RNS Number:3585L
Land Securities Group Plc
21 May 2003
21 May 2003
LAND SECURITIES GROUP PLC
("Land Securities" / "Group" / "Company")
Preliminary results for the year ended 31 March 2003
HIGHLIGHTS
* Adjusted diluted net asset value increased 5.2% to 1215p (2002: 1155p)
* Adjusted earnings per share decreased by 2.4% to 50.39p (2002: 51.61p)
* Pre-tax revenue profit down 6.6% to #340.9m (2002: #364.8m)
* Substantially completed #541m return of capital to shareholders
* High level of activity demonstrated by:
* #0.4bn of property sales
* #0.5bn investment in development and investment property
activities
* 617 transactions (rent reviews, lease renewals and lettings)
across the portfolio
* Strong performance in retail portfolio substantially offset impact of
weak Central London office market
* Development progressing well with 81,500 sq m completed this year,
250,600 sq m under development, and 52,000 sq m of lettings
* Strong contribution to Group returns from Land Securities Trillium
* Successful integration of Land Securities Trillium's two major
contracts during the year
* 10 million sq m of commercial property owned or under management
* Proposed dividend increase of 4.4% to 35.5p (2002: 34.0p)
Peter G Birch, Chairman, commented: "While the economic outlook remains
challenging, both in the UK and around the world, the diversified nature of the
Group's activities, sound financial base, strong management team and focus on
customer service mean that we are on track to continue to deliver our strategy.
The Board's confidence in the fundamental soundness of your business is
demonstrated by the enhanced final dividend payment."
For further information:
Ian Henderson/Andrew Macfarlane/Emma Denne
Land Securities Group PLC
020 7413 9000
Steve Jacobs/Stephanie Highett
Financial Dynamics
020 7831 3113
FINANCIAL HIGHLIGHTS
31 March 31 March
2003 2002 % change
-------------- -------------- ------------
Gross property income
Property investment (including 50%
share of joint ventures) #575.6m #579.0m -0.6%
Total Property Outsourcing #660.2m #406.2m +62.5%
Property trading #3.7m #40.4m -90.8%
-------------- -------------- ------------
Total #1,239.5m #1,025.6m +20.9%
======== ======== =======
Operating profit (total) #550.2m #516.8m +6.5%
Pre-tax profit #319.6m #363.5m -12.1%
Add back: Fixed asset
property sales, bid costs
and exceptional items (pre-tax) #21.3m #1.3m
1 Revenue profit (pre-tax) #340.9m #364.8m -6.6%
2 Adjusted earnings per share (basic) 50.39p 51.61p -2.4%
Earnings per share (basic) 46.46p 50.27p -7.6%
Dividends per share 35.50p 34.00p +4.4%
3 Interest cover (times) 2.42 2.98
4 Adjusted diluted net assets per share 1215p 1155p +5.2%
Diluted net assets per share 1188p 1132p +4.9%
5 Carrying value of investment properties #7,823.9m #7,800.0m
Net borrowings #2,589.3m #1,942.1m
Equity shareholders' funds #5,532.7m #6,036.6m
6 Gearing (net) 47.3% 32.2%
1. Excludes results of fixed asset property sales, bid costs and
exceptional items (deficit on purchase and redemption of convertible bonds, cost
of cancellation/novation of interest rate swaps and the costs of reorganising
the Group)
2. Excludes results of fixed asset property sales, bid costs, exceptional
items and deferred tax arising from capital allowances on investment properties
3. Number of times gross interest payable (i.e. pre-capitalisation) is
covered by operating profit and interest receivable but excluding the activities
of Telereal, the exceptional deficit on purchase and redemption of convertible
bonds and the exceptional cost of cancellation/novation of interest rate swaps
4. Excludes the additional deferred tax arising from capital allowances on
investment properties
5. Market value less UITF28 adjustment
6. Net borrowings (including bank overdraft less short term deposits and
cash), at book value, plus non-equity B shares and preference shares as a
percentage of equity shareholders' funds
Chairman's Statement
Introduction
Over the past twelve months, against a background of world instability and
uncertainty in global economies and financial markets, the Group's results
continue to demonstrate the fundamental benefits of a soundly financed and well
managed asset-backed business. The investment portfolio valuation benefited
from a strong performance by our retail assets which substantially offset the
impact of the downturn in the Central London office markets. Adjusted diluted
net asset value per share has increased by 5.2% to 1215p. This represents good
progress given the difficult market conditions.
The protection afforded to shareholders by our diversified portfolio, the
quality of our occupiers and strong revenues from Land Securities Trillium
underpins the Group's progressive dividend policy and we are increasing the
dividend by 1.5p, maintaining our long record of year-on-year increases.
Results
This year's figures have been impacted by a number of exceptional factors.
These include the return of capital, higher interest payments and certain costs
relating to financing transactions. Pre-tax profit of #319.6m, which is posted
after the exceptional costs, including those incurred on various financial
transactions, decreased by #43.9m. Revenue profit (our measure of underlying
pre-tax profits) also decreased by 6.6% to #340.9m, mainly as a result of #13.5m
of additional interest incurred to finance the return of capital and the
dilutive effect of sales in the past two years. Adjusted earnings per share
(calculated on revenue profits) were 2.4% lower at 50.39p per share (2002:
51.61p per share).
Activity levels remained high. The Group realised #436.3m from the sale of
properties and the release of equity from the London Hilton and received a total
of #80.6m in capital repayments from Telereal. We invested #613.2m in our
portfolio, development activities and total property outsourcing. The Group
also completed a capital restructuring which resulted in a return of capital of
#511.1m to shareholders last September. A further #18.8m of 'B' Shares were
redeemed in April, 2003, leaving #11.5m outstanding.
The Board recommends a final dividend of 26p per share, making a total
distribution for the year of 35.5p. The dividends paid and proposed will be
covered 1.4 times by post-tax revenue profits. The dividend will be paid on 28
July 2003 to shareholders on the register on 27 June 2003.
Valuation
Our total investment portfolio was valued at #7.84bn (2002: #7.81bn),
representing a 0.4% increase in assets. After adjusting for sales, acquisitions
and expenditure the value reduced on a like-for-like basis by 0.6% as compared
to the prior year. The retail and retail warehouse portfolios performed
particularly well, with 7.8% and 10.0% increases in value respectively,
demonstrating the benefits of the high levels of asset management activity and
the more resilient retail markets. This strong contribution to the performance
of our portfolio from retail has been offset, once again this year, by a
decrease in value in our Central London holdings. Further details of the
valuation results are contained in the Business Analysis section.
Government
We have for some time been lobbying Government on our own behalf and through the
British Property Federation to ensure that it understands clearly the potential
damage of year-on-year increases in Stamp Duty. Not only does this taxation
unfairly penalise property as an asset class compared to bonds and equities, but
it also reduces liquidity in the market and impacts the flow of capital into
major regeneration projects. We believe that Government is beginning to
recognise this and were pleased that this Duty was not increased again this
year, but rather was reduced in some areas where Government is hoping to
encourage regeneration.
We are also grateful that Government has continued to leave the way open for
dialogue on issues such as Stamp Duty on leases and lease-code reforms. We
believe that the industry has come a long way in terms of providing occupiers
with a wide range of accommodation and lease terms and that undue taxation and
regulation will prevent our markets from operating efficiently.
Given the Government's commitment to urban regeneration and attracting capital
investment into these major, long-term and complex projects, we would encourage
it to consider a more tax-efficient vehicle to encourage international and
domestic investment in the UK property sector. While most other G7 countries
now have tax-efficient vehicles, known as real estate investment trusts, we
believe our ability to attract new equity investment to fund regeneration
projects is being undermined by the tax position of the UK quoted property
company.
Board
In January 2003, the Board announced that Ian Henderson, Group Chief Executive,
had accepted its invitation to remain in his position beyond his normal
retirement date of this July to oversee and implement the delivery of our plans
and to allow for continuity of leadership. Francis Salway was appointed to the
new role of Chief Operating Officer, taking on a wider operational role
supporting Ian Henderson, while retaining his responsibilities as Chief
Executive of Development. Mark Collins and Ian Ellis, Chief Executives of
Portfolio Management and Land Securities Trillium respectively, were appointed
to the Board in November 2002.
We would also like to thank Giles Henderson, who stepped down from the Board as
a non-executive Director in November, for his contribution to the Group's
progress. We are delighted that Stuart Rose has agreed to join the Board as an
independent non-executive director, bringing substantial retail expertise to the
Group. We are assessing the impact of the Higgs and Smith recommendations on
corporate governance and audit committees. In due course, we will appoint a
Senior Independent Director and create a Board Nominations Committee.
People
We have a great team in place and, during the year, my colleagues throughout the
organisation have continued to demonstrate enthusiasm and a positive approach to
the new way in which we are conducting our business and the changes for them
that this entails. I would like to thank them for their valued contribution to
our progress.
Outlook
During the 12 months under review, property as an asset class continued to
perform strongly, showing a total return of 9.3% as compared to 11.3% for bonds
and a negative return of 30.0% for equities reflecting investors' current
preference for low-risk, cash positive investments. Demand for investment
property with long-term leases continues to be strong while interest rates
remain low. Since unveiling our new strategy three years ago Land Securities
total return (share price plus dividend re-invested) has been 10.77% as compared
to a FTSE 100 Total return of negative 39.97% and a positive 2.71% for FTSE Real
Estate (period 31/3/00 - 31/3/03).
In our view, retail currently offers greater potential for total returns than
offices in the short term. For Land Securities Trillium, market conditions are
more attractive, as corporations continue to seek operational efficiencies and
ways to release capital for investment in their core activities, both of which
can be achieved through total property outsourcing.
While the economic outlook remains challenging, both in the UK and around the
world, the diversified nature of the Group's activities, sound financial base,
strong management team and focus on customer service mean that we are on track
to continue to deliver our strategy. The Board's confidence in the fundamental
soundness of your business is demonstrated by the enhanced final dividend
payment.
Peter G Birch
Chairman
21 May 2003
Chief Executive's Review
During these demanding times, we have been rigorous in our approach to managing
the Group to ensure that we maintain our reputation for delivering consistent
results in difficult economic and property market conditions. We are not
complacent and recognise that we have to work hard to increase income at a time
when our business partners are facing challenging conditions. We are pleased
that the results show a strong contribution from our new division, Land
Securities Trillium.
In a capital-intensive business with significant investment plans, we are
mindful of the importance of providing investment returns that exceed our cost
of capital. While this remains challenging given the London office market
conditions, all our activities are evaluated against the target returns we have
set for each business unit.
Structure of the Report
We have consistently endeavoured to remain at the forefront of our industry in
terms of reporting and disclosure standards. This year we have changed the
format of the report to improve clarity and to present all the analysis
pertinent to the Group in one place. We have included a Business Analysis
section that comprises details of the valuation and analysis, a market report
and a number of statistics in respect of the investment portfolio, our
development programme and our total property outsourcing activities. We hope
that you find this new format helpful.
Portfolio Management
The Group's investment portfolio, the majority of which is managed by Portfolio
Management, underpins our activities. The total portfolio is diverse, with 254
properties, 2,000 tenants and low property specific risk. The portfolio is now
structured to provide the protection offered by diversity while at the same time
being sufficiently focused to give us market leading positions in most of our
areas of activity. We have and will continue to re-cycle the capital invested
in the portfolio through an active programme of sales and purchases to ensure
that the properties we own provide future growth opportunities. As described in
more detail in the Portfolio Management Review we are driving the performance of
our properties through intensive management.
Development
In our interim report in November we said that we believed one of our
competitive advantages is our ability to maintain our development activity
through market cycles. This remains the case. However, we regularly review the
timing and extent of our development programme in light of market conditions to
ensure that the risks involved are manageable when markets weaken.
The Group's financial strength and internal risk-management controls allow us to
add value by progressing aspects of the development programme in such a way that
we position schemes for future construction to take best advantage of improving
markets. As a result, we have scaled back our Central London activities but
will progress our retail development programme and the projects at Kent
Thameside.
Total Property Outsourcing
We believe that the prevailing market conditions are positive for Land
Securities Trillium, as occupiers seek to release capital and focus on their
core business activities. The current contracts are performing well and making
a significant contribution to Group income. Although progress has been slower
than anticipated in concluding new business we are active in a greater number of
negotiations than seen previously and maintain our ambitions of growing this
business so that it represents 25% of our future operating profits in four years
time.
Customer Service
We are making good progress with our focus on customer service and have been
active in building strong relationships across the Group with our occupiers and
clients. The introduction of a Group client relationship management system has
allowed us to formalise relationship management procedures across the business
and help ensure that we are pro-active in responding to our customers.
To date, the results of customer surveys across Group activities have been
encouraging. In an independent survey conducted with retailers in nine of our
centres, 80% of those surveyed would be willing to recommend Land Securities as
a landlord. The survey highlighted some areas where we could improve our
performance and, although we exceeded the benchmark on most criteria, we
continue to look at how we can further enhance our service levels. We were also
delighted to note the impressive customer satisfaction ratings arising from
surveys among our customers in the Department for Work and Pensions ("DWP") and
the BBC.
Competitive Environment
Although the UK property market is relatively mature, there are numerous
opportunities to create value through development, active management and the
provision of efficient customer service. There are also emerging markets and
sectors where we can exploit our competitive advantages of financial strength,
scale and the ability to innovate. The first of these is total property
outsourcing. While this market is still in its infancy and competition is
fragmented, we believe that not only the strength of our balance sheet but also
the infrastructure and expertise we now have in place at Land Securities
Trillium should enable the Group to lead this market. The second is major
regeneration projects, where we can take a long-term approach to master planning
complex schemes, while realising value throughout the life of the scheme. This
is evidenced by our project at Kent Thameside. Third, we believe that
continuing to drive innovation in the marketplace through products such as
Landflex will keep us at the forefront of our industry in terms of anticipating
future trends and meeting our customers' changing accommodation needs.
The downturn in the Central London office market, particularly in the City, has
adversely affected the performance of this part of the investment portfolio and
our ambition to generate returns from development may, therefore, be delayed.
However, the Central London market comprises a series of sub-markets, all of
which have different occupier characteristics. With a range of development
opportunities in several of the core sub-markets, we are one of the few
businesses that can satisfy occupier demand for new, large, modern office
buildings across Central London between now and 2008.
London is one of the main engines of our growth and it is essential that we
maintain its attraction to business at large as one of the foremost global
financial centres. The infrastructure of the capital continues to be neglected,
although the Prime Minister's recent commitment to chair the Thames Gateway
Committee is encouraging. It is vital that this commitment is translated into a
real investment in both existing services and new ones such as Crossrail.
At present, the retail property environment remains stable, although it
continues to be dependent on consumer demand. Any downturn will inevitably
affect retailers' profitability, their growth plans and demand for retail space.
However, retailers are adapting quickly to changing consumer demands and new
entrants continue to seek to build their presence in the UK market. With a
portfolio of dominant shopping centres, development plans for six major new
schemes and a large number of retail warehouse parks, we are well placed to
strengthen our relationships with retailers and satisfy their requirements.
As a result of the changes in our business, we have invested in new skills and
new operations. While this has resulted in an increase in the Group's cost
base, we have thoroughly reviewed costs to ensure that we are maximising
efficiencies and benefiting from the economic advantages of our scale.
Financial Structure and Strategy
As reported in the Financial Review, following the review of our capital
structure and financial strategy in 2002, we established that we had surplus
equity capital after taking into account the capital required to execute our
business plan. As a result, during the year we carried out a structured return
of capital to shareholders which contributed to a rise in the Group's gearing to
47.3%. Subsequently, we also issued #600m of bonds to refinance short-term bank
debt.
While continuing to invest in total property outsourcing and development, we
still remain committed to pursuing a prudent financial strategy and a
progressive dividend policy.
Recognising that the business has grown more complex, we completed during the
year a review of the Group's finance function. This resulted in a number of
changes, including the creation of a Group Tax, Treasury, and Insurance
department to strengthen and integrate these functions.
Risk Management and Business Planning
We continue to evaluate our risk management processes. As a result, we have
implemented a new risk management procedure across the business and put in place
a comprehensive risk management plan that has been reviewed and approved by the
Board. We are satisfied that the level of risk within the organisation is
commensurate with a business of our size and believe that we have the
appropriate controls and procedures in place to manage this risk effectively.
We have also augmented the Group's business planning process by adopting the "
Balanced Scorecard" approach, to ensure that our people and our business units
are firmly focused on achieving the Group's long and short-term goals.
Prospects
We look forward to taking advantage of the opportunities that today's markets
offer and believe that our strategy, people and financial strength leave the
business well-placed to make good progress across all its operations.
Ian J Henderson
Group Chief Executive
21 May 2003
Financial Review
Profit before interest and tax (including joint ventures) for the year to 31
March 2003 was #591.9m (2002: #530.2m). This represents an 11.6% increase over
the previous year and was driven by two main factors:
* a full year's contribution from Telereal, our 50:50 joint venture with
the Pears Group, and
* profits of #43.5m (2002: #19.2) from the sale of operating, trading
and investment properties.
At the pre-tax level, profits decreased by 12.1% from #363.5m to #319.6m largely
as a result of exceptional costs related to our capital reorganisation,
convertible bond redemptions and new debt issues. Revenue profits declined by
6.6% to #340.9m (2002: #364.8m), due to increased interest costs related to the
return of capital in September 2002 and the dilutive effect of property sales
over the last two years.
After capitalisation of interest on developments, total interest charges were
some #115.0m higher than the prior year, of which nearly half can be attributed
to the full year effect of Telereal and the balance to exceptional interest
costs incurred in redeeming convertible bonds and cancelling surplus interest
rate hedges, following our bond issues. The Group's gross interest payable,
excluding Telereal, was covered 2.4 times by operating profits compared with 3.0
times in the prior year.
During the year, we divested investment and operating properties with a book
value of #533.3m (2002: #510.4m) generating an FRS3 profit of #41.7m, compared
with #13.4m in the previous year. This includes our share of Telereal property
disposals. Property disposals also crystallised revaluation surpluses earned in
prior years of #281.2m.
Profit after tax was #229.9m (2002: #263.6m) equivalent to a 7.6% decrease in
basic earnings per share; however adjusted earnings only fell by 2.4% and the
Directors are recommending a total dividend for the year of 35.5p per share
(2002: 34.0p), a 4.4% increase. If approved, this will result in a final
dividend of 26.0p per share (2002: 24.95p). At this level, adjusted dividend
cover is 1.5 times (2002: 1.5 times).
In absolute terms, the year-end value of the portfolio was some #33.1m higher
than the previous year, an increase of 0.4%. This reflects increased
development capital expenditure and the impact of property purchases and sales.
However, the value of our like-for-like portfolio, and certain development
schemes has declined, resulting in a valuation deficit for the year of #56.8m,
after taking into consideration the accounting movement of #9.2m on the UITF28
debtor. The valuation deficit has been offset by #62.5m of retained earnings
and this, coupled with the impact of our return of capital, resulted in an
adjusted diluted net asset value per share of 1215p (2002: 1155p), up 5.2% over
the year.
In terms of cash flow, the Group realised #436.3m (2002: #549.2m) from property
divestment and secured #80.6m from Telereal. These funds have been reinvested
in the business and we returned #511.1m to shareholders during the year, spent
#301.4m on investment property development expenditure and #311.8m on property
acquisitions, including the costs incurred by Land Securities Trillium in
constructing White City II for the BBC. Overall, there was a net cash outflow
of #177.2m during the year before financing and return of capital to
shareholders (2002: #219.2m). Net indebtedness increased by #647.2m in the year
to #2,589.3m (2002: #1,942.1m) resulting in year-end gearing of 47.3% (2002:
32.2%).
Over the last year, the Group's pre-tax total return (that is the percentage
increase in pre-tax net asset value per share, plus dividends) was 8.2% compared
with our estimated cost of equity of 9.1%. Total returns were held back this
year as a result of the difficult London office market.
During the year, we arranged to return #541m to shareholders. This was achieved
by introducing a new holding company for the Group, combined with a 'B' Share
issue to all shareholders. Approximately 94% of shareholders elected for an
immediate redemption of their 'B' Shares in September at a cash cost to the
Group of #511.1m, with a further 3.5% redeeming their 'B' Shares in April 2003
at a cash cost to the Group of #18.8m. The remaining 11.3m 'B' Shares are next
redeemable in October 2003. At the same time we effected a capital reduction,
which created some #3.1bn of distributable reserves in the new holding company,
providing significant flexibility for the future.
The return of capital and the purchase of convertible bonds had a positive
influence on earnings per share and net asset value per share, while also
reducing the diluted share capital of the Group.
The Group has a defined benefit pension scheme. The scheme, which had gross
liabilities of some #95m as at 31 March 2003, is now closed to new entrants.
However, during the year, the Company made a special cash funding contribution
of #9.0m following which the current deficit of the pension scheme is
approximately #18.6m. Cash pension costs are expected to be some #1.5m per
annum higher than in previous years as a result of a recent decision to increase
funding rates for the time being. New schemes will be set up to meet
obligations to employees transferring to the Group under total property
outsourcing contracts.
In June 2002, the European Parliament approved a Regulation requiring all listed
companies in the European Union (EU) to prepare consolidated financial
statements under International Financial Reporting Standards (IFRS) for
financial years beginning on or after 1 January 2005 and this will apply to us
for the first time in the year to 31 March 2006. As currently drafted, the
implementation of IFRS will have a marked impact on financial reporting for
property investment companies. However, it should also be noted that there is
considerable activity, both at the International Accounting Standards Board
(IASB) and at the UK's Accounting Standards Board, to refine the reporting
framework. The implications for the Group are under active review and we will
provide an update when we report our half-year results at the end of the year.
Investment Portfolio
Rental income decreased by 1.2% from #525.9m to #519.7m, reflecting the sale of
mature assets over the last two years. Adjusting for the effects of property
acquisitions and disposals, rental income on properties owned throughout the
last two years increased by #24.8m. The main contributors to this increase were
#20.8m from reviews and renewals and #10.2m from the letting of new
developments, which were offset by a loss of #7.5m due to the vacation of
buildings for redevelopment. Some #39.8m of rental income was lost on disposals
offset by #8.8m from property acquisitions. The cost of bad and doubtful debts
was some #1.6m, equivalent to approximately 0.3% of the rent roll (2002: 0.3%).
During the last 12 months, the net reversionary potential of the portfolio,
excluding voids has reduced to 5.1% at 31 March 2003, compared with 9.6% at the
end of the prior year. The mean weighted unexpired lease term over the portfolio
as a whole is 11.2 years, assuming all lease breaks and expiries occur.
During the year we divested investment properties with a book value of #396.1m
(2002: #498.1m), at an average rental yield of 7.0%, realising profits on sale
of #26.5m and crystallising #234.3m of previous valuation surpluses.
Investment portfolio activity
Year to 31 March 2003
Acquisitions/ Sales and other FRS3
developments divestments profit
#m #m #m
---------- ---------- ----------
Retail/leisure 170.8 117.9 14.2
Offices 258.1 127.2 4.7
Warehouses and industrial
properties 20.1 18.0 2.9
Hotels, leisure,
residential and other 29.3 159.5 4.7
---------- ---------- ----------
TOTAL 478.3 422.6 26.5
---------- ---------- ----------
Development
The projects that comprise the current Development Programme are listed in the
Development Pipeline Schedule. To be included in the Programme, a project must
have, or be close to obtaining, final approval to proceed (although that
approval may be conditional on the receipt of planning consent or obtaining an
appropriate level of pre-lets). For reporting purposes we retain properties in
the Programme until they are 95% let.
The carrying value of Development Programme assets, (which excludes the BBC
development at White City, trading properties, Proposed Developments and the
project at Kent Thameside) was #967.4m at 31 March 2003 (2002: #790.8m).
During the year, we spent #291.1m on the Development Programme, and capitalised
associated finance costs of #30.8m.
The estimated future cash spend required to complete the Development Programme,
excluding interest, will be approximately #440m. Proposed Developments
(excluding Kent Thameside) have a current carrying value of #180m and the
estimated future cash spend required to complete these schemes, if we proceed
with them, is approximately #900m, excluding interest.
Land Securities Trillium
Land Securities Trillium (including our share of Telereal) generated some 53% of
the Group's gross property income (2002: 40%). Land Securities Trillium is now
making good progress towards achieving 25% of our operating profit in the medium
term.
Revenue and profits from the PRIME contract have exceeded expectations and we
also earned fees on the substantial programme of capital works that we managed
on behalf of the DWP. On the BBC contract, we incurred #111.8m in the year on
the construction of the White City 2 building with an estimated #99.3m
(excluding interest) to be spent mainly over the next year. We have incurred a
full year's start-up operating loss on this contract, but expect it to become
profitable when the new building is occupied by the BBC later this year.
Telereal has made a good contribution to earnings, despite a reduction in
unitary charge reflecting the sale of its investment properties during the
year. Sale proceeds were #270m, generating a profit on disposal of #18.8m, with
our share being #9.4m. This transaction and Telereal's profits enabled the
joint venture to return #80.6m to us during the year. Telereal's profits are
growing in line with our expectations.
Taxation
The cash tax charge, equivalent to 12.1% (2002: 25.6%) of profit on ordinary
activities, reflects the benefit of capital allowances from developments,
refurbishments, acquisitions and financing transactions during the year. The
financing benefit is unlikely to reoccur in future periods and the 2002/3 cash
tax rate may not be representative of our tax position for the future. The
requirement in FRS19 to make full provision for timing differences means that,
in profit and loss account terms, our reported tax rate for the year is 28.1%
(2002: 27.5%) and the factors causing this are explained in the notes to the
accounts.
Following the latest property valuation and assuming that all properties are
sold at the revalued amounts without any tax mitigation, the Group has an
estimated potential capital gains tax liability in the region of #435m (2002:
#535m). However, as indicated in the notes to the accounts, it is unlikely that
such an amount would be payable even in the event of a sale of all investment
property assets. In particular, the sale of property portfolios by means of the
disposal of certain asset owning companies would reduce this by some #110m.
Treasury Management
The treasury function operates under delegated authority from the Board and
maintains policies and procedures which monitor, control and report on interest
rate, liquidity, credit and other financial risks. The function operates as a
cost reduction centre rather than a profit centre.
The Group's finance policy is primarily based on an unsecured funding strategy
which the Board believes offers the right balance between debt capacity,
flexibility and cost. In limited circumstances the Group will still consider
secured funding, but only after carefully reviewing the impact on its unsecured
finance sources.
The Group uses interest rate swaps to hedge the interest rate exposure on
floating rate debt and to protect the cost of future borrowings. Due to the
long-term nature of property investment and our expectation of increased gearing
in the medium-term, we aim to take advantage of low interest rates to hedge the
majority of our debt. The business has minimal direct foreign exchange
exposures and consequently there are currently no foreign exchange hedging
contracts in place.
To provide access to immediate liquidity and to inject additional flexibility,
the Group has two committed syndicated bank facilities in place. At the
year-end, the total committed facilities available to the Group were #1.5bn, of
which #0.6bn was utilised.
At 31 March 2003, the average maturity of the Group's debt was 13.3 years (2002:
14.1 years) or 16.3 years (2002: 16.2 years) if short-term bank facilities are
excluded, reflecting the long-term nature of property investment.
At the year-end, the fair values of the Group's financial liabilities exceeded
book value by #598.5m (2002: #474.9m), mirroring the reduction in long term
interest rates since the Group's fixed rate borrowings and interest rate hedges
were originally taken out. After tax, the implied adjustment to the Group's net
asset value would be to reduce reported diluted adjusted net assets per share by
90p (2002: 60p).
In May 2002 we announced our intention to return capital to shareholders. At
that time, redemption notices were issued to the holders of our convertible
bonds as these bonds were beginning to convert, with bondholders taking
advantage of the difference between the share and conversion prices. So, where
the opportunity arose at appropriate prices, we purchased bonds in the market to
pre-empt conversion and successfully acquired some 80% of the bonds outstanding
at 31 March 2002. This resulted in an exceptional loss of #28.2m, which is tax
deductible and is reported as an interest expense in the profit and loss
account. The amount of share capital to be returned to shareholders is #541m
which reflected #48m of nominal new equity capital created as a result of bond
conversions.
The purchase of the convertible bonds and the return of capital to shareholders
was financed by a new #1.5bn syndicated bank facility. #600m of our bank debt
was subsequently refinanced by two new unsecured bonds, a 5.875% #400m bond
maturing in 2013 and a 6.375% #200m bond maturing in 2024. Following this
transaction, #700m of bank facilities and #300m of interest rate swaps were
cancelled as surplus to requirements, leading to a #23.5m exceptional interest
charge in the profit and loss account.
The Group had a net cash outflow before the use of liquid resources and
financing of #177.2m for the year (2002: #219.2m), primarily attributable to its
return of capital, capital expenditure and investment activities.
Insurance
In common with other property owners, our insurers are applying terrorism
exclusions to our policies as they become due for renewal in 2003. The Group
continues to buy the most comprehensive terrorism insurance cover available from
the Government-backed Pool Reinsurance Company Limited.
Going Concern
After reviewing detailed profit and cash flow projections, and taking account of
available bank facilities and making such further enquiries as they consider
appropriate, the directors are satisfied that the Company and the Group have
adequate resources to continue to operate for the foreseeable future. For this
reason, we have continued to adopt the going concern basis when preparing the
financial statements.
Portfolio Management Review
During the year to 31 March 2003, the resilient performance of the investment
properties in difficult market conditions demonstrated clearly the benefits of a
diversified portfolio and active asset management programme. Excluding the
Development Programme, investment properties showed a modest decrease of 0.3%.
The increase in value of our retail and retail warehouse properties, which
together now represent 51% of our assets, offset the decline in value of our
Central London office properties. For full details of the Investment Portfolio
valuation, please refer to the Business Analysis Section.
The high level of management activity is shown by the 617 transactions (rent
reviews, lease renewals and lettings) carried out by Portfolio Management. As a
direct result of this activity, annual rents payable grew by 3.4% over the past
twelve months on a like-for-like basis. Rent reviews and lease renewals have
been settled at an average of 7.3 % above our valuers' assessment of ERV.
Excluding properties in development, voids across the investment portfolio are
1.6%, which although slightly higher than the prior 12 months, have been kept to
this low level as a result of the management activities undertaken across the
portfolio. This figure rises to 2.1% if all properties under refurbishment are
included and to 2.3% with predevelopment voids.
Investment properties - impact of developments
Capital valuation surplus/(deficit) - year to 31 March 2003
Investment Properties Investment Difference
Excluding Portfolio
Developments
% % %
---------- ---------- ----------
Offices (8.9) (9.9) (1.0)
Shopping centres & shops 7.1 7.8 0.7
Retail warehouse 9.4 10.0 0.6
Industrial 1.4 1.9 0.5
Hotels, leisure, residential & Other 2.9 3.1 0.2
---------- ---------- ----------
Total (0.3) (0.6) (0.3)
---------- ---------- ----------
The above table illustrates how our office Development Programme has impacted
negatively, but for retail and industrial properties our Development Programme
has contributed positively to performance.
Review of Activity
Investment Activity
Investment activity over the last twelve months remained modest. We purchased
#122.0m of assets, including entering into a forward funding agreement with
Centros Miller for a 32,500 sq m shopping centre in Maidstone which is due for
completion in 2005 and is already 70% pre-let.
Of the #122.0m invested, the most significant acquisitions included the purchase
of the superior interest in the Bon Accord Centre, Aberdeen for #13.3m, and the
acquisition of Newspaper House,which forms part of our New Fetter Lane, London
EC4 holdings for #19.8m. Just prior to the year-end we acquired a small
portfolio of properties on the South Bank in London from Sainsbury's for #39.9m.
The four properties, the largest two of which are leased back to Sainsbury's,
continue our strategy of investing in properties that are income producing but
which offer medium term development opportunities.
The average yield on these purchase outlays (including the cost of stamp duty
and acquisition fees) was 7.4%.
To benefit from the strong Central London hotel investment market and to effect
a release of the equity generated during our ownership of the London Hilton on
Park Lane, W1, we entered into a venture in association with London and Regional
Properties in relation to the freehold interest of this asset. This transaction
returned #154.1m of equity to the Group.
We sold a further 21 investment properties for #264.4m (net of sale costs). The
average yield on the properties sold and the equity release was 7.0%. The FRS3
profit was #26.5m (6.7% above book value).
Central London
The value of our Central London office portfolio declined by 9.0%, reflecting
the continued deterioration of market conditions and the nature of this
portfolio, where we have a proportion of properties with shorter than average
leases but which have medium to long-term development potential. A more
detailed review of our lease expiry profile is contained later in this report.
We continue to manage our Central London assets actively, having concluded 75
rent reviews, 23 renewals and agreed 48 leases in the period under review. As
anticipated, as leases terminate in our portfolio, investment voids, excluding
properties under refurbishment, have increased marginally, but remain at a
manageable 1.8% (excluding 0.2% of property under refurbishment). The Central
London portfolio management team has been working hard to renegotiate and extend
leases in developments where we have rescheduled the future timing for
redevelopment. Examples of this are New Fetter Lane, where we have agreed terms
on 22 (out of 31) tenancies for occupiers to stay beyond their original planned
termination date, and Eastbourne Terrace, where we have agreed a short lease
extension with the existing office occupier and are in negotiation for new
leases with some of the sub-tenants who have expressed an interest in continuing
occupation.
The submarkets in Central London have performed very differently with a more
marked deterioration in the City where we have 12% of our assets compared with
the West End where we have 19% of our assets, where values have held up much
better.
Landflex
We are just beginning to market our new Landflex product which we have developed
to offer office occupiers a more flexible approach to planning their
accommodation requirements. The refurbishment of 7 Soho Square, W1 is now
complete, and 43% of this building is now in solicitors' hands. Empress State
Building, SW6 is on target for completion by June 2003. We are currently in
negotiation with a number of occupiers in respect of this product and, given the
decline in occupier demand in Central London, we are pleased with the level of
interest being expressed in Landflex.
Shopping Centres and Retail
The value of our shopping centre and retail properties increased by 7.1%
demonstrating good growth from the retailer market and reflecting the excellent
results we have had in our asset management activities. Across this portfolio
we have achieved 111 new lettings, 25 renewals and 254 rent review settlements
and voids are at 1.2%. We are continually seeking opportunities to reconfigure
or redevelop new units to meet retailer requirements and have projects underway
in virtually all of our centres.
The existing strength of the portfolio and low levels of voids has required the
retail team to work closely with occupiers to generate opportunities to improve
our centres and thereby increase rental levels. An example of this active
approach is the White Rose Centre, Leeds where, as a result of our activities,
we have increased rental values over the last 12 months by 13%. We are pleased
that our efforts to increase our focus on the customer have already been
recognised, as demonstrated by positive results received from recently completed
independent, comprehensive, customer research on our retail occupier base
throughout the majority of our shopping centres.
We are growing the income generated from other activities such as car parking,
advertising and telecoms which this year increased from #6.7m to #6.9m on a
like-for-like basis. One of our core objectives is to grow this income further.
Retail Warehouses
The value of the retail warehouse investment properties increased by 9.4%,
demonstrating the very strong growth resulting from our active management of the
portfolio. Occupier and investment demand for retail warehouses remains robust
and this market continues to benefit from supply-side constraints and also the
changing dynamics of the retail occupier base.
Across the portfolio we negotiated surrenders and relettings and have taken back
or agreed to take back 27,320 sq m of which we have relet 25,520 sq m at an
average rental increase of 69%. This includes small investments at Hendon and
Christchurch, which were subsequently sold at a surplus of 34% after all costs.
At Lakeside Retail Park, West Thurrock, we have agreed to take back several
stores and we have conditionally contracted with Marks & Spencer to provide them
with a store of 5,810 sq m, anticipated to open in 2005.
In addition to the 18,020 sq m of planning consents available for implementation
as reported in the Development Review, we have 11,200 sq m of consents, or '
minded to grant' consents on existing parks. This includes 5,390 sq m at White
City Retail Park, Manchester.
Industrial
The sector has remained stable and lettings continue to be achieved on
satisfactory terms with modest rental growth. We continue to invest in our
existing holdings and improve rental levels, as demonstrated at our refurbished
scheme in Coulsdon. Our refurbishment programme currently equates to 2.9% of
the industrial portfolio, ensuring the sustainable long-term future of our
industrial and warehouse products in an increasingly competitive market. The
programme includes a major refurbishment of around 10,240 sq m at Heston,
Heathrow, which will raise the profile of our overall holdings on the estate,
totalling 28,710 sq m.
We are still increasing our exposure to the south east industrial sector,
predominantly through development which is reported on in more detail in the
Development Review.
Development Review
We have made significant progress towards our objective of establishing the
platform for delivering a range of major development schemes. We continue to
evaluate projects in respect of occupier demand, and will re-programme schemes
if we believe that market conditions do not support the generation of
shareholder value. However, we will progress certain aspects of development,
such as planning and site assembly, so that we are in a position to implement
schemes quickly as markets improve or pre-lettings are secured.
During the year we completed 81,500 sq m of the Development Programme, started
95,500 sq m of new schemes, received planning consent or resolutions to grant
consent for 212,500m2, applied for planning permission for 129,000 sq m and
achieved 52,000 sq m of new lettings. In addition we secured outline planning
consent at Ebbsfleet for 395,000 sq m of mixed use representing our 50% share in
the project.
Seven projects with a valuation of #114.4m, which were completed and let during
the 12-month period, were transferred out of the Development Programme. These
were the Designer Outlet Shopping Centre, Livingston; Neptune Point, Cardiff;
Site B, Welwyn Garden City; Cheetham Hill Road, Manchester; Almondvale Retail
Park Phase I, Livingston; Lakeside Retail Park Phase II, Thurrock; and part of a
property at Markham Road, Chesterfield. The aggregate surplus on these schemes
over their full development period was #24.3m. We have added to the Development
Programme industrial schemes in Kidlington, Oxford and Fareham together with a
small retail warehouse extension in Bexhill. We have removed from the
Development Pipeline a small High Street shopping redevelopment scheme in
Plymouth, and an office scheme at 40/50 Eastbourne Terrace, W2 which is
commented upon in more detail below together with the second phase of our scheme
in Hemel Hempstead, where we have sold the site.
A Development Pipeline Schedule which, including our share of joint ventures,
equates to approximately 708,800 sq m of new development, of which 119,000 sq m
is completed, 250,600 sq m in progress, 22,200 sq m authorised and 317,000 sq m
proposed.
The Development Pipeline schedule lists both schemes in the Development
Programme and Proposed Developments. It is only properties in the Development
Programme which we referred to as "development properties" in the notes to the
accounts and elsewhere in this report.
Our Development Programme includes:
* Developments which are completed but less than 95% let;
* Developments on site;
* Committed developments (being projects which are approved and the
building contract let);
* Authorised developments (those projects approved by the Land
Securities Board for which the building contract has not yet been let).
Projects in the Development Programme are sufficiently firm to ensure that
reporting from period to period provides a good basis for performance comparison
and they are separately analysed in the relevant notes to the accounts.
"Proposed Developments" are now excluded from the Development Programme as
experience has shown that these schemes can be subject to revision. However, we
give an indication of the likely size and timing of these schemes and their
potential impact on cash flow when discussing our "Development Pipeline", which
combines both the Development Programme and Proposed Schemes.
Central London
The current market environment for office development in London is challenging.
However, relative to the size of our portfolio, we have only a small amount of
unlet space in schemes which have already been completed, totalling 14,300 sq m
in three buildings.
Over the last year, we have taken a number of decisions which impact upon the
timing of our Development Pipeline. At New Fetter Lane, EC4, we extended leases
on the existing buildings from June 2003 to late 2004, while we seek planning
consent for an alternative scheme offering a range of building sizes which will
widen our marketing options. At 40-50 Eastbourne Terrace in Paddington, we have
deferred development from 2003 to around 2010 to tie in with the lease expiry on
our adjoining holding at 10-30 Eastbourne Terrace. This decision partially
reflects current levels of occupier demand and also the results of analysis we
have undertaken which shows that, by master planning the two sites together, we
can maximise the developable floor area. At both New Fetter Lane and 40-50
Eastbourne Terrace, we are successfully extending income flows from the existing
buildings.
At Cardinal Place (formerly known as Stag Place) in Victoria, we awarded the
building contract in Autumn 2002 and the main phase of the scheme is due for
completion in 2005, when we anticipate improved market conditions in the West
End. At Bankside 1,2,3 (formerly known as St Christopher House), which is
adjacent to Tate Modern on the South Bank, we have started demolition works but
do not intend to commence construction until pre-lettings have been obtained,
which has always been our policy for this site.
We have two major development schemes due for completion during 2003. Empress
State in Earls Court (43,000 sq m) is due for completion in June of this year
and 30 Gresham Street in the City (37,000 sq m) will be completed in December.
We have recently started to market Empress State, which is being offered in
small to medium sized units through our Landflex leasing product. Our marketing
programme for 30 Gresham Street is well advanced, and we are encouraged by the
active discussions we are having with interested parties.
Retail
We have shopping centre development projects under construction in Birmingham
and Canterbury and, during the year, made considerable progress in advancing
town planning and other issues on schemes in Bristol, Cardiff and Exeter.
The Bull Ring in Birmingham, being developed by the Birmingham Alliance
Partnership, will open ahead of schedule on 4 September 2003 and is now 88% let
or under offer. We are delighted with the progress on both construction and
letting. At Whitefriars in Canterbury, Fenwick opened their new department
store in February of this year, at the same time as we launched our initial
marketing campaign. A strong response from retailers has resulted in our
agreeing terms on a further three stores and we will continue marketing until
the scheme's opening date in 2005.
At both Bristol and Exeter, we submitted planning applications during the period
under review and obtained resolutions to grant consent. The scheme in Bristol
is being undertaken in partnership with Hammerson, Henderson Global Investors
and Morley Fund Management. In Cardiff, we are working in partnership with
Capital Shopping Centres and submitted an outline planning application in Autumn
last year for a development of approximately 70,000 sq m of retail accommodation
together with hotel and residential space. In York, we are still awaiting the
planning decision on our 27,500 sq m retail development proposal following the
Public Inquiry in the summer of 2002.
Retail Warehouses
We completed the construction of approximately 33,000 sq m of new retail
warehouse space, 94% of which is let and the remainder in solicitors' hands.
At Dundee we completed Phase II of the scheme comprising 9,800 sq m with
pre-lets to MFI, Carpetright, Currys and PC World and we plan to construct the
final phase of 8,640 sq m later this year. This will create a regional shopping
park of 28,775 sq m adjoining the 10,200 sq m Tesco Extra store which is now
under construction.
Despite restrictive planning policies, we have 18,020 sq m of consents or '
minded to grant' consents across the retail warehouse portfolio, which we shall
implement once we have pre-let sufficient space. This includes 9,400 sq m at
Livingston.
Leisure
Our City Centre leisure scheme 'The Gate' in Newcastle upon Tyne opened in
November of last year and is trading well, with 84% by income either let or in
solicitors' hands.
Industrial Premises and Warehouses
We continue to expand our industrial portfolio in the south-east principally
through the acquisition of development land in strategic locations with limited
land supply. We successfully acquired two sites, each of 2.5 hectares, in
Oxford and Fareham for speculative development which will add 23,250 sq m to our
portfolio.
We completed 41,200 sq m at schemes in Basildon, Guildford, Hemel Hempstead and
Welwyn Garden City and started on site on 35,500 sq m at Basildon, Croydon and
Oxford. A further 11,600 sq m is planned for construction in the forthcoming
year in Fareham.
Of our completed industrial developments, 55% is let with total annual rental
income of #3.14m secured.
At Hemel Hempstead we took advantage of a strong land market and sold 2.9
hectares of surplus land purchased in 2001 for #4.9m for a net receipt of #7.3
m.
Kent Thameside
We have made significant progress on our larger land holdings at Kent Thameside
over the last year. At Ebbsfleet, in which we have a half share, we
successfully obtained a flexible outline planning consent for approximately
790,000 sq m of mixed use including up to 455,000 sq m of offices, 168,500 sq m
of other commercial space and supporting uses and 3,300 residential units. In
January of this year, we also submitted an outline planning application for
7,250 residential units and up to 150,000 sq m of commercial space and 130,000
sq m of retail, leisure and community buildings at Eastern Quarry.
Total Property Outsourcing Review
A successful year for Land Securities Trillium saw important progress in all our
existing contracts. Financially, we performed ahead of expectations, with
income growing by 62.1% to #658.3m and operating profit by #76.6m to #139.7m
reflecting a full year's contribution from Telereal. We supported the DWP
through a period of significant business change, and the Partnership with the
BBC completed an impressive first full year of operation both in terms of
development activity and service delivery. The BT contract, operating through
Telereal, had a strong first year delivering strategic asset management and
facilities service management across BT's estate, and, in the process, we
successfully realised enhanced asset values, generating financial benefits for
Telereal and BT.
Department for Work and Pensions
In operational terms, the platform for delivery of services under the PRIME
contract for the DWP is now well established. However, organisational changes
within DWP created new revenue-generating activity for us with the creation of
three new DWP businesses, namely Job Centre Plus, The Pensions Service and The
Debt Management Service. As a result, we have been extremely active over the
last year in estate management and the delivery of capital projects. To support
these new DWP businesses we received enquiries from the client for some 250,000
sq m of additional accommodation, some 50,000 sq m of which was taken on during
the year. In the same period our Capital Projects business undertook around
#95m of work for DWP, creating 80 new Job Centre Plus offices and 50 Pensions
processing centres, together with other refurbishment work across the estate.
In the light of this growth in its requirements, the DWP did not wish to use any
of its annual entitlement to vacate a proportion of its estate. However, in the
latter part of the year, DWP gave notice of its intention to vacate a number of
small buildings totalling 3,600 sq m over the next twelve months as it seeks to
consolidate its accommodation following its business reorganisation. This
vacation is achieved by utilising some of the flexibility which was requested by
DWP at the commencement of the contract, and which was priced accordingly by
Land Securities Trillium. Responsibility for seeking tenants or sub-tenants for
any vacant floor space in the portfolio rests with Land Securities Trillium, and
the amount of space currently vacant across the portfolio stands at its lowest
level since the contract began at 12,370 sq m, as compared to an annual average
of around 70,000 sq m.
In terms of the delivery of our day-to-day facilities management services to
over 100,000 DWP occupants, we continue to enhance and improve our offering
throughout a period of substantial business change for our client. The annual
customer satisfaction survey saw an improved score for the second successive
year, with an exceptional customer satisfaction rating of 90% being achieved.
This reflects well on the efforts of all our people working on this contract,
and is a testament to the strength of the relationship between us and our
long-term service partners.
BBC
The first full year of the BBC Property Partnership has delivered a series of
successes. The 300 Facilities Management and Projects staff who joined us from
the BBC at the end of 2001 are now integrated into our business, delivering
services to some 25,000 BBC staff across the UK, and managing capital projects
valued at some #40m during the year. Through their efforts and those of our
service partners the customer surveys undertaken at the end of our first year of
operation reveal the biggest year-on-year increase in satisfaction levels
recorded by the BBC staff.
Land Securities Development is planning to complete later this year the first
phase of the new 50,000 sq m development for the BBC on the White City site.
One element of this scheme is some six months ahead of schedule, which will
provide operational benefits for the BBC and improved financial returns for the
Land Securities Group. Other proposed developments across the UK are currently
at various stages of discussion as we work with the BBC to plan and deliver its
vision of providing accommodation capable of attracting the best people in its
industry.
As we announced shortly after securing the BBC contract, we recognised that the
contract would run at a loss prior to completion of the new White City
development. Upon completion of the building in the Autumn of 2003, income from
the contract will increase by approximately #30m on an annualised basis, and the
contract will move to a stabilised position, with a positive contribution to
Group profits in the following financial year.
BT
The BT contract was secured in November 2001 by Telereal, our joint venture with
the Pears Group, with a total equity contribution by each partner of #146m.
During the year under review, Telereal made a #27.2m contribution to Land
Securities Group pre-tax profits, largely due to our focus on working with BT to
maximise asset values. Since acquiring the BT portfolio, Telereal has sold a
total of 49 properties for some #296m, including the sale in August 2002 of six
properties to the Rotch Group for #270m.
During the year, we delivered over #100m of capital projects for our BT
customers, and we continued to work with BT to identify the potential for
broadening the scope of our operation by transferring to Telereal further
facilities management activities.
Telereal is responsible for managing the vacation and subsequent subletting of
vacated leasehold space on behalf of BT. BT has announced that it will be
vacating parts of its leasehold office portfolio through restructuring and
relocating certain activities. This is across the country but the majority
relates to its London property strategy. No liability will pass to Telereal,
save for 2,360 sq m in two buildings in Leeds which were anticipated at the time
of the BT transaction and priced accordingly.
In addition, Telereal continues to discuss with O2 (UK) the potential for
growing the relationship between the two parties through Telereal extending its
existing 18 months corporate real estate advisory contract.
New Business
Although no new total property outsourcing contracts were completed in the
market during the year, our new business pipeline has greater depth than at any
time since Land Securities Trillium started operating in 1998. In recognition
of the success of the PRIME contract and in the anticipation of synergies with
the PRIME estate, the DWP has entered exclusive negotiations with us, subject to
being able to agree terms, for the outsourcing of the 800,000 sq m former
Employment Services estate. In addition, a number of attractive opportunities
are being pursued in the private sector, where current economic conditions are
reinforcing the need for organisations to focus on their core business. In
total, we are in active discussions with regard to potential new property
outsourcing contracts entailing some 2.3 million sq m of accommodation.
Business Analysis
This year we have created a new Section comprising the investment portfolio
valuation, relevant analysis and statistics, and development schedules. In
addition this year we have included a number of statistics relevant to our total
property outsourcing activities. This also includes the major property holdings
schedule.
Investment Portfolio Valuation
The portfolio was valued by Knight Frank at #7.84bn at 31 March 2003. After
adjusting for sales, acquisitions and expenditure the value reduced marginally
by 0.6% as compared to the year to 31 March 2002. A positive contribution from
retail and industrial developments was offset by the negative impact of the
revaluation of our London office holdings.
In the first half of the Company's financial year, the period to 30 September
2002, capital values for London office properties weakened due to adverse rental
and yield movements. This rate of decline, driven by falling rents, was more
marked in the second half of the year showing a total capital value decline of
10.1% for the twelve month period. In terms of sub sectors, the City saw a 16%
decline in capital values compared with the West End, where we have 46% of our
Central London exposure, which saw a 6.2% reduction.
Retail property, which now makes up almost 50% of our portfolio, presented a
very positive picture, producing good growth in capital value for the period
with retail warehousing at 10.0% and other retail (shopping centres, Central
London shops and in town shops) at 7.8%. The industrial sector has shown a
small increase in capital value of 1.9%.
The investment market has seen high levels of investor interest in property, the
attraction being the high yield on property relative to the cost of borrowing
and also relative to the income yields available from other asset classes. A
large part of the investment market is driven by debt backed investors and,
while there is evidence in some cases that lenders are seeking higher returns,
there remains a reasonably buoyant market for investment property lending
amongst UK and international banks along with an increasing depth to the
securitisation market. 'Bond' type investments with the benefit of long
institutional leases have, in some cases, produced increases in value during the
last 12 months as a result of this debt driven market and the relationship with
interest rates, which are at 30 year lows.
After excluding development properties and Kent Thameside at 31 March 2003, the
value of investment properties was #6.82bn. At the same date, the annual rent
roll, net of ground rents and excluding the same properties, was #479.2m,
producing a yield of 7.0%.
Detailed breakdowns by sector, including comprehensive analyses of the Group's
valuation, rental income and yield profiles follow in the investment portfolio
analysis.
Performance Benchmarking
The analysis by IPD includes properties in joint ventures and those held for
development.
Table A - Long term performance relative to IPD
Ungeared total returns - periods to 31 March 2003
Land Securities IPD* IPD* - Upper
Quartile
% % %
_____ _____ _____
10 years 12.8 11.9 12.3
20 years 11.1 10.2 10.9
*IPD December Universe (extrapolated to March 2003) unfrozen
Source: IPD
Table B - One year performance relative to IPD
Ungeared total returns - 12 months to 31 March 2003
Land Securities IPD*
% %
_____ _____
Offices (3.3) 1.6
Retail 15.8 14.6
Industrial 9.4 10.6
Other Commercial 11.0 10.9
PORTFOLIO 6.6 9.3
* IPD December Universe (extrapolated to March 2003) unfrozen
Source: IPD
Table A above compares Land Securities' ungeared total property return over the
last 10 year and 20 year periods to 31 March 2003 to the IPD December Universe
(extrapolated to March 2003), which comprises the same portfolios that
contributed to the IPD All Fund Universe in December 2002 (many of these funds
are now valued quarterly by IPD, while the others were extrapolated forwards).
It can be seen that Land Securities' portfolio has out-performed and produced a
return which places it in the top quartile of contributing portfolios over these
two time periods. The 20 year period has been selected as the longest time
period over which IPD provides comparative performance figures.
Table B compares the performance of the Group's portfolio to that of IPD on a
similar basis at both sector and total portfolio levels over the 12 month period
to 31 March 2003. Our high exposure to London offices has had a negative impact
on overall performance relative to IPD. London office holdings have
underperformed due to the shorter lease expiries on our medium term development
opportunities. Against that our retail stock, in particular shopping centres,
has out-performed IPD. Our view remains that our sector focus and development
activity will result in out-performance over the medium to long term.
Market Report
Central London
The key drivers of the Central London office markets are weaker occupational
demand, an increase in availability and a two tier investment market. This is
particularly apparent in the City where demand has fallen away as financial
institutions downsize and occupiers seek to sub let surplus space. However, in
comparison with former cycles the development pipeline of new accommodation is
limited and rental levels are being driven predominantly by lack of tenant
demand rather than over supply of space. Rental values have been decreasing and
a return to rental growth in the City is not anticipated before 2006/7.
The West End markets, particularly Victoria, are more resilient predominantly as
a result of constrained supply, a more diverse occupier base and continued
demand from the public sector for new accommodation. It is expected that the
return to positive rental growth in real terms will be experienced earlier here
than in the City.
The bond like characteristics of properties let to good covenants on long
unexpired lease terms continue to attract strong investor demand and values for
this type of property are holding up. For properties with shorter lease terms
and other development opportunities, a significant re-pricing has occurred. The
exception to this is the West End where there is still investment appetite for
active management scenarios.
Retail
The main driver behind retail rental growth is consumer spending, which has been
buoyant over the past two years. There are now some signs that this is slowing,
as a result of concerns over the possibility of weaker south east housing market
conditions spreading to other regions in the UK. The Central London retail
markets have also been adversely affected recently by special factors, notably a
reduction in tourism as a result of world instability and transport issues.
Further weakening in the housing markets may continue to affect adversely
consumers' disposable income along with recent increases in National Insurance
contributions.
On the investment side demand has been strong and yields have hardened
significantly. In future the rate of yield shift is not thought to be
sustainable but allocation by investment funds seems to favour retail as an
investment.
Retail Warehousing
This asset class continues to evolve and certain parks are becoming more like
the High Street as they move to open A1 consent and High Street retailers look
to trade out of new formats and locations. The supply side will remain
constrained in the medium term as a result of planning restrictions.
Demand, however, is particularly reliant on housing market conditions and
remains strong while mortgage equity withdrawals run at today's high levels.
However, these positive market conditions are at risk if either the housing
market falls or interest rates increase. Investor appetite for this type of
asset class remains high as evidenced by the strong interest in the Grantchester
and Chartwell Land transactions.
Industrial
Industrial/distribution demand has slowed over the past six months and there has
been little demand from general manufacturing for industrial units. However,
sites with good transport links and good access to labour markets have been
selling for high level values based on aggressive rental and yield forecasts.
Investment demand remains strong for development sites in the south east and for
well-let distribution centres.
Total Property Outsourcing
The current challenging economic conditions are leading organisations to focus
on maximising returns on capital deployed, minimising costs and streamlining
their business operations. This has increased interest in total property
outsourcing with the number of businesses actively discussing this option or due
to bring proposals to the market at an all time high.
Increased levels of interest are also coming from Central and Local Government
as they seek to meet the demands of changing Government funding criteria and to
deliver the most cost effective accommodation solutions.
Investment Portfolio Analysis
Valuation
Market
Sector Surplus/ Like-
by Type Valuation Valuation Deficit for-like Yield on
------------- ------------- ------------- rental present
Total Note Note Total Note Total Note growth income
(1) (3) (2) (1) (3) (1) (3) (4) (2)
#m #m #m % % % % % %
------------- ---------- -------- ------------- ---------- ------------- ---------- ---------- ------------
Offices
West End 1,481.8 1,286.5 1,286.5 18.9 19.2 (6.2) (4.4) (7.1) 7.0
City 945.7 794.3 794.3 12.0 11.8 (16.1) (15.1) (15.9) 9.3
Midtown 542.8 514.4 514.4 6.9 7.7 (12.1) (11.8) (14.4) 8.2
Inner 264.3 164.3 164.3 3.4 2.5 (2.8) (2.6) (2.9) 6.6
London
Rest of UK 77.9 69.5 69.5 1.0 1.0 (4.1) (4.2) (2.7) 8.1
------------- ---------- -------- ------------- ---------- -------------- ---------- ---------- ------------
Sub-total 3,312.5 2,829.0 2,829.0 42.2 42.2 (9.9) (8.9) (11.1) 7.9
------------- ---------- -------- ------------- ---------- -------------- ---------- ---------- ------------
Shopping
centres
& shops
Shopping
centres 1,455.7 1,178.3 1,220.0 18.6 17.5 9.6 8.4 5.2 6.8
Central
London
shops 732.4 654.9 654.9 9.3 9.8 6.0 5.9 3.8 6.5
Other in
town
shops 589.1 577.3 577.3 7.5 8.6 5.8 5.8 1.6 6.6
------------- ---------- -------- ------------ ---------- -------------- ---------- ---------- ------------
Sub-total 2,777.2 2,410.5 2,452.2 35.4 35.9 7.8 7.1 4.0 6.7
------------ ---------- -------- ------------ ---------- -------------- ---------- ---------- -----------
Retail
warehouses
Parks 901.2 835.9 871.7 11.5 12.5 8.8 8.4 5.3 5.5
Other (inc.
food
superstore) 215.6 194.9 215.6 2.7 2.9 15.5 13.7 8.5 6.6
------------- ---------- -------- ------------- ---------- -------------- ---------- ---------- ------------
Sub-total 1,116.8 1,030.8 1,087.3 14.2 15.4 10.0 9.4 6.1 5.7
------------ ---------- -------- ------------- ---------- -------------- ---------- ---------- ------------
Industrial
South East
&
Eastern 350.2 259.1 274.6 4.5 3.8 1.5 0.9 1.0 7.2
Rest of UK 35.7 32.4 35.7 0.5 0.5 5.3 5.8 1.1 8.0
------------ ---------- -------- ------------ ---------- ------------- ---------- ---------- ------------
Sub-total 385.9 291.5 310.3 5.0 4.3 1.9 1.4 1.0 7.3
------------- ---------- -------- ------------ ---------- ------------- ---------- ---------- ------------
Other 251.6 148.0 139.1 3.2 2.2 3.1 2.9 3.0 6.2
------------- ---------- -------- ------------ ---------- ------------- ---------- ---------- ------------
TOTAL 7,844.0 6,709.8 6,817.9 100.0 100.0 (0.6) (0.3) (2.8) 7.0
======= ====== ==== ======= ===== ======== ====== ====== =======
Market Sector Rents Net Net
by Type received rental ERV (6) Gross ERV (7)
(continued) income (5)
-------------- ----------- ------------ ------------ ---------------- ----------- ----------- ---------
Gross Invest Total Invest Total Invest Total Invest
(1) (2) (1) (2) (1) (2) (1) (2)
#m #m #m #m #m #m #m #m
-------------- ---------- ----------- ----------- ---------------- ------------ ---------- ---------
Offices
West End 98.2 92.7 94.1 89.7 141.5 102.2 143.2 103.9
City 80.9 80.9 73.4 73.7 83.8 66.4 84.9 67.5
Midtown 42.5 42.5 42.4 42.4 45.1 42.3 45.9 43.1
Inner London 11.1 11.1 10.8 10.8 19.5 8.1 20.6 9.2
Rest of UK 7.7 6.9 6.6 5.6 6.1 5.2 6.2 5.4
-------------- ---------- ----------- ----------- ---------------- ----------- ----------- ---------
Sub-total 240.4 234.1 227.3 222.2 296.0 224.2 300.8 229.1
-------------- ----------- ------------ ----------- ---------------- ------------ ----------- ---------
Shopping
centres
& shops
Shopping 92.4 90.7 85.0 82.9 114.1 91.3 121.0 98.3
centres
Central London
shops 46.4 42.6 44.6 42.7 51.5 48.5 52.6 49.6
Other in town 41.8 41.6 38.0 37.9 43.8 41.9 46.7 44.7
shops
-------------- ---------- ------------ ------------ ---------------- ----------- ---------- ---------
Sub-total 180.6 174.9 167.6 163.5 209.4 181.7 220.3 192.6
-------------- ---------- ------------ ----------- ---------------- ------------ ---------- ---------
Retail
warehouses
Parks 46.0 46.0 48.8 48.1 59.9 57.4 59.9 57.4
Other (inc.
food
superstore) 14.1 14.1 14.2 14.2 15.6 15.6 15.6 15.6
-------------- ----------- ------------ ------------ ---------------- ----------- ---------- ---------
Sub-total 60.1 60.1 63.0 62.3 75.5 73.0 75.5 73.0
-------------- ----------- ------------ ----------- ---------------- ------------ ----------- ---------
Industrial
South East &
Eastern 21.9 20.2 21.5 19.7 31.2 23.1 31.2 23.1
Rest of UK 4.1 4.1 2.8 2.9 3.0 3.0 3.0 3.0
-------------- ----------- ------------ ------------ ---------------- ------------ ----------- ---------
Sub-total 26.0 24.3 24.3 22.6 34.2 26.1 34.2 26.1
-------------- --------- ------------ ------------ ---------------- ------------ ----------- ---------
Other 12.6 12.5 9.2 8.6 13.3 9.8 13.4 9.8
-------------- ---------- ------------ ------------ ---------------- ------------ ----------- ---------
TOTAL 519.7 505.9 491.4 479.2 628.4 514.8 644.2 530.6
======== ====== ====== ====== ========= ====== ===== =======
Market Sector No of Properties Lease length (10)
by Type (continued) -------------- ---------------- ------------ ---------- ----------
Invest Vacancy
Voids rates (9) Total (1) Invest (2) Median Mean Mean
(8) % (i) (ii) (iii)
#m years years years
---------- ------------ --------------- ------------- ------------ ---------- ----------
Offices
West End 1.8 1.7 30 28 7.5 10.8 15.1
City 2.1 3.1 24 23 3.5 9.7 10.9
Midtown 0.1 0.2 12 11 7.3 8.8 9.7
Inner London 0.1 1.1 5 4 3.5 4.0 5.3
Rest of UK 0.3 5.6 3 3 2.5 4.5 6.0
---------- ------------ --------------- ------------- ------------ ---------- ----------
Sub-total 4.4 1.9 74 69 6.3 9.5 11.9
---------- ------------ --------------- ------------- ------------ ---------- ----------
Shopping centres &
shops
Shopping centres 0.6 0.6 19 16 10.0 13.8 14.5
Central London shops 0.7 1.4 10 9 8.3 9.1 9.9
Other in town shops 1.0 2.2 55 53 8.5 10.2 10.9
---------- ------------ --------------- ------------- ------------ ---------- ----------
Sub-total 2.3 1.2 84 78 9.0 11.7 12.4
---------- ------------ --------------- ------------- ------------ ---------- ----------
Retail warehouses
Parks 0.9 1.6 27 26 18.3 15.9 16.1
Other (inc. food
superstore) - - 19 17 17.5 14.8 15.2
---------- ------------ --------------- ------------- ------------ ---------- ----------
Sub-total 0.9 1.2 46 43 17.8 15.7 15.9
---------- ------------ --------------- ------------- ------------ ---------- ----------
Industrial
South East & Eastern 0.9 3.9 32 25 7.8 7.8 9.3
Rest of UK - - 5 5 9.5 11.9 16.6
---------- ------------ --------------- ------------- ------------ ---------- ----------
Sub-total 0.9 3.5 37 30 7.8 8.3 10.2
---------- ------------ --------------- ------------- ------------ ---------- ----------
Other - - 13 11 12.3 25.6 25.9
---------- ------------ --------------- ------------- ------------ ---------- ----------
TOTAL 8.5 1.6 254 231 8.0 11.2 12.7
====== ======= ======== ======= ======= ===== =====
Turnover rents total #5.1m and represent 1% of the total net rental income
figure given above.
Notes
The valuation figures include a one-third apportionment of the valuation
attributed to properties owned by the Birmingham Alliance Limited Partnerships
and a one-half apportionment in relation to property owned by the Gunwharf Quays
Limited Partnership and the Ebbsfleet Limited partnerships.
The valuation figures exclude properties owned by Land Securities Trillium and
Telereal.
1. The total figures relate to the investment portfolio business
comprising all investment and development properties.
2. Represents all properties excluding those which remain in the
development programme, the Kent Thameside development properties and forward
funded acquisitions. This measure represents the portfolio which is held for
investment purposes or properties earmarked for development but not yet in the
development programme and provides a basis for the yield calculations.
3. Includes all properties included in (2) above except for those
developments which have been completed, let and removed from the development
programme during the year, but also includes forward funded acquisitions. This
provides a measure of the performance of the investment managed business.
4. The like for like rental value growth figures exclude properties
in the development programme and units of accommodation materially altered or
refurbished during the period and is the change in the 12 months to 31 March
2003.
5. Net rental income is annual rents passing at 31 March 2003 after
deduction of ground rents.
6. Net ERV includes vacant space and estimated future ERVs for
properties in the development programme and is calculated after deducting
expected ground rents.
7. Gross ERV is calculated in the same way as Net ERV before the
deduction of ground rents.
8. Represents investment property voids (excluding investment
properties under refurbishment and predevelopment voids) which are vacant and
are available to let at 31 March 2003.
9. Calculated by Gross ERV for the investment portfolio.
10. The definition for the figures in each column is:
(i) Median is the number of years until half of income is
subject to lease expiry / break clause
(ii) Mean is rent weighted average number on leases subject to
lease expiry / break clauses
(iii) Mean is rent weighted average number on leases subject to
lease expiry / ignoring break clauses
The calculation excludes authorised developments and developments in progress
Present income yield on valuation at 31 March 2003
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
9.9% 8.2% 8.1% 8.3% 7.8% 6.8% 6.6% 6.5% 6.7% 6.9% 7.0%
2002 is restated to account for the revised definition of the development
properties excluded from the calculation.
% Portfolio by Value and Number of Properties at 31 March 2003
#m Value % No of
Properties
0 - 9.99 5.50% 101
10 - 24.99 11.44% 56
25 - 49.99 22.52% 51
Over 50 60.54% 46
-----------
254
======
Average Rents
excludes properties in the development programme and voids
Average Average
Rent ERV
#/ sq m #/sq m
Offices
Central and inner London 347 387
Rest of UK 86 81
Retail
Shopping centres n/a n/a
Shops n/a n/a
Retail warehouses (including supermarkets) 139 150
Industrial premises and warehouses
London, south-east and eastern 63 66
Rest of UK 17 18
Hotels, leisure, residential and other n/a n/a
Note: Average rents and ERVs have not been provided where it is considered that
the figures would be potentially misleading (i.e., where there is a combination
of analysis of rents on an overall and Zone A basis in the retail sector and
where there is a combination of uses).
This is not a like for like analysis with the previous year
Portfolio value by location
% figures calculated by reference to the portfolio value of #7,844m
Industrial Hotel,
Shopping premises leisure
centres Retail and residential,
Offices and shops W'houses w'houses other Total
% % % % % %
------------ ------------ ------------ ------------ ------------ ---------
Central and Inner
London 41.2 9.3 - 0.1 1.2 51.8
Rest of south east
and eastern 0.5 3.8 4.0 4.4 1.1 13.8
Midlands 0.1 4.8 2.3 0.2 - 7.4
Wales and south west 0.2 5.0 1.3 0.1 - 6.6
North, north west,
Yorkshire
and Humberside 0.1 7.0 4.9 0.2 0.8 13.0
Scotland and
Northern Ireland 0.1 5.5 1.7 - 0.1 7.4
------------ ------------ ------------ ------------ ------------ --------
Total 42.2 35.4 14.2 5.0 3.2 100.0
======= ======= ======= ======= ======= ====
Portfolio Tenant Diversification
As the Company's investment portfolio covers four principal sectors of the UK
property market, it benefits from inherent diversification in terms of both
tenant credit and business sector risk.
The investment portfolio comprises over 4,000 tenancies and over 2,000
occupiers. The ten largest occupiers account for 23.8% of current rents and
are: Central Government (9.6%), Allen & Overy (2.8%), Dresdner Bank (2.2%),
Dixons Group (1.8%), Enterprise Oil (1.7%), J Sainsbury (1.5%), The Metropolitan
Police (1.2%), Homebase Ltd (1.0%), MFI Properties Ltd (1.0%) and the Institute
of London Underwriters (1.0%).
Investment property information
at 31 March 2003
31-Mar 31-Mar
2002 2003
% of rent roll % of rent roll
Reversionary potential
Ignoring additional income from the letting of voids
Gross reversions 11.5 10.5
Over-rented -1.9 -5.4
Net reversionary potential 9.6 5.1
The reversion is calculated with reference to the gross rent roll excluding
properties in the development programme and excluding current voids.
Rental income analysis (over a two year period)
2001/02 2002/03 Increase
(restated) #m
------------- ------------- -------------
Properties owned throughout period 459.4 484.2 24.8
Sales (2001/02 and 2002/03) 55.1 15.3
Acquisitions (2001/02 and 2002/03) 11.4 20.2
525.9 519.7
Increase/ (decrease)
Reviews and renewals 20.8
First lettings 10.2
Net relettings of voids (3.1)
Voids for redevelopment (7.5)
Other* 4.4
24.8
* Other includes prior year adjustments
Analysis of voids
Total portfolio gross ERV #530.6m Voids - by
Gross
ERV
#m %
Investment Properties:
- Available to let 8.5 1.6%
- Under refurbishment 2.8 0.5%
---------- ----------
Subtotal 11.3 2.1%
- Pre development properties 0.9 0.2%
---------- ----------
12.2 2.3%
---------- ----------
Development Schedule
Central London
Planning - PR = planning received; AS = application submitted; MG = minded to
grant; PI = planning inquiry; OPR = outline planning received
Estimated/
Actual
Size Status Status completion Cost
Property Description Sq m Planning Letting date #m
Developments Completed
Portman House, W1 Offices 9,249 79% Oct 2001 44
Retail 2,521
7 Soho Square, W1 Offices 5,571 Mar 2003 9
190 High Holborn, WC1 Offices 7,793 Sep 2002 41
Developments Approved and in Progress
30 Gresham Street, EC2 Offices 35,876
Retail 1,304 Dec 2003 208
Empress State Building, SW6 Offices 40,410
Retail/Leisure 1,660 Jun 2003 102
Cardinal Place, SW1 Offices 50,750
Retail 9,250 Jun 2005 251
Proposed Developments
New Fetter Lane, EC4 Offices 58,740 PR
Retail/Leisure 8,400 2007
Bankside 1,2,3, SE1 Offices 73,990 MG
Retail/Leisure 5,385 2006
1,569
Retail
Estimated/
Actual
Size Status Status completion Cost
Property Description Sq m Planning Letting date #m
Developments Completed
Sidwell Street Retail 2,420 Mar 2003 3
Developments Approved and in Progress
New Bull Ring, Retail 111,484 71% Sep 2003 141
Birmingham
100%
The Birmingham Alliance
- a limited partnership
with Hammerson plc and
Henderson Global Investors
Whitefriars, Canterbury Retail 37,685 25% May 2005 103
+ Residential
Caxtongate Phase III, Retail 2,238 100% Nov 2004 5
New Street, Birmingham
Cheeke Street Retail 5,359 Sep 2005 11
Retail
Estimated/
Actual
Size Status Status completion Cost
Property Description Sq m Planning Letting date #m
Proposed Developments
Broadmead, Bristol 100% Retail 94.229 MG 2007
The Bristol Alliance - a Leisure 6,491
limited partnership with Offices 24,973
Hammerson plc, + Residential
Henderson Global Investors
& Morley Fund Management
Princesshay, Exeter Retail 37,368 MG 2007
+ Residential
Coppergate Centre, York, Retail 24,247 PI 2008
Phase II Leisure 1,450
Offices 1,282
+ Residential
St Davids, Cardiff (100%) Retail 70,000 AS 2008
St David's Partnership - a Leisure
Partnership with + Residential 39,750
Capital Shopping Centres
Retail Warehouse
Estimated/
Actual
Size Status Status completion Cost
Property Description Sq m Planning Letting date #m
Developments Completed
Kingsway Retail Park, Retail 9,800 78% Jan 2003 29
Dundee, Phase I Warehousing
Developments Approved and in Progress
Bexhill Retail Park Retail 3,112 Jul 2004 11
Warehousing
Proposed Developments
Almondvale Retail Park, Retail 9,383 PR 2004
Livingston, Phase II Warehousing
Kingsway Retail Park, Retail 8,640 PR 2004
Dundee, Phase II warehousing
Industrial
Estimated/
Actual
Size Status Status completion Cost
Property Description Sq m Planning Letting date #m
Developments Completed
Juniper Phase I, Basildon Industrial 21,823 84% Nov 2001 18
Refurbishment Offices 3,660
Horizon Point, Hemel
Hempstead Phase I Industrial 10,384 Mar 2002 10
Zenith, Basildon Industrial 15,511 30% Jun 2002 12
Cobbett Park, Guildford Industrial 11,440 41% Aug 2002 12
Developments Approved and in Progress
Commerce Way, Croydon Industrial 12,777 Oct 2003 12
Juniper Phase II, Basildon Industrial 11,148 April 2003 8
Oxonian Park, Kidlington Industrial 11,654 Sep 2003 9
Concorde Way, Industrial 11,613 May 2004 9
Segensworth, Fareham
Other
Developments Completed
The Gate, Newcastle upon Leisure 18,556 67% Nov 2002 64
Tyne
Cost (#m) refers to estimated capital expenditure including the cost of third
party land acquisitions and excluding finance costs.
Letting % is measured by ERV and shows letting status at 31 March 2003.
Development pipeline - financial statistics
Valuation Cumulative
surplus/ valuation Net
Book Capital Estimated Estimated (deficit) surplus / Income/
value expenditure total capital total 12 mth to (deficit) to ERV
at start to date Expenditure cost 31.03.03 date
(1) (1) (2) (3)
Project #m #m #m #m #m #m #m
-------------- ----------------- ----------------- ------------- ------------- ----------------- -------
Completed, let
and
transferred out
of
development
programme or
sold
during the year
ended 31.3.03 16 59 61 79 16 24 6.9
Active
development
programme
(schemes
in progress,
completed but
not
let, committed
and
authorised) 262 659 1,097 1,454 (46) (78) 116.7
Proposed 180 44 950 1,179 n/a n/a 100.1
schemes
Notes
(1) Excludes capitalised interest.
(2) Includes land costs / book value of land and capitalised
interest, but excludes any allowances for rent free periods, stated net of other
receipts (eg sales of residential units).
(3) Net headline annual rental payable on let units plus net ERV
at 31 March 2003 on unlet units.
Total Property Outsourcing
Unexpired contract term - years
Prime 15
BBC 18
Telereal 28
Property under management
Freehold Leasehold TOTAL
000 sq m 000sq m 000 sq m
------------- --------------- -----------
Offices DWP 524 1,147 1,671
BBC 28 - 28
BT 861 578 1,439
Telephone Exchanges BT 4,009 33 4,042
BBC Under development 54 - 54
--------- --------- ---------
TOTAL 5,476 1,758 7,234
===== =====
Under management but estate DWP 77
not transferred BBC 290
BT -
--------
TOTAL 7,601
=====
Regional breakdown by contract
DWP BBC Telereal Total
000 sq m 000 sq m 000 sq m 000 sq m
--------- --------- --------- ---------
Northern Ireland - - 126 126
London, south east and
west England 549 346 2,785 3,680
North England 670 - 1,034 1,704
Scotland 233 26 478 737
Midlands and Wales 296 - 1,058 1,354
-------- ------- -------- --------
TOTAL 1,748 372 5,481 7,601
===== ==== ===== =====
Capital spend by contract
DWP BBC Telereal TOTAL
#m #m #m #m
----------- ----------- ----------- -----------
Capital spend 125.7 42.0 105.0 272.7
====== ====== ====== ======
Number of people by occupation
Total
Asset management 99
Call centre 155
Capital projects 295
Quality assurance 46
Facilities management 519
HR/Finance/ IS/BD 229
--------
TOTAL 1,343
=====
Note: These figures include all Telereal staff
Property transactions concluded by contract
DWP Telereal
No of No of Total no of
transactions transactions transactions
Sales 1 49 50
New Lettings 28 17 45
Rent Reviews 76 39 115
Lease Renewals 26 - 26
------ ------ ------
TOTAL 131 105 236
=== === ====
Unitary charge income received by contract
DWP BBC Telereal TOTAL
#m #m #m #m
Unitary Charge Income 299.0 43.4 308.8 651.2
Note: The Telereal unitary charge is the total unitary charge payable by BT
Service partner agreements
Proportion
Sq m under of service providers'
Service Partner Service Element mgmt turnover
Compass Catering 1,999,441