REG - Land Sec. Group PLC - Half-year Report
14/11/2023 07:15
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RNS Number : 3012T Land Securities Group PLC 14 November 2023
14 November 2023
LAND SECURITIES GROUP PLC ("Landsec")
Results for the half year ended 30 September 2023
Further operational growth across the business; well positioned for new market
reality
Mark Allan, Chief Executive of Landsec, commented:
"Our high-quality, differentiated portfolio and focused capital allocation
mean we continue to benefit from customers concentrating on best-in-class
space. In London, our well-located, sustainable offices in vibrant,
amenity-rich areas continue to see growing occupancy, growing utilisation,
growing customer space requirements and hence growing rents. In retail, sales
in our locations continue to outperform brands' overall sales growth, also
driving further growth in occupancy and rents. Despite the challenges in the
general economic outlook, we see no signs of these trends abating.
"Since early 2022, we have been clear that we expected interest rates to
remain higher for longer and that asset values would have to adjust to this
new reality, which they have. We were decisive in acting on this view by
selling £1.4bn of single-let HQ offices, mostly in the City, at prices ahead
of today's values. Investment activity remains thin, but we expect this to
pick up in 2024, which should start to support values for the best assets. We
will continue to recycle capital where our ability to add further value is
limited, but having been a net seller when prices were higher, we are
well-placed to take advantage of opportunities that will no doubt arise as the
new higher-for-longer reality is now more widely accepted."
Financial highlights
30 Sep 2023 Prior period ((1)) 30 Sep 2023 Prior period ((1))
EPRA earnings (£m)(2)(3) 198 197 Loss before tax (£m) (193) (192)
EPRA EPS (pence)(2)(3) 26.7 26.6 Basic EPS (pence) (24.4) (25.7)
EPRA NTA per share (pence)(2)(3) 893 936 Net assets per share (pence) 899 945
Total return on equity (%)(2)(3) (2.4) (2.9) Dividend per share (pence) 18.2 17.6
Group LTV ratio (%)(2)(3) 34.4 31.7 Net debt (£m) 3,572 3,348
¾ EPRA EPS(2)(3) stable at 26.7p, in line with FY guidance, as positive
leasing, margin improvement and 2.8% LFL income growth offset impact of
deleveraging through asset sales during prior year
¾ Total dividend up 3.4% to 18.2p per share, in line with guidance of low
single digit percentage growth
¾ Total return on equity improved to -2.4%, with loss before tax of £193m
(after a £375m, or -3.6%, adjustment in portfolio value) resulting in a 4.6%
reduction in EPRA NTA per share(2) (3) to 893p
¾ Maintained sector-leading balance sheet strength, with AA/AA- credit
rating, 7.2x net debt/EBITDA, Group LTV(2)(3) of 34.4% and weighted average
debt maturity of 9.3 years
¾ Continue to expect EPRA EPS for full year to be broadly stable vs last
year's underlying 50.1 pence and low to mid single digit percentage growth in
rental values in London and Major Retail
Operational highlights: well-placed due to focused execution of clear strategy
Delivered further growth in operational performance, underpinned by continued
customer focus on best-in-class space, as decisive positioning for
higher-for-longer rates through well-timed £1.4bn of disposals during prior
year leaves Landsec well-placed to capture new opportunities and drive future
growth.
Central London: strong customer demand underpins further growth in ERVs and
occupancy
¾ Capitalised on continued customer demand for high-quality space in best
locations, with £17m of lettings completed or in solicitors' hands, 3% ahead
of valuers' assumptions, and overall Central London occupancy up 60bps to
96.5%, with West End portfolio effectively full at 99.6% occupancy
¾ Recorded 10% increase in office attendance vs prior six months,
reflecting appeal of our well-located portfolio, with 27 of 35 lettings in
last 12 months seeing customers taking more or same space
¾ Delivered 3.3% ERV growth on account of strong leasing activity,
comfortably on track vs full year guidance of low to mid single digit percent
ERV growth, as rise in valuation yields led to 4.5% softening of values
¾ Started two new developments in West End and Southwark, with expected
7.3% gross yield on total cost and c. 12% yield on incremental investment, as
recently completed schemes are now 83% let or under offer, with lettings 12%
ahead of initial assumptions
Major retail destinations: brands' focus on best stores drives growth in
occupancy and ERVs
¾ Continued to drive positive leasing momentum, as key brands increase
focus on fewer, bigger, better stores, with £24m of lettings signed or in
solicitors' hands on average 6% above ERV, renewals on average 2% above
previous passing rent, and current occupancy up 100bps vs March at 95.3%
¾ Facilitated +4.0% YoY sales growth for brands, with like-for-like sales
+5.4% above 2019/20 levels, as online non-food sales fall for 26 months in a
row whilst in-store sales continue to grow
¾ Delivered 1.4% ERV growth, on track vs guidance of low to mid single
digit percent growth for the full year, with high income returns underpinning
resilience in capital values (-1.3%)
Mixed-use urban neighbourhoods: preparing for first potential development
starts in 2024
¾ Secured detailed planning consent for first phase of office development
at Mayfield, creating optionality for potential earliest start of first c.
£180m investment in first half of 2024
¾ Progressed further planning and land assembly workstreams at £1bn
Finchley Road scheme to unlock potential start on site in first half of 2024,
whilst optimising preparations for rest of long-term pipeline
Underpinning our strategy: strong capital base, operational efficiency and
focus on sustainability
¾ Strong capital base, with AA/AA- credit rating, modest 34.4% LTV, low
7.2x net debt/EBITDA, long 9.3-year average debt maturity, £2.1bn undrawn
facilities and no refinancing needs until 2026
¾ Sold £85m of smaller and non-core assets, on average 6% ahead of March
book value, as further planned capital recycling will further increase
existing headroom to capitalise on new opportunities
¾ Improved operating margin, as review of operating model in prior year and
focus on cost led to reduction in overhead costs, despite persistent UK
inflation
¾ Starting imminently with retrofit of air source heat pumps at first two
sites as part of net zero transition investment plan, with 44% of office
portfolio already EPC 'B' or higher vs 23% for London market
¾ Launched Landsec Futures Fund to invest £20m over next 10 years to
enhance social mobility in our industry, empower more people towards world of
work and deliver £200m of social value
1. Prior period measures are for the six months ended 30 September 2022 other
than EPRA NTA per share, net assets per share, Group LTV ratio and
net debt, which are as at 31 March 2023.
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. The condensed consolidated preliminary
financial information is prepared under UK adopted international accounting
standards (IFRSs and IFRICs) where the Group's interests in joint ventures are
shown collectively in the income statement and balance sheet, and all
subsidiaries are consolidated at 100%. Internally, management reviews the
Group's results on a basis that adjusts for these forms of ownership to
present a proportionate share. These metrics, including the Combined
Portfolio, are examples of this approach, reflecting our economic interest in
our properties regardless of our ownership structure. For further details, see
table 14 in the Business analysis section.
A live video webcast of the presentation will be available at 9.00am 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.
https://webcast.landsec.com/2023-half-year-results
(https://webcast.landsec.com/2023-half-year-results)
Call title: Landsec half year results 2023
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
Well placed for a new reality. Ready to capitalise on future opportunities.
Since we launched our strategy in late 2020, we have consistently focused on
two key principles of sustainable value creation: focusing our resources where
we have a genuine competitive advantage and maintaining a strong balance
sheet. The external context has changed materially since then, but this clear
focus and our decisive actions mean we are well-placed for the future.
A year ago, we clearly stated our view that the ultra-low rate environment
over the prior decade was the aberration, not the increase in interest rates
we had seen at the time, and that markets would have to adjust to a new higher
rate, higher yield reality. We also said we expected the price adjustment in
real estate to continue as a result, which it has. Whereas many last year
paused activity in the hope that rates would fall back, we chose instead to
prepare for this new reality and sold £1.4bn of assets; 86% of which were
single-let City offices, where our ability to add further value was limited.
In March, we also seized the opportunity to issue a £400m Green bond at
4.875%, so our average debt maturity is over nine years.
This meant we started the current financial year knowing that we could focus
on driving operational results and preparing for future growth opportunities,
rather than having to worry about how to reduce leverage or refinancing risks.
This is precisely what we have done over the past six months. Although the
economic backdrop remains uncertain, demand for the best-in-class space has
remained strong, hence we delivered further growth in occupancy, like-for-like
income and ERVs across our portfolio. We also completed our recent development
programme, which is now 83% let or in solicitors' hands, with rents 12% ahead
of initial expectations. And on the back of the latter, we started two new,
low carbon office schemes in the vibrant, supply-constrained West End and
Southwark sub-markets.
Our focus remains underpinned by three areas of competitive advantage: i) our
high-quality portfolio; ii) the strength of our customer relationships; and
iii) our ability to unlock complex opportunities through our development and
asset management expertise. As interest rates begin to stabilise, we expect
investment activity to improve in 2024, which should start to support values
for the best assets. Our balance sheet remains strong, with a 34.4% LTV and
net debt/EBITDA of 7.2x, so we are well-placed to capitalise on opportunities
which will no doubt emerge, as the higher-for-longer reality has now sunk in
more widely.
Delivering consistent growth in operational performance
Building on the growing momentum across our business, operational performance
remains positive. This is supported by our high quality portfolio, as people
choose to spend time together in inspiring places, be it to work, shop or
spend their leisure time. Recognising this, the focus from customers on the
very best space to attract their staff or customers is now deeply embedded and
we expect this to continue.
Reflecting this, we delivered 2.8% growth in like-for-like net rental income,
offsetting the impact from our £1.4bn of disposals and significant
deleveraging during the prior year. As a result, EPRA EPS for the half year of
26.7 pence was stable vs the prior period, in line with our guidance for EPRA
EPS for the full year to be broadly stable vs last year's underlying 50.1
pence. Our dividend for the half year is 18.2 pence, up 3.4% vs last year in
line with our guidance and reflecting a dividend cover of a healthy 1.5 times.
The marked rise in bond yields since the start of the year put further upward
pressure on valuation yields, although the impact of this was partly offset by
our strong leasing activity. This drove 2.5% ERV growth, with positive growth
across all segments of our portfolio. As a result, the reduction in our
portfolio value slowed compared to the second half of last year, to -3.6%.
Similarly, the reduction in EPRA NTA per share slowed to 4.6% to 893 pence,
reflecting an improvement in total return on equity to -2.4%.
Table 1: Highlights
Sep 2023 Sep 2022 Change %
EPRA earnings (£m)(1) 198 197 0.5
Loss before tax (£m)(2) (193) (192) (0.5)
Total return on equity (%) (2.4) (2.9) 0.5
Basic (loss)/earnings per share (pence) (24.4) (25.7) 5.1
EPRA earnings per share (pence)(1) 26.7 26.6 0.4
Dividend per share (pence) 18.2 17.6 3.4
Sep 2023 Mar 2023 Change %
Combined portfolio (£m)(1) 10,146 10,239 (0.9)
IFRS net assets (£m) 6,728 7,072 (4.9)
EPRA Net Tangible Assets per share (pence)(1) 893 936 (4.6)
Adjusted net debt (£m)(1) 3,524 3,287 7.2
Group LTV ratio (%)(1) 34.4 31.7 2.7
Proportion of portfolio rated EPC 'B' or higher (%) 41 36
Average upfront embodied carbon reduction development pipeline (%) 45 36
Energy intensity reduction vs 2020 (%) 19.4 16.6
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information in the Financial
Review.
2. Loss before tax of £193m as a result of a -£375m, or -3.6%, movement in
portfolio value.
Our strategy in a changing market
The environment we operate in has changed markedly since we launched our
strategy three years ago, yet our strategic focus remains the right one. Each
of our three key areas - Central London offices, major retail destinations and
mixed-use urban neighbourhoods - continue to benefit from growing demand for
high-quality, well-located, sustainable space, which is driving rents higher
for the best assets. What binds these areas together is the importance of a
sense of place, as even though the proportions of use vary, the lines between
where people want to work, live and spend their leisure time are blurring.
The surge in inflation and interest rates since early last year has had a
material impact on asset values globally, be it for real estate, equities or
bonds, but positively, inflation has come down markedly from its recent highs.
Still, we expect UK inflation to remain relatively sticky, so whilst interest
rates may now be close to their peak, it seems optimistic to us to assume that
they will come down sharply anytime soon.
Our strategy in 2020 was never built on a view that the ultra-low rate
environment at the time would last and our actions over the past three years
reflect this, as we focused our investments where we have a genuine
competitive advantage that enables us to create long-term value. As such, we
acquired further stakes in Bluewater and Cardiff at yields of 8-10%; we sold
£2.2bn of London offices at an average yield of 4.4%, 83% of which were
single-let buildings, mostly in the City and in line with our view that HQ
buildings would be more at risk from changes in ways of working; we unlocked
future optionality in mixed-use schemes at Mayfield and Finchley Road; and we
reduced our borrowings.
In this more normalised rate environment, we continue to target a total return
on equity of 8-10% p.a. over time, comprising a mix of income and capital
returns, driven by rental value growth and development upside. Starting with
an income return on NTA of c. 5.5% we are in a good place to deliver on this,
although short-term fluctuations in valuation yields, which are outside of our
control, mean our return on equity is unlikely to be exactly in that range
every individual year. We are seeing this in the current year, but this target
remains what we base our medium-term decisions on.
In this context, it is critical that we continue to think carefully about
capital allocation decisions in terms of risk and return. Major retail
destinations, for the right assets, offer high single digit income returns
plus the prospect of a return to sustainable rental growth, as evidenced by
our own portfolio. Such opportunities continue to look appealing. Similarly,
the yield on incremental spend for our near-term developments in London looks
very attractive, at c. 12%. In general, development returns are naturally more
challenged, as values are down and costs have gone up, although build cost
inflation is now beginning to moderate. As such, we have been focused on
realising design and cost efficiencies to maintain healthy returns and have
made important progress on this, to preserve the valuable optionality of our
longer-term pipeline.
Funding this investment activity will continue to come primarily from two
sources. Firstly, from existing balance sheet capacity, which remains healthy
as a result of our proactive asset disposal activity since early 2022.
Secondly, from further capital recycling, with the focus of this activity now
likely to shift increasingly to our £1.2bn subscale portfolio. Still, the
extent of opportunity in our pipeline, and for accretive external growth, is
such that over time this is likely to exceed our own balance sheet capacity.
As capital discipline remains our priority, we continue to explore
opportunities to enhance our own investment in future growth with other,
complementary sources of capital, to accelerate our overall growth, capitalise
on the platform value we are creating, and to enhance our overall return on
equity.
Creating value through our competitive advantages
In executing our strategy, we continue to focus on our three key competitive
advantages: our high quality portfolio; the strength of our customer
relationships; and our ability to unlock complex opportunities. We have seen
customer demand bifurcate further over the half year, as demand for modern,
sustainable space in areas with the best amenities in London remained strong,
even though overall office leasing across the market slowed. In retail, the
focus from brands remains on fewer, but bigger and better stores in key
locations. Supply of both is limited, which continues to drive rental value
growth across our assets.
In London, 76% of our portfolio is now located in the vibrant West End and
Southwark markets, up from 58% in 2020, whilst our City exposure is down to
24%. Our recently completed schemes are 83% let or in solicitors' hands, up
from 60% six months ago, with rents well above ERV. Office utilisation
continues to rise and 77% of our lettings over the last year have seen
customers grow or keep the same floorspace. Across our existing portfolio we
signed or are in solicitor's hands on £17m of leases, on average 3% above
ERV. Occupancy is up 60bps to 96.5% and at 99.6% our West End portfolio is
effectively full - both well ahead of the London market. This drove 3.3%
growth in ERVs over the first six months, which is comfortably on track vs our
full year guidance of low to mid single digit percent ERV growth.
Across our major retail destinations, we completed or are in solicitor's hands
on £24m of lettings, on average 6% ahead of ERV. For the first time in years,
uplifts on lease renewals have turned positive, on average 2% above previous
passing rent, whilst occupancy is up 100bps since March to 95.3%. We have seen
1.4% ERV growth over the six months, which is on track vs our guidance of low
to mid single digit percent growth for the full year. Similar to London, this
growth very much reflects the high quality of our portfolio, as we maintain
our long-held view that demand for generic retail and office space will remain
lower than before the pandemic.
This is supplemented by our ability to unlock complex opportunities, such as
in London, where we completed three projects over live Underground stations
featuring highly bespoke engineering solutions, combined creating c. £215m of
value; in retail, where we are exploring further opportunities to leverage our
leading platform, post the discounted purchase of the debt on St David's from
two lenders in early 2023; and in mixed-use, where we are progressing planning
and land assembly at Finchley Road, following the resolution to grant consent
to build 1,800 homes in March, and at Mayfield, where we obtained detailed
consent for the first phase of development late summer.
Delivering sustainably
At the start of the year we updated our carbon reduction targets to align with
the Science Based Targets Initiative's (SBTi) new Net-Zero Standard, as we
remain committed to following a science-based net-zero pathway that ensures
our actions respond to the urgency of the climate crisis. We committed to a
near-term target of reducing our direct and indirect greenhouse gas emissions
by 47% by 2030 from a 2020 baseline and committed to reach net zero by 2040
from the same baseline year. This target covers emissions from all sources,
including all of our reported Scope 3 emissions, such as the emissions from
our development pipeline, supply chain and customers. Our emissions have
already reduced by 26% compared with baseline.
To align with our revised carbon reduction target, we have updated our energy
intensity target to reduce energy intensity by 52% by 2030 from a 2019/20
baseline. We are already tracking a 19% reduction, having achieved an energy
intensity reduction across our portfolio of 3% vs last year during the period.
We continue to progress the implementation of our net zero transition
investment plan, which will ensure we meet our near-term science-based carbon
reduction target and stay ahead of the proposed Minimum Energy Efficiency
Standard Regulations. This requires a minimum EPC 'B' certification by 2030,
yet 44% of our office portfolio and 41% of our overall portfolio is already
rated B or higher, up from 38% and 36% in March. We are about to start
retrofitting air source heat pumps at our first two office locations and are
progressing design work for a further four buildings. The benefit of this in
terms of improved EPC ratings will be visible from 2025 onwards, when these
become operational. In addition, we continue to focus on reducing upfront
embodied carbon from our development schemes and improving energy efficiency,
expanding the work with our largest customers to help them identify ways to
save energy.
Earlier this year, we also launched our Landsec Futures fund, which is aimed
at improving social mobility in the real estate industry and will see us
invest £20m over the next decade. This will ensure we deliver on our target
to create £200m in social value and empower 30,000 people towards the world
of work by 2030. This is built on our strong track-record of investing in our
local communities, which has already seen us create £27m of social value and
empower 7,925 people to work since 2020.
Outlook
Since the start of the year, the reduction in inflation, return to real wage
growth for consumers and better than expected resilience in UK GDP have been
encouraging. Still, we remain mindful that the ongoing transition from a
decade of free money and excess liquidity to a higher interest rate world
could continue to create its dislocations and that higher-for-even-longer
rates could eventually start to impact consumer and customer demand, even
though we are not seeing any signs of this yet. Nevertheless, our strategic
decisions over the past three years mean we are in great shape for any
eventuality:
¾ our portfolio quality is high, which has increasingly become the decisive
factor for our customers;
¾ our balance sheet is strong, at 7.2x net debt/EBITDA and a 9.3-year
average debt maturity;
¾ we have sold £2bn+ of assets most at risk of repricing, creating
capacity for higher-return investments;
¾ we have created an attractive pipeline of opportunities, with flexibility
on future commitments.
Investment activity remains subdued for now but the combination of recent
relative stability in long-term rates and greater economic resilience so far
means that we expect activity levels to pick up in 2024. The refinancing of
cheap debt issued before 2022 across the sector remains a challenge, but the
apparent availability of new equity and mezzanine finance to plug gaps in the
capital stack means that we see the risk of disorderly sales putting
significant pressure on the value of high-quality assets as lower than six
months ago. As a result, for the best assets we expect values will start to
stabilise during 2024, although secondary assets where the sustainability of
cashflow is questionable will likely continue to fall.
From an income perspective, higher interest costs and cost inflation are a
headwind across every sector, yet the sustainability of our earnings remains
underpinned by our long average debt maturity and growth in like-for-like
income, reflecting the strong demand for our high-quality space. For this
year, the upside from this is largely offset by our significant disposals last
year and the c. £10m impact on earnings from the start-up cost of opening
three new Myo locations, the last over-rented retail leases resetting and the
investment in our systems we outlined in May. As such, we reiterate our
guidance for EPRA EPS this year to be broadly stable vs last year's underlying
level of 50.1 pence, before returning to growth next year. As our dividend
cover is at the high end of our 1.2-1.3x target range, we continue to expect
our dividend to grow by a low single digit percentage per year over these two
years.
Whilst macroeconomic signals remain mixed, with long-term rates seemingly
beginning to stabilise and occupier demand for the best assets remaining
robust, the outlook for values for best-in-class assets should start to
improve. We have made considerable progress in executing our strategy over the
past three years hence Landsec is well placed for long-term growth. We remain
excited about the future.
Operating and portfolio review
Overview
Our combined portfolio was valued at £10.1bn as of September, comprising the
following segments:
¾ Central London (62%): our modern, high-quality office (83%) and retail
and other commercial space (17%), located in the West End (69%), City (24%)
and Southwark (7%).
¾ Major retail destinations (18%): our investments in six shopping centres
and five retail outlets, with the seven largest assets comprising 84% 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 urban
places, focused on five locations in London, Manchester and Glasgow, some of
which currently have a predominant use as retail ahead of their medium-term
repositioning.
¾ Subscale (12%): assets in sectors where we have limited scale or
competitive advantage and which we therefore plan to divest over time, split
broadly equally between retail parks, hotels and leisure.
Investment activity
In late 2020, we said we intended to sell c. £4bn of mature London offices
and assets in sectors which were subscale for us over a period of circa six
years, with a view to reinvest this into higher growth opportunities. This
remains on track, as half way into this period, we have sold £2.5bn of
assets.
Following our £1.4bn of disposals last year, we did not make any material
disposals during the half year, yet since then we have sold one of our two
smallest outlets and a number of non-core U+I assets, taking total disposals
to £85m, on average 6% above March book value. When we set out our plan to
sell c. £4bn of assets three years ago, we said we would focus on the sale of
c. £2.5bn of offices first, as yields were at an all-time low and therefore
most at risk of moving out. With our timely disposal of £1.4bn of offices
last year, we have sold £2.2bn of our c. £2.5bn target at an average yield
of 4.4% and a modest 4% discount to book value. Most of these were large City
HQ buildings, so as a result our City exposure is down from 42% three years
ago to 24% currently. Our focus is now mostly on recycling capital out of
subscale sectors, which we aim to progress in the second half, assuming no
major economic shocks.
During the first half, net acquisitions were £75m and we spent £108m on
development capex. Our sole acquisition was a 89,000 sq ft, EPC B-rated office
in Kings Cross, where in a back to back deal, we agreed a lease surrender with
the tenant. This unlocked the opportunity to convert the space into a new Myo
location, which we expect to open in early 2025. Net of the received payment,
the acquisition price reflects a capital value of c. £800 per sq ft and we
expect the Myo conversion to deliver a mid-teens IRR.
Portfolio valuation
The significant increase in interest rates since the start of the year meant
that transaction volumes across global and UK property markets have remained
subdued. As a result, yields have softened further, so despite positive ERV
growth across every segment, the value of our portfolio reduced by 3.6%.
Our Central London portfolio was down 4.5% over the period as the upside from
our 3.3% ERV growth was offset by a 33bps increase in yields to 5.3%. The
value of our West End office (-3.1%) and retail and other assets (-1.4%),
which make up 75% of our London investment portfolio, again proved more
resilient than our City offices (-9.3%). This reflects our ongoing strong
leasing activity in the West End, where our entire Victoria estate is now 100%
full, driving 4.7% ERV growth. In the City, where we have sold around half of
our assets over the past three years, the higher availability of space meant
that ERV growth was more muted, in line with our guidance, at 1.0%. The
valuation of our development assets was down 4.9%, as successful lettings and
ERV growth were offset by a general softening in yields.
The valuation of our major retail assets proved resilient, down just 1.3% over
the six months, as 1.4% growth in ERVs virtually offset a 16bps softening in
yields. Outlet values were down 3.8%, mostly driven by an increase in yields,
yet shopping centre valuations were stable. This reflects the solid
operational performance and high day-one income returns, which makes yields
less sensitive to interest rate movements than low-yielding sectors. As a
result, with a 2.9% total return over the half year, major retail again was
the best performing part of our core portfolio, ahead of London (-2.4%) and
mixed-use (-3.8%).
The value of our mixed-use assets was down 6.2%, driven by 52bps yield
softening at MediaCity. Our future developments saw a 3.6% reduction in value,
as the majority of these are valued based on their existing retail use. We
manage income on a short-term basis to maximise flexibility for development,
but as the duration of income reduced, values softened slightly. The valuation
of our Subscale portfolio was broadly stable, at -0.6%, reflecting strong
operational performance in hotels (+1.7%) and resilience in retail parks
(-0.6%). Following a marked reduction in the prior year, the valuation of our
leisure assets started to stabilise (-2.7%), as its largest tenant, Cineworld,
successfully recapitalised during the period.
Looking ahead, we expect the current subdued investment activity could result
in some further yield softening in the near future. The sharp rise in
borrowing costs over the past two years will reduce the interest cover on
refinancing any pre-2022 debt, especially where leverage is high and initial
yields were low. In the UK, on average roughly £40bn of commercial real
estate loans mature p.a. over 2024-27, but it is difficult to assess the exact
funding gap on this, as averages are somewhat meaningless in trying to
calculate this. However, the risk of disorderly sales driving the value of
high-quality assets down materially seems limited, as there appears to be
equity or mezzanine capital available to plug gaps in the capital stack for
such assets. As the outlook for interest rates begins to stabilise, we
therefore expect investment activity to pick up in 2024 and values for the
best assets which offer clear rental growth potential to stabilise, although
we expect further pressure on the value of secondary assets where occupational
demand is questionable. For our portfolio, we continue to expect ERVs in
London and major retail to grow by a low to mid-single digit percentage this
year.
Table 2: Valuation analysis
Market value 30 (Deficit)/Surplus Valuation change LFL rental value change(1) Net initial Topped up net initial Equivalent LFL equivalent yield change
Sep 2023
yield
yield
yield
£m £m % % % % % bps
West End offices 2,578 (78) (3.1) 4.7 4.8 5.6 5.4 31
City offices 1,221 (123) (9.3) 1.0 3.9 4.8 5.8 51
Retail and other 1,039 (15) (1.4) 3.4 4.4 4.6 4.9 22
Developments 1,364 (70) (4.9) n/a 0.0 1.8 5.0 n/a
Total Central London 6,202 (286) (4.5) 3.3 4.5((2)) 5.2((2)) 5.3 33
Shopping centres 1,206 1 0.1 1.6 8.0 8.6 8.1 13
Outlets 665 (26) (3.8) 0.9 6.7 6.7 7.4 20
Total Major retail 1,871 (25) (1.3) 1.4 7.5 7.9 7.8 16
Completed investment 355 (38) (9.7) 0.6 6.0 6.1 6.8 52
Developments 473 (19) (3.6) n/a 5.4 5.3 5.8 n/a
Total Mixed-use urban 828 (57) (6.2) 0.6 6.0((2)) 6.1((2)) 6.1 52
Leisure 424 (11) (2.7) 1.8 8.6 8.8 8.7 17
Hotels 404 7 1.7 5.2 6.9 6.9 6.7 5
Retail parks 417 (3) (0.6) 0.8 6.7 7.0 6.6 21
Total Subscale sectors 1,245 (7) (0.6) 2.4 7.4 7.5 7.3 13
Total Combined Portfolio 10,146 (375) (3.6) 2.5 5.7((2)) 6.2((2)) 6.1 29
1. Rental value change excludes units materially altered during the period.
2. Excluding developments.
Leasing and operational performance
Central London
The focus in customer demand on buildings with the best sustainability
credentials, transport connectivity and local amenities to make key talent
want to spend time in the office is now firmly embedded. As the amount of
space which ticks all these boxes is limited, pricing of this continues to go
up, whilst space which does not meet all these criteria is at risk of becoming
obsolete, almost irrespective of price.
Illustrating the appeal of high-quality space in the right locations, we have
set new record rents in Victoria. Office attendance across our portfolio also
continues to grow, as turnstile tap-ins over the past six months are up 10% vs
the preceding six months and 22% year-on-year. Whilst utilisation is still
lower than it was pre-Covid, we are seeing our customers plan for more square
foot per person, to create more space for collaboration, focus work or
wellbeing. As such, of our 35 lettings covering £58m of rent over the past
year, 49% involved customers increasing floorspace, whilst only 23% reflected
customers downsizing. This is in line with market data which shows that only
one-fifth of active requirements is for less space.
We have consistently said that we expected overall demand for UK office space
to reduce as a result of more flexible ways of working, but that this would
mostly impact large HQ type space and areas which lack the amenities to make
people want to spend time there. The fact that we have started to see several
high-profile announcements of, for example, major banks reducing their
floorspace and relocating to different parts of London therefore does not come
as a surprise to us. Indeed, this is why virtually all of our office disposals
over the past three years have been large, single-let HQ buildings and why we
have increasingly focused our portfolio on multi-let clusters, mostly in the
West End and Southwark.
This bifurcation in demand is also reflected in vacancy statistics. Whilst the
average vacancy rate across the London office market is elevated, at 8.8%, 90%
of all vacant space sits in 10% of all London offices and almost 40% of all
vacant square foot sits in just 1% of the buildings in the capital. Indeed,
almost 85% of all buildings have zero vacancy. This shows it is misleading to
look at averages, as vacancy is mostly a building issue, not a market wide
issue. This highlights why offices are different than retail 5+ years ago, as
in retail even the best locations saw vacancy rise and, as a result, rents
fall. Conversely, in offices, Grade A availability remains low, at 1.7%, which
continues to push rents higher for the best space.
Although the wider economic uncertainty meant that take-up across the overall
London market slowed, demand for space in our portfolio remained robust. We
signed 23 lettings and renewals during the half year, totalling £14m of rent,
on average 2% ahead of valuers' assumptions, with a further £3m in
solicitors' hands, 5% above valuers' estimates. As a result, occupancy rose
60bps to 96.5%, with our West End offices basically full, at 99.6% occupancy,
well ahead of the 95.8% market average. We also continue to see strong demand
for our Myo flexible offer, as 123 Victoria Street remains 100% let and
Dashwood is now 94% let, up from 85% in March. We will be opening three new
Myo locations this autumn, totalling 138,000 sq ft, with a further location
opening in spring 2024. We are planning to open a further location in Kings
Cross in 2025 which will bring our total Myo space to c. 300,000 sq ft.
Major retail destinations
For many key brands, including Next, UNIQLO, M&S and H&M, sales growth
in our centres is significantly outperforming their overall sales growth,
which explains the strength of demand for space in our major retail
destinations. Total retail sales across our portfolio grew +4.0% YoY and
like-for-like sales were +5.4% above 2019 levels. Meanwhile, footfall across
our shopping centres increased by 5% vs the same period last year and is now
at c. 90% of pre-pandemic levels.
We have continued to see a further shift back from online to physical sales,
with negative online non-food sales growth for the past 26 months, whilst
in-store sales have continued to grow. For most major brands online and
physical channels have become firmly interconnected, whilst the increase in
cost of capital and cost of doing business online is keeping the pressure on
online pure-play retail models to focus on growing profitability rather than
market share, increasing the cost for consumers to buy online.
As expected, many brands continue to reduce their overall store footprints.
However, the focus on 'fewer, bigger, better' stores continues to support
demand for more space in key destinations, as brands upsize existing stores,
or open new units as they relocate from nearby stores to benefit from higher
footfall in a 'flight to prime'. As such, leasing momentum remained robust,
despite the cost of living challenges facing consumers in the early part of
the year in particular.
This meant we delivered 9.9% growth in like-for-like net rental income. We
signed 109 lettings totalling £13m of rent, up 7% vs the prior year, on
average in line with ERV, whilst we have a further £11m of lettings in
solicitors' hands, on average 14% ahead of ERV. Occupancy was stable during
the period at 94.3%, but has increased 100bps to 95.3% since the period-end.
Insolvencies remain limited, so units in administration remain low at 0.7%
compared to 0.5% in March.
Looking ahead, in the second half of the year we expect occupancy to improve
further and some of the last over-rented historical leases to reset, paving
the way for solid like-for-like income growth from next year onwards. Whilst
sales in our shopping centres are back to pre-pandemic levels, rents remain c.
25- 30% lower, further underpinning the attraction of our major retail
destinations for omnichannel brands.
Mixed-use urban neighbourhoods & subscale sectors
Our completed investment assets in mixed-use at present solely comprise our
investment in MediaCity, where occupancy reduced 220bps following a 180bps
increase in the prior year. The bulk of the income in our mixed-use
development assets relate to our three shopping centres in London and Glasgow.
This income is currently managed on a short-term basis to maximise our
flexibility for potential future repositioning. Operational performance across
our subscale portfolio remains resilient. We completed £1m of retail park and
leisure lettings with a further £6m in solicitors' hands, on average 3% above
valuers' assumptions, whilst occupancy increased 20bps. Our hotels, which are
fully let to Accor, saw occupancy rise to 97% of pre-Covid levels, driving a
further increase in RevPAR.
Table 3: Operational performance analysis
Annualised rental income Net estimated rental value EPRA occupancy(1) LFL occupancy change(1) WAULT(1)
£m £m % ppt Years
West End offices 136 153 99.6 0.1 6.2
City offices 64 94 92.1 1.6 8.3
Retail and other 39 53 95.5 0.1 7.9
Developments 16 133 n/a n/a n/a
Total Central London 255 433 96.5 0.6 6.9
Shopping centres 119 122 94.7 - 4.5
Outlets 54 60 93.6 - 3.1
Total Major retail 173 182 94.3 - 4.2
Completed investment 24 26 95.6 (2.2) 8.3
Developments 31 35 n/a n/a n/a
Total Mixed-use urban 55 61 95.6 (2.2) 8.3
Leisure 47 45 96.9 1.5 10.8
Hotels 35 29 n/a n/a 7.7
Retail parks 29 30 97.1 (1.5) 5.4
Total Subscale sectors 111 104 97.9 0.2 8.3
Total Combined Portfolio 594 780 96.0 0.2 6.3
1. Excluding developments.
Development pipeline
Central London
We continue to see strong demand for the high-quality space we develop. We
completed our two on-site developments, n2 in Victoria and Lucent behind
Piccadilly Lights, which are now 100% and 99% let or in solicitors' hands,
with rents on average 13% ahead of initial assumptions. At The Forge in
Southwark, we completed a new Myo location this month and further progressed
lettings, covering 49% of this scheme including deals in solicitors' hands or
advanced negotiations. Once fully let, these three schemes are set to generate
a gross ERV of £45m, supporting near-term income growth. We also completed
the 21 Moorfields development in the City, which we sold last year for £809m,
crystallising a 25% profit on cost.
Since March, development activity has remained relatively stable and 39% of
space under construction is already pre-let. Refurbishments made up half of
all new construction starts since March, as aside from our projects,
speculative new-build starts across the capital were just 1.2m sq ft. At the
same time, demand for the best, most sustainable space continues to grow,
partly driven by tighter regulation, but much more so by customers' own
sustainability agendas and the expectations of their stakeholders.
The combination of growing demand vs reduced new supply of modern, sustainable
space creates an attractive opportunity. Building on the success of our recent
completions, we have therefore started the major refurbishment of Thirty High
(formerly Portland House) in Victoria and the development of Timber Square in
Southwark. The gross yield on total development cost is expected to be 7.3%,
whilst the yield on incremental spend is c. 12%, providing an attractive
return.
Table 4: Committed pipeline
Property Sector Size Estimated completion Net income/ ERV Market value Costs to complete TDC Gross yield on TDC
date
£m
sq ft £m £m £m %
'000
Thirty High, SW1 Office 299 Aug-25 30 196 218 407 7.4%
Timber Square, SE1 Office 376 Dec-25 30 114 286 408 7.3%
Total 675 60 310 504 815 7.3%
Beyond this, we have a potential pipeline of 1.3m sq ft, of which 0.5m sq ft
has planning. The earliest start of our two consented schemes is mid to late
2024, as we are seeking to enhance the existing consent at Liberty of
Southwark, and are planning to carefully de-construct Red Lion Court, SE1 so
that we can re-use part of its materials in our new Southwark pipeline to
reduce embodied carbon. Beyond these two schemes, we continue to progress
design and planning on our 0.9m sq ft of medium-term schemes.
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
Liberty of Southwark, SE1 Office/resi 225 255 17 7.5(1) H2 2024 Consented
Red Lion Court, SE1 Office 250 330 24 7.2 H2 2024 Consented
Total near-term 475 585 41 7.4
Medium-term
Old Broad Street, EC2 Office 290 2025 Planning application
Hill House, EC4 Office 380 2026 Planning application
Nova Place, SW1 Office 40 2025 Design
Southwark Bridge Road, SE1 Office 150 2025 Design
Total medium-term 860
Total future pipeline 1,335
1. Gross yield on cost adjusted for residential TDC.
Mixed-use urban neighbourhoods
As consumer expectations on how we live, work and spend our leisure time
change and sustainability requirements continue to grow, there is a structural
need to remodel many parts of the existing urban environment, to make sure it
is fit for future needs. We control a select number of assets close to major
transportation links in some of the fastest growing urban areas in the UK,
such as London, Manchester and Glasgow, providing an opportunity to deliver
and curate thriving, sustainable mixed-use places.
We continue to progress the preparation of our two most advanced projects,
creating optionality for a potential start on site next year. At Mayfield,
adjacent to Manchester's main train station, we secured detailed planning
consent for the first 330,000 sq ft of office development across two buildings
in September. The expected investment for this is c. £180m. We continue to
work on enhancing our plans and expected returns, so subject to this, we could
potentially start this first phase in the first half of 2024. At Finchley
Road, in zone two London, where we secured a resolution to grant planning
consent for our 1,800 homes masterplan in March, we secured vacant possession
of an important part of the first phase of this site during the period.
Subject to further planning and land assembly workstreams, we could
potentially start enabling works in the first half of 2024 as well.
In conjunction, we continue to enhance our plans for our longer-term projects
in Lewisham, south-east London, and Glasgow. This reflects our clear ambition
to reduce embodied carbon by working more with the existing built stock in
place, rather than demolishing everything and starting over, as set out in the
embodied carbon targets we announced last year. As the return environment and
our cost of capital has changed as well, we are also looking at opportunities
to retain more of the existing rental income, to optimise our overall return
on capital and income. This will likely result in less carbon and less capital
intensive interventions in both locations, which we are currently
incorporating in new masterplans. Both sites continue to offer significant
potential, and with a 8%+ current income yield, the holding cost is low.
In addition, we have a small number of potential longer-term opportunities
which are effectively held at option value. This includes the second phase of
MediaCity, where we continue to work with our partner Peel on establishing the
long-term vision for this site. Overall, our mixed-use pipeline therefore
continues to provide a valuable opportunity to create an attractive mix of
income, development upside and medium-term growth potential, whilst the
mixed-use nature, ability to phase capex, geographic spread, and the
flexibility to adapt to changes in demand all add to the balanced risk-profile
of this part of our business.
Table 6: Mixed-use urban neighbourhoods development pipeline
Property Landsec share Proposed Earliest start on site Number of blocks Estimated first/total scheme completion Indicative TDC Target yield on cost Planning status
% sq ft £m %
'000
Near-term
Mayfield, Manchester 50-100 2,500 2024 18 2026/2034 800-950 7 - 8 Consented
Finchley Road, NW3 100 1,400 2024 10 2027/2035 950-1,050 6 - 7 Consented
Medium-term
MediaCity, Greater Manchester 75 1,900 2025 8 2027/2032 600-700 7 - 8 Consented
Buchanan Galleries, Glasgow 100 2025 Design
Lewisham, SE13 100 2026 Design
Delivering in a sustainable way
Shortly after the start of this financial year, we updated our carbon
reduction targets to align with the Science Based Targets Initiative's (SBTi)
new Net-Zero Standard. This meant we were one of the first companies in the
world to have our science-based targets validated under the Net-Zero Standard,
which is the first global framework for corporate net-zero target setting. In
response to the new SBTi standard, and in recognition of progress to date, we
committed to a near-term target of reducing direct and indirect greenhouse gas
emissions by 47% by 2030 from a 2020 base year and committed to reach net zero
by 2040 from the same base year. This materially increased the scope of our
targets, as it now includes emissions from all sources, including all of our
Scope 3 emissions such as the emissions from our development pipeline, supply
chain and customers. Our emissions have already reduced by 26% compared to
this baseline.
To align with our revised carbon reduction target, we have updated our energy
intensity target to reduce energy intensity by 52% by 2030 from a 2019/20
baseline. We are already tracking a 19% reduction, having achieved an energy
intensity reduction across our portfolio of 3% vs last year during the period.
Two years ago, we were the first UK property company to launch a fully costed
net zero carbon transition plan. This plan will ensure we deliver our
near-term science-based target and meet the proposed Minimum Energy Efficiency
Standard of EPC 'B' by 2030. The expected cost to deliver this plan is already
reflected in our current portfolio valuation. At present, 41% of our portfolio
is already rated 'B' or higher, including 44% of our office portfolio, up from
36% in March. We expect this to increase further from 2025 onwards, as the
benefits from our net zero transition investments come through.
As part of this investment plan, we are now about to start the retrofit of air
source heat pumps at our first two office locations, 16 Palace Street, SW1 and
Dashwood, EC2. We are progressing detailed designs for a further four
locations, two of which we expect works to start on site during 2024. Working
closely with our customers, we are on track to expand our energy audits from
25 to 38 of our largest customers this year. Combined, these cover 56% of the
energy used by our customers in our office portfolio and so far our work has
identified potential annual carbon and energy savings of 10-20% per customer.
Focusing on the emissions from the development of our schemes now included in
our carbon reduction targets, we set a target last year to reduce upfront
embodied carbon by 50% vs a typical development by 2030, to below
500kgCO(2)e/sqm for offices and 400kgCO(2)e/sqm for residential. Our future
pipeline is currently tracking at an average 45% reduction. At our recently
started Timber Square scheme we already achieved a reduction in embodied
carbon to 522kgCO(2)e/sqm due to retention of part of the existing structure,
a highly optimised design and the use of low carbon cross laminated timber.
Similarly, at our other recently started project, Thirty High, retaining the
original structure and upgrading the existing façade has resulted in an
upfront embodied carbon intensity of just 347kgCO(2)e/sqm.
Enhancing our strong track-record of investing in our local communities,
earlier this year we launched our Landsec Futures fund, which will see us
invest £20m over the next decade, aimed at improving social mobility in the
real estate industry and tackling issues local to our assets. This investment
will support the delivery of our 2030 targets to create £200m of social value
and empower 30,000 people towards the world of work. From our 2019/20
baseline, we have created £27m of social value and empowered 7,925 people and
we were recently recognised as 'Organisation of the Year' by the UK Social
Mobility Awards for our efforts.
Financial review
Overview
External market conditions remained unsettled over the half year.
Unsurprisingly, this continued to affect the valuation of property and other
assets globally, yet the impact of this was mitigated significantly by our
successful disposals over the prior 2.5 years, our high-quality portfolio and
our strong operational results. We anticipate interest rates to remain higher
for longer, yet as we expect they are probably close to their peak, this
should create a more supportive outlook for 2024. We are well-placed for the
opportunities this provides, which underpins our confidence in our ability to
grow earnings and dividend over time.
EPRA earnings for the half year were stable at £198m (+0.5%), as our positive
operational performance offset the impact of our significant deleveraging
through disposals during the prior year. Like-for-like gross rental income was
up 1.8%, or 2.8% on a net rental income basis. This reflects our continued
growth in occupancy, retail turnover income and hotel income, but also our
tight cost control. As a result, EPRA EPS was effectively stable at 26.7 pence
(+0.4%), in line with our guidance for full year EPRA EPS to be broadly stable
vs last year's underlying level of 50.1 pence. Our interim dividend is up 3.4%
to 18.2 pence, in line with our guidance of low single digit percentage growth
this year, as we continue to target a dividend cover of 1.2-1.3x on an annual
basis.
Even though we delivered further growth in occupancy and ERVs, the valuation
of our portfolio was down £375m due to an increase in valuation yields,
driven by the rise in bond yields during the period. This resulted in a loss
before tax of £193m, compared to a respective loss of £192m and £430m over
the first and second half of the prior year. As a result, our total return on
equity including dividends paid improved to -2.4%, with basic EPS at -24.4
pence and EPRA NTA per share down 4.6% to 893 pence.
Our decisive action over the past few years in selling £2.5bn of assets,
principally long-let, single-tenant City offices, means our balance sheet
remains strong. Net debt increased £0.2bn to £3.5bn in the half year, but
remains well below the £4.2bn at the start of the prior year. Our LTV
increased slightly to 34.4%, although this remains an imperfect measure to
judge leverage when investment activity is low and the approach to valuations
varies widely in different markets. In times like this, we therefore focus
more on net debt/EBITDA as a cash-on-cash measure, which stood at 7.2x at the
end of September - broadly similar to the 7.0x in March. Meanwhile, our
average debt maturity remains high at 9.3 years and with £2.1bn of cash and
undrawn facilities, we have no need to refinance any maturing debt until 2026.
Presentation of financial information
The condensed consolidated preliminary financial information is prepared under
UK adopted international accounting standards (IFRSs and IFRICs) where the
Group's interests in joint ventures are shown collectively in the income
statement and balance sheet, and all subsidiaries are consolidated at 100%.
Internally, management reviews the Group's results on a basis that adjusts for
these forms of ownership to present a proportionate share. The Combined
Portfolio, with assets totalling £10.1bn, is an example of this approach,
reflecting our economic interest in our properties regardless of our ownership
structure.
Our key measure of underlying earnings performance is EPRA earnings, which
represents the underlying financial performance of the Group's property rental
business, which is our core operating activity. A full definition of EPRA
earnings is given in the Glossary. This measure is based on the Best Practices
Recommendations of the European Public Real Estate Association (EPRA) which
are metrics widely used across the industry to aid comparability and includes
our proportionate share of joint ventures' earnings. Similarly, EPRA Net
Tangible Assets per share is our primary measure of net asset value.
Measures presented on a proportionate basis are alternative performance
measures as they are not defined under IFRS. This presentation provides
additional information to stakeholders on the activities and performance of
the Group, as it aggregates the results of all the Group's property interests
which under IFRS are required to be presented across a number of line items in
the statutory financial statements. For further details see table 14 in the
Business analysis section.
Income statement
Our positive leasing performance, the high quality of our portfolio and our
focus on margin improvement are clearly reflected in our resilience in income.
Combined with our acquisition of the discounted debt on 50% of the St David's
shopping centre in Cardiff just before the start of this year at an implied
property yield of almost 10%, this offset the impact of our significant London
office disposals during the prior year. Combined, this therefore improved our
overall balance sheet position and earnings profile.
Table 7: Income statement(1)
Six months ended Six months ended
30 September 2023
30 September 2022
Central London Major retail Mixed-use urban Subscale sectors Total Central London Major retail Mixed-use urban Subscale sectors Total Change
£m £m £m £m £m £m £m £m £m £m £m
Gross rental income(2) 146 92 29 56 323 160 84 28 53 325 (2)
Net service charge expense (3) (4) (1) (2) (10) (1) (6) (1) (1) (9) (1)
Net direct property expenditure (11) (12) (5) (8) (36) (11) (15) (6) (6) (38) 2
Movement in bad/doubtful debts provisions - 4 - 1 5 1 3 (4) - - 5
Segment net rental income 132 80 23 47 282 149 66 17 46 278 4
Net administrative expenses (38) (41) 3
EPRA earnings before interest 244 237 7
Net finance expense (46) (40) (6)
EPRA earnings 198 197 1
Capital/other items
Valuation deficit (375) (323) (52)
Loss on changes in finance leases - (6) 6
Loss on disposals (3) (92) 89
Impairment charges (4) (8) 4
Fair value movement on interest rate swaps 2 48 (46)
Other 1 (6) 7
Loss before tax attributable to shareholders of the parent (181) (190) 9
Non-controlling interests (12) (2) (10)
Loss before tax (193) (192) (1)
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
2. Includes finance lease interest, after rents payable.
Net rental income
Overall gross rental income was down £2m to £323m due to our disposals.
Like-for-like income was up £5m, or 1.8%, driven by growth in like-for-like
income in retail and subscale sectors and was further supported by positive
leasing in Central London.
Net rental income increased by £4m, which included a £5m reversal of bad and
doubtful debt provisions. Despite high UK inflation, direct property
expenditure fell by £2m and whilst net service charge expenses were up £1m,
this was primarily driven by higher costs related to the initial lease-up
phase of our recent London office developments. The impact from developments
and repositioning of space, which includes repurposing conventional office
space to Myo, reduced income by £2m. We expect this to be temporary, as we
anticipate this space to be let at higher rents and our recent development
completions start to become income-producing. On a like-for-like basis, our
net rental income was up £6m, or 2.8%.
As a result of our tight control of cost, our gross to net margin improved by
1.9ppt to 87.4%. We expect our overall gross to net margin for the full year
to be close to last year's 86.7%.
We have seen minimal insolvencies and no CVAs during the half year. Following
the recapitalisation of Cineworld, which makes up 1.7% of our annual rent, and
its exit from Chapter 11 bankruptcy proceedings in the US, we agreed to
restructure a number of leases, resulting in an annual rent reduction of £1m,
but all units in our portfolio continue to trade and the company continues to
pay rent.
Table 8: Net rental income(1)
£m
Net rental income for the six months ended 30 September 2022 278
Gross rental income like-for-like movement in the period(2):
Increase in variable and turnover-based rents 4
Other movements 1
Total like-for-like gross rental income 5
Like-for-like net service charge expense 2
Like-for-like net direct property expenditure (1)
Decrease in surrender premiums received (2)
Developments(2) (2)
Acquisitions since 1 April 2022(2) 8
Disposals since 1 April 2022(2) (11)
Movement in bad debts 5
Net rental income for the six months ended 30 September 2023 282
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
Although UK inflation remained elevated, our net administrative expenses were
down £3m to £38m. This reflects the efficiency benefits of the
organisational review we did last year and our continued focus on making sure
our cost base is appropriate. Reflecting this and our improved gross to net
margin, our EPRA cost ratio improved by 3.2ppt to 23.0%.
Even though high wage inflation and general cost inflation continue to put
upward pressure on costs, we still expect administrative expenses for this
year to be lower than the £84m last year. Costs this year for our investment
in upgrading our systems and data capability are expected to be broadly in
line with last year, and will reduce from the year to March 2025. Partly
reflecting this investment in technology, we have identified clear
opportunities to improve efficiency beyond the current year.
Net finance expenses
Net interest costs increased £6m to £46m, principally reflecting an increase
in variable interest rates and the impact of the £400m Green bond we issued
in March. 92% of our debt is fixed or hedged, but given the increase in cost
of the small proportion of variable rate debt and a reduction in capitalised
interest as our recent London developments have now completed, we expect net
interest cost in the second half of the year to be somewhat higher than in the
first half.
Non-cash finance income, which includes the fair value movements on
derivatives and which is not included in EPRA earnings, decreased from a net
income of £48m in the prior period to a net income of £2m over the past 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
The independent external valuation of our Combined Portfolio showed a
reduction in value of £375m. Our positive leasing activity resulted in 2.5%
ERV growth, yet the upside of this was more than offset by an increase in
valuation yields, driven by the sharp increase in bond yields during the half
year.
IFRS loss after tax
Substantially all our activity during the year was covered by UK REIT
legislation, which means our tax charge for the period remained minimal. The
IFRS loss after tax as a result of the above fair value adjustment of our
investment portfolio moderated to £193m, compared to £192m in the first half
and £430m in the second half of last year.
Net assets and return on equity
Our total return on equity for the six months improved to -2.4%, compared to
-2.9% and -5.6% in the first and second half of last year. Our income return
was 2.8% and ERV growth and development drove a capital return of 2.9%. On an
annualised basis, this compares favourably to the 8-10% return on equity we
target over time, before the short-term impact fluctuations in valuation
yields have in the short term.
After the £156m of dividends we paid, EPRA Net Tangible Assets, which
principally reflects the value of our Combined Portfolio less adjusted net
debt, reduced to £6,647m, or 893 pence per share. This marks a 4.6% reduction
for the half year on a per share basis, half of which was made up for by
dividends.
Table 9: Balance sheet(1)
30 September 2023 31 March 2023
£m £m
Combined Portfolio 10,146 10,239
Adjusted net debt (3,524) (3,287)
Other net assets 25 15
EPRA Net Tangible Assets 6,647 6,967
Shortfall of fair value over net investment in finance leases book value 6 6
Other intangible asset 2 2
Excess of fair value over trading properties book value (26) (12)
Fair value of interest-rate swaps 44 42
Net assets, excluding amounts due to non-controlling interests 6,673 7,005
Net assets per share 899p 945p
EPRA Net Tangible Assets per share (diluted) 893p 936p
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 2023 6,967 936
EPRA earnings 198 27
Like-for-like valuation movement (290) (40)
Development valuation movement (69) (9)
Impact of acquisitions/disposals (16) (2)
Total valuation deficit (375) (51)
Dividends (156) (21)
Loss on disposals (3) -
Other 16 2
EPRA Net Tangible Assets at 30 September 2023 6,647 893
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Net debt and leverage
Following the £892m reduction during the prior financial year, new
investments increased adjusted net debt, which includes our share of JV
borrowings, by £237m over the past six months. Net acquisitions amounted to
£75m, reflecting our acquisition of an office building for Myo in Kings
Cross. Capital expenditure on our portfolio was £177m, reflecting our London
office developments, the preparation of future developments and the investment
in our existing assets.
Following the completion of our recent London pipeline, we now have £462m
committed capex to spend over the next 2.5 years on our two new projects in
Victoria and Southwark. Having sold £2.5bn of assets over the preceding 2.5
years, disposals over the first six months of this year were minimal at £8m.
However, we have sold a further £77m of assets since the period-end and
assuming no major economic shocks, we aim to make further disposals of assets
which are non-core to our strategy or where we cannot add further value in the
second half.
The other key elements behind the decrease in net debt are set out in our
statement of cash flows and note 9 to the financial statements, with the main
movements in adjusted net debt shown below. A reconciliation between net debt
and adjusted net debt is shown in note 13 of the financial statements.
Table 11: Movement in adjusted net debt(1)
£m
Adjusted net debt at 31 March 2023 3,287
Adjusted net cash inflow from operating activities (166)
Dividends paid 153
Capital expenditure 165
Acquisitions 75
Disposals (8)
Other 18
Adjusted net debt at 30 September 2023 3,524
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Due to the modest increase in borrowings, net debt/EBITDA increased slightly
to 7.2x based on our net debt at the end of September, or 6.9x based on our
weighted-average net debt for the period. We target net debt/EBITDA to remain
below 8x over time. Group LTV which includes our share of JVs, increased from
31.7% to 34.4%. This remains well within our target range of 25% to 40% and in
line with the low 30's level we said we expected to remain at.
Table 12: Net debt and leverage
30 September 2023 31 March 2023
Net debt £3,572m £3,348m
Adjusted net debt(1) £3,524m £3,287m
Interest cover ratio 4.2x 4.5x
Net debt/EBITDA (period-end) 7.2x 7.0x
Net debt/EBITDA (weighted average) 6.9x 8.0x
Group LTV(1) 34.4% 31.7%
Security Group LTV 36.9% 33.0%
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
Financing
We have gross borrowings of £3,636m diversified across various sources,
including £2,727m of Medium Term Notes, £325m of syndicated and bilateral
bank loans and £584m of commercial paper. Our MTNs and the majority of bank
loans form part of our Security Group, which provide security on a floating
pool of assets currently valued at £9.3bn. This provides flexibility to
include or exclude assets and an attractive cost of funding, with our MTNs
currently rated AA and AA- with a stable outlook respectively by S&P and
Fitch.
Our Security Group structure has a number of tiered covenants, yet below 65%
LTV, these involve very limited operational restrictions. A default only
occurs when LTV is more than 100% or the ICR falls below 1.0x. With a Security
Group LTV of 36.9%, our portfolio could withstand a 43% fall in value before
we reach the 65% threshold and 63% before reaching 100%, whilst our EBITDA
could fall by c. 75% before we reach 1.0x ICR.
We have £2.1bn of cash and undrawn facilities, which provides substantial
flexibility. As expected, the percentage of borrowings which is fixed or
hedged reduced slightly, from 100% to 92% at the period end, reflecting our
net investment in the period. We continue to target a medium-term range of c.
80-90% to maintain some flexibility for potential divestments. The well-timed
issue of our £400m 9.5-year Green bond in March at a coupon of 4.875%, meant
our overall debt maturity remains long, at 9.3 years, which provides clear
visibility and underpins the resilience of our attractive earnings profile.
Our average cost of debt rose to 3.3%, reflecting the Green bond issue and
higher utilisation of our variable-rate borrowings.
We have £723m of debt maturing in the next two years, but all of this is more
than covered by existing undrawn facilities, which means we have no
refinancing requirements until 2026. As a result, our overall financial
position remains strong, which provides flexibility to take advantage of
future opportunities that will no doubt arise as markets continue to adjust to
a new higher rate reality.
Table 13: Available facilities(1)
30 September 2023 31 March 2023
£m £m
Medium Term Notes 2,727 2,736
Drawn bank debt 325 310
Outstanding commercial paper 584 312
Cash and available undrawn facilities 2,127 2,386
Total committed credit facilities 2,934 2,934
Weighted average maturity of debt 9.3 years 10.3 years
Percentage of borrowings fixed or hedged 92% 100%
Weighted average cost of debt((2)) 3.3% 2.7%
1. Including our proportionate share of subsidiaries and joint ventures, as
explained in the Presentation of financial information above.
2. Including amortisation and commitment fees; excluding this the weighted
average cost of debt is 3.1% at 30 September 2023.
Principal risks and uncertainties
The principal risks of the business were set out on pages 56 - 59 of the 2023
Annual Report that was published in May. The Executive Leadership Team and the
Board review these risks regularly, as well as monitor for changes and any
emerging risks. Though the risk landscape continues to evolve and change over
time, they remain most relevant and the principal risks at half year are
unchanged from those disclosed in the Annual Report.
The macroeconomic outlook remains our highest rated risk and it also impacts
our other strategic risks related to the workplace and retail occupier
markets. Though the impact of the Covid-19 pandemic has now generally
dissipated, high inflation and interest rates have created headwinds, despite
strong operational performance over the first half of the year.
Our ten principal risks are summarised as follows:
Macroeconomic outlook - This risk incorporates the impacts resulting from high
inflation, resultant high interest rates, the cost-of-living crisis and any
possible resultant recession. Whilst inflation has slowed over the last six
months, interest rates remain high, so this risk is not considered to have
materially changed over the last six months. For Landsec, this risk impacts
asset yields, and therefore valuations, and 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 and retail occupier markets - These two risks previously considered the
impact of the Covid-19 pandemic however they have been updated as the
resultant changes in customer behaviour (office attendance and online
penetration) have become less significant with the passage of time. These
risks still represent the potential for structural i.e., permanent changes in
the use of our assets over time. However, they now also incorporate the
specific impact of changes in the macroeconomic environment i.e., increases in
customer default, failure of retailers, lower footfall/dwell time and average
spend at shopping centres. Strong operational performance in both Central
London offices and retail destinations indicate that the continued robustness
of our prime assets and locations is offset by the macroeconomic backdrop.
Information security and cyber threat - This is an area which has been
invested in over recent years to improve Landsec's cyber resilience. The
emphasis has now switched to continuous improvement of the processes and
controls to ensure that Landsec's cyber framework is effective.
Change projects - The Group have important cultural and operational change
programmes underway, which creates the inherent risk these change projects do
not succeed in delivering the operational benefits set out in their business
cases. This risk has remained stable over the period, with specific programme
management resource allocated and assurance obtained where appropriate.
Capital allocation and Development strategy - Both of these risks are
considered to have increased since the last year end, as the Group increases
the extent to which capital is allocated and new developments commence. This
increase brings both risks further towards the desired risk appetite for
capital allocation and development. As further capital is committed and
further new developments commence, the risk level will be brought within the
desired risk appetite and the plans and measures to do this are built into the
Group's strategic and business planning processes.
The three remaining principal risks (Health and safety, People and skills and
Climate change transition) have remained stable in the six months since last
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 2023 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 2023 that have materially affected, and any changes in the
related party transactions described in the 2023 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 Sir Ian Cheshire, 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*
¾ James Bowling*
*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 2023 which comprises the 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 -
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 2023 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 for 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
13 November 2023
Financial statements
Unaudited income statement Six months ended Six months ended
30 September 2023
30 September 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
Notes £m £m £m £m £m £m
Revenue 5 385 27 412 360 34 394
Costs - movement in bad and doubtful debts provisions 6 5 - 5 - - -
Costs - other 6 (162) (27) (189) (143) (45) (188)
228 - 228 217 (11) 206
Share of post-tax profit/(loss) from joint ventures 12 10 (17) (7) 14 1 15
Loss on disposal of investment properties - (3) (3) - (92) (92)
Net deficit on revaluation of investment properties 10 - (371) (371) - (331) (331)
Loss on changes in finance leases - - - - (6) (6)
Operating profit/(loss) 238 (391) (153) 231 (439) (208)
Finance income 7 6 1 7 6 51 57
Finance expense 7 (46) (1) (47) (40) (1) (41)
Profit/(loss) before tax 198 (391) (193) 197 (389) (192)
Taxation - - - - - -
Profit/(loss) for the period 198 (391) (193) 197 (389) (192)
Attributable to:
Shareholders of the parent (181) (190)
Non-controlling interests (12) (2)
(193) (192)
Loss per share attributable to shareholders of the parent:
Basic loss per share 4 (24.4)p (25.7)p
Diluted loss per share 4 (24.4)p (25.7)p
Unaudited statement of comprehensive income Six months ended Six months ended
30 September 2023
30 September 2022
Total Total
£m £m
Loss for the period (193) (192)
Items that will not be subsequently reclassified to the income statement:
Net re-measurement loss on defined benefit pension scheme (1) (2)
Other comprehensive loss for the period (1) (2)
Total comprehensive loss for the period (194) (194)
Attributable to:
Shareholders of the parent (182) (192)
Non-controlling interests (12) (2)
(194) (194)
Unaudited balance sheet 30 September 31 March
2023 2023
Notes £m £m
Non-current assets
Investment properties 10 9,562 9,658
Intangible assets 4 6
Net investment in finance leases 23 21
Investments in joint ventures 12 521 533
Investments in associates 3 3
Trade and other receivables 138 146
Other non-current assets 57 67
Total non-current assets 10,308 10,434
Current assets
Trading properties 11 111 118
Trade and other receivables 382 365
Monies held in restricted accounts and deposits 2 4
Cash and cash equivalents 80 41
Other current assets 22 4
Total current assets 597 532
Total assets 10,905 10,966
Current liabilities
Borrowings 14 (879) (315)
Trade and other payables (325) (306)
Other current liabilities (23) (24)
Total current liabilities (1,227) (645)
Non-current liabilities
Borrowings 14 (2,937) (3,223)
Trade and other payables - (17)
Other non-current liabilities (13) (9)
Total non-current liabilities (2,950) (3,249)
Total liabilities (4,177) (3,894)
Net assets 6,728 7,072
Equity
Capital and reserves attributable to shareholders
Ordinary shares 80 80
Share premium 319 318
Other reserves 18 13
Retained earnings 6,256 6,594
Equity attributable to shareholders of the parent 6,673 7,005
Equity attributable to non-controlling interests 55 67
Total equity 6,728 7,072
The financial statements on pages 26 to 46 were approved by the Board of
Directors on 13 November 2023 and were signed on its behalf by:
Mark Allan Vanessa 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 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
Total comprehensive loss for the financial period - - - (437) (437) (1) (438)
Transactions with shareholders of the parent:
Share-based payments - 1 3 - 4 - 4
Dividends paid to shareholders of the parent - - - (131) (131) - (131)
Total transactions with shareholders of the parent - 1 3 (131) (127) - (127)
Dividends paid to non-controlling interests - - - - - (2) (2)
Total transactions with shareholders - 1 3 (131) (127) (2) (129)
At 31 March 2023 80 318 13 6,594 7,005 67 7,072
Total comprehensive loss for the financial period - - - (182) (182) (12) (194)
Transactions with shareholders of the parent:
Share-based payments - 1 5 - 6 - 6
Dividends paid to shareholders of the parent - - - (156) (156) - (156)
Total transactions with shareholders of the parent - 1 5 (156) (150) - (150)
Dividends paid to non-controlling interests - - - - - - -
Total transactions with shareholders - 1 5 (156) (150) - (150)
At 30 September 2023 80 319 18 6,256 6,673 55 6,728
Unaudited statement of cash flows Six months ended
30 September
2023 2022
Notes £m £m
Cash flows from operating activities
Net cash generated from operations 9 210 196
Interest paid (50) (86)
Interest received 15 13
Rents paid (7) (5)
Capital expenditure on trading properties (8) (12)
Disposal of trading properties 7 7
Development income proceeds received - 54
Other operating cash flows (1) 9
Net cash inflow from operating activities 166 176
Cash flows from investing activities
Investment property development expenditure (92) (132)
Other investment property related expenditure (65) (26)
Acquisition of investment properties, net of cash acquired (91) (2)
Disposal of investment properties 1 870
Cash distributions from joint ventures 12 7 2
Decrease in monies held in restricted accounts and deposits 2 -
Other investing cash flows - (2)
Net cash (out)/inflow from investing activities (238) 710
Cash flows from financing activities
Proceeds from new borrowings (net of finance fees) 14 284 -
Repayment of borrowings 14 (9) (858)
Net cash (out)/inflow from derivative financial instruments 14 (12) 27
Dividends paid to shareholders 8 (153) (155)
Dividends paid to non-controlling interests - (2)
Decrease in monies held in restricted accounts and deposits - 3
Other financing cash flows 1 -
Net cash in/(out)flow from financing activities 111 (985)
Increase/(decrease) in cash and cash equivalents for the period 39 (99)
Cash and cash equivalents at the beginning of the period 41 146
Cash and cash equivalents at the end of the period 80 47
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 2023 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). As applied by the Group, there are no material differences between UK
adopted international accounting standards and EU 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 2023, 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 15 May 2023 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 2023.
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 13 November 2023.
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 base case, downside and reverse stress test models, as well as a cash
flow model which considers the impact of pessimistic assumptions on the
Group's operating environment (the 'mitigated downside scenario'). This
mitigated downside scenario reflects unfavourable macroeconomic 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
2025, are shown below alongside the actual position at 30 September 2023.
Key metrics 30 September 2023 31 March 2023
latest mitigated downside scenario
mitigated downside scenario
30 September 2023 31 March 2025 30 September 2024
Security Group LTV 36.9% 46.7% 39.2%
Adjusted net debt £3,524m £3,971m £3,670m
EPRA Net Tangible Assets £6,647m £5,301m £6,021m
Available financial headroom £2.1bn £0.9bn £1.6bn
In our mitigated downside scenario, the Group has sufficient cash reserves,
with our Security Group LTV ratio remaining less than 65% and interest cover
above 1.45x, for a period of 16 months from the date of authorisation of these
financial statements. Under this scenario, the Security Group's asset values
would need to fall by a further 28% from the sensitised values forecasted at
31 March 2025 to be non-compliant with the LTV covenant. This equates to over
a 40% fall in the value of the Security Group's assets from the 30 September
2023 values for the LTV to reach 65%. The Directors consider the likelihood of
this occurring over the going concern assessment period to be remote.
The Security Group also requires earnings before interest of at least £177m
in the full year ending 31 March 2024 and £243m in the full year ending 31
March 2025 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 2023 are already above the level required to
meet the interest cover covenant for the year ending 31 March 2024. The
Directors do not anticipate a reduction in Security Group earnings over the
year ending 31 March 2025 to a level that would result in a breach of the
interest cover covenant.
The Directors have also considered a reverse stress-test scenario which
assumes no further rent will be received, to determine when our
available cash resources would be exhausted. Even under this extreme scenario,
although breaching the interest cover covenant, the Group
continues to have sufficient cash reserves to continue in operation throughout
the going concern assessment period.
Based on these considerations, together with available market information and
the Directors' knowledge and experience of the Group's property portfolio and
markets, the Directors have adopted the going concern basis in preparing these
financial statements for the period ended 30 September 2023.
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 2023, as amended where relevant to reflect the new standards,
amendments and interpretations which became effective in the period. There has
been no material impact on the financial statements of adopting these 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 the 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.
Segmental results
Six months ended Six months ended
30 September 2023
30 September 2022(2)
EPRA earnings Central London Major retail Mixed-use urban Subscale sectors Total Central London Major Mixed-use urban Subscale sectors Total
retail
£m £m £m £m £m £m £m £m £m £m
Rental income 148 95 29 56 328 160 88 28 54 330
Finance lease interest - - - - - 1 - - - 1
Gross rental income (before rents payable) 148 95 29 56 328 161 88 28 54 331
Rents payable(1) (2) (3) - - (5) (1) (4) - (1) (6)
Gross rental income (after rents payable) 146 92 29 56 323 160 84 28 53 325
Service charge income 28 28 6 - 62 22 20 5 - 47
Service charge expense (31) (32) (7) (2) (72) (23) (26) (6) (1) (56)
Net service charge expense (3) (4) (1) (2) (10) (1) (6) (1) (1) (9)
Other property related income 9 5 2 1 17 6 6 1 1 14
Direct property expenditure (20) (17) (7) (9) (53) (17) (21) (7) (7) (52)
Movement in bad and doubtful debts provisions - 4 - 1 5 1 3 (4) - -
Segment net rental income 132 80 23 47 282 149 66 17 46 278
Other income 2 1
Administrative expense (38) (39)
Depreciation, including amortisation of software (2) (3)
EPRA earnings before interest 244 237
Finance income 6 6
Finance expense (46) (40)
Joint venture net finance expense (6) (6)
EPRA earnings attributable to shareholders of the parent 198 197
1. Included within rents payable is lease interest payable of £2m across the
four segments (2022: £1m for the Central London segment, £1m across the
remaining three segments).
2. A reconciliation from the Group income statement to the information
presented in the segmental results table for the six months to 30 September
2022 is included in table 25.
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 2023
Group income statement Joint Adjustment for non-wholly owned subsidiaries (2) Total EPRA earnings Capital and other items
£m ventures(1) £m £m £m £m
£m
Rental income 312 20 (4) 328 328 -
Finance lease interest - - - - - -
Gross rental income (before rents payable) 312 20 (4) 328 328 -
Rents payable (5) - - (5) (5) -
Gross rental income (after rents payable) 307 20 (4) 323 323 -
Service charge income 59 4 (1) 62 62 -
Service charge expense (68) (5) 1 (72) (72) -
Net service charge expense (9) (1) - (10) (10) -
Other property related income 17 - - 17 17 -
Direct property expenditure (52) (2) 1 (53) (53) -
Movement in bad and doubtful debts provisions 5 - - 5 5 -
Segment net rental income 268 17 (3) 282 282 -
Other income 2 - - 2 2 -
Administrative expenses (37) (1) - (38) (38) -
Depreciation (2) - - (2) (2) -
EPRA earnings before interest 231 16 (3) 244 244 -
Share of post-tax loss from joint ventures (7) 7 - - - -
Loss on disposal of trading properties (1) - - (1) - (1)
Loss on disposal of investment properties (3) - - (3) - (3)
Net deficit on revaluation of investment properties (371) (17) 13 (375) - (375)
Net development contract income 3 - - 3 - 3
Impairment of trading properties (4) - - (4) - (4)
Depreciation (1) - - (1) - (1)
Operating (loss)/profit (153) 6 10 (137) 244 (381)
Finance income 7 - 2 9 6 3
Finance expense (47) (6) - (53) (52) (1)
(Loss)/profit before tax (193) - 12 (181) 198 (379)
Taxation - - - -
Loss for the period (193) - 12 (181)
1. Reallocation of the share of post-tax loss from joint ventures reported in
the Group income statement to the individual line items reported in the
segmental results table.
2. Removal of the non-wholly owned share of results of the Group's
subsidiaries. The non-wholly owned subsidiaries are consolidated at 100% in
the Group's income statement, but only the Group's share is included in EPRA
earnings reported in the segmental results table. The non-owned element of the
Group's subsidiaries are included in the 'Capital and other items' column
presented in the Group's income statement, together with items not directly
related to the underlying rental business such as investment properties
valuation changes, profits or losses on the disposal of investment properties,
the proceeds from, and costs of, the sale of trading properties, income from
and costs associated with development contracts, amortisation and impairment
of intangibles, and other attributable costs, arising on business
combinations.
4. Performance measures
In the tables below, we present earnings per share attributable to the
shareholders of the parent, calculated in accordance with IFRS, and net assets
per share attributable to shareholders of the parent together with certain
measures defined by the European Public Real Estate Association (EPRA), which
have been included to assist comparison between European property companies.
Three of the Group's key financial performance measures are EPRA earnings per
share, EPRA Net Tangible Assets per share and total return on equity. Refer to
Table 14 in the Business Analysis section for further details on these
alternative performance measures.
EPRA earnings, which is a tax adjusted measure of underlying earnings, is the
basis for the calculation of EPRA earnings per share. We believe EPRA earnings
and EPRA earnings per share provide further insight into the results of the
Group's operational performance to stakeholders as they focus on the rental
income performance of the business and exclude Capital and other items which
can vary significantly from period to period.
Earnings per share Six months ended Six months ended
30 September 2023
30 September 2022
Loss for the period EPRA earnings Loss for the period EPRA earnings
£m £m £m £m
Loss attributable to shareholders of the parent (181) (181) (190) (190)
Valuation and loss on disposals - 383 - 435
Net finance income (excluded from EPRA earnings) - (2) - (48)
Other - (2) - -
(Loss)/profit used in per share calculation (181) 198 (190) 197
IFRS EPRA IFRS EPRA
Basic (loss)/earnings per share (24.4)p 26.7p (25.7)p 26.6p
Diluted (loss)/earnings per share(1) (24.4)p 26.7p (25.7)p 26.6p
1. In the six months ended 30 September 2023 and 30 September 2022, share
options are excluded from the weighted average diluted number of shares when
calculating IFRS and EPRA diluted (loss)/earnings per share because they are
not dilutive.
Net assets per share 30 September 2023 31 March 2023
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 6,673 6,673 6,673 7,005 7,005 7,005
Shortfall of fair value over net investment in finance leases book value - (6) (6) - (6) (6)
Deferred tax liability on intangible asset - - - - - 1
Goodwill on deferred tax liability - - - - (1) (1)
Other intangible asset - - (2) - - (2)
Fair value of interest-rate swaps - - (44) - - (42)
Excess of fair value of trading properties over book value - 26 26 - 12 12
Shortfall of fair value of debt over book value - 457 - - 324 -
Net assets used in per share calculation 6,673 7,150 6,647 7,005 7,334 6,967
IFRS EPRA NDV EPRA NTA IFRS EPRA NDV EPRA NTA
Net assets per share 899p n/a n/a 945p n/a n/a
Diluted net assets per share 897p 961p 893p 942p 986p 936p
Number of shares Six months ended 30 September 2023 Six months ended 31 March 2023
30 September 2023
30 September 2022
Weighted average
Weighted average
million million million million
Ordinary shares 751 752 751 751
Treasury shares (7) (7) (7) (7)
Own shares (3) (3) (4) (3)
Number of shares - basic 741 742 740 741
Dilutive effect of share options 3 2 3 3
Number of shares - diluted 744 744 743 744
Total return on equity 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 return on equity based on EPRA NTA Six months ended Six months ended
30 September 2023
30 September 2022
pence pence
Decrease in EPRA NTA per share (43) (53)
Dividend paid per share in the period (note 8) 21 22
Total return (a) (22) (31)
EPRA NTA per share at the beginning of the period (b) 936 1,063
Total return on equity (a/b) (2.4)% (2.9)%
5. Revenue
All revenue is classified within the 'EPRA earnings' column of the income
statement, with the exception of proceeds from the sale of trading properties,
income from development contracts and the non-owned element of the Group's
subsidiaries which are presented in the 'Capital and other items' column.
Six months ended Six months ended
30 September 2023
30 September 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Rental income (excluding adjustment for lease incentives) 305 4 309 306 4 310
Adjustment for lease incentives 3 - 3 (3) - (3)
Rental income 308 4 312 303 4 307
Service charge income 58 1 59 42 1 43
Trading property sales proceeds - 7 7 - 15 15
Other property related income 17 - 17 13 - 13
Finance lease interest - - - 1 - 1
Development contract income(1) - 15 15 - 14 14
Other income 2 - 2 1 - 1
Revenue per the income statement 385 27 412 360 34 394
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 2023
30 September 2022
Group Joint ventures Adjustment for non-wholly owned subsidiaries Total Group Joint Adjustment for non-wholly owned subsidiaries Total
ventures
£m £m £m £m £m £m £m £m
Rental income 312 20 (4) 328 307 27 (4) 330
Service charge income 59 4 (1) 62 43 5 (1) 47
Other property related income 17 - - 17 13 1 - 14
Finance lease interest - - - - 1 - - 1
Other income 2 - - 2 1 - - 1
Revenue in the segmental information note 390 24 (5) 409 365 33 (5) 393
Development contract income(1) 15 - - 15 14 - - 14
Trading property sales proceeds 7 - - 7 15 - - 15
Revenue including Capital and other items 412 24 (5) 431 394 33 (5) 422
1. Development contract income for the six months to 30 September 2023 and for
the six months to 30 September 2022 includes 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 costs of sale and impairment of trading
properties, costs arising on 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 2023
30 September 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Rents payable 5 - 5 5 - 5
Service charge expense 67 1 68 50 1 51
Direct property expenditure 51 1 52 47 1 48
Administrative expenses 37 - 37 38 - 38
Depreciation, including amortisation of software 2 1 3 3 2 5
Cost of trading property disposals - 8 8 - 14 14
Development contract expenditure(1) - 12 12 - 14 14
Impairment of goodwill - - - - 5 5
Impairment of trading properties - 4 4 - 8 8
Costs - other per the income statement 162 27 189 143 45 188
Movement in bad and doubtful debts provisions - rent (5) - (5) - - -
Total costs per the income statement 157 27 184 143 45 188
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 2023
30 September 2022
Group Joint ventures Adjustment for non-wholly owned subsidiaries Total Group Joint Adjustment for non-wholly owned subsidiaries Total
ventures
£m £m £m £m £m £m £m £m
Rents payable 5 - - 5 5 1 - 6
Service charge expense 68 5 (1) 72 51 6 (1) 56
Direct property expenditure 52 2 (1) 53 48 5 (1) 52
Administrative expenses 37 1 - 38 38 1 - 39
Depreciation, including amortisation of software 2 - - 2 3 - - 3
Movement in bad and doubtful debts provisions - rent (5) - - (5) - - - -
Costs in the segmental information note 159 8 (2) 165 145 13 (2) 156
Cost of trading property disposals 8 - - 8 14 - - 14
Development contract expenditure(1) 12 - - 12 14 - - 14
Impairment of goodwill - - - - 5 - - 5
Impairment of trading properties 4 - - 4 8 - - 8
Depreciation 1 - - 1 2 - - 2
Costs including Capital and other items 184 8 (2) 190 188 13 (2) 199
1. Development contract expenditure for the six months to 30 September 2023
and the six months to 30 September 2022 includes expenditure related to the
ongoing development of 21 Moorfields following the sale of the property.
The Group's costs include employee costs for the period of £40m (2022:
£37m), of which £3m (2022: £3m) is within service charge expense, £7m
(2022: £6m) is within direct property expenditure and £30m (2022: £28m) is
within administrative expenses.
7. Net finance expense
Six months ended Six months ended
30 September 2023
30 September 2022
EPRA earnings Capital and other items Total EPRA earnings Capital and other items Total
£m £m £m £m £m £m
Finance income
Interest receivable from joint ventures 6 - 6 6 - 6
Fair value movement on interest-rate swaps - 1 1 - 51 51
6 1 7 6 51 57
Finance expense
Bonds (44) - (44) (34) - (34)
Bank and other short-term borrowings (14) (1) (15) (20) (1) (21)
(58) (1) (59) (54) (1) (55)
Interest capitalised in relation to properties under development 12 - 12 14 - 14
(46) (1) (47) (40) (1) (41)
Net finance (expense)/income (40) - (40) (34) 50 16
Joint venture net finance expense (6) (6)
Net finance expense included in EPRA earnings (46) (40)
Lease interest payable of £2m (2022: £2m) is included within rents payable
as detailed in note 3.
8. Dividends
Dividends paid Six months ended 30 September
Pence per share 2023 2022
Payment date PID Non-PID Total £m £m
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
For the year ended 31 March 2023:
Third interim 6 April 2023 9.00 - 9.00 67
Final 21 July 2023 12.00 - 12.00 89
Gross dividends 156 159
Dividends in the statement of changes in equity 156 159
Timing difference on payment of withholding tax (3) (4)
Dividends in the statement of cash flows 153 155
On 6 October 2023, the Company paid a first interim dividend in respect of the
current financial year of 9.0p per ordinary share (2022: 8.6p), wholly as a
Property Income Distribution (PID), representing £67m in total (2022: £64m).
The Board has declared a second interim dividend of 9.2p per ordinary share to
be payable wholly as a PID (2022: 9.0p) on 2 January 2024 to shareholders
registered at the close of business on 24 November 2023.
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 2023.
9. Net cash generated from operations
Reconciliation of operating loss to net cash generated from operations Six months ended Six months ended
30 September 2023
30 September 2022
£m £m
Operating loss (153) (208)
Adjustments for:
Net deficit on revaluation of investment properties 371 331
Loss on changes in finance leases - 6
Loss/(profit) of disposal of trading properties 1 (1)
Loss on disposal of investment properties 3 92
Share of loss/(profit) from joint ventures 7 (15)
Share-based payment charge 6 3
Rents payable 5 5
Depreciation and amortisation 3 5
Development contract income - (14)
Impairment of trading properties 4 8
Other - 1
247 213
Changes in working capital:
Increase in receivables (19) (7)
Decrease in payables (18) (10)
Net cash generated from operations 210 196
Reconciliation to adjusted net cash inflow from operating activities Six months ended Six months ended
30 September 2023
30 September 2022
£m £m
Net cash inflow from operating activities 166 176
Joint ventures net cash in/(out)flow from operating activities - (8)
Adjusted net cash inflow from operating activities(1) 166 168
1. Includes cash flows relating to the interest in MediaCity which is not
owned by the Group, but is consolidated in the Group numbers.
10. Investment properties
Six months ended Six months ended Six months ended
30 September 2023
31 March 2023
30 September 2022
£m £m £m
Net book value at the beginning of the period 9,658 10,187 11,207
Transfer from joint venture - - 23
Acquisitions of investment properties 91 216 2
Net movement in head leases capitalised(1) - (5) (11)
Capital expenditure(2) 173 169 187
Capitalised interest 12 8 14
Disposals (1) (415) (904)
Net deficit on revaluation of investment properties (371) (496) (331)
Transfers to trading properties - (6) -
Net book value at the end of the period 9,562 9,658 10,187
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. As at 30 September 2023, a provision of £18m (31 March 2023: £14m) has
been recognised for fire safety remediation as a result of the Building Safety
Act 2022. Of the £4m movement since 31 March 2023, £5m has been included as
capital expenditure on properties currently owned by the Group, with a release
of £1m recorded in loss on disposal of investment properties related to
properties no longer owned by the Group.
The fair value of investment properties at 30 September 2023 was determined by
the Group's external valuers, CBRE and JLL. 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 2023 31 March 2023
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 9,655 618 (127) 10,146 9,743 635 (139) 10,239
Less: properties treated as finance leases (17) - - (17) (17) - - (17)
Plus: head leases capitalised 107 1 - 108 107 1 - 108
Less: tenant lease incentives (183) (34) - (217) (175) (35) - (210)
Net book value 9,562 585 (127) 10,020 9,658 601 (139) 10,120
Net deficit on revaluation of investment properties (371) (17) 13 (375) (827) (30) 9 (848)
1. Refer to note 12 for a breakdown of this amount by entity.
As at 30 September 2023, the Group had contractually committed development
capital expenditure obligations of £416m (31 March 2023: £175m).
11. Trading properties
Development land and infrastructure Residential Total
£m £m £m
At 1 April 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
Transfer from investment properties 6 - 6
Capital expenditure 2 (11) (9)
Disposals (12) 9 (3)
(Impairment provision)/reversal of impairment (18) 7 (11)
At 31 March 2023 98 20 118
Capital expenditure 3 1 4
Disposals (7) - (7)
Impairment provision (4) - (4)
At 30 September 2023 90 21 111
The cumulative impairment provision at 30 September 2023 in respect of
Development land and infrastructure was £28m (31 March 2023: £25m) and in
respect of Residential was £nil (31 March 2023: £nil).
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 2023
Nova, Victoria(3) 50% Central London 31 March Suntec Real Estate Investment Trust
Southside Limited Partnership 50% Major retail 31 March Invesco Real Estate European Fund
Westgate Oxford Alliance Limited Partnership 50% Major retail, Subscale sectors 31 March The Crown Estate Commissioners
Harvest(4)(5) 50% Subscale sectors 31 March J Sainsbury plc
The Ebbsfleet Limited Partnership(5) 50% Subscale sectors 31 March Ebbsfleet Property Limited
West India Quay Unit Trust(5) 50% Subscale sectors 31 March Schroder UK Real Estate Fund
Mayfield(5)(6) 50% Mixed-use urban 31 March LCR Limited, Manchester City Council, Transport for Greater Manchester
Curzon Park Limited(5) 50% Subscale sectors 31 March Derwent Developments (Curzon) Limited
Plus X Holdings Limited(5) 50% Subscale sectors 31 March Paul David Rostas, Matthew Edmund Hunter
Landmark Court Partnership Limited(5) 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 2023
Bluewater, Kent 48.75% Major retail 31 March M&G Real Estate and GIC
Royal London Asset Management
Aberdeen Standard Investments
1. Investments under joint arrangements are not always represented by an equal
percentage holding by each partner. In a number of joint ventures that are not
considered principal joint ventures and therefore not included in the table
above, the Group holds a majority shareholding but has joint control and
therefore the arrangement is accounted for as a joint venture.
2. The year end date shown is the accounting reference date of the joint
arrangement. In all cases, the Group's accounting is performed using financial
information for the Group's own reporting period and reporting date.
3. 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.
4. Harvest includes Harvest 2 Limited Partnership, Harvest Development
Management Limited, Harvest 2 Selly Oak Limited, Harvest 2 GP Limited and
Harvest GP Limited.
5. Included within Other in subsequent tables.
6. 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 2023
Nova, Southside Limited Partnership Westgate Oxford Alliance Partnership Other Total
Victoria Total
Group share
Comprehensive income statement 100% 100% 100% 100% 100%
£m £m £m £m £m £m
Revenue(1) 23 5 16 4 48 24
Gross rental income (after rents payable) 17 6 13 4 40 20
Net rental income 16 5 10 1 32 16
EPRA earnings before interest 15 5 10 1 31 16
Finance expense (8) (3) - - (11) (6)
Net finance expense (8) (3) - - (11) (6)
EPRA earnings 7 2 10 1 20 10
Capital and other items
Net deficit on revaluation of investment properties (23) (3) - (7) (33) (17)
(Loss)/profit before tax (16) (1) 10 (6) (13) (7)
Post-tax (loss)/profit (16) (1) 10 (6) (13) (7)
Total comprehensive (loss)/income (16) (1) 10 (6) (13) (7)
Group share of (loss)/profit before tax (8) (1) 5 (3) (7)
Group share of post-tax (loss)/profit (8) (1) 5 (3) (7)
Group share of total comprehensive (loss)/income (8) (1) 5 (3) (7)
1. Revenue includes gross rental income (before rents payable), service charge
income, other property related income, trading properties disposal proceeds
and income from development contracts.
Joint ventures Six months ended 30 September 2022
Nova, Southside Limited Partnership St. David's Limited Partnership(2) 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) 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 development contracts.
2. On 24 March 2023 the Group acquired the remaining 50% interest in St
David's Limited Partnership. From that date, the results of the operations
from St David's are consolidated together with other subsidiary undertakings.
Results from its operations prior to that date are included as share of profit
or loss from joint ventures.
Joint ventures 30 September 2023
Nova, Victoria Southside Limited Partnership Westgate Oxford Other Total Total
Alliance Partnership Group share
Balance sheet 100% 100% 100% 100% 100%
£m £m £m £m £m £
m
Investment properties(1) 725 129 224 92 1,170 585
Non-current assets 725 129 224 92 1,170 585
Cash and cash equivalents 27 3 13 8 51 26
Other current assets 62 8 14 68 152 75
Current assets 89 11 27 76 203 101
Total assets 814 140 251 168 1,373 686
Trade and other payables and provisions (15) (5) (8) (34) (62) (30)
Current liabilities (15) (5) (8) (34) (62) (30)
Non-current liabilities (119) (148) - (19) (286) (143)
Non-current liabilities (119) (148) - (19) (286) (143)
Total liabilities (134) (153) (8) (53) (348) (173)
Net assets/(liabilities) 680 (13) 243 115 1,025 513
Comprised of:
Net assets 680 - 243 118 1,041 521
Accumulated losses recognised as net liabilities(2) - (13) - (3) (16) (8)
Market value of investment properties(1) 782 130 232 92 1,236 618
Net cash(3) 27 3 13 8 51 26
Joint ventures 31 March 2023
Nova, Victoria Southside Limited Partnership Westgate Other Total Total
Oxford Group share
Alliance Partnership
Balance sheet 100% 100% 100% 100% 100%
£m £m £m £m £m £m
Investment properties(1) 748 134 225 98 1,205 601
Non-current assets 748 134 225 98 1,205 601
Cash and cash equivalents 36 3 23 7 69 35
Other current assets 64 9 13 68 154 78
Current assets 100 12 36 75 223 113
Total assets 848 146 261 173 1,428 714
Trade and other payables and provisions (22) (10) (14) (48) (94) (48)
Current liabilities (22) (10) (14) (48) (94) (48)
Non-current liabilities (131) (145) - - (276) (138)
Non-current liabilities (131) (145) - - (276) (138)
Total liabilities (153) (155) (14) (48) (370) (186)
Net assets/(liabilities) 695 (9) 247 125 1,058 528
Comprised of:
Net assets 695 - 247 125 1,067 533
Accumulated losses recognised as net liabilities(2) - (9) - - (9) (5)
Market value of investment properties(1) 807 134 233 98 1,272 635
Net cash(3) 36 3 23 7 69 35
1. The difference between the book value and the market value of investment
properties is the amount recognised in respect of lease incentives, head
leases capitalised and properties treated as finance leases, where applicable.
2. The Group's share of accumulated losses of a joint venture interest are
recognised as net liabilities where there is an obligation to provide for
these losses.
3. Excludes funding provided by the Group and its joint venture partners.
Joint ventures Nova, Southside St. David's Limited Partnership Westgate Other Total
Limited Partnership
Victoria Oxford
Alliance Partnership
Net investment Group share Group share Group share Group share Group share Group share
£m £m £m £m £m £m
At 1 April 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
Total comprehensive (loss)/income (12) 2 2 (3) (5) (16)
Cash distributions - - (2) (8) (2) (12)
Other distributions - - - - 1 1
Disposals and transfers from joint arrangements - - (119) - (1) (120)
Other non-cash movements - - - - 4 4
At 31 March 2023 348 (5) - 124 61 528
Total comprehensive (loss)/income (8) (1) - 5 (3) (7)
Cash distributions - - - (6) (1) (7)
Other non-cash movements - - - (1) - (1)
At 30 September 2023 340 (6) - 122 57 513
Comprised of:
At 31 March 2023
Non-current assets 348 - - 124 61 533
Non-current liabilities(1) - (5) - - - (5)
At 30 September 2023
Non-current assets 340 - - 122 59 521
Non-current liabilities(1) - (6) - - (2) (8)
1. The Group's share of accumulated losses of a joint venture interest are
recognised as net liabilities where there is an obligation to provide for
these losses.
13. Capital structure
30 September 2023 31 March 2023
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 9,655 618 (127) 10,146 9,743 635 (139) 10,239
Trading properties and long-term contracts 111 - - 111 118 - 118
-
Total property portfolio (a) 9,766 618 (127) 10,257 9,861 635 (139) 10,357
Net debt
Borrowings 3,709 - (73) 3,636 3,431 - (73) 3,358
Monies held in restricted accounts and deposits (2) - 1 (1) (4) - (3)
1
Cash and cash equivalents (80) (26) 4 (102) (41) (35) 2 (74)
Fair value of interest-rate swaps (46) - 2 (44) (44) - 2 (42)
Fair value of foreign exchange swaps and forwards (9) - - (9) 6 - 6
-
Net debt (b) 3,572 (26) (66) 3,480 3,348 (35) (68) 3,245
Less: Fair value of interest-rate swaps 46 - (2) 44 44 - (2) 42
Adjusted net debt (c) 3,618 (26) (68) 3,524 3,392 (35) (70) 3,287
Adjusted total equity
Total equity (d) 6,728 - (55) 6,673 7,072 - (67) 7,005
Fair value of interest-rate swaps (46) - 2 (44) (44) - 2 (42)
Adjusted total equity (e) 6,682 - (53) 6,629 7,028 - (65) 6,963
Gearing (b/d) 53.1% 52.2% 47.3% 46.3%
Adjusted gearing (c/e) 54.1% 53.2% 48.3% 47.2%
Group LTV (c/a) 37.0% 34.4% 34.4% 31.7%
EPRA LTV 35.8% 33.2%
Security Group LTV 36.9% 33.0%
Weighted average cost of debt 3.2% 3.3% 2.7% 2.7%
14. Borrowings
30 September 2023 31 March 2023
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 Various(1) 5 5 5 - - -
Euro Unsecured Floating Various(1) 327 327 327 167 167 167
US Dollar Unsecured Floating Various(1) 252 252 252 145 145 145
Syndicated and bilateral bank debt Secured Floating SONIA + margin 292 292 292 - - -
Total current borrowings 876 876 876 312 312 312
Amounts payable under head leases 3.5 3 3 3 3 3 3
Total current borrowings including amounts payable under head leases 879 879 879 315 315 315
Non-current borrowings
Medium term notes (MTN)
A10 4.875% MTN due 2025 Secured Fixed 5.0 - - - 10 10 10
A12 1.974% MTN due 2026 Secured Fixed 2.0 400 394 400 400 389 400
A4 5.391% MTN due 2026 Secured Fixed 5.4 17 17 17 17 17 17
A5 5.391% MTN due 2027 Secured Fixed 5.4 87 86 87 87 87 87
A16 2.375% MTN due 2029 Secured Fixed 2.5 350 313 348 350 317 348
A6 5.376% MTN due 2029 Secured Fixed 5.4 65 64 65 65 66 65
A13 2.399% MTN due 2031 Secured Fixed 2.4 300 257 299 300 263 299
A7 5.396% MTN due 2032 Secured Fixed 5.4 77 75 77 77 79 77
A17 4.875% MTN due 2034 Secured Fixed 5.0 400 381 394 400 406 394
A11 5.125% MTN due 2036 Secured Fixed 5.1 50 46 50 50 50 50
A14 2.625% MTN due 2039 Secured Fixed 2.6 500 350 495 500 378 494
A15 2.750% MTN due 2059 Secured Fixed 2.7 500 269 495 500 312 495
2,746 2,252 2,727 2,756 2,374 2,736
Syndicated and bilateral bank debt Secured Floating SONIA + margin 106 106 106 383 383 383
Total non-current borrowings 2,852 2,358 2,833 3,139 2,757 3,119
Amounts payable under head leases 3.5 104 122 104 104 142 104
Total non-current borrowings including amounts payable under head leases 2,956 2,480 2,937 3,243 2,899 3,223
Total borrowings including amounts payable under head leases 3,835 3,359 3,816 3,558 3,214 3,538
Total borrowings excluding amounts payable under head leases 3,728 3,234 3,709 3,451 3,069 3,431
1. Non-Sterling commercial paper is immediately swapped into Sterling. The
interest rate is fixed at the time of the issuance for the duration (1 to 3
months) and tracks SONIA swap rates.
Reconciliation of the movement in borrowings Six months ended Year ended
30 September 2023
31 March 2023
£m £m
At the beginning of the period 3,538 4,553
Proceeds from new borrowings 284 -
Redemption of MTNs (9) -
Repayment of bank debt - (1,407)
Issue of MTNs (net of finance fees) - 394
Foreign exchange movement on non-Sterling borrowings 3 14
Movement in amounts payable under head leases - (16)
At the end of the period 3,816 3,538
Reconciliation of movements in liabilities arising from financing activities Six months ended 30 September 2023
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 3,538 275 3 - - 3,816
Derivative financial instruments (38) (12) (3) (2) - (55)
3,500 263 - (2) - 3,761
Year ended 31 March 2023
Borrowings 4,553 (1,013) 14 - (16) 3,538
Derivative financial instruments (26) 25 (14) (23) - (38)
4,527 (988) - (23) (16) 3,500
Medium term notes
The MTNs are secured on the fixed and floating pool of assets of the Security
Group. The Security Group includes wholly owned investment properties,
development properties and a number of the Group's investment in other assets,
in total valued at £9.3bn at 30 September 2023 (31 March 2023: £9.6bn). 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 2023: none).
Syndicated and bilateral bank debt Authorised Drawn Undrawn
Maturity as at 30 September 2023 30 Sept 31 March 2023 30 Sept 31 March 2023 30 Sept 31 March 2023
2023
2023
2023
£m £m £m £m £m £m
Syndicated debt 2024-27 2,782 2,782 398 383 2,384 2,399
Bilateral debt 2026 225 225 - - 225 225
3,007 3,007 398 383 2,609 2,624
All syndicated and bilateral facilities are committed and secured on the
assets of the Security Group, with the exception of facilities secured on the
assets at MediaCity (of which £292m was drawn at 30 September 2023 and 31
March 2023). During the period ended 30 September 2023, the amounts drawn
under the Group's facilities increased by £15m.
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
2023 was £2,105m (31 March 2023: £2,353m).
Fair values
The fair value of the amounts payable under the Group's lease obligations,
using a discount rate of 3.3% (31 March 2023: 2.7%), is £125m (31 March 2023:
£145m). The fair value of the Group's net investment in tenant finance
leases, calculated by the Group's external valuers by applying a weighted
average equivalent yield of 8.0% (31 March 2023: 7.9%), is £17m (31 March
2023: £16m).
The fair values of any floating rate financial liabilities are assumed to be
equal to their nominal and book 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,
contractor claims, remediation for building defects, developer contractual
arrangements, guarantees and warranties arising in the ordinary course of
business. This also includes contingent liabilities for fire safety
remediation arising from the Building Safety Act 2022, for which it is not yet
possible to quantify any potential liability, and our ongoing review into
Reinforced Autoclaved Aerated Concrete.
The Group has received queries from tax authorities relating to historical
transactions which may result in additional tax liabilities. Based on an
assessment of the relevant tax rules, in addition to advice received from
external parties, the Group does not believe that any tax is due and has
written to the authorities explaining that position. It is not possible to
accurately state the timing of any potential outflow, as the Group awaits
further correspondence from the tax authorities. The Group has not disclosed
an estimate of the financial effect as it is considered this could be
prejudicial to its position.
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
Since 30 September 2023, the Group sold or exchanged contracts to sell certain
interests in trading properties acquired as part of the U+I Group PLC in
December 2021.
On 20 October 2023, the Group acquired a 100% interest in BM Com Lease
Extension LLP and completed a lease extension at the site in Brighton, for a
combined price of £7m.
On 26 October 2023, the Group completed on the sale of its interest in Morden
Wharf for proceeds of £23m.
On 9 November 2023, the Group sold its interest in Junction 32 for a headline
price of £47m.
Alternative performance measures
Table 14: Alternative performance measures
The Group has applied the European Securities and Markets Authority (ESMA)
'Guidelines on Alternative Performance Measures' in these results. In the
context of these results, an alternative performance measure (APM) is a
financial measure of historical or future financial performance, position or
cash flows of the Group which is not a measure defined or specified in IFRS.
The table below summarises the APMs included in these results and where the
reconciliations of these measures can be found. The definitions of APMs are
included in the Glossary and in Table 16.
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 per share Note 4
Total return on equity n/a Note 4
Adjusted net cash inflow from operating activities Net cash inflow from operating activities Note 9
Combined Portfolio Investment properties Note 10
Adjusted net debt Borrowings Note 13
Group LTV n/a Note 13
EPRA LTV n/a Note 13
EPRA disclosures
Table 15: EPRA net asset measures
EPRA net asset measures 30 September 2023
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
Net assets attributable to shareholders of the parent 6,673 6,673 6,673
Shortfall of fair value over net investment in finance leases book value (6) (6) (6)
Deferred tax liability on intangible asset - - -
Goodwill on deferred tax liability - - -
Other intangible asset - (2) -
Fair value of interest-rate swaps (44) (44) -
Excess of fair value of trading properties over book value 26 26 26
Shortfall of fair value of debt over book value - - 457
Purchasers' costs(1) 614 - -
Net assets used in per share calculation 7,263 6,647 7,150
EPRA NRV EPRA NTA EPRA NDV
Diluted net assets per share 976p 893p 961p
31 March 2023
EPRA NRV EPRA NTA EPRA NDV
£m £m £m
Net assets attributable to shareholders of the parent 7,005 7,005 7,005
Shortfall of fair value over net investment in finance leases book value (6) (6) (6)
Deferred tax liability on intangible asset 1 1 -
Goodwill on deferred tax liability (1) (1) (1)
Other intangible asset - (2) -
Fair value of interest-rate swaps (42) (42) -
Excess of fair value of trading properties over book value 12 12 12
Shortfall of fair value of debt over book value - - 324
Purchasers' costs(1) 617 - -
Net assets used in per share calculation 7,586 6,967 7,334
EPRA NRV EPRA NTA EPRA NDV
Diluted net assets per share 1,020p 936p 986p
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 2023
Measure Notes EPRA
Definition for EPRA measure measure
EPRA earnings Recurring earnings from core operational activity 4 £198m
EPRA earnings per share EPRA earnings per weighted number of ordinary shares 4 26.7p
EPRA diluted earnings per share(1) EPRA diluted earnings per weighted number of ordinary 4 26.7p
shares
EPRA Net Tangible Assets (NTA) Net assets adjusted to exclude the fair value of interest-rate swaps and 4 £6,647m
intangible assets and include the difference between the fair value and book
value of net investment in finance leases and trading property
EPRA Net Tangible Assets per share Diluted Net Tangible Assets per share 4 893p
EPRA net disposal value (NDV) Net assets adjusted to include the difference between fair value and book 4 £7,150m
value of debt, trading property and net investment in finance leases
EPRA net disposal value per share Diluted net disposal value per share 4 961p
EPRA loan-to-value (LTV)(2) Ratio of adjusted net debt, including net payables, to the sum of the net 13 35.8%
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 4.0%
development programme(3)
Net initial yield (NIY) Annualised rental income less non-recoverable costs as a % of market value 5.7%
plus assumed purchasers' costs(4)
Topped-up NIY NIY adjusted for rent free periods(4) 6.2%
Cost ratio Total costs as a percentage of gross rental income (including direct vacancy 23.0%
costs)(5)
Total costs as a percentage of gross rental income (excluding direct vacancy 18.3%
costs)(5)
1. In the period to 30 September 2023, share options are excluded from the
weighted average diluted number of shares when calculating EPRA diluted
earnings per share because they are not dilutive, based on IFRS loss for the
period.
2. EPRA LTV 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.
3. This measure reflects voids in the Combined Portfolio excluding only
properties under development.
4. This measure relates to the Combined Portfolio, excluding properties
currently under development. Topped-up NIY reflects adjustments of £64m rent
free periods and other incentives.
5. This measure is calculated based on gross rental income after rents payable
and excluding costs recovered through rents but not separately invoiced of
£5m.
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 2023
£m
ERV of vacant properties 26
ERV of Combined Portfolio excluding properties under development 647
EPRA vacancy rate (%) 4.0%
Table 18: Change in net rental income from the like-for-like portfolio(1)
30 September 30 September
2023 2022
Change
£m £m £m %
Central London 112 114 (2) (2)
Major retail 68 62 6 10
Subscale sectors 57 55 2 4
237 231 6 3
1. Excludes surrender premiums received during the period.
Table 19: Acquisitions, disposals and capital expenditure
Six months ended 30 September 2023 Six months ended 30 September 2022
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 9,658 601 (139) 10,120 11,833
Transfer from joint venture - - - - 11
Acquisitions 91 - - 91 2
Capital expenditure 173 1 (1) 173 170
Capitalised interest 12 - - 12 14
Net movement in head leases capitalised - - - - (11)
Disposals (1) - - (1) (904)
Net (deficit)/surplus on revaluation of investment properties (371) (17) 13 (375) (323)
Net book value at the end of the period 9,562 585 (127) 10,020 10,792
Loss on disposal of investment properties (3) - - (3) (92)
Trading properties £m £m £m £m £m
Net book value at the beginning of the period 118 - - 118 146
Capital expenditure 4 - - 4 11
Disposals (7) - - (7) (14)
Movement in impairment (4) - - (4) (8)
Net book value at the end of the period 111 - - 111 135
(Loss)/profit on disposal of trading properties (1) - - (1) 1
Acquisitions, development and other capital expenditure Investment Trading Combined Combined
properties(1) properties Portfolio Portfolio
£m £m £m £m
Acquisitions(2) 91 - 91 2
Development capital expenditure(3) 108 2 110 162
Other capital expenditure 65 2 67 19
Capitalised interest 12 - 12 14
Acquisitions, development and other capital expenditure 276 4 280 197
Disposals £m £m
Net book value - investment property disposals 1 904
Net book value - trading property disposals 7 14
Net book value - other net assets of investment property disposals - 51
Loss on disposal - investment properties (3) (92)
(Loss)/profit on disposal - trading properties (1) 1
Other 4 (1)
Total disposal proceeds 8 877
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 2023
Other capital expenditure
Acquisitions(1) Development capital expenditure(2) Incremental lettable space(3) No incremental lettable space Tenant improvements Total Capitalised interest Total capital expenditure - Combined Portfolio Total capital expenditure - joint ventures Adjustment for non-wholly owned subsidiaries Total capital expenditure -
£m £m £m £m £m £m £m £m (Group share) £m Group
£m
£m
Central London
West End offices - - - 3 2 5 - 5 - - 5
City offices - - - 36 1 37 - 37 - - 37
Retail and other 6 - - - 1 1 - 7 - - 7
Developments 85 96 - - - - 12 193 - - 193
Total Central London 91 96 - 39 4 43 12 242 - - 242
Major retail
Shopping centres - - - 6 - 6 - 6 - - 6
Outlets - - - 6 1 7 - 7 - - 7
Total Major retail - - - 12 1 13 - 13 - - 13
Mixed-use urban
Completed investment - - - 5 - 5 - 5 - (1) 6
Developments - 12 - - - - - 12 1 - 11
Total Mixed-use urban - 12 - 5 - 5 - 17 1 (1) 17
Subscale sectors
Leisure - - - 1 1 2 - 2 - - 2
Hotels - - - - - - - - - - -
Retail parks - - - 2 - 2 - 2 - - 2
Total Subscale sectors - - - 3 1 4 - 4 - - 4
Total capital expenditure 91 108 - 59 6 65 12 276 1 (1) 276
Timing difference between accrual and cash basis (28) - - (28)
Total capital expenditure on a cash basis 248 1 (1) 248
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 2023
% of Group rent(1)
Accor 6.0
Central Government 5.7
Deloitte 2.3
Cineworld 1.7
Boots 1.7
Taylor Wessing 1.6
Peel 1.3
BBC 1.2
Sainsbury's 1.0
Qube Research & Technologies 1.0
H&M 1.0
M&S 1.0
25.5
1. On a proportionate basis.
Table 22: Committed and future development pipeline and trading property
development schemes at 30 September 2023
Central London
Property Description Ownership Size Letting Market value Net income/ ERV Estimated completion Total development costs to date Forecast total development cost
of use
interest
status
£m
date
% sq ft
% £m £m £m
Committed development pipeline
Thirty High, SW1 (formerly Portland House) Office/Retail 100 299,000 - 196 30 Aug-25 189 407
Timber Square, SE1 Office/Retail 100 376,000 - 114 30 Dec-25 122 408
Property Description of use Ownership interest % Proposed sq ft Potential start date
Future development pipeline
Liberty of Southwark, SE1 Office/Retail/ Residential 100 225,000 2024
Red Lion Court, SE1 Office/Retail 100 250,000 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-24 32 47
Mixed-use urban
Property Ownership interest % Proposed sq ft Potential start date
Future development pipeline
Mayfield, Manchester 50-100 2,500,000 2024
Finchley Road, NW3 100 1,400,000 2024
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 2023. Trading property development schemes are excluded from the
future development pipeline.
Total development cost
Refer to the Glossary for definition.
Net income/ERV
Net income/ERV represents headline annual rent on let units plus ERV at 30
September 2023 on unlet units, both after rents payable.
Table 23: Combined Portfolio analysis
Total portfolio analysis
Market value(1) Valuation Rental income(1) Annualised rental income(2) Net estimated rental value(1)
movement(1)
30 September 2023 31 March 2023 (Deficit)/ surplus (Deficit)/ surplus 30 September 2023 30 September 2022 30 September 2023 31 March 2023 30 September 2023 31 March 2023
£m £m £m % £m £m £m £m £m £m
Central London
West End offices 2,578 2,653 (78) (3.1) 68 72 136 134 153 146
City offices 1,221 1,304 (123) (9.3) 35 40 64 61 94 87
Retail and other 1,039 1,095 (15) (1.4) 27 30 39 42 53 56
Developments(5) 1,364 1,190 (70) (4.9) 18 19 16 5 133 57
Total Central London 6,202 6,242 (286) (4.5) 148 161 255 242 433 346
Major retail
Shopping centres 1,206 1,196 1 0.1 64 60 119 114 122 123
Outlets 665 684 (26) (3.8) 31 28 54 56 60 60
Total Major retail 1,871 1,880 (25) (1.3) 95 88 173 170 182 183
Mixed-use urban
Completed investment 355 389 (38) (9.7) 12 11 24 24 26 26
Developments(5) 473 426 (19) (3.6) 17 17 31 28 35 31
Total Mixed-use urban 828 815 (57) (6.2) 29 28 55 52 61 57
Subscale sectors
Leisure 424 476 (11) (2.7) 23 24 47 51 45 50
Hotels 404 408 7 1.7 18 15 35 31 29 28
Retail parks 417 418 (3) (0.6) 15 15 29 28 30 30
Total Subscale sectors 1,245 1,302 (7) (0.6) 56 54 111 110 104 108
Combined Portfolio 10,146 10,239 (375) (3.6) 328 331 594 574 780 694
Properties treated as finance leases - - - - - (1)
Combined Portfolio 10,146 10,239 (375) (3.6) 328 330
Represented by:
Investment portfolio 9,528 9,603 (358) (3.7) 308 303 557 536 740 655
Share of joint ventures 618 636 (17) (2.8) 20 27 37 38 40 39
Combined Portfolio 10,146 10,239 (375) (3.6) 328 330 594 574 780 694
Total portfolio
analysis
Notes:
Net initial yield(3) Equivalent yield(4) 1. Refer to Glossary for definition.
30 September 2023 Movement in like-for-like(6) 30 September 2023 Movement in like-for-like(6)
% bps % bps 2. Annualised rental income is annual 'rental income' (as defined in the
Central London Glossary) at the balance sheet date, except that car park and
West End offices 4.8 13 5.4 31 commercialisation income are included on a net basis (after deduction for
City offices 3.9 68 5.8 51 operational outgoings). Annualised rental income includes temporary lettings.
Retail and other 4.4 29 4.9 22
Developments(5) - n/a 5.0 n/a 3. Net initial yield - refer to Glossary for definition. This
Total Central London 4.5 31 5.3 33 calculation includes all properties including those sites with no income.
Major retail
Shopping centres 8.0 (14) 8.1 13 4. Equivalent yield - refer to Glossary for definition. Future
Outlets 6.7 21 7.4 20 developments are excluded from the calculation of equivalent yield on the
Total Major retail 7.5 - 7.8 16 Combined Portfolio.
Mixed-use urban
Completed investment 6.0 50 6.8 52 5. Comprises the development pipeline - refer to Glossary for
Developments(5) 5.4 n/a 5.8 n/a definition.
Total Mixed-use urban 6.0 50 6.1 52
Subscale sectors 6. The like-for-like portfolio - refer to Glossary for definition.
Leisure 8.6 33 8.7 17
Hotels 6.9 24 6.7 5
Retail parks 6.7 16 6.6 21
Total Subscale sectors 7.4 23 7.3 13
Combined Portfolio 5.7 26 6.1 29
Represented by:
Investment portfolio 5.7 n/a 6.1 n/a
Share of joint ventures 5.7 n/a 5.8 n/a
Combined Portfolio 5.7 n/a 6.1 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 initial yield - refer to Glossary for definition. This
calculation includes all properties including those sites with no income.
4. Equivalent yield - refer to Glossary for definition. Future
developments are excluded from the calculation of equivalent yield on the
Combined Portfolio.
5. Comprises the development pipeline - refer to Glossary for
definition.
6. The like-for-like portfolio - refer to Glossary for definition.
Table 24: Floor Areas
30 September 2023
Million sq ft
Central London
West End offices 2.4
City offices 1.6
Retail and other 1.0
Developments 0.5
Total Central London 5.5
Major retail
Shopping centres 6.7
Outlets 1.5
Total Major retail 8.2
Mixed-use urban
Completed investment 1.2
Developments 1.9
Total Mixed-use urban 3.1
Subscale sectors
Leisure 3.3
Hotels 1.9
Retail parks 1.8
Total Subscale sectors 7.0
Total 23.8
Table 25: Reconciliation of segmental information note to interim reporting
for the six months to 30 September 2022
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 (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 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 2023
Like-for-like portfolio Like-for-like portfolio, completed developments and acquisitions
Mean(1) Mean(1)
Years Years
Central London
West End offices 6.2 6.8
City offices 8.3 7.9
Retail and other 7.9 7.3
Total Central London 6.9 7.1
Major retail
Shopping centres 4.5 4.5
Outlets 3.1 3.1
Total Major retail 4.2 4.2
Mixed-use urban 8.3 6.6
Subscale sectors
Leisure 10.8 10.8
Hotels 7.7 7.7
Retail parks 5.4 5.4
Total Subscale sectors 8.3 8.3
Combined Portfolio 6.3 6.3
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. 2023/24 second quarterly dividend
The Board has declared a second quarterly dividend for the year ending 31
March 2024 of 9.2p per ordinary share which will be paid on 2 January 2024 to
shareholders registered at the close of business on 24 November 2023. This
will be paid wholly as a Property Income Distribution (PID). Together with the
first quarterly dividend of 9.0p already paid on 6 October 2023 wholly as a
PID, the first half dividend will be 18.2p per ordinary share (six months
ended 30 September 2022: 17.6p).
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 2024
Financial year end 31 March
Preliminary results announcement 14 May*
Half year results announcement 12 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.
Combined Portfolio
The Combined Portfolio comprises the investment properties of the Group's
subsidiaries, on a proportionately consolidated basis when not wholly owned,
together with our share of investment properties held in our joint ventures.
Development pipeline
The development programme together with proposed developments.
Dividend Reinvestment Plan (DRIP)
The DRIP provides shareholders with the opportunity to use cash dividends
received to purchase additional ordinary shares in the Company immediately
after the relevant dividend payment date. Full details appear on the Company's
website.
EPRA
European Public Real Estate Association.
EPRA earnings
Profit after tax, excluding profits on the sale of non-current assets and
trading properties, profits on development contracts, valuation movements,
fair value movements on interest-rate swaps and similar instruments used for
hedging purposes, debt restructuring charges, and any other items of an
exceptional nature.
EPRA loan-to-value (LTV)
Ratio of adjusted net debt, including net payables, to the sum of the net
assets, including net receivables, of the Group, its subsidiaries and joint
ventures, all on a proportionate basis, expressed as a percentage. The
calculation includes trading properties at fair value and debt at nominal
value.
EPRA net disposal value (NDV) per share
Diluted net assets per share adjusted to remove the impact of goodwill arising
as a result of deferred tax, and to include the difference between the fair
value and the book value of the net investment in tenant finance leases,
trading property 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 valuers.
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 trading property 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
and trading property.
Equivalent yield
Calculated by the Group's external valuers, 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 valuers. For investment properties in the development
programme, which have not yet reached practical completion, the ERV represents
management's view of market rents.
ERV - Net estimated rental value
The estimated market rental value of lettable space as determined biannually
by the Group's external valuers, after deducting expected rent payable. 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 (also known as 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).
Interest-rate swap
A financial instrument where two parties agree to exchange an interest rate
obligation for a predetermined amount of time. These are generally used by the
Group to convert floating-rate debt or investments to fixed rates.
Investment portfolio
The investment portfolio comprises the investment properties of the Group's
subsidiaries on a proportionately consolidated basis where not wholly owned.
Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically, the
incentive will be an initial rent-free period, or a cash contribution to
fit-out or similar costs. For accounting purposes, the value of the incentive
is spread over the non-cancellable life of the lease.
Like-for-like portfolio
The like-for-like portfolio includes all properties which have been in the
portfolio since 1 April 2022 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 valuers, in accordance with
the RICS Valuation Standards, as an opinion of the estimated amount for which
a property should exchange on the date of valuation between a willing buyer
and a willing seller in an arm's-length transaction after proper marketing.
Net assets per share
Equity attributable to owners divided by the number of ordinary shares in
issue at the end of the 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 valuers 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 valuers and is based on the passing cash rent less rent
payable at the balance sheet date, estimated non-recoverable outgoings and
void costs including service charges, insurance costs and void rates.
Net rental income
Net rental income is the net operational income arising from properties, on an
accruals basis, including rental income, finance lease interest, rents
payable, service charge income and expense, other property related income,
direct property expenditure and bad debts. Net rental income is presented on a
proportionate basis.
Net zero carbon building
A building for which an overall balance has been achieved between carbon
emissions produced and those taken out of the atmosphere, including via offset
arrangements. This relates to operational emissions for all buildings while,
for a new building, it also includes supply-chain emissions associated with
its construction.
Passing rent
The estimated annual rent receivable as at the reporting date which includes
estimates of turnover rent and estimates of rent to be agreed in respect of
outstanding rent review or lease renewal negotiations. Passing rent may be
more or less than the ERV (over-rented or reversionary). Passing rent excludes
annual rent receivable from units in administration save to the extent that
rents are expected to be received. Void units at the reporting date are deemed
to have no passing rent. Although temporary lets of less than 12 months are
treated as void, income from temporary lets is included in passing rents.
Property Income Distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out of qualifying
profits. A REIT is required to distribute at least 90% of its qualifying
profits as a PID to its shareholders.
Qualifying activities/Qualifying assets
The ownership (activity) of property (assets) which is held to earn rental
income and qualifies for tax-exempt treatment (income and capital gains) under
UK REIT legislation.
Rental income
Rental income is as reported in the income statement, on an accruals basis,
and adjusted for the spreading of lease incentives over the term certain of
the lease in accordance with IFRS 16 (previously, SIC-15). It is stated gross,
prior to the deduction of ground rents and without deduction for operational
outgoings on car park and commercialisation activities.
Reversionary or under-rented
Space where the passing rent is below the ERV.
Reversionary yield
The anticipated yield to which the initial yield will rise (or fall) once the
rent reaches the ERV.
Security Group
Security Group is the principal funding vehicle for the Group and properties
held in the Security Group are mortgaged for the benefit of lenders. It has
the flexibility to raise a variety of different forms of finance.
SONIA
The Sterling Overnight Index Average reflects the average overnight interest
rate paid by banks for unsecured sterling transactions with a range of
institutional investors. It is calculated based on actual transactions and is
often used as a reference rate in bank facilities.
Topped-up net initial yield
Topped-up net initial yield is a calculation by the Group's external valuers.
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 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 return on equity
Dividend paid per share in the year plus the change in EPRA Net Tangible
Assets per share, divided by EPRA Net Tangible Assets per share at the
beginning of the year.
Trading properties
Properties held for trading purposes and shown as current assets in the
balance sheet.
Vacancy rates
Vacancy rates are expressed as a percentage of ERV and represent all unlet
space, including vacant properties where refurbishment work is being carried
out and vacancy in respect of pre-development properties, unless the scale of
refurbishment is such that the property is not deemed lettable. The screen at
Piccadilly Lights, W1 is excluded from the vacancy rate calculation as it will
always carry advertising although the number and duration of our agreements
with advertisers will vary.
Valuation surplus/deficit
The valuation surplus/deficit represents the increase or decrease in the
market value of the Combined Portfolio, adjusted for net investment and the
effect of accounting for lease incentives under IFRS 16 (previously SIC-15).
The market value of the Combined Portfolio is determined by the Group's
external valuers.
Voids
Voids are expressed as a percentage of ERV and represent all unlet space,
including voids where refurbishment work is being carried out and voids in
respect of pre-development properties. Temporary lettings for a period of one
year or less are also treated as voids. The screen at Piccadilly Lights, W1 is
excluded from the void calculation as it will always carry advertising
although the number and duration of our agreements with advertisers will vary.
Commercialisation lettings are also excluded from the void calculation.
Weighted average unexpired lease term
The weighted average of the unexpired term of all leases other than short-term
lettings such as car parks and advertising hoardings, temporary lettings of
less than one year, residential leases and long ground leases.
Yield shift
A movement (negative or positive) in the equivalent yield of a property asset.
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