation process and results are held between senior
management, the Audit Committee and the external valuers on a half-yearly
basis.
The Group considers all of its investment properties to fall within 'Level 3',
as defined by IFRS 13. There were no changes in the Group's valuation
processes, valuation techniques, and types of inputs used in the fair value
measurement of investment properties during the period.
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.
30 September 2022 31 March 2022
Group Joint Adjustment for non-wholly owned subsidiaries Combined Portfolio Group Joint Adjustment for non-wholly owned subsidiaries Combined
(excl. joint ventures)
(excl. joint ventures)
ventures(1)
ventures(1) Portfolio
£m £m £m £m £m £m £m £m
Market value 10,296 774 (141) 10,929 11,362 800 (145) 12,017
Less: properties treated as finance leases (20) - - (20) (66) - - (66)
Plus: head leases capitalised 112 9 - 121 123 9 - 132
Less: tenant lease incentives (201) (37) - (238) (212) (38) - (250)
Net book value 10,187 746 (141) 10,792 11,207 771 (145) 11,833
Net (deficit)/surplus on revaluation of investment properties (331) 1 7 (323) 416 (3) (4) 409
1. Refer to note 12 for a breakdown of this amount by entity.
As at 30 September 2022, the Group had contractually committed development
capital expenditure obligations of £127m.
11. Trading properties
Development land and infrastructure Residential Total
£m £m £m
At 1 April 2021 24 12 36
Transfers from investment properties - 6 6
At 30 September 2021 24 18 42
Acquisitions 128 - 128
Capital expenditure 1 5 6
Disposals (25) - (25)
Impairment provision - (6) (6)
At 31 March 2022 128 17 145
Capital expenditure 4 8 12
Disposals (5) (9) (14)
Impairment provision (7) (1) (8)
At 30 September 2022 120 15 135
The cumulative impairment provision at 30 September 2022 in respect of
Development land and infrastructure was £7m (31 March 2022: £nil) and in
respect of Residential was £7m (31 March 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 30 September 2022(3)
Nova, Victoria(4) 50% Central London 31 March Suntec Real Estate Investment Trust
Southside Limited Partnership 50% Major retail 31 March Invesco Real Estate European Fund
St. David's Limited Partnership 50% Major retail 31 March Intu Properties plc(5)
Westgate Oxford Alliance Limited Partnership 50% Major retail, Subscale sectors 31 March The Crown Estate Commissioners
Harvest(6)(7) 50% Subscale sectors 31 March J Sainsbury plc
The Ebbsfleet Limited Partnership(7) 50% Subscale sectors 31 March Ebbsfleet Property Limited
West India Quay Unit Trust(7) 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(7) 50% Subscale sectors 31 March Derwent Developments (Curzon) Limited
Plus X Holdings Limited(7) 50% Subscale sectors 31 March Paul David Rostas, Matthew Edmund Hunter
Landmark Court Partnership Limited(7) 51% Central London 31 March TTL Landmark Court Properties Limited
Joint operation Ownership interest Business Year end date(2) Joint operation partners
segment
Held at 30 September 2022
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 period to 30 September 2022, 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. 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.
5. Intu Properties plc went into administration in June 2020 and its
subsidiary, our joint venture partner Intu the Hayes Limited, was subsequently
placed in receivership by its secured creditors in November 2020.
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. Included within Other in subsequent tables.
8. Mayfield includes Mayfield Development Partnership LP and Mayfield
Development (General Partner) Limited.
All of the Group's joint arrangements have their principal place of business
in the United Kingdom. All of the Group's 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 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 Six months ended 30 September 2022
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) 24 5 17 17 3 66 33
Gross rental income (after rents payable) 18 5 14 14 3 54 26
Net rental income 18 (1) 10 12 3 42 21
EPRA earnings before interest 17 (1) 9 12 3 40 20
Finance expense (9) (3) - - - (12) (6)
Net finance expense (9) (3) - - - (12) (6)
EPRA earnings 8 (4) 9 12 3 28 14
Capital and other items
Net (deficit)/surplus on revaluation of investment properties (31) 1 6 7 19 2 1
(Loss)/profit before tax (23) (3) 15 19 22 30 15
Post-tax (loss)/profit (23) (3) 15 19 22 30 15
Total comprehensive (loss)/income (23) (3) 15 19 22 30 15
Group share of (loss)/profit before tax (12) (2) 8 10 11 15
Group share of post-tax (loss)/profit (12) (2) 8 10 11 15
Group share of total comprehensive (loss)/income (12) (2) 8 10 11 15
1. Revenue includes gross rental income (before rents payable), service charge
income, other property related income, trading properties disposal proceeds
and income from long-term development contracts.
Joint ventures Six months ended 30 September 2021
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) 23 5 14 19 2 63 31
Gross rental income (after rents payable) 17 5 11 12 2 47 23
Net rental income 9 6 6 10 2 33 16
EPRA earnings before interest 8 6 5 10 2 31 16
Finance expense (4) (3) - - - (7) (4)
Net finance expense (4) (3) - - - (7) (4)
EPRA earnings 4 3 5 10 2 24 12
Capital and other items
Net (deficit)/surplus on revaluation of investment properties (4) (3) (14) (7) 1 (27) (13)
(Loss)/profit before tax - - (9) 3 3 (3) (1)
Post-tax (loss)/profit - - (9) 3 3 (3) (1)
Total comprehensive (loss)/income - - (9) 3 3 (3) (1)
Group share of (loss)/profit before tax - - (4) 1 2 (1)
Group share of post-tax (loss)/profit - - (4) 1 2 (1)
Group share of total comprehensive (loss)/income - - (4) 1 2 (1)
1. Revenue includes gross rental income (before rents payable), service charge
income, other property related income, trading properties disposal proceeds
and income from long-term development contracts.
Joint ventures 30 September 2022
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) 784 134 237 239 99 1,493 746
Non-current assets 784 134 237 239 99 1,493 746
Cash and cash equivalents 22 4 16 24 6 72 36
Other current assets 64 3 12 15 110 204 85
Current assets 86 7 28 39 116 276 121
Total assets 870 141 265 278 215 1,769 867
Trade and other payables and provisions (22) (10) (11) (9) (115) (167) (52)
Current liabilities (22) (10) (11) (9) (115) (167) (52)
Non-current liabilities (126) (145) (16) - (42) (329) (144)
Non-current liabilities (126) (145) (16) - (42) (329) (144)
Total liabilities (148) (155) (27) (9) (157) (496) (196)
Net assets 722 (14) 238 269 58 1,273 671
Market value of investment properties(1) 839 134 226 249 99 1,547 774
Net cash/(debt)(2) 22 3 - 24 5 54 27
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 744 (11) 227 249 52 1,261 695
Market value of investment properties(1) 870 133 226 247 124 1,600 800
Net cash/(debt)(2) 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. 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 (loss)/income - - (4) 1 2 (1)
Non-cash contributions 5 - - - - 5
Cash distributions - - - - (2) (2)
At 30 September 2021 356 (7) 120 126 32 627
Total comprehensive income 16 2 1 10 5 34
Acquisitions - - - - 54 54
Cash distributions - - (8) (11) (1) (20)
At 31 March 2022 372 (5) 113 125 90 695
Total comprehensive (loss)/income (12) (2) 8 10 11 15
Cash distributions - - (2) - - (2)
Other distributions - - - - (8) (8)
Transfer from joint arrangements - - - - (24) (24)
Other non-cash movements - - - - (5) (5)
At 30 September 2022 360 (7) 119 135 64 671
Comprised of:
At 31 March 2022
Non-current assets 372 - 113 125 90 700
Non-current liabilities - (5) - - - (5)
At 30 September 2022
Non-current assets 360 - 119 135 64 678
Non-current liabilities - (7) - - - (7)
13. Capital structure
30 September 2022 31 March 2022(2)
Group Joint ventures Adjustment for non-wholly owned subsidiaries Combined Group Joint Adjustment for non-wholly owned subsidiaries Combined
ventures
£m £m £m £m £m £m £m £m
Property portfolio
Market value of investment properties 10,296 774 (141) 10,929 11,362 800 (145) 12,017
Trading properties and long-term contracts 145 1 146
135 - - 135 -
Total property portfolio (a) 10,431 774 (141) 11,064 11,507 801 (145) 12,163
Net debt
Borrowings(1) 3,614 - (73) 3,541 4,430 3 (73) 4,360
Monies held in restricted accounts and deposits (1) - - (1) (4) - (4)
-
Cash and cash equivalents (47) (36) 3 (80) (146) (31) 5 (172)
Fair value of interest-rate swaps (72) - 3 (69) (21) - 2 (19)
Fair value of foreign exchange swaps and forwards (5) - (5)
(19) - - (19) -
Net debt (b) 3,475 (36) (67) 3,372 4,254 (28) (66) 4,160
Less: Fair value of interest-rate swaps 72 - (3) 69 21 - (2) 19
Adjusted net debt (c) 3,547 (36) (70) 3,441 4,275 (28) (68) 4,179
Adjusted total equity
Total equity (d) 7,639 - (70) 7,569 7,991 - (74) 7,917
Fair value of interest-rate swaps (72) - 3 (69) (21) - 2 (19)
Adjusted total equity (e) 7,567 - (67) 7,500 7,970 - (72) 7,898
Gearing (b/d) 45.5% 44.6% 53.2% 52.5%
Adjusted gearing (c/e) 46.9% 45.9% 53.6% 52.9%
Group LTV (c/a) 34.0% 31.1% 37.2% 34.4%
Security Group LTV 32.5% 36.4%
Weighted average cost of debt 2.2% 2.7% 2.1% 2.4%
1. Borrowings used in the net debt and adjusted net debt calculated for
gearing, adjusted gearing, Group LTV and weighted average cost of debt is
calculated for excluding amounts payable under head leases.
2. 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
30 September 2022 31 March 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 132 132 132 217 217 217
US Dollar Unsecured Floating SONIA + margin 292 292 292 142 142 142
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 424 424 424 541 541 541
Amounts payable under head leases - - - - - -
Total current borrowings including amounts payable under head leases 424 424 424 541 541 541
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 2.0 400 381 399 400 399 399
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 86 87 87 93 87
A16 2.375% MTN due 2027 Secured Fixed 2.5 350 303 348 350 351 348
A6 5.376% MTN due 2029 Secured Fixed 5.4 65 63 65 65 74 65
A13 2.399% MTN due 2031 Secured Fixed 2.4 300 249 299 300 299 299
A7 5.396% MTN due 2032 Secured Fixed 5.4 77 77 77 77 107 77
A11 5.125% MTN due 2036 Secured Fixed 5.1 50 49 50 50 68 50
A14 2.625% MTN due 2039 Secured Fixed 2.6 500 353 494 500 491 494
A15 2.750% MTN due 2059 Secured Fixed 2.7 500 315 495 500 497 495
2,356 1,903 2,341 2,356 2,407 2,341
Syndicated and bilateral bank debt Secured Floating SONIA + margin 849 849 849 1,546 1,546 1,546
Syndicated and bilateral bank debt Secured Floating Euribor + margin - - - 2 2 2
Total non-current borrowings 3,205 2,752 3,190 3,904 3,955 3,889
Amounts payable under head leases 3.3 112 177 112 123 164 123
Total non-current borrowings including amounts payable under head leases 3,317 2,929 3,302 4,027 4,119 4,012
Total borrowing including amounts payable under head leases 3,741 3,353 3,726 4,568 4,660 4,553
Total borrowings excluding amounts payable under head leases 3,629 3,176 3,614 4,445 4,496 4,430
Reconciliation of the movement in borrowings Six months ended Year ended
30 September 2022
31 March 2022
£m £m
At the beginning of the period 4,553 3,516
Bank debt assumed through acquisition of subsidiaries - 403
Proceeds from new borrowings - 1,053
Repayment of bank debt (858) (489)
Foreign exchange movement on non-Sterling borrowings 42 8
Movement in amounts payable under head leases (11) 62
At the end of the period 3,726 4,553
Reconciliation of movements in liabilities arising from financing activities Six months ended 30 September 2022
Non-cash changes
At the beginning of the period Cash flows Foreign exchange movements Other changes in fair values Other changes At the end
of the period
£m £m £m £m £m £m
Borrowings 4,553 (858) 42 - (11) 3,726
Derivative financial instruments (26) 27 (42) (51) 1 (91)
4,527 (831) - (51) (10) 3,635
Year ended 31 March 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, St. David's Limited Partnership
and Southside Limited Partnership, in total valued at £10.2bn at 30 September
2022 (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 period, the Group did not purchase any MTNs (31 March 2022: £nil).
Syndicated and bilateral bank debt Authorised Drawn Undrawn
Maturity as at 30 September 2022 30 Sept 31 March 2022 30 Sept 31 March 2022 30 Sept 31 March 2022
2022
2022
2022
£m £m £m £m £m £m
Syndicated debt 2022 - 12 - 12 - -
Syndicated debt 2024-27 2,782 2,785 781 1,393 2,001 1,392
Bilateral debt 2026 225 225 68 155 157 70
3,007 3,022 849 1,560 2,158 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. During the period ended 30 September 2022, the amounts
drawn under the Group's facilities decreased by £711m.
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 30 September
2022 was £1,781m (31 March 2022: £1,109m, restated for the impact of the
change in classification between cash and monies held in restricted accounts
during the period).
Fair values
The fair value of the amounts payable under the Group's lease obligations,
using a discount rate of 2.2% (31 March 2022: 2.2%), is £177m (31 March 2022:
£164m). The fair value of the Group's net investment in tenant finance
leases, calculated by the Group's external valuer by applying a weighted
average equivalent yield of 7.5% (31 March 2022: 4.9%), is £19m (31 March
2022: £66m).
The fair values of any floating rate financial liabilities are assumed to be
equal to their nominal value. The fair values of the MTNs fall within Level 1
of the fair value hierarchy, the syndicated and bilateral facilities,
commercial paper, interest-rate swaps and foreign exchange swaps fall within
Level 2, and the amounts payable and receivable under leases fall within Level
3.
The fair values of the financial instruments have been determined by reference
to relevant market prices, where available. The fair values of the Group's
outstanding interest-rate swaps have been estimated by calculating the present
value of future cash flows, using appropriate market discount rates. These
valuation techniques fall within Level 2.
The fair value of the other investments is calculated by reference to the net
assets of the underlying entity. The valuation is not based on observable
market data and therefore the other investments are considered to fall within
Level 3.
15. Contingencies
The Group has contingent liabilities in respect of legal claims, tax queries,
guarantees and warranties arising in the ordinary course of business, as well
as contingent liabilities for fire safety remediation arising from the
Building Safety Act 2022. It is not anticipated that any material liabilities
will arise from the contingent liabilities.
16. Related party transactions
There have been no related party transactions during the period that require
disclosure under Section 4.2.8 (R) of the Disclosure and Transparency Rules or
under IAS 34 Interim Financial Reporting.
17. Events after the reporting period
On 31 October 2022, the Group sold its interest in 56 Regency Street for a
headline price of £12m. On 4 November 2022, the Group sold its interest in
the Crispin Centre for a headline price of £1m.
Since 30 September 2022, the Group sold or exchanged contracts to sell certain
interests in trading properties acquired as part of U+I Group PLC in the
previous financial year.
On 11 November 2022, the Group entered into an option to acquire the first
phase of Mayfield from Mayfield Development Partnership Limited Partnership.
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 all 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 accounting return 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 disclosures
Table 15: EPRA net asset measures
EPRA net asset measures 30 September 2022
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
Net assets attributable to shareholders 7,569 7,569 7,569
Shortfall of fair value over net investment in finance lease book value (1) (1) (1)
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 (69) (69) -
Shortfall of fair value of debt over book value - - 373
Excess of fair value of trading properties over book value 7 7 7
Purchasers' costs(1) 655 - -
Net assets used in per share calculation 8,161 7,504 7,947
EPRA NRV EPRA NTA EPRA NDV
Diluted net assets per share 1,098p 1,010p 1,070p
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 - - (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
30 September 2022
Measure Notes Landsec EPRA
Definition for EPRA measure measure measure
EPRA earnings Recurring earnings from core operational activity 4 £197m £197m
EPRA earnings per share EPRA earnings per weighted number of ordinary shares 4 26.6p 26.6p
EPRA diluted earnings per share EPRA diluted earnings per weighted number of ordinary 4 26.5p 26.5p
shares
EPRA Net Tangible Assets (NTA) Net assets adjusted to exclude the fair value of interest-rate swaps, 4 £7,504m £7,504m
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 1,010p 1,010p
EPRA net disposal value (NDV) Net assets adjusted to exclude the fair value of debt and goodwill on deferred 4 £7,947m £7,947m
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 1,070p 1,070p
EPRA loan-to-value (LTV)(1) Ratio of adjusted net debt, including net payables, to the sum of the net 32.6% 32.6%
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 4.9% 4.9%
development programme(2)
Net initial yield (NIY) Annualised rental income less non-recoverable costs as a % of market value 5.1% 5.1%
plus assumed purchasers' costs(3)
Topped-up NIY NIY adjusted for rent free periods(3) 5.4% 5.4%
Cost ratio(4) Total costs as a percentage of gross rental income (including direct vacancy 25.4% 26.2%
costs)(4)
Total costs as a percentage of gross rental income (excluding direct vacancy n/a 21.5%
costs)(4)
1. EPRA LTV is a new measure introduced by EPRA in the current period. 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 at 31 March 2022 as the measure had not
yet been introduced. EPRA LTV would have been presented as 35.6% at 31 March
2022.
2. Our measure reflects voids in our like-for-like portfolio only, excluding
properties where the scale of refurbishment is such that the property is not
deemed lettable. The EPRA measure reflects voids in the Combined Portfolio
excluding only properties under development.
3. Our NIY and Topped-up NIY relate to the Combined Portfolio, excluding
properties in the development programme that have not yet reached practical
completion, and are calculated by our external valuer. EPRA NIY and EPRA
Topped-up NIY calculations are consistent with ours but exclude only
properties currently under development. Topped-up NIY reflects adjustments of
£40m and £40m for rent free periods and other incentives for the Landsec
measure and EPRA measure, respectively.
4. The EPRA cost ratio is calculated based on gross rental income after rents
payable and excluding costs recovered through rents but not separately
invoiced of £4m, whereas our measure is based on gross rental income before
rents payable and costs recovered through rents but not separately invoiced.
We do not calculate a cost ratio excluding direct vacancy costs as we do not
consider this to be helpful. Provisions for bad and doubtful debts have been
excluded from our cost ratio.
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.
30 September 2022
£m
ERV of vacant properties 29.5
ERV of Combined Portfolio excluding properties under development 606.3
EPRA vacancy rate (%) 4.9
Table 18: Change in net rental income from the like-for-like portfolio(1)
30 September 30 September
2022 2021
Change
£m £m £m %
Central London 124 118 6 5
Major retail 57 63 (6) (10)
Subscale sectors 47 34 13 38
228 215 13 6
1. Excludes surrender premiums received during the period.
Table 19: Acquisitions, disposals and capital expenditure
Six months ended 30 September 2022 Six months ended 30 September 2021
Investment properties Group (excl. joint ventures) Joint ventures Adjustment for non-wholly owned subsidiaries
£m £m £m Combined Portfolio Combined Portfolio
£m £m
Net book value at the beginning of the period 11,207 771 (145) 11,833 10,342
Transfer from joint venture 23 (12) - 11 -
Acquisitions 2 - - 2 -
Capital expenditure 187 (14) (3) 170 167
Capitalised interest 14 - - 14 7
Net movement in head leases capitalised (11) - - (11) (1)
Disposals (904) - - (904) (42)
Net (deficit)/surplus on revaluation of investment properties (331) 1 7 (323) 81
Transfers to trading properties - - - - (6)
Net book value at the end of the period 10,187 746 (141) 10,792 10,548
(Loss)/profit on disposal of investment properties (92) - - (92) 6
Trading properties £m £m £m £m £m
Net book value at the beginning of the period 145 1 - 146 36
Transfers from investment properties - - - - 6
Capital expenditure 12 (1) - 11 -
Disposals (14) - - (14) -
Movement in impairment (8) - - (8) -
Net book value at the end of the period 135 - - 135 42
Profit on disposal of trading properties 1 - - 1 -
Acquisitions, development and other capital expenditure Investment Trading Combined Combined
properties(1) properties Portfolio Portfolio
£m £m £m £m
Acquisitions(2) 2 - 2 -
Development capital expenditure(3) 154 8 162 127
Other capital expenditure 16 3 19 40
Capitalised interest 14 - 14 7
Acquisitions, development and other capital expenditure 186 11 197 174
Disposals £m £m
Net book value - investment property disposals 904 42
Net book value - trading property disposals 14 -
Net book value - other net assets of investment property disposals 51 4
(Loss)/profit on disposal - investment properties (92) 6
Profit on disposal - trading properties 1 -
Other (1) -
Total disposal proceeds 877 52
1. See EPRA analysis of capital expenditure table 20 for further details.
2. Properties acquired in the period.
3. Development capital expenditure for investment properties comprises
expenditure on the development pipeline and completed developments.
Table 20: EPRA analysis of capital expenditure
Six months ended 30 September 2022
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 - 3 - - 3
City Offices - - - 1 - 1 - 1 - - 1
Retail and other - - - 1 - 1 - 1 - - 1
Developments - 153 - - - - 14 167 - - 167
Total Central London - 153 - 5 - 5 14 172 - - 172
Major retail
Shopping centres - - 1 1 - 2 - 2 (2) - 4
Outlets - - - (2) 3 1 - 1 - - 1
Total Major retail - - 1 (1) 3 3 - 3 (2) - 5
Mixed-use urban
Completed investment - - - 5 - 5 - 5 - (3) 8
Developments 2 1 - - - - - 3 (11) - 14
Total Mixed-use urban 2 1 - 5 - 5 - 8 (11) (3) 22
Subscale sectors
Leisure - - - (1) 1 - - - (1) - 1
Hotels - - - 1 - 1 - 1 - - 1
Retail parks - - - 1 1 2 - 2 - - 2
Total Subscale sectors - - - 1 2 3 - 3 (1) - 4
Total capital expenditure 2 154 1 10 5 16 14 186 (14) (3) 203
Timing difference between accrual and cash basis (43) - - (43)
Total capital expenditure on a cash basis 143 (14) (3) 160
1. Investment properties acquired in the period.
2. Expenditure on the future development pipeline and completed developments.
3. Capital expenditure where the lettable area increases by at least 10%.
Other business analysis
Table 21: Top 12 occupiers at 30 September 2022
% of Group rent(1)
Central Government 5.8
Deloitte 5.5
Accor 4.5
Cineworld 1.8
Boots 1.7
Taylor Wessing 1.4
Peel 1.3
BBC 1.3
M&S 1.1
Sainsbury's 1.1
H&M 1.0
Next 1.0
27.5
1. On a proportionate basis.
Table 22: Committed and future development pipeline and trading property
development schemes at 30 September 2022
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
The Forge, SE1 Office 100 139,000 - 155 10 Dec 2022 133 152
Retail 1,000
Lucent, W1 Office 100 120,000 19 222 14 Mar 2023 209 252
Retail 21,000
Residential 3,000
n2, SW1 Office 100 164,000 27 172 14 Jun 2023 153 208
Retail 1,000
Property Description of use Ownership interest % Proposed sq ft Potential start date
Future near-term development pipeline
Timber Square, SE1 Office 100 380,000 2023
Portland House, SW1 Office 100 300,000 2023
Liberty of Southwark, SE1 Office/ Residential 100 200,000 2023
Red Lion Court, SE1 Office 100 230,000 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 20 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 2023
Finchley Road, NW3 100 1,400,000 2023
Buchanan Galleries, Glasgow 100 1,400,000 2024
Lewisham, SE13 100 1,800,000 2025
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
30 September 2022. 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 30
September 2022 on unlet units, both after rents payable.
Table 23: Combined Portfolio analysis
Like-for-like segmental analysis
Market value(1) Valuation Rental income(1) Annualised rental income(2) Net estimated rental value(3)
movement(1)
30 September 2022 31 March 2022 Surplus/ (deficit) Surplus/ (deficit) 30 September 2022 30 September 2021 30 September 2022 31 March 2022 30 September 2022 31 March 2022
£m £m £m % £m £m £m £m £m £m
Central London
West End offices 2,761 3,013 (116) -4.2% 72 70 132 135 143 147
City offices 1,746 1,928 (183) -9.7% 40 38 79 76 104 101
Retail and other 1,089 1,131 2 0.2% 30 37 43 47 53 54
Developments(6) 1,102 1,709 (7) -0.6% 19 5 5 10 64 112
Total Central London 6,698 7,781 (304) -4.4% 161 150 259 268 365 414
Major retail
Shopping centres 1,150 1,141 12 1.1% 60 51 106 108 104 101
Outlets 740 743 (5) -0.6% 28 26 57 56 61 61
Total Major retail 1,890 1,884 7 0.4% 88 77 163 164 165 162
Mixed-use urban
Completed investment 393 409 (20) -4.8% 11 - 24 24 24 24
Developments(6) 497 486 11 2.0% 17 17 29 29 32 32
Total Mixed-use urban 890 895 (9) -1.0% 28 17 53 53 56 56
Subscale sectors
Leisure 563 569 (14) -2.6% 24 22 50 49 51 51
Hotels 444 422 23 5.3% 15 6 25 16 25 25
Retail parks 444 466 (26) -5.4% 15 15 29 29 29 29
Total Subscale sectors 1,451 1,457 (17) -1.2% 54 43 104 94 105 105
Combined Portfolio 10,929 12,017 (323) -2.9% 331 287 579 579 691 737
Properties treated as finance leases (1) (5)
Combined Portfolio 10,929 12,017 (323) -2.9% 330 282
Represented by:
Investment portfolio 10,155 11,217 (324) -3.1% 303 258 533 531 640 687
Share of joint ventures 774 800 1 0.2% 27 24 46 48 51 50
Combined Portfolio 10,929 12,017 (323) -2.9% 330 282 579 579 691 737
Total portfolio
analysis
Notes:
Net initial yield(4) Equivalent yield(5) 1. Refer to Glossary for definition.
30 September 2022 Movement in like-for-like(7) 30 September 2022 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 4.6% 36 4.8% 21 commercialisation income are included on a net basis (after deduction for
City offices 3.3% (34) 4.9% 27 operational outgoings). Annualised rental income includes temporary lettings.
Retail and other 4.2% (30) 4.6% 14
Developments(6) 0.3% n/a 4.5% n/a 3. Net estimated rental value is gross estimated rental value, as
Total Central London 3.5% - 4.7% 21 defined in the Glossary, after deducting expected rent payable.
Major retail
Shopping centres 7.7% (8) 7.4% 5 4. Net initial yield - refer to Glossary for definition. This
Outlets 5.9% 10 6.7% (4) calculation includes all properties including those sites with no income.
Total Major retail 7.0% 2 7.1% 1
Mixed-use urban 5. Equivalent yield - refer to Glossary for definition. Future
Completed investment 5.3% 21 5.9% 18 developments are excluded from the calculation of equivalent yield on the
Development(6) 5.2% n/a 5.3% n/a Combined Portfolio.
Total Mixed-use urban 5.2% 21 5.6% 18
Subscale sectors 6. Comprises the development pipeline - refer to Glossary for
Leisure 6.9% 37 7.2% 27 definition.
Hotels 5.2% 99 5.5% (1)
Retail parks 6.1% 43 6.0% 29 7. The like-for-like portfolio - refer to Glossary for definition.
Total Subscale sectors 6.1% 54 6.3% 17
Combined Portfolio 4.6% 13 5.4% 19
Represented by:
Investment portfolio 4.5% n/a 5.4% n/a
Share of joint ventures 5.6% n/a 5.8% n/a
Combined Portfolio 4.6% n/a 5.4% 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 24: Floor Areas
30 September
Million sq ft
Central London
West End offices 2.8
City offices 1.8
Retail and other 1.0
Developments n/a
Total Central London 5.6
Major retail
Shopping centres 6.6
Outlets 1.5
Total Major retail 8.1
Mixed-use urban
Completed investment 3.0
Developments n/a
Total Mixed-use urban 3.0
Subscale sectors
Leisure 3.4
Hotels 2.0
Retail parks 1.8
Total Subscale sectors 7.2
Total 23.9
Table 25: Reconciliation of segmental information note to interim reporting
for the six months to 30 September 2021
Six months ended 30 September 2021
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 258 24 - 282 282 -
Finance lease interest 5 - - 5 5 -
Gross rental income (before rents payable) 263 24 - 287 287 -
Rents payable (4) (1) - (5) (5) -
Gross rental income (after rents payable) 259 23 - 282 282 -
Service charge income 36 5 - 41 41 -
Service charge expense (42) (5) - (47) (47) -
Net service charge expense (6) - - (6) (6) -
Other property related income 12 2 - 14 14 -
Direct property expenditure (34) (5) - (39) (39) -
Movement in bad and doubtful debts provisions 7 (4) - 3 3 -
Segment net rental income 238 16 - 254 254 -
Other income 3 - - 3 3 -
Administrative expenses (41) - - (41) (41) -
Depreciation (3) - - (3) (3) -
EPRA earnings before interest 197 16 - 213 213 -
Share of post-tax loss from joint ventures (1) 1 - - - -
Profit on disposal of investment properties 6 - - 6 - 6
Net surplus/(deficit) on revaluation of investment properties 94 (13) - 81 - 81
Gain on modification of finance leases 6 - - 6 - 6
Operating profit 302 4 - 306 213 93
Finance income 6 - - 6 4 2
Finance expense (33) (4) - (37) (37) -
Profit before tax 275 - - 275 180 95
Taxation - - - -
Profit for the period 275 - - 275
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 results table.
Table 26: Lease lengths
Weighted average unexpired lease term at 30 September 2022
Like-for-like portfolio Like-for-like portfolio, completed developments and acquisitions
Mean(1) Mean(1)
Years Years
Central London
West End Offices 6.5 6.5
City offices 7.8 7.8
Retail and other 7.6 7.6
Total Central London 7.0 7.0
Major retail
Shopping centres 4.2 4.2
Outlets 3.2 3.2
Total Major retail 3.9 3.9
Mixed-use urban n/a 9.7
Subscale sectors
Leisure 10.4 10.4
Hotels 8.7 8.7
Retail parks 4.3 4.3
Total Subscale sectors 8.0 8.0
Combined Portfolio 6.3 6.4
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.
Investor information
1. Company website: landsec.com (http://www.landsec.com)
The Group's half year 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
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
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: 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. 2022/23 second quarterly dividend
The Board has declared a second quarterly dividend for the year ending 31
March 2023 of 9.0p per ordinary share which will be paid on 3 January 2023 to
shareholders registered at the close of business on 24 November 2022. This
will be paid wholly as a Property Income Distribution (PID). Together with the
first quarterly dividend of 8.6p already paid on 7 October 2022 wholly as a
PID, the first half dividend will be 17.6p per ordinary share (six months
ended 30 September 2021: 15.5p).
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/investors (https://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
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 year results announcement 14 November*
* Provisional date only
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.
BREEAM
Building Research Establishment's Environmental Assessment Method.
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.
Completed developments
Completed developments consist of those properties previously included in the
development programme, which have been transferred from the development
programme since 1 April 2021.
Development pipeline
The development programme together with proposed developments.
Development programme
The development programme consists of committed developments (Board approved
projects), projects under construction and developments which have reached
practical completion within the last two years but are not yet 95% let.
Diluted figures
Reported results adjusted to include the effects of potentially dilutive
shares issuable under employee share schemes.
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.
Earnings per share
Profit after taxation attributable to owners divided by the weighted average
number of ordinary shares in issue during the period.
EPRA
European Public Real Estate Association.
EPRA earnings
Profit after tax, excluding profits on the sale of non-current assets and
trading properties, profits on long-term 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 earnings per share
Earnings per share based on EPRA earnings after related tax.
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 (see also mark-to-market adjustment).
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 mark-to-market 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.
Joint venture
An arrangement in which the Group holds an interest and which is jointly
controlled by the Group and one or more partners under a contractual
arrangement. Decisions on the activities of the joint venture that
significantly affect the joint venture's returns, including decisions on
financial and operating policies and the performance and financial position of
the operation, require the unanimous consent of the partners sharing control.
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.
Mark-to-market adjustment
An accounting adjustment to change the book value of an asset or liability to
its market value (see also fair value movement).
Net assets per share
Equity attributable to owners divided by the number of ordinary shares in
issue at the end of the period. 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.
Over-rented
Space where the passing rent is above the ERV.
Passing cash rent
Passing cash rent is passing rent excluding units that are in a rent free
period at the reporting date.
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.
Planning permission
There are two common types of planning permission: full planning permission
and outline planning permission. A full planning permission results in a
decision on the detailed proposals on how the site can be developed. The grant
of a full planning permission will, subject to satisfaction of any conditions,
mean no further engagement with the local planning authority will be required
to build the consented development. An outline planning permission approves
general principles of how a site can be developed. Outline planning permission
is granted subject to conditions known as 'reserved matters'. Consent must be
sought and achieved for discharge of all reserved matters within a specified
time-limit, normally three years from the date outline planning permission was
granted, before building can begin. In both the case of full and outline
planning permission, the local planning authority will 'resolve to grant
permission'. At this stage, the planning permission is granted subject to
agreement of legal documents, in particular the s106 agreement. On execution
of the s106 agreement, the planning permission will be issued. Work can begin
on satisfaction of any 'pre-commencement' planning conditions.
Pre-development properties
Pre-development properties are those properties within the like-for-like
portfolio which are being managed to align vacant possession within a
three-year horizon with a view to redevelopment.
Pre-let
A lease signed with an occupier prior to completion of a development.
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.
Real Estate Investment Trust (REIT)
A REIT must be a publicly quoted company with at least three-quarters of its
profits and assets derived from a qualifying property rental business. Income
and capital gains from the property rental business are exempt from tax but
the REIT is required to distribute at least 90% of those profits to
shareholders. Corporation tax is payable on non-qualifying activities in the
normal way.
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.
Rental value change
Increase or decrease in the current rental value, as determined by the Group's
external valuer, over the reporting year on a like-for-like basis.
Return on average capital employed
Group profit before net finance expense, plus joint venture profit before net
finance expense, divided by the average capital employed (defined as
shareholders' funds plus adjusted net debt).
Return on average equity
Group profit before tax plus joint venture tax divided by the average equity
shareholders' funds.
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.
Temporary lettings
Lettings for a period of one year or less. These are included within voids,
but excluded from vacancy rates.
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 accounting return
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 period 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.
Total property return (TPR)
The change in market value, adjusted for net investment, plus the net rental
income of our investment properties expressed as a percentage of opening
market value plus the time weighted capital expenditure incurred during the
period.
Total Shareholder Return (TSR)
The growth in value of a shareholding over a specified period, assuming that
dividends are reinvested to purchase additional units of the stock.
Trading properties
Properties held for trading purposes and shown as current assets in the
balance sheet.
Turnover rent
Rental income which is related to an occupier's turnover.
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 cost of capital (WACC)
Weighted average cost of debt and notional cost of equity, used as a benchmark
to assess investment returns.
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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