TIDMLAND
RNS Number : 3700G
Land Securities Group PLC
15 November 2022
15 November 2022
LAND SECURITIES GROUP PLC ("Landsec")
Results for the half year ended 30 September 2022
Strong strategic and operational momentum leave Landsec well
placed in changing market
Mark Allan, Chief Executive of Landsec, commented:
"The strategy we launched two years ago was underpinned by two
key principles of sustainable value creation: focusing our
resources on where we have genuine competitive advantage, and
preserving our strong balance sheet. At the time, interest rates
and property yields were very low, so asset values in many sectors
looked expensive. Acting on this, we sold nearly GBP2bn of mature,
low yielding assets while focusing new investment exclusively on
opportunities where we saw clear value, or situations which offered
long term optionality.
Our competitive advantages remain our high-quality portfolio,
our strong customer relationships, and the ability to unlock
complex opportunities through our unique expertise, all of which is
evidenced by our strong operational performance in the half year.
Our business remains underpinned by a strong balance sheet, with a
low 31% LTV, long 9.8-year average debt maturity and no need to
refinance any debt until 2026. The successful execution of our
strategy therefore means we are not only well placed for more
challenging market conditions, but also have optionality to take
advantage of new opportunities that will no doubt emerge as
property markets continue to adjust to a new reality."
Financial highlights
Prior Prior
30 Sep period 30 Sep period
2022 (1) 2022 (1)
(Loss)/profit before
EPRA earnings (GBPm)(2)(3) 197 180 tax (GBPm) (192) 275
------ ------- -------------------- ------ -------
EPRA EPS (pence)(2)(3) 26.6 24.3 Basic EPS (pence) (25.7) 37.2
------ ------- -------------------- ------ -------
EPRA NTA per share Net assets per share
(pence)(2) (3) 1,010 1,063 (pence) 1,023 1,070
------ ------- -------------------- ------ -------
Total accounting return Dividend per share
(%) (2.9) 3.7 (pence) 17.6 15.5
------ ------- -------------------- ------ -------
Group LTV ratio (%)(2)(3) 31.1 34.4 Net debt (GBPm) 3,475 4,254
------ ------- -------------------- ------ -------
3/4 EPRA EPS(2)(3) up 9.5% to 26.6p, supported by strong leasing
and 8.3% LFL rental income growth
3/4 Total accounting return of -2.9%, reflecting softening of
London yields due to rising interest rates
3/4 EPRA NTA per share(2) (3) down 5.0% to 1,010p, driven by a -2.9% movement in portfolio value
3/4 Group LTV(2)(3) down to 31.1% (Mar-22: 34.4%) following
GBP1bn of mature London office disposals
3/4 Loss before tax of GBP192m (2021: GBP275m profit), with
growth in earnings offset by market yield shift
3/4 Total dividend up 13.5% to 17.6p per share, supported by increase in earnings
3/4 Weighted average debt maturity up to 9.8 years (Mar-22: 9.1
years), providing solid financial base
Operational highlights: continued operational momentum,
maintaining strong capital base
Positive leasing performance in Central London offices and major
retail destinations, despite general macro challenges, highlight
high quality of Landsec platform and portfolio, with strong
progress on executing strategy since late 2020 creating balance
sheet resilience and optionality for future growth.
Central London: strong leasing momentum and maintaining
optionality to drive future growth
3/4 Sold GBP1.0bn of mature offices, including 21 Moorfields
development which crystallised 25% profit on cost, bringing total
London office disposals over last two years to GBP1.8bn at an
average yield of 4.35%
3/4 Delivered strong leasing, with GBP41m of lettings completed
or in solicitor's hand, 3% ahead of valuers' assumptions, and
current occupancy stable vs March at 95.1%, as demand for
high-quality space remains resilient, notwithstanding a 4.4%
softening in values due to general market yield shift
3/4 Only GBP110m capex left to spend on committed pipeline which
is set to generate GBP38m ERV once fully let, 38% of which is
pre-let or under offer, with lettings over past six months 11%
ahead of ERV
3/4 Maintained optionality on near-term pipeline, which could
deliver 1.1m sq ft of Grade A space at yield on cost of 7%+ into a
market which is expected to see a sharp reduction in new supply
Major retail destinations: continued strong leasing, as
high-quality destinations return to growth
3/4 Differentiated focus on brand and guest relationships
continues to deliver results, capitalising on 'flight to prime' and
upsizing of key brands, with 6.3% YoY sales growth and
like-for-like sales 3.6% above 2019 levels, as consumer behaviour
is reverting back to pre-pandemic trend
3/4 Built further on growing leasing momentum, with GBP27m of
lettings signed or in solicitors' hands on average 12% ahead of
ERV, up from 2% for the year to March 2022, driving 120bps increase
in occupancy since March to 94.4% and underpinning resilience in
valuations, with values up 0.4%
Mixed-use urban neighbourhoods: progressing preparations,
creating future optionality
3/4 Progressed preparation of 9.0m sq ft future mixed-use
pipeline, with signing of drawdown agreement for first phase of
office development at Mayfield and detailed planning for first
phase at MediaCity
3/4 No existing capex commitments but potential to start first
phases at Mayfield, MediaCity and, subject to planning, Finchley
Road in 2023, providing optionality for future growth at limited
holding cost
3/4 U+I and Landsec teams integrated and sold or exchanged
contracts to sell almost half of c. GBP180m of non-core U+I assets
since acquisition in December 2021, on average 22% above book
value
Underpinning our strategy: capital discipline and decisive
action on sustainability
3/4 Further strengthened capital base, with LTV down from 34.4%
to 31.1%; average debt maturity up from 9.1 to 9.8 years; 84% of
debt hedged, with an overall average cost of 2.7%; strong credit
profile; and no need to refinance any debt until 2026 given
existing GBP1.8bn undrawn facilities
3/4 Secured GBP2.0bn of disposals since late 2020, ahead of plan
to sell c. GBP4bn of assets over six years, with potential further
disposals to increase optionality for future opportunities, as
value of subscale portfolio remains relatively resilient at
-1.2%
3/4 Continued to progress net zero transition investment plan,
with 43% of office portfolio already rated EPC 'B' or higher vs 15%
for wider London office market, and announced target to reduce
embodied carbon by 50% vs a typical development by 2030
3/4 Announced Realising Potential Fund to invest GBP20m over
next 10 years to enhance social mobility in our industry, to
empower 30,000 people towards world of work and deliver GBP200m of
social value
1. Prior period measures are for the six months ended 30
September 2021 other than EPRA NTA per share, net assets per share,
Group LTV ratio and net debt, which are as at 31 March 2022.
2. An alternative performance measure. The Group uses a number
of financial measures to assess and explain its performance, some
of which are considered to be alternative performance measures as
they are not defined under IFRS. For further details, see the
Financial review and table 14 in the Business analysis section.
3. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Financial review.
A live video webcast of the presentatio n 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
expe cted, we recommend that you dial into the call 10 minutes
before the start of the presentation.
Please note that there will be an interactive Q&A facility
on both the webcast and conference call line.
Webcast link:
https://webcast.landsec.com/2022-half-year-results
Cal l title: Landsec half year results 2022
Forward-looking statements
These half year results, the latest Annual Report and Landsec's
website may contain certain 'forward-looking statements' with
respect to Land Securities Group PLC (the Company) and the Group's
financial condition, results of its operations and business, and
certain plans, strategies, objectives, goals and expectations with
respect to these items and the economies and markets in which the
Group operates.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'should', 'expects',
'believes', 'intends', 'plans', 'targets', 'goal' or 'estimates'
or, in each case, their negative or other variations or comparable
terminology. Forward-looking statements are not guarantees of
future performance. By their very nature forward-looking statements
are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on
circumstances that will occur in the future. Many of these
assumptions, risks and uncertainties relate to factors that are
beyond the Group's ability to control or estimate precisely. There
are a number of such factors that could cause actual results and
developments to differ materially from those expressed or implied
by these forward-looking statements. These factors include, but are
not limited to, changes in the political conditions, economies and
markets in which the Group operates; changes in the legal,
regulatory and competition frameworks in which the Group operates;
changes in the markets from which the Group raises finance; the
impact of legal or other proceedings against or which affect the
Group; changes in accounting practices and interpretation of
accounting standards under IFRS, and changes in interest and
exchange rates.
Any forward-looking statements made in these half year results,
the latest Annual Report or Landsec's website, or made
subsequently, which are attributable to the Company or any other
member of the Group, or persons acting on their behalf, are
expressly qualified in their entirety by the factors referred to
above. Each forward-looking statement speaks only as of the date it
is made. Except as required by its legal or statutory obligations,
the Company does not intend to update any forward-looking
statements.
Nothing contained in these half year results, the latest Annual
Report or Landsec's website should be construed as a profit
forecast or an invitation to deal in the securities of the
Company.
Chief Executive's statement
Successful execution on strategy. Well placed in changing
markets.
When we launched our strategy two years ago, it was underpinned
by two key principles of sustainable value creation: focusing our
resources on where we have genuine competitive advantage, and
preserving a strong balance sheet. At that time, interest rates and
property yields in many sectors were at or close to all-time lows
hence asset values in these sectors looked expensive. As a result,
we focused on selling mature London office assets where our ability
to add further value was limited and since then have sold GBP1.8bn
of such assets, at an average yield of 4.35% and, on average, just
1% below book value.
From a new investment perspective, we focused only on
opportunities where we saw clear value, such as our acquisition of
a further 18.75% stake in Bluewater at an 8.15% initial yield and a
75% stake in MediaCity at a 5.8% yield, or situations which offered
long term optionality, such as our acquisition of U+I, which added
to our pipeline of mixed-use, multi-phased urban regeneration
projects.
External market conditions have changed considerably over the
last two years and especially since the start of this year. More so
than ever, our areas of competitive advantage remain: i) our high
quality portfolio; ii) the strength of our customer relationships;
and iii) our ability to unlock complex opportunities through
development and asset management expertise. These strengths are
clearly evident in our strong operational performance in the first
half of this year and we expect these to remain so going
forward.
This remains underpinned by our balance sheet strength. Our
leverage is low, with a 31% LTV and net debt/EBITDA of 8.7x; our
average debt maturity is long at 9.8 years and we have no need to
refinance any debt until 2026, taking into account our existing
credit facilities; and remaining capex commitments are only
GBP127m, or 1% of our portfolio value. As a result of the
successful execution of our strategy, Landsec is not only well
placed to weather challenging market conditions but also to take
advantage of opportunities that will undoubtedly emerge as markets
adjust to a higher rate, higher yield reality.
Strong operational performance. Resilient financial
position.
Our operational performance over the six months to September
2022 has been positive, building further on the growing momentum
delivered by our proactive focus on growing customer relationships.
This is underpinned by the high quality of our portfolio, as people
choose to spend time together in inspiring places, be it to work,
shop or spend their leisure time. This is increasingly driving
decision making for our customers, as they focus on the best space
to attract their staff and customers.
Our operational results reflect this, with positive leasing in
London and growth in occupancy and sales in retail. EPRA EPS for
the half year was up 9.5% to 26.6 pence, supported by 8.3% growth
in like-for-like gross rental income and 6.2% growth in
like-for-like net rental income, whilst an increase in surrender
premiums received driven by a lease regear in the prior year added
1.3 pence to EPS. The dividend for the half year is 17.6 pence, up
13.5% vs last year, reflecting a dividend cover over the period of
1.5 times.
Whilst our operational performance and growth in earnings were
strong, our total accounting return for the period was -2.9%. The
material increase in bond yields since March has started to put
upward pressure on property yields, principally for those assets
where yields were lowest. In the sectors we are in, this
principally affected London offices, vindicating our decision to
sell GBP1.8bn of mature assets over the past two years. Our solid
leasing activity drove 1.8% ERV growth yet our overall portfolio
value was down 2.9%, with a small 0.4% increase in retail
valuations offset by a 4.4% reduction in London. Reflecting all
this, EPRA NTA per share was down 5.0% to 1,010 pence.
Table 1: Highlights
Sep 2022 Sep 2021 Change %
-------- -------- --------
EPRA earnings (GBPm)(1) 197 180 9.4
(Loss)/profit before tax (GBPm) (192) 275 (170)
Total accounting return (%) (2.9) 3.7 (6.6)
Basic (loss)/earnings per share (pence) (25.7) 37.2 (169)
EPRA earnings per share (pence)(1) 26.6 24.3 9.5
Dividend per share (pence) 17.6 15.5 13.5
Sep 2022 Mar 2022 Change %
-------- -------- --------
Combined portfolio (GBPm)(1) 10,929 12,017 (9.1)
IFRS net assets (GBPm) 7,639 7,991 (4.4)
EPRA Net Tangible Assets per share
(pence) (1) 1,010 1,063 (5.0)
Adjusted net debt (GBPm)(1) 3,441 4,179 (17.7)
Group LTV ratio (%)(1) 31.1 34.4 (3.3)
Proportion of portfolio rated EPC
'B' or higher (%) 37 36
Embodied carbon reduction development
pipeline (%) 23.8 20.7
Energy intensity reduction vs 2020
(%) 16.9 17.5
---------------------------------------- -------- -------- --------
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
in the Financial Review.
Our strategy in a rapidly changing environment
Global economic and financial market conditions have changed
significantly since our full year results in May. Interest rates
across the board have surged in response to rising inflation, with
the central bank support that artificially depressed these for most
of the past decade now in reverse. It is difficult to assess where
interest rates will settle in the medium term, but it seems clear
that in a long term context, the ultra-low rate environment of the
past decade was the aberration - not the adjustment we have seen
this year.
This will likely have a lasting impact on asset values, be it
equities, bonds or real estate. In public markets price adjustment
is, as usual, well ahead of private markets, but in real estate it
is well underway too now and, in our view, will likely continue.
The psychology of investing in any financial asset means markets
always overshoot, to the upside or downside, rather than smoothly
revert to a new fair value.
Importantly, the strategy we set out in late 2020 was never
based on a persistent low rate environment. This is why we said we
would i) focus our investment on sectors where we have a genuine
competitive advantage that helps us create long-term value, rather
than sectors which happened to be in vogue at the time and where
record-low yields are now rapidly correcting; ii) over time sell c.
GBP2.5bn of mature London assets where yields were low, of which we
have sold GBP1.8bn now; and iii) maintain capital discipline.
Our strategic focus on sustainable value creation in three key
areas, Central London offices, major retail destinations and
mixed-use urban neighbourhoods, remains the right one. Demand in
each area remains resilient, underpinned by the strength of our
customer relationships and high quality portfolio.
We are however mindful that financial market conditions have
changed. As such, capital recycling will likely slow, although we
remain pragmatic and are not holding on to yesterday's hope value.
The fact that 75% of our residual c. GBP2bn capital recycling
programme is focused on a range of sectors which for us were
subscale, rather than assets where forward returns were modest puts
us in a good place.
In terms of future investment, we are focused on maximising
optionality in our future pipeline. For London, we plan to let
early works packages on two office schemes with a total cost of c.
GBP55m, which will allow us to maintain programme for delivery in
what we expect to be a very supply-constrained market in 2025,
whilst buying an extra 6-9 months of time before we have to commit
to a full development. In mixed-use, we have no commitments and the
holding cost of our five main development sites is modest given the
6% income yield on the current use of these, but we retain
optionality to start the first phases of Mayfield and MediaCity in
early/mid 2023. We are open to new acquisitions, but financial
discipline remains our priority. Pricing might well be better in
12-18 months than it is today, so returns will need to reflect
this.
Our strategy remains grounded in our purpose; Sustainable
places. Connecting communities. Realising potential. In executing
this, we continue to be led by three things: delivering
sustainably, delivering for our customers, and being disciplined
with our capital.
To support this execution and drive pace, we initiated a review
of our operating model six months ago with the aim of creating a
culture which is more agile and efficient, with less internal
complexity and more external focus. This will allow us to make the
most of the substantial talent within Landsec, whose strong
capability and dedication is key to our success. We have already
made a number of changes and once completed by the year-end, this
will improve our efficiency. With a strong capital base, high
quality existing portfolio, and significant optionality in our
pipeline, this will leave us well placed to drive longer term
growth, notwithstanding the near-term economic challenges.
Central London - growing customer focus on quality supports
further ERV growth
Central London comprises 61% of our overall portfolio by value.
63% of this is located in the West End, with a further 6% in
Southwark and 31% in the City, down from 39% at the start of the
year. In a market where customers increasingly focus on
flexibility, the best quality space which offers the right
amenities to attract talent, and buildings which have the right
sustainability credentials, we are well positioned; 48% of our
assets have been developed over the past ten years vs c. 20% for
the overall market, and 43% of our offices have an EPC rating of
'B' or higher vs 15% for the market.
Reflecting this, following record leasing last year, leasing
activity remained strong, with GBP10m of lettings on average 1%
above valuers' assumptions, and a further GBP31m in solicitors'
hands, 3% ahead of valuers' assumptions. Current occupancy is
stable vs March, at 95.1%, which means our vacancy is roughly half
that of the London market. We continue to see a gradual increase in
office utilisation, as London continues to get busier, and strong
interest in our expanding Myo flexible offer.
Sustained demand for high-quality space drove 2.8% ERV growth,
supporting our expectation for ERVs to grow by a low to mid single
digit percentage this year. Unsurprisingly, rising bond yields put
upward pressure on property yields, with equivalent yields up 21bps
to 4.7%, leading to a 4.4% value reduction. We expect yields to
soften further, yet how much is reliant on where rates settle. We
expect the impact of this on values will continue to be partly
offset by ERV growth, as Grade A space remains in short supply.
We significantly de-risked our current development pipeline via
the GBP809m sale of 21 Moorfields, which despite a 9% discount to
March book value, crystallised a 25% profit on cost. Our three
other committed schemes are expected to produce an ERV of GBP38m
once fully let, with just GBP110m of capex left to spend. Demand
remains encouraging, with 38% of this space let or under offer and
the GBP9m of lettings which we agreed terms on since our FY results
in May were on average 11% ahead of ERV. We intend to start early
works on Timber Square and Portland House shortly, with a modest c.
GBP55m initial commitment, keeping flexibility on the residual c.
GBP400m capex until mid-next year while markets remain
unsettled.
Major retail destinations - continued leasing momentum drives
growth in prime locations
Major retail destinations comprise 18% of our portfolio, split
c. 60/40% between prime shopping centres and outlets. Building on
the positive momentum we created during the previous financial
year, operational performance over the first half of the year has
been strong. Highlighting the attraction of our high-quality
destinations, sales were up 6.3% vs last year and LFL sales are now
3.6% above pre-Covid levels.
For many leading brands, online and physical channels are now
firmly inter-connected, so we continue to see existing brands
upsize, new brands opening stores in our assets as they move from
nearby locations to benefit from higher footfall, and digital
native brands opening stores to grow customer connectivity and
experience. Consumer behaviour has gradually reverted back to
pre-Covid trends, with online sales down and in-store sales growing
over the past six months. Indeed, both Shopify and Next recently
reported that the material acceleration in online sales during the
pandemic turned out to be only temporary.
Given the inflationary pressure on margins for many brands, both
online and physical, we expect that the rationalisation of the
tail-end of brands' store portfolios will further accelerate. This
adds to the challenges for secondary retail locations, where there
remains a significant excess of space, yet brands' focus on fewer,
but bigger and better stores, mean prime destinations continue to
get stronger.
Supported by the investment in our team over the past year and
our differentiated focus on growing brand relationships and guest
experience, the above trends are clearly visible across our
portfolio. We delivered a 120bps increase in occupancy since March
to 94.4% and we signed GBP12m of new lettings, on average 20% above
ERV, with a further GBP15m in solicitor's hands 7% above ERV. This
means that over the past 18 months we have now let or re-let 23% of
our total retail rent, on average 8% above ERV. We recognise that
the economic pressures facing consumers could lead to some let-up
in this strong leasing momentum over the coming months, although we
are seeing little sign of this yet. Our positive operational
performance meant values were up 0.4% over the six months, with the
high c. 7-8% yield on prime shopping centres in particular still
providing an attractive buffer vs higher interest rates.
Mixed-use urban neighbourhoods - progressing significant
pipeline of future opportunities
Our portfolio of mixed-use urban neighbourhood assets makes up
8% of our overall portfolio, split roughly evenly between our
standing investments in MediaCity, Greater Manchester and five
future regeneration projects in London, Manchester and Glasgow.
Given their existing use, the majority of these projects are income
producing with a blended yield of 6%, minimising their holding cost
whilst we prepare for future development. Comprising a mix of
residential, office and leisure space, the overall GDV of these
schemes is in excess of GBP4bn with a potential staged delivery of
individual phases over the next 10-15 years.
There remains a structural need to remodel many parts of today's
built environment to make sure they are fit for changing consumer
expectations with respect to how we live, work and spend our
leisure time and to increasing sustainability demands. Situated in
attractive locations with strong transport links in some of the
fastest growing urban areas in the UK, our pipeline remains well
placed to cater for these demands. At the same time, Landsec's
sustainability and development expertise, combined with the now
fully integrated U+I team's placemaking skills, means we are well
positioned to deliver this.
We have continued to make good progress in terms of preparing
our pipeline, through planning and other pre-development
activities. This means we now have optionality to start the first
phases at Mayfield and MediaCity in early/mid 2023. However, the
changes in capital market conditions have a clear impact on our
underwriting assumptions, so any decision to start these will have
to reflect an appropriate level of return, with target IRRs in the
low to mid-teens. We continue to make good progress on planning at
our residential-led scheme at Finchley Road, with a decision
expected in the second half of the financial year.
Sustainability and energy efficiency
We continue to progress the net zero transition investment plan
we set out a year ago. We are on track to complete the concept
design for installing air source heat pumps for four offices and
progress the detailed design for the first two buildings, and to
optimise the building management systems across our offices this
year. Delivery of our investment plan will ensure we transition to
net zero and stay ahead of the Minimum Energy Efficiency Standard
Regulations, which require a minimum EPC 'B' certification by 2030,
as well as other regulatory requirements, and the cost to achieve
EPC 'B' is already reflected in our valuations.
We delivered a 17% reduction in energy intensity for the first
half of 2022/23 compared with 2019/20. This represents a 32%
reduction against our 2013/14 baseline, so we remain on track vs
our 2030 target to reduce energy intensity by 45%. We will continue
to drive down our energy consumption with a combination of energy
efficiency measures alongside our net zero transition investment
programme.
We started working with our largest customers last year to help
them identify opportunities to save energy and have expanded this
during the period. Given the rise in energy costs, this has become
even more relevant. Our retail customers typically purchase their
energy directly, but where we purchase energy on behalf of
customers, costs have been fully hedged for the current and next
financial years and 40% hedged for the year after, limiting the
impact on their overall cost base.
Outlook
Looking ahead, we anticipate global economic uncertainty to
remain elevated. Decades of globalisation, fuelling growth and
depressing inflation, have started to go into reverse, with rising
geopolitical tensions adding to risks around energy reliance and
supply chains. Positively, the turbulence in UK politics in late
summer has started to normalise, although political stability
remains fragile.
Still, it is clear that London remains a top global city which
continues to attract new businesses and talent; that the future of
major retail destinations is more positive than most, including
many retailers themselves, thought two years ago; and that there
remains a structural need to remodel city centres in a sustainable
way. It is difficult to say where interest rates will settle and
whilst we think this is unlikely to be where they have been for the
past decade, our strategic decisions over the past two years mean
we are in excellent shape for any eventuality:
3/4 our portfolio quality is high, which has increasingly become a decisive factor for customers;
3/4 our balance sheet is strong, with an LTV of 31% and no refinancing needs until 2026;
3/4 we have sold nearly GBP2bn of mature, low-yielding assets most at risk of repricing;
3/4 we have an attractive pipeline of opportunities with full
flexibility on any future commitments.
Despite the uncertain economic outlook, our long 9.8-year
average debt maturity provides visibility and underpins the
sustainability of our earnings. We continue to expect underlying
EPRA EPS for this year to grow by a low to mid-single digit
percentage, excluding the benefit from increased surrender premiums
which were up GBP10m in the first half of the year, and we expect
dividend for the full year to grow in line with underlying EPRA
EPS. Beyond FY23, the exact shape of earnings progression will rely
on the pace of future disposals and reinvestments, but our strategy
and strong capital base continue to offer the potential to grow
earnings and total accounting return over time.
Operating and portfolio review
Overview
Our combined portfolio was valued at GBP10.9bn as of September,
comprising the following segments:
3/4 Central London (61%): our high-quality office (84%) and
retail and other commercial space (16%), located in the West End
(63%), City (31%) and Southwark (6%). Of our investment assets, 48%
has been developed in the last ten years, compared to c. 20% for
the overall London office market.
3/4 Major retail destinations (18%): our investments in six
shopping centres and five retail outlets, with the seven largest
assets comprising 83% of the overall retail portfolio value, most
of which are amongst the highest selling locations for retailers in
the UK.
3/4 Mixed-use urban neighbourhoods (8%): our investments in
mixed-use assets and future development opportunities, focused on
five sites in London, Manchester and Glasgow, of which some still
have a short-term use as retail ahead of their medium-term
redevelopment.
3/4 Subscale (13%): assets in sectors where we have limited
scale and which we therefore intend to divest over time, with a
broadly equal split between retail parks, hotels and leisure
assets.
Investment activity
We made significant progress on our objective to recycle capital
out of mature assets during the period, with a view to reinvest
this into higher growth opportunities over time. In late 2020, we
said we intended to sell a combined c. GBP4bn of London offices and
assets in sectors which were subscale for us over a period of circa
six years. Two years later, we have now sold GBP2.0bn, including
GBP1.0bn over the past half year.
Our largest sale was the GBP809m disposal of our 21 Moorfields,
EC2 development project in September. The building is fully pre-let
to Deutsche Bank for 25 years and therefore offered little room to
add further value. The total consideration represented a 9%
discount to March book value, partly reflecting the fact that
construction will only complete in March 2023, but crystallised a
25% profit on cost. Shortly after the March 2022 year-end we also
sold 32-50 Strand, WC2 for GBP195m, 15% above its prior book
value.
As a result, we have now sold GBP1.8bn of mature London offices
over the past two years, at an average yield of 4.35% and 1%
discount to book value. Since the acquisition of U+I late last
year, we have also sold or exchanged contracts to sell close to
half of its non-core assets for GBP85m, on average 22% above book
value. We have not made any material acquisitions during the
period.
Looking ahead, we expect capital recycling will slow given
increased uncertainty in global capital markets. The residual c.
GBP2bn of assets earmarked for disposal over the next four years
are broadly equally split between four sectors, allowing us to tap
into different pools of demand. Furthermore, for 75% of this c.
GBP2bn our intention to sell purely reflects a lack of scale,
rather than any caution on forward returns. Our strong capital base
means we can therefore afford to be selective, although we remain
pragmatic about value given the opportunities additional cash could
potentially provide over the next 12-18 months.
Portfolio valuation
The rise in interest rates over the period meant that
transaction volumes across global and UK property markets slowed
considerably during the half year and that, especially over the
last few months, pricing started to adjust. This adjustment has
been most pronounced in sectors where yields compressed most during
prior years, such as logistics, or for assets which had been valued
as bond-like income.
Against this backdrop, our portfolio value reduced by 2.9% over
the period. Our Central London portfolio value was down 4.4%, with
a 21bps increase in yields. This was partly offset by 2.8% growth
in ERVs, with 2.2% growth in the West End driven by our strong
letting evidence in Victoria, which makes up the lion share of our
London portfolio. City ERVs were up 3.3%, principally reflecting a
major lease regear at a higher rent, with associated refurbishment
works now taken as cost in the valuation. As a result, West End
values (-4.2%) were more resilient than City (-9.7%). Developments
were broadly stable, as our successful pre-letting activity drove
an increase in ERVs, offsetting a softening of valuation
yields.
Despite the challenging macro backdrop, the value of our retail
portfolio was up 0.4%. Shopping centre values rose 1.1%, as our
continued positive letting activity drove 2.4% ERV growth. Yields
remained stable at 7.4% and, following their correction in recent
years, continue to offer a healthy margin over funding costs.
Outlet values were down slightly at -0.6%, partly reflecting a
small reduction in turnover income following strong sales last
year, driven by the clearance of excess stock post lockdowns.
In mixed-use, the value of our completed assets at MediaCity was
down 4.8% as yields moved out 18bps, offsetting a 2.0% increase
since our acquisition at the FY valuation in March. The rest of our
mixed-use assets, which principally comprise our future development
schemes, were up in value by 2.0%, partly driven by valuation
upside at Mayfield. The value of our subscale assets was down 1.2%,
as positive growth in the value of our hotel portfolio (+5.3%)
reflecting their strong operational performance, was offset by a
modest softening in leisure values (-2.6%) and principally retail
parks (-5.4%), which saw a softening in yields following their
31.9% increase in value over the prior twelve months.
Looking ahead, we expect valuation yields to continue to see
upward pressure from rising funding costs, especially for those
sectors where they are lowest. For us, this principally affects
London offices, even though we expect that in the West End and
Southwark part of the impact on value of this will be offset by
further rental value growth, as Grade A availability remains
scarce. We expect the impact on other parts of our portfolio to be
less and shopping centre values in particular to remain much more
resilient, given their high initial yields and increasing
visibility on their sustainability of income.
Table 2: Valuation analysis
Market LFL rental Movement
value value Topped-up in LFL
30 Sep Surplus/ Valuation change Net initial net initial Equivalent equivalent
2022 (deficit) movement (1) yield yield yield yield
GBPm GBPm % % % % % bps
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
West End offices 2,761 (116) -4.2 2.2 4.6 5.0 4.8 21
City offices 1,746 (183) -9.7 3.3 3.3 4.0 4.9 27
Retail and other 1,089 2 0.2 2.7 4.2 4.4 4.6 14
Developments 1,102 (7) -0.6 n/a 0.3 0.3 4.5 -
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Total Central London 6,698 (304) -4.4 2.8 4.1 (2) 4.6 (2) 4.7 21
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Shopping centres 1,150 12 1.1 2.4 7.7 8.1 7.4 5
Outlets 740 (5) -0.6 -0.9 5.9 6.0 6.7 -4
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Total Major retail 1,890 7 0.4 1.1 7.0 7.3 7.1 1
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Completed investment 393 (20) -4.8 n/a 5.3 5.3 5.9 18
Developments 497 11 2.0 n/a 5.2 5.3 5.3 -
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Total Mixed-use
urban 890 (9) -1.0 n/a 5.3 (2) 5.3 (2) 5.6 18
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Leisure 563 (14) -2.6 -0.4 6.9 7.0 7.2 27
Hotels 444 23 5.3 -1.1 5.2 5.2 5.5 -1
Retail parks 444 (26) -5.4 1.8 6.1 6.4 6.0 29
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Total Subscale
sectors 1,451 (17) -1.2 0.1 6.1 6.2 6.3 17
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
Total Combined
Portfolio 10,929 (323) -2.9 1.8 5.1 (2) 5.4 (2) 5.4 19
--------------------- ------- ---------- --------- ---------- ----------- ------------ ---------- -----------
1. Rental value change excludes units materially altered during
the period.
2. Excluding developments
Leasing and operational performance
Central London
Across the Central London market, office take-up increased 78%
YoY to 12.4m sq ft, in line with the 10-year average. Space under
offer is broadly stable since March and, at 3.8m sq ft, remains
ahead of the 3.4m sq ft 10-year average. Vacancy came down
slightly, from 9.0% to 8.3%, although 79% of this is second-hand
space, of which a large part does not necessarily fit today's
customer and sustainability requirements. Vacancy remains elevated
in the City at 12.2%, yet fell 0.7ppt to 3.9% in the West End.
Against this backdrop, we signed ten lettings and renewals in
Central London, totalling GBP10m of rent, on average 1% ahead of
valuers' assumptions, with a further GBP31m in solicitors' hands,
3% above valuers' estimates. Overall, office lettings were 2% above
ERV. Retail lettings were at a 5% premium, as demand picked up
materially, with office utilisation gradually increasing and
tourism up significantly compared to last year. Overall occupancy
was down 30bps to 94.8% at the end of September, but has increased
back to 95.1% since the period-end. We also continue to see good
demand for our Myo flexible space, with 123 Victoria Street 98% let
and Dashwood 86% let, vs 98% and 64% six months ago, which supports
our plans to open four new Myo locations, totalling 160,000 sq ft,
over the next 18 months.
Looking forward, we expect more flexible ways of working will
reduce overall demand for office space in the UK, although the
impact of this will not be evenly spread. We expect large HQ type
space and areas which offer little reason to visit beyond doing a
job to see a much bigger impact than places which offer exciting
amenities for people to give them a reason to want to spend time
there. We continue to see good demand for the high quality space we
offer, with current negotiations on new lettings on average ahead
of ERV, so we expect our high occupancy will further improve in the
second half.
Major retail destinations
Demand for retail space in prime locations has continued to
grow. Total retail sales across our portfolio grew 6.3% YoY and LFL
sales are now 3.6% above 2019 levels, highlighting the value of our
major retail destinations for brands and consumers. At the same
time, online sales have fallen back to pre-pandemic trends, as
consumer behaviour continues to normalise. Many leading brands now
recognise online and physical channels as fully inter-connected, as
e.g. Next and Shopify recently commented that the surge in online
sales as a result of Covid which many thought to be permanent has
proven to be only temporary.
The growth in sales across our portfolio relative to the sharp
c. 35% reset in income over the years to FY21 means the
affordability of our space for brands has improved significantly,
at a time that the cost of doing business online has increased
materially. Whilst we expect brands will continue to rationalise
their store footprints and potentially even accelerate this, with
inflation putting pressure on marginal stores, their focus on
'fewer, bigger, better' stores has started to drive a tangible
return to growth for our assets.
We completed 103 lettings totalling GBP12m in the first half of
this year, ahead of the same period last year, on average a marked
20% ahead of ERV. This was partly driven by three sizeable outlet
lettings at more than double the ERV, but even excluding these, the
average premium vs ERV was still a material 15%, including a 7%
premium for shopping centre lettings. In addition, we have a
further GBP15m of lettings in solicitors' hands, on average 7%
ahead of ERV, with shopping centre leases 8% ahead.
Close to 80% of the 103 leases we signed during the half year
had some turnover linkage, although the average turnover element
was only 15% of the overall rent, so even the fixed base rent was
well above ERV. On an overall basis, c. 40% of our leases now have
a turnover component, with turnover rent making up 17% of our
overall retail income. This growing insight in turnover provides us
with valuable data and, across a nation-wide portfolio, a unique
insight in underwriting sustainable income levels.
As a result, since March, occupancy has increased 120bps to
94.4%. We continue to monitor credit risks in our portfolio, but
units in administration remain low at 0.5%, in line with March.
There have been no CVAs and minimal insolvencies during the period,
as many of the most challenged business models already folded
during the pandemic. We note that Cineworld, which makes up 0.6% of
the annual rent of our major retail destinations, has filed for
Chapter 11 bankruptcy protection in the US, although it continues
to trade and pay rent. Footfall across our shopping centres
increased 21% YoY and is now at 86% of pre-pandemic levels,
compared to 82% for the UK market and up from 80% six months
ago.
Looking forward, we are mindful consumers face significant
headwinds as a result of macro-economic challenges, but given our
strong letting pipeline we expect occupancy to grow further in the
second half. Moreover, the stark contrast between sales in our
shopping centres which are now close to pre-pandemic levels vs
rents which are c. 35% lower and values which are 63% down since
2017, means the outlook for income and values in our view remains
attractive.
Mixed-use urban neighbourhoods
At present, the completed investment assets in our mixed-use
portfolio solely comprise our investment in MediaCity, which we
acquired in late 2021. Over half of the income is RPI linked with
caps and collars at 2-5%, securing future income growth. Occupancy
remained stable during the period, but since the period-end this
has increased to 97.5%. Our mixed-use development assets include
our three shopping centres in London and Glasgow which are held for
future development, but where the existing income is managed on a
short-term basis to maximise our flexibility to obtain access for
development.
Subscale sectors
The operational performance of our subscale assets remained
robust, despite some slowdown in leisure compared to the reopening
bounce last year. We completed GBP2m of retail park and leisure
lettings across 14 deals during the half year, 10% above valuers'
assumptions, with a further GBP5m of rent in solicitors' hands, 11%
above valuers' assumptions, and overall occupancy was broadly
stable. Our hotels, which are all let to Accor, have seen occupancy
rise to 94% of pre-pandemic levels, up from 67% last year, which
drove a material increase in RevPAR.
Table 3: Operational performance analysis
Annualised Estimated LFL occupancy
rental rental LFL Occupancy change WAULT
income value (1) (1) (1)
GBPm GBPm % ppt years
------------------------- ---------- --------- ------------- ------------- ------
West End offices 132 143 98.4 - 6.5
City offices 79 104 90.3 -1.0 7.8
Retail and other 43 54 94.1 -0.2 7.6
Developments 5 64 n/a n/a n/a
------------------------- ---------- --------- ------------- ------------- ------
Total Central London 259 365 94.8 -0.3 7.0
------------------------- ---------- --------- ------------- ------------- ------
Shopping centres 106 104 93.9 1.1 4.2
Outlets 57 61 95.2 1.4 3.2
------------------------- ---------- --------- ------------- ------------- ------
Total Major retail 163 165 94.4 1.2 3.9
------------------------- ---------- --------- ------------- ------------- ------
Completed investment 24 24 n/a n/a 9.7
Developments 29 32 n/a n/a n/a
------------------------- ---------- --------- ------------- ------------- ------
Total Mixed-use urban 53 56 n/a n/a 9.7
------------------------- ---------- --------- ------------- ------------- ------
Leisure 50 51 95.6 -0.9 10.4
Hotels 25 25 n/a - 8.7
Retail parks 29 29 97.4 0.9 4.3
------------------------- ---------- --------- ------------- ------------- ------
Total Subscale sectors 104 105 97.3 -0.1 8.0
------------------------- ---------- --------- ------------- ------------- ------
Total Combined Portfolio 579 691 95.1 - 6.4
------------------------- ---------- --------- ------------- ------------- ------
1. Excluding developments
Investing in sustainability, people and culture
A year ago, we were the first UK property company to announce a
fully costed net zero carbon transition plan, which would see us
invest GBP135m of capex in our existing portfolio by 2030 to
deliver our science based target and meet the Minimum Energy
Efficiency Standard of EPC 'B' by 2030. Since then, we have
completed air source heat pump feasibility studies for six offices,
with four progressing to concept design and one to detailed design.
We have also completed building management system optimisations for
five offices, with a further seven to be completed this financial
year, where we are identifying on average a 10% annual energy
saving. In addition, we are on track to expand the energy audits
with 15 of our largest customers, which identified annual carbon
and costs savings of 10-15%, to an additional ten customers.
Highlighting its quality, 43% of our office portfolio is already
rated 'B' or higher, which compares to 15% for the overall office
market.
We continue to work on reducing embodied carbon in our future
pipeline, in line with our target to reduce this by 50% vs a
typical development by 2030, to below 500kgCO(2) e/sqm for offices.
To help achieve this target, we have recently signed up to the
ConcreteZero Initiative where we commit to using 100% net zero
concrete by 2050 with ambitious interim targets. This complements
our existing membership of the SteelZero Initiative and sends a
strong market signal of our commitment to net zero to our supply
chain.
Our plans for Timber Square, SE1 already show an embodied carbon
intensity of 535kgCO(2) e/sqm, reflecting the retention of part of
the existing structure, a highly optimised design and the use of
low carbon cross laminated timber. At Red Lion Court, SE1 we expect
an embodied carbon intensity of c. 600kgCO(2) e/sqm, reflecting the
retention of 35-40% of the existing basement and piles and the use
of a highly flexible concrete structural solution with demountable
timber infills. The Forge, SE1, which completes later this year,
remains on track to be the first building in the UK to be designed
and operated in line with the UK Green Building Council framework
definition of a net zero carbon building. Combined with Liberty of
Southwark, these schemes will create an attractive new green office
cluster in Southwark.
In May, we also announced our Realising Potential fund which is
aimed at improving social mobility in the real estate industry and
will see us invest GBP20m over the next 10 years, to empower 30,000
people towards the world of work and create GBP200m in social
value. We will launch this in April 2023, including a bursary
programme that will provide financial support to underrepresented
young adults studying for a placemaking career and a small grants
programme that will provide grants to local charities and community
organisations in the areas we operate,
Whilst we invest in building a sustainable business, we also
need to make sure we build a culture which is right for the future.
To that extent, we started an organisation-wide review six months
ago with the aim to reduce internal complexity and become more
agile, customer service-oriented and outward focused. This builds
on the changes to our retail team last year, where we brought in
experience and capabilities from international retailer backgrounds
to focus more on growing brand relationships and guest experience,
and the successful retention of the U+I team's unique placemaking
and design capability.
We have already made a number of changes as a result, including
a number of leadership changes, and we expect further changes in
the second half. This will help improve our overall efficiency, but
more importantly, changing the culture of our business is key to
creating a more diverse organisation which can harness the skills
and experience of all of the substantial talent within Landsec, in
order to successfully deliver on our strategy in the long term.
Development pipeline
Central London
The GBP809m sale of 21 Moorfields substantially reduced our
development exposure and crystallised a healthy 25% profit on cost.
As a result, our committed pipeline now comprises three schemes,
which are set to produce an ERV of GBP38m once fully let, with just
GBP110m capex left to spend. Reflecting our strong leasing
activity, the combined ERV increased by 3% since March, of which
38% is let or under offer, with active negotiations on further
lettings. All three projects are set to complete over the next nine
months, with costs and timelines broadly maintained over the past
six months, despite market wide pressures from inflation, supply
chain disruption and labour shortages.
Table 4: Committed development pipeline
Gross
Market yield
Size Capital value on MV
sq Estimated Net income/ Market expenditure + future + future
ft completion ERV value to complete TDC TDC
Property Sector '000 date GBPm GBPm GBPm GBPm %
----------- -------------------------- ----- ----------- ----------- ------ ------------ --------- ---------
The Forge,
SE1 Office/retail 140 Dec-22 10 155 18 174 5.5
----------- -------------------------- ----- ----------- ----------- ------ ------------ --------- ---------
Lucent, W1 Office/retail/residential 144 Mar-23 14 222 41 265 5.3
----------- -------------------------- ----- ----------- ----------- ------ ------------ --------- ---------
n2, SW1 Office 165 Jun-23 14 172 51 227 6.2
----------- -------------------------- ----- ----------- ----------- ------ ------------ --------- ---------
Total 449 38 549 110 666
--------------------------------------- ----- ----------- ----------- ------ ------------ --------- ---------
The rise in construction cost and, more recently, sharp rise in
development finance costs is likely to result in a significant
reduction in near-term development starts in London. During
previous periods of economic uncertainty, new starts ended up c.
30-90% below originally expected levels and we believe this could
well repeat over the next twelve months. As such, we think this
could create an attractive window to deliver new space in 2025,
when new supply of Grade A space is likely to be low.
We are confident that the quality of our future pipeline and its
sustainability credentials is well positioned for future demand,
but are mindful that in periods of economic uncertainty demand can
be cyclical. In the near term, we are therefore focused on
maintaining optionality. For the two schemes which are ready to go,
Timber Square, SE1 and the refurbishment of Portland House, SW1
this means we plan to commit to early works at a total cost of c.
GBP55m shortly, which allows us to maintain a timeline of potential
delivery in late 2025, whilst keeping flexibility on committing to
the residual c. GBP400m capex investment. With rents achieved on
our current pipeline since May 11% ahead of valuers' assumptions,
we expect a gross yield on cost of 7%+ for both projects and a
yield on incremental expenditure of 10%+.
Table 5: Future Central London development pipeline
Proposed Gross
sq Indicative Indicative yield Potential
ft TDC ERV on TDC start
Property Sector '000 GBPm GBPm % date Planning status
---------------------- ------------ -------- ---------- ---------- ------- --------- --------------------
Near-term
Timber Square,
SE1 Office 380 400 30 7.5 H1 2023 Consented
Portland House,
SW1 Office 300 380 28 7.4 H1 2023 Consented
---------------------- ------------ -------- ---------- ---------- ------- --------- --------------------
Liberty of Southwark,
SE1 Office/resi 200 245 15 7.2(1) H1 2023 Consented
Red Lion Court,
SE1 Office 230 320 23 7.2 H1 2024 Planning application
Total near-term 1,110 1,345 96 7.3
Longer-term
Nova Place, SW1 Office 50 2024 Design
---------------------- ------------ -------- ---------- ---------- ------- --------- --------------------
Old Broad Street, Office 290 2025 Design
EC2
---------------------- ------------ -------- ---------- ---------- ------- --------- --------------------
Hill House, EC4 Office 325 2025 Design
---------------------- ------------ -------- ---------- ---------- ------- --------- --------------------
Total longer-term 665
------------------------------------ -------- ---------- ---------- ------- --------- --------------------
Total future pipeline 1,775
------------------------------------ -------- ---------- ---------- ------- --------- --------------------
1. Gross yield on cost adjusted for residential TDC
Mixed-use urban neighbourhoods
Our 9.0m sq ft mixed-use urban neighbourhoods pipeline continues
to offer significant growth potential in locations where structural
demand characteristics remain positive. The integration of the
Landsec and U+I teams into a combined regeneration business is now
complete and we remain on track in terms of preparing our pipeline,
whilst maintaining optionality on future commitments.
At Mayfield, the new 6.5-acre public park opened in September
and we agreed terms with our JV partners for a drawdown of land for
the first phases of development from the JV, once we intend to
start on site. At MediaCity, we obtained detailed planning for the
first 263,000 sq ft office building in October, which means we
could potentially start both projects in early to mid 2023.
At Finchley Road, NW3, we expect a decision on the planning
application which we submitted in January 2022 by the financial
year-end and we have made further progress on our vacant possession
strategy. Subject to planning, we could therefore start enabling
works as soon as next year. In Glasgow, we have concluded the first
rounds of public consultation and now expect to submit a planning
application by the year-end. In Lewisham, SE13 we have continued
our positive engagement with the Council on a new masterplan and
are preparing to submit an application for this next year.
As such, our mixed-use pipeline provides a valuable opportunity
to build an attractive balance of income, development upside and
medium term growth potential. The flexibility to phase capex,
mixed-use nature and geographic spread of the pipeline all add to
its balanced risk-profile, as we retain flexibility to adapt to
changes in demand. As land values are much lower in the regions
than in London, we are mindful that development returns are more
sensitive to yield movements and construction costs, although this
is partly mitigated by the fact that margins and yields on cost
tend to be higher.
Whilst we continue to prepare our pipeline, we maintain
flexibility on future capital commitments to make sure we achieve
our targeted low to mid-teens IRR. The current book value of the
pipeline below of c. GBP350m is modest compared to its potential
upside and given the blended 6.4% income yield on the meanwhile use
of part of the existing assets, its holding cost is low. As such,
this provides valuable optionality for future growth.
Table 6: Mixed-use urban neighbourhoods development pipeline
Proposed Estimated Target
Landsec sq Earliest first/total Indicative yield
share ft start Number scheme TDC on cost Planning
Property % '000 on site of blocks completion GBPm % status
---------------------- ------- -------- -------- ---------- ------------ ----------- -------- -----------
Mayfield, Manchester 50-100 2,500 2023 18 2025/2032 800-950 7 - 8 Consented
MediaCity, Greater
Manchester 75 1,900 2023 8 2025/2030 550-650 7 - 8 Consented
Finchley Road,
NW3 100 1,400 2023 10 2026/2034 950-1,200 6 - 7 Application
---------------------- ------- -------- -------- ---------- ------------ ----------- -------- -----------
Buchanan Galleries,
Glasgow 100 1,400 2024 11 2027/2035 600-750 7 - 8 Design
Lewisham, SE13 100 1,800 2025 14 2028/2037 1,100-1,300 6 - 7 Design
Total future pipeline 9,000 4,000-4,850
---------------------- ------- -------- -------- ---------- ------------ ----------- -------- -----------
Financial review
Overview
Our positive operational performance is reflected in a
meaningful increase in EPRA earnings, which was up 9.4% to GBP197m,
primarily driven by a GBP24m increase in net rental income, partly
reflecting a GBP10m increase in surrender premiums received.
Like-for-like gross rental income excluding surrender premiums was
up 8.3%, or 6.2% on a net rental income basis. This reflects our
positive leasing performance, primarily in major retail
destinations, and continued growth in income across our hotel
portfolio. As a result, EPRA EPS increased 9.5% to 26.6 pence. This
allows us to pay a second interim dividend of 9.0 pence, bringing
the total dividend for the half year to 17.6 pence, up 13.5% vs the
prior year. Our policy remains to have dividends annually covered
1.2 to 1.3 times by EPRA earnings.
Despite this strong operational result, our overall financial
performance was impacted by a GBP323m reduction in the value of our
Combined Portfolio, as market yield shift in London more than
offset the ERV growth our leasing activity delivered and the upside
from our successful development activity. As a result, our total
accounting return was -2.9%, with a loss before tax of GBP192m,
compared to a profit of GBP275m in the prior year. After dividends
paid during the period, EPRA NTA per share reduced 5.0% to 1,010
pence.
Nevertheless, our actions during the half year further
strengthened our robust capital base. Adjusted net debt fell from
GBP4.2bn to GBP3.4bn due to our successful disposals, so as a
result, our LTV reduced from 34.4% to 31.1%. Our weighted average
net debt/EBITDA stands at a modest 8.7 times and we expect this to
reduce to c. 8 times by the year-end, reflecting the full year
benefit of our recent disposals. Our average debt maturity
increased to 9.8 years and with GBP1.8bn of undrawn facilities, we
have no need to refinance any maturing debt until 2026, so our
balance sheet is in excellent shape.
Presentation of financial information
The condensed consolidated preliminary financial information is
prepared under IFRS where the Group's interests in joint ventures
are shown collectively in the income statement and balance sheet,
and all subsidiaries are consolidated at 100%. Internally,
management reviews the results of the Group on a basis that adjusts
for these forms of ownership to present a proportionate share. The
Combined Portfolio, with assets totalling GBP10.9bn, is an example
of this approach, reflecting the economic interest we have in our
properties regardless of our ownership structure.
Our key measure of underlying earnings performance is EPRA
earnings, which represents the underlying financial performance of
the Group's property rental business, which is our core operating
activity. A full definition of EPRA earnings is given in the
Glossary. This measure is based on the Best Practices
Recommendations of the European Public Real Estate Association
(EPRA) which are metrics widely used across the industry to aid
comparability and includes our proportionate share of joint
ventures' earnings. Similarly, EPRA Net Tangible Assets per share
is our primary measure of net asset value.
Measures presented on a proportionate basis are alternative
performance measures as they are not defined under IFRS. This
presentation provides additional information to stakeholders on the
activities and performance of the Group, as it aggregates the
results of all the Group's property interests which under IFRS are
required to be presented across a number of line items in the
statutory financial statements. For further details see table 14 in
the Business analysis section.
Income statement
Our positive income growth reflects our successful asset
management and the resilience our high-quality portfolio provides,
with quality becoming an increasingly important driver for
customers. We have seen rental income grow, principally in major
retail destinations; mixed-use, where some of our future projects
have an existing retail use; and subscale sectors, which include
our retail parks, leisure and hotels, as trading in these segments
continued to normalise relative to last year, when the UK had just
emerged out of lockdown at the start of the period.
Table 7: Income statement (1)
Six months ended Six months ended
30 September 2022 30 September 2021
Central Major Mixed-use Subscale Central Major Mixed-use Subscale
London retail urban sectors Total London retail urban sectors Total Change
Table GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- ------- ------ --------- -------- ----- ------- ------ --------- -------- ----- ------
Gross rental
income
(2) 160 84 28 53 325 148 74 17 43 282 43
Net service charge
expense (1) (6) (1) (1) (9) - (3) (1) (2) (6) (3)
Net direct
property
expenditure (11) (15) (6) (6) (38) (9) (9) (3) (4) (25) (13)
Movement in bad
and doubtful
debts
provisions 1 3 (4) - - (2) 5 1 (1) 3 (3)
Segment net rental
income 8 149 66 17 46 278 137 67 14 36 254 24
------- ------ --------- -------- ------- ------ --------- --------
Net administrative
expenses (41) (41) -
EPRA earnings
before
interest 237 213 24
Net finance
expense (40) (33) (7)
EPRA earnings 197 180 17
------------------ ----- ------- ------ --------- -------- ----- ------- ------ --------- -------- ----- ------
Capital/other
items
Valuation
(deficit)/surplus (323) 81
(Loss)/gain on
changes
in finance leases (6) 6
(Loss)/profit on
disposals (92) 6
Impairment charges (8) -
Fair value
movement
on interest rate
swaps 48 2
Other (6) -
------------------ ----- ------- ------ --------- -------- ----- ------- ------ --------- -------- ----- ------
(Loss)/profit
before
tax attributable
to shareholders
of the parent (190) 275
------------------ ----- ------- ------ --------- -------- ----- ------- ------ --------- -------- ----- ------
Non-controlling
interests (2) -
------------------ ----- ------- ------ --------- -------- ----- ------- ------ --------- -------- ----- ------
(Loss)/profit
before
tax (192) 275
------------------ ----- ------- ------ --------- -------- ----- ------- ------ --------- -------- ----- ------
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
2. Includes finance lease interest, after rents payable.
Net rental income
Net rental income for the half year increased by GBP24m to
GBP278m. Like-for-like gross rental income rose GBP19m, or 8.3%,
and the net impact of our investment activity was up GBP10m. Bad
and doubtful debt charges were nil, compared to a GBP3m reversal of
provisions last year. Variable rent, which includes income from
hotels, Piccadilly Lights, parking and retail turnover rent,
increased GBP14m as trading has continued to normalise. We received
GBP19m of surrender premiums during the period vs GBP9m in the
prior period. This principally reflected a GBP15m premium in
relation to the lease restructuring with Deloitte at New Street
Square, EC4, at the end of last year. The space this freed up
provides flexibility for asset management initiatives across the
wider estate, whilst we work up medium term redevelopment
plans.
Whilst there were minimal insolvencies and no new CVAs during
the period, we note that Cineworld, which makes up 1.8% of our
annual rent, has filed for Chapter 11 bankruptcy protection in the
US. We have taken appropriate provisions during the half year and
will await the outcome of this process, but all assets in our
portfolio continue to trade and the company continues to pay
rent.
Direct property expenditure increased by GBP13m, of which almost
half was driven by acquisitions. Like-for-like direct property
costs increased GBP7m. This reflected a combination of higher
letting fees, due to our increased letting activity; higher
utilisation of our assets given that at the start of the prior
period, the UK was still in lockdown; and some element of cost
inflation. Net service charge expenditure increased GBP3m, which
principally reflects a reconciliation of prior year charges. As a
result, our gross to net ratio was 85.5%, but we expect this to
improve as void and letting costs reduce as occupancy improves
further.
Table 8: Net rental income(1)
GBPm
------------------------------------------------------------ ----
Net rental income for the six months ended 30 September
2021 254
Gross rental income like-for-like movement in the
period(2):
----
Increase in variable and turnover-based rents 14
Other movements 5
----
Total like-for-like gross rental income 19
Like-for-like net service charge expense (2)
Like-for-like net direct property expenditure (7)
Like-for-like movement in bad and doubtful debts provisions 3
Surrender premiums received 10
Developments(2) (9)
Acquisitions since 1 April 2021(2) 16
Disposals since 1 April 2021(2) (6)
Net rental income for the six months ended 30 September
2022 278
------------------------------------------------------------- ----
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
2. Gross rental income on a like-for-like basis and the impact
of developments, acquisitions and disposals exclude surrender
premiums received.
Net administrative expenses
Net administrative expenses were flat at GBP41m, in line with
our view that admin costs for the full year will be largely stable
vs last year. Despite the increase in cost due to the impact of the
U+I acquisition, c. GBP5m of annual IT and data related costs
reflecting an investment in upgrading our systems and data
capability which due to updated IFRIC accounting guidance is now
expensed instead of capitalised, and wage inflation, this reflects
our continued focus on making sure our overall cost base is right.
We still anticipate administrative expenses for next year to reduce
compared to the current year.
Our EPRA cost ratio for the period was 26.2% in line with the
full year last year. Elevated wage inflation and general cost
inflation are putting upward pressure on costs, but the actions we
have taken to reduce our cost base mean we are on track to improve
this ratio towards the low 20's over time through a combination of
a reduction in administrative expenses and an improvement in gross
to net rent margin.
Net finance expenses
Net interest costs increased GBP7m to GBP40m, principally due to
our acquisitions last year which resulted in an increase in average
gross borrowings for the period, ahead of the disposal of 21
Moorfields at the end of the half year, plus some increase in
variable interest rates. At the start of the period, 70% of our
borrowings were fixed or hedged, but in line with our expectations,
borrowings reduced due to our disposals, so hedging increased to
84% at the period-end. With much lower borrowings in the second
half, we still expect net interest costs for the full year to be
only slightly higher than the GBP71m for last year.
Non-cash finance income, which includes the fair value movements
on derivatives, caps and hedging and which is not included in EPRA
earnings, increased from a net income of GBP2m in the prior period
to a net income of GBP48m for the last six months. This is
predominantly due to the fair value movements of our interest-rate
swaps as a result of the increase in interest rates over the
period.
Valuation of investment properties and profit on disposals
The independent external valuation of our Combined Portfolio
showed a GBP323m value reduction. Whilst the strong leasing
evidence we created drove 1.8% ERV growth and we delivered further
profits on our committed pipeline, the upside of this was offset by
a market-wide softening of yields due to the sharp rise in bond
yields. This principally affected our London portfolio, as the
value of our major retail, mixed-use and subscale assets has been
more resilient.
We recognised a GBP92m loss on disposals, mostly reflecting the
sale of 21 Moorfields and an element of development provisions,
offset by the sale of 32-50 Strand. The March valuation of Strand
already reflected part of the 15% premium to book value on the
sale. The sale of 21 Moorfields reflected a 9% discount to book
value, but crystallised a 25% development profit and significantly
reduced our LTV.
IFRS profit after tax
Substantially all our activity during the year was covered by UK
REIT legalisation, which means our tax charge for the year remained
minimal. Reflecting the increase in EPRA earnings, offset by the
valuation shortfall, IFRS loss after tax for the period was
GBP192m, compared to a profit of GBP275m in the prior period.
Total accounting return
EPRA Net Tangible Assets, which principally reflects the value
of our Combined Portfolio less adjusted net debt, reduced to
GBP7,504m, or 1,010 pence on a per share basis, marking a 5.0%
reduction since March. Including dividends paid, this means our
total accounting return for the half year was -2.9%.
Table 9: Balance sheet(1)
30 September 31 March 2022
2022
GBPm GBPm
----------------------------------------------------- ------------ -------------
Combined Portfolio 10,929 12,017
Adjusted net debt (3,441) (4,179)
Other net assets/(liabilities) 16 50
----------------------------------------------------- ------------ -------------
EPRA Net Tangible Assets 7,504 7,888
Shortfall of fair value over net investment
in finance leases book value 1 6
Other intangible asset 2 2
Excess of fair value over trading properties
book value (7) -
Fair value of interest-rate swaps 69 21
----------------------------------------------------- ------------ -------------
Net assets, excluding amounts due to non-controlling
interests 7,569 7,917
----------------------------------------------------- ------------ -------------
Net assets per share 1,023p 1,070p
EPRA Net Tangible Assets per share (diluted) 1,010p 1,063p
----------------------------------------------------- ------------ -------------
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
Table 10: Movement in EPRA Net Tangible Assets(1)
Diluted per
share
GBPm pence
------------------------------------------ ----------- -----------
EPRA Net Tangible Assets at 31 March 2022 7,888 1,063
EPRA earnings 197 27
----------- -----------
Like-for-like valuation movement (307) (41)
Development valuation movement 3 -
Impact of acquisitions/disposals (19) (3)
----------- -----------
Total valuation deficit (323) (44)
Dividends (155) (21)
Loss on disposals (92) (13)
Other (11) (2)
------------------------------------------ ----------- -----------
EPRA Net Tangible Assets at 30 September
2022 7,504 1,010
------------------------------------------ ----------- -----------
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
Net debt and LTV
During the half year, adjusted net debt, which includes our
share of JV borrowings, reduced by GBP738m to GBP3,441m. This was
principally driven by the GBP1bn disposal of two mature London
office assets, 32-50 Strand and 21 Moorfields. We made no material
acquisitions, but capital expenditure on our Combined Portfolio was
GBP195m, reflecting our London office development programme, the
preparation of future developments and the investment in our
current portfolio. We only have GBP127m committed capex left to
spend and retain full flexibility on any potential new development
starts.
The other key elements behind the increase in net debt are set
out in our statement of cash flows and note 9 to the financial
statements, with the main movements in adjusted net debt shown
below. A reconciliation between net debt and adjusted net debt is
shown in note 13 of the financial statements.
Due to the reduction in borrowings, our Group LTV which includes
our share of JVs, reduced from 34.4% to 31.1%. This remains well
within our target range of 25% to 40% and in line with the low 30's
level we said we expected for the foreseeable future. We continue
to look for opportunities to recycle capital but our strong balance
sheet and limited capital commitments mean we can afford to be
selective.
Table 11: Net debt and LTV
30 September 31 March 2022
2022
--------------------- ------------ -------------
Net debt GBP3,475m GBP4,254m
Adjusted net debt(1) GBP3,441m GBP4,179m
--------------------- ------------ -------------
Group LTV(1) 31.1% 34.4%
Security Group LTV 32.5% 36.4%
--------------------- ------------ -------------
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
Table 12: Movement in adjusted net debt(1)
GBPm
--------------------------------------------------- -----
Adjusted net debt at 31 March 2022 4,179
Adjusted net cash inflow from operating activities (168)
Dividends paid 155
Capital expenditure 141
Acquisitions 2
Disposals (870)
Other 2
Adjusted net debt at 30 September 2022 3,441
--------------------------------------------------- -----
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
Financing
Our gross borrowings of GBP3,541m are diversified across various
sources, including GBP2,341m Medium Term Notes, GBP0.8bn syndicated
and bilateral bank loans and GBP424m of commercial paper. Our MTN
and bank loans form part of our Security Group, which provide
security on a floating pool of assets currently valued at
GBP10.2bn. This provides flexibility to include or exclude assets
and an attractive cost of funding, with our MTN currently rated AA
and AA- with a stable outlook respectively by S&P and
Fitch.
The Security Group structure has a number of tiered covenants.
Below 65% LTV, these involve very limited operational restrictions,
whilst a default only occurs when LTV is more than 100% or the ICR
falls below 1.0 times. With a Security Group LTV of 32.5%, down
from 36.4% in March, our portfolio could withstand a 50% fall in
value before we reach the 65% hurdle and 68% before reaching
100%.
We have GBP1.8bn of undrawn facilities, which provides
substantial flexibility. The amount of borrowings which is fixed or
hedged increased to 84%, as we used the proceeds from our
significant disposals during the period to repay part of our
floating debt, as planned. We expect this figure to remain within
an 80-90% range, to keep some flexibility for potential
divestments.
The reduction in utilisation of our revolving credit facilities
following our disposals over the period, meant that our average
maturity of debt increased to 9.8 years, even though we did not
issue any new debt during the period. As expected, our average cost
of debt increased slightly to 2.7% due to the increase in variable
rates. We only have GBP733m of debt maturing in the next three
years, but all of this is more than covered by existing undrawn
facilities, which means we have no refinancing requirements until
2026. All in all, our strong financial base therefore offers clear
visibility, sustainability of earnings and significant optionality
for future opportunities.
Table 13: Available facilities(1)
30 September 31 March 2022
2022 GBPm
GBPm
----------------------------------------- ------------ -------------
Medium Term Notes 2,341 2,341
Drawn bank debt 776 1,519
Outstanding commercial paper 424 499
Cash and cash equivalents (80) (157)
Available undrawn facilities 1,814 1,119
Total committed credit facilities 2,934 2,980
Weighted average maturity of debt 9.8 years 9.1 years
Percentage of borrowings fixed or hedged 84% 70%
Weighted average cost of debt 2.7% 2.4%
----------------------------------------- ------------ -------------
1. Including our proportionate share of subsidiaries and joint
ventures, as explained in the Presentation of financial information
above.
Principal risks and uncertainties
The principal risks of the business were set out on pages 60-69
of the 2022 Annual Report that was published in May. The Board has
reviewed these risks again and concluded that they remain relevant.
In reviewing Landsec's risk landscape, the Board concluded that key
change projects failing to deliver the expected benefits,
especially those that relate to cultural changes, should be
included within our principal risks.
Many of the risks disclosed in the Annual Report have evolved
over the first half of 2022/23 due largely to the increasing
volatility and uncertainty in the UK economy. Unsurprisingly, the
macro-economic outlook remains our highest rated risk, with
inflation and rising interest rates having an impact on valuations,
capital costs and our investment and development strategies.
Our principal risks are summarised as follows:
Macro-economic Outlook and Capital Allocation - The current
economic climate in the UK is increasingly uncertain and business
confidence has fallen significantly as a result of high inflation
and interest rate rises. This has impacted consumers and resulted
in a cost of living crisis and the threat of recession. For
Landsec, this impacts asset yields and therefore valuations, our
cost-base, including the cost of completing development projects,
and our ability to recycle assets. It may also give rise to
opportunities to acquire assets.
Office Occupier Market - Our premium office products have
continued to perform well and occupancy and valuations have held up
better than "secondary office" space. Tenants continue to pay rents
and our portfolio team have seen positive demand for this space
which is well regarded in the market. Uncertainty around the demand
for office space appears to have levelled out as the hybrid working
model adopted by many organisations has become embedded.
Retail and Hospitality Occupier Market - The split between
online and physical retail sales has fluctuated in recent years and
this in turn impacted demand for retail space. However, footfall
and sales in retail locations have improved over the past six
months, especially at our premium retail destinations. Cinemas have
been an area of concern, with Cineworld recently filing for Chapter
11 bankruptcy protection in the US. The potential for recession and
resurgence of Covid-19 in winter 2022/23 could further challenge
our retail business.
Change Programmes - With a number of important internal change
programmes underway, it is crucial that the benefits identified,
especially those that relate to cultural changes, are realised in
order to deliver our strategic objectives.
Development Strategy - Fluctuating demand for existing and
future office space continues to be uncertain. This, coupled with
supply chain and inflationary pressures, is likely to impact our
investment and development activity in the short to medium
term.
Information and Cyber Security - Significant emphasis has been
placed on this risk since year end, with investment in improving
our controls and resilience, which is partially offset by the ever
increasing external threat.
The three other principal risks (people and skills; health and
safety; and climate change transition) have all remained stable in
the six months since year end.
Statement of Directors' Responsibilities
Each of the Directors, whose names and functions appear below,
confirm to the best of their knowledge that the condensed
consolidated interim financial statements have been prepared in
accordance with IAS 34, 'Interim Financial Reporting', as contained
in UK adopted international accounting standards and that the
interim management report herein includes a fair review of the
information required by the Disclosure and Transparency Rules
(DTR), namely:
3/4 DTR 4.2.7 (R): an indication of important events that have
occurred during the six month period ended 30 September 2022 and
their impact on the condensed interim financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
3/4 DTR 4.2.8 (R): any related party transactions in the six
month period ended 30 September 2022 that have materially affected,
and any changes in the related party transactions described in the
2022 Annual Report that could materially affect, the financial
position or performance of the enterprise during that period.
The Directors of Land Securities Group PLC as at the date of
this announcement are as set out below:
3/4 Cressida Hogg, Chairman*
3/4 Mark Allan, Chief Executive
3/4 Vanessa Simms, Chief Financial Officer
3/4 Edward Bonham Carter, Senior Independent Director*
3/4 Nicholas Cadbury*
3/4 Madeleine Cosgrave*
3/4 Christophe Evain*
3/4 Manjiry Tamhane*
3/4 Miles Roberts*
*Non-executive Directors
A list of the current Directors is maintained on the Land
Securities Group PLC website at landsec.com.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial information differs from
legislation in other jurisdictions.
By order of the Board
Mark Allan Vanessa Simms
Chief Executive Chief Financial Officer
Independent review report to Land Securities Group PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2022 which comprises consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated statement of cash flows and
the related notes to the financial statements 1 to 17. We have read
the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2022 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
14 November 2022
Financial statements
Unaudited income statement Six months ended Six months ended
30 September 2022 30 September 2021
Capital Capital
EPRA and other EPRA and other
earnings items Total earnings items Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----- ----------- ----------- ------- --------- ---------- -----
Revenue 5 360 34 394 314 1 315
Costs - movement in bad and
doubtful debts provisions 6 - - - 7 - 7
Costs - other 6 (143) (45) (188) (124) (1) (125)
217 (11) 206 197 - 197
Share of post-tax profit/(loss)
from joint ventures 12 14 1 15 12 (13) (1)
(Loss)/profit on disposal of
investment properties - (92) (92) - 6 6
Net (deficit)/surplus on revaluation
of investment properties 10 - (331) (331) - 94 94
(Loss)/gain on changes in finance
leases - (6) (6) - 6 6
------------------------------------- ----- ----------- ----------- ------- --------- ---------- -----
Operating profit/(loss) 231 (439) (208) 209 93 302
Finance income 7 6 51 57 4 2 6
Finance expense 7 (40) (1) (41) (33) - (33)
------------------------------------- ----- ----------- ----------- ------- --------- ---------- -----
Profit/(loss) before tax 197 (389) (192) 180 95 275
Taxation - - - - - -
------------------------------------- ----- ----------- ----------- ------- --------- ---------- -----
Profit/(loss) attributable to
shareholders 197 (389) (192) 180 95 275
------------------------------------- ----- ----------- ----------- ------- --------- ---------- -----
Attributable to:
Shareholders of the parent (190) 275
Non-controlling interests (2) -
------- --------- ---------- -----
(192) 275
------- --------- ---------- -----
(Loss)/profit per share attributable
to shareholders:
Basic (loss)/earnings per share 4 (25.7)p 37.2p
Diluted (loss)/earnings per
share 4 (25.7)p 37.1p
------------------------------------- ----- ----------- ----------- ------- --------- ---------- -----
Unaudited statement of comprehensive Six months
income ended
30 September Six months ended
2022 30 September 2021
Total Total
GBPm GBPm
---------------------------------------------------- ------------- ------------------
(Loss)/profit for the period (192) 275
------------------------------------------------------ ------------- ------------------
Items that will not be subsequently reclassified
to the income statement:
Movement in the fair value of other investments - (2)
Net re-measurement (loss)/gain on defined
benefit pension scheme (2) 1
Deferred tax charge on defined benefit
pension scheme - (1)
Other comprehensive loss for the period (2) (2)
------------------------------------------------------ ------------- ------------------
Total comprehensive (loss)/income for
the period (194) 273
------------------------------------------------------ ------------- ------------------
Attributable to:
Shareholders of the parent (192) 273
Non-controlling interests (2) -
------------- ------------------
(194) 273
------------- ------------------
Unaudited balance sheet 30 September 31 March
2022 2022
(restated)(1)
Notes GBPm GBPm
Non-current assets
Investment properties 10 10,187 11,207
Intangible assets 7 8
Net investment in finance leases 20 70
Investments in joint ventures 12 678 700
Investments in associates 4 4
Trade and other receivables 168 177
Other non-current assets 99 61
-------------------------------------------------- ----- ------------ --------------
Total non-current assets 11,163 12,227
-------------------------------------------------- ----- ------------ --------------
Current assets
Trading properties 11 135 145
Trade and other receivables 385 368
Monies held in restricted accounts and deposits 1 4
Cash and cash equivalents 47 146
Other current assets 28 5
-------------------------------------------------- ----- ------------ --------------
Total current assets 596 668
-------------------------------------------------- ----- ------------ --------------
Total assets 11,759 12,895
-------------------------------------------------- ----- ------------ --------------
Current liabilities
Borrowings 14 (424) (541)
Trade and other payables (358) (320)
Other current liabilities (13) (11)
Total current liabilities (795) (872)
-------------------------------------------------- ----- ------------ --------------
Non-current liabilities
Borrowings 14 (3,302) (4,012)
Trade and other payables (9) (8)
Other non-current liabilities (14) (12)
Total non-current liabilities (3,325) (4,032)
-------------------------------------------------- ----- ------------ --------------
Total liabilities (4,120) (4,904)
-------------------------------------------------- ----- ------------ --------------
Net assets 7,639 7,991
-------------------------------------------------- ----- ------------ --------------
Equity
Capital and reserves attributable to shareholders
Ordinary shares 80 80
Share premium 317 317
Other reserves 10 9
Retained earnings 7,162 7,511
-------------------------------------------------- ----- ------------ --------------
Equity attributable to shareholders of the parent 7,569 7,917
Equity attributable to non-controlling interests 70 74
-------------------------------------------------- ----- ------------ --------------
Total equity 7,639 7,991
-------------------------------------------------- ----- ------------ --------------
1. Cash and cash equivalents and monies held in restricted
accounts and deposits have been restated as at 31 March 2022
following clarification by IFRIC on classification of funds with
externally imposed restrictions.
The financial statements on pages 26 to 47 were approved by the
Board of Directors on 14 November 2022 and were signed on its
behalf by:
M C Allan V K Simms
Directors
Unaudited statement of changes Attributable to shareholders
in equity of the parent
-------------------------------------------------
Ordinary Share Other Retained Non-controlling Total
shares premium reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- -------- --------- --------- ------- --------------- -------
At 1 April 2021 80 317 28 6,787 7,212 - 7,212
Total comprehensive income for
the financial period - - - 273 273 - 273
Transactions with shareholders
of the parent:
-------- -------- --------- --------- ------- --------------- -------
Share-based payments - - (1) 1 - - -
Dividends paid to shareholders
of the parent - - - (66) (66) - (66)
Transfer of treasury shares - - (21) 21 - - -
-------- -------- --------- --------- ------- --------------- -------
Total transactions with shareholders
of the parent - - (22) (44) (66) - (66)
At 30 September 2021 80 317 6 7,016 7,419 - 7,419
Total comprehensive income for
the financial period - - - 609 609 6 615
Transactions with shareholders
of the parent:
-------- -------- --------- --------- ------- --------------- -------
Share-based payments - - 3 1 4 - 4
Dividends paid to shareholders
of the parent - - - (115) (115) - (115)
-------- -------- --------- --------- ------- --------------- -------
Total transactions with shareholders
of the parent - - 3 (114) (111) - (111)
Acquisition of subsidiaries - - - - - 68 68
At 31 March 2022 80 317 9 7,511 7,917 74 7,991
------------------------------------- -------- -------- --------- --------- ------- --------------- -------
Total comprehensive loss for the
financial period - - - (192) (192) (2) (194)
Transactions with shareholders
of the parent:
-------- -------- --------- --------- ------- --------------- -------
Share-based payments - - 1 2 3 - 3
Dividends paid to shareholders
of the parent - - - (159) (159) - (159)
Total transactions with shareholders
of the parent - - 1 (157) (156) - (156)
Dividends paid to non-controlling
interests - - - - - (2) (2)
Total transactions with shareholders - - 1 (157) (156) (2) (158)
At 30 September 2022 80 317 10 7,162 7,569 70 7,639
------------------------------------- -------- -------- --------- --------- ------- --------------- -------
Unaudited statement of cash flows Six months
ended
30 September
2022 2021
(restated)
(1)
Notes GBPm GBPm
------------------------------------------------------------ ----- ----- -----------
Cash flows from operating activities
Net cash generated from operations 9 196 202
Interest paid (86) (46)
Interest received 13 7
Rents paid (5) (4)
Capital expenditure on trading properties (12) -
Disposal of trading properties 7 -
Development income proceeds received 54 -
Other operating cash flows 9 (1)
------------------------------------------------------------ ----- ----- -----------
Net cash inflow from operating activities 176 158
------------------------------------------------------------ ----- ----- -----------
Cash flows from investing activities
Investment property development expenditure (132) (127)
Other investment property related expenditure (26) (33)
Acquisition of investment properties (2) -
Disposal of investment properties 870 52
Cash distributions from joint ventures 12 2 2
Other investing cash flows (2) (1)
------------------------------------------------------------ ----- ----- -----------
Net cash in/(out)flow from investing activities 710 (107)
------------------------------------------------------------ ----- ----- -----------
Cash flows from financing activities
Proceeds from new borrowings (net of finance fees) - 192
Repayment of borrowings 14 (858) (142)
Net cash in/(out)flow from derivative financial instruments 14 27 (1)
Dividends paid to shareholders 8 (155) (75)
Dividends paid to non-controlling interests (2) -
Decrease in monies held in restricted accounts and
deposits 3 -
Net cash outflow from financing activities (985) (26)
------------------------------------------------------------ ----- ----- -----------
(Decrease)/increase in cash and cash equivalents for
the period (99) 25
Cash and cash equivalents at the beginning of the
period 146 10
------------------------------------------------------------ ----- ----- -----------
Cash and cash equivalents at the end of the period 47 35
------------------------------------------------------------ ----- ----- -----------
1. Cash and cash equivalents and monies held in restricted
accounts and deposits have been restated as at 30 September 2021
following clarification by IFRIC on classification of funds with
externally imposed restrictions.
Notes to the financial statements
1. Basis of preparation and consolidation
-------------------------------------------
Basis of preparation
This condensed consolidated interim financial information
(financial statements) for the six months ended 30 September 2022
has been prepared on a going concern basis and in accordance with
the Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 'Interim Financial Reporting' as contained in
UK adopted international accounting standards (IFRS).
The condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. Statutory accounts for the year ended 31
March 2022, prepared in accordance with UK adopted international
accounting standards (IFRSs and IFRICs) and in conformity with the
Companies Act 2006, were approved by the Board of Directors on 16
May 2022 and delivered to the Registrar of Companies. The report of
the auditor on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under section 498(2) or (3) of the Companies Act 2006. The
condensed consolidated interim financial information has been
reviewed, not audited, and should be read in conjunction with the
Group's annual financial statements for the year ended 31 March
2022.
In preparing the condensed consolidated interim financial
information, the Group has considered the impact of climate change
and concluded that climate change did not have a material impact on
the financial reporting judgements and estimates.
This condensed consolidated interim financial information was
approved for issue by the Directors on 14 November 2022.
Going concern
The impact of recent international and domestic political and
economic events has resulted in the UK facing a prolonged
recessionary period and therefore the Directors have continued to
place additional focus on the appropriateness of adopting the going
concern assumption in preparing the financial statements. The
Group's going concern assessment considers changes in the Group's
principal risks (see page 22) and is dependent on a number of
factors, including our financial performance and continued access
to borrowing facilities. Access to our borrowing facilities is
dependent on our ability to continue to operate the Group's secured
debt structure within its financial covenants, which are described
in note 14.
In order to satisfy themselves that the Group has adequate
resources to continue as a going concern for the foreseeable
future, the Directors have reviewed downside and reverse stress
test models, as well as a cash flow model which considers the
impact of pessimistic assumptions on the Group's operating
environment (the 'mitigated downside scenario'). This mitigated
downside scenario reflects unfavourable macro-economic conditions,
a deterioration in our ability to collect rent and service charge
from our customers and removes uncommitted acquisitions, disposals
and developments.
The Group's key metrics from the mitigated downside scenario as
at the end of the going concern assessment period, which covers the
16 months to 31 March 2024, are shown below alongside the actual
position at 30 September 2022.
Key metrics 30 September 31 March 2022
2022 mitigated downside
latest mitigated scenario
downside scenario
30 September 31 March 2024 30 September
2022 2023
----------------------------- ------------ ------------------ -------------------
Security Group LTV 32.5% 42.3% 38.9%
Adjusted net debt GBP3,441m GBP3,644m GBP4,363m
EPRA Net Tangible Assets GBP7,504m GBP5,121m GBP7,266m
Available financial headroom GBP1.8bn GBP1.8bn GBP1.2bn
----------------------------- ------------ ------------------ -------------------
In our mitigated downside scenario, the Group has sufficient
cash reserves, with our Security Group LTV ratio remaining less
than 65% and interest cover above 1.45x, for a period of at least
16 months from the date of authorisation of these financial
statements. The value of our assets would need to fall from 30
September 2022 values by approximately a further 50% for LTV to
reach 65%. The Directors consider the likelihood of this occurring
over the going concern assessment period to be remote.
The Security Group requires earnings before interest of at least
GBP150m in the full year ending 30 September 2023 for interest
cover to remain above 1.45x in the mitigated downside scenario,
which would ensure compliance with the Group's covenant through to
the end of the going concern assessment period. Security Group
earnings in the six months to 30 September 2022 are already above
the level required to meet the interest cover covenant for the year
ending 31 March 2023. Therefore, the Directors do not anticipate a
reduction in Security Group earnings over the period ending 31
March 2024 to a level that would result in a breach of the interest
cover covenant.
Based on these considerations, together with available market
information and the Directors' knowledge and experience of the
Group's property portfolio and markets, the Directors have adopted
the going concern basis in preparing these financial statements for
the period ended 30 September 2022.
Presentation of results
The Group income statement is presented in a columnar format,
split into those items that relate to EPRA earnings and Capital and
other items. The Total column represents the Group's results
presented in accordance with IFRS; the other columns provide
additional information. This is intended to reflect the way in
which the Group's senior management review the results of the
business and to aid reconciliation to the segmental
information.
A number of the financial measures used internally by the Group
to measure performance include the results of partly-owned
subsidiaries and joint ventures on a proportionate basis. Measures
that are described as being on a proportionate basis include the
Group's share of joint ventures on a line-by-line basis and are
adjusted to exclude the non-owned elements of our subsidiaries.
These measures are non-GAAP measures and therefore not presented in
accordance with IFRS. This is in contrast to the condensed
consolidated interim financial information presented in these half
year results, where the Group applies equity accounting to its
interest in joint ventures and associates, presenting its interest
collectively in the income statement and balance sheet, and
consolidating all subsidiaries at 100% with any non-owned element
being adjusted as a non-controlling interest or redemption
liability, as appropriate. Our joint operations are presented on a
proportionate basis in all financial measures used internally by
the Group.
2. Significant accounting policies
------------------------------------
The condensed consolidated interim financial information has
been prepared on the basis of the accounting policies, significant
judgements and estimates as set out in the notes to the Group's
annual financial statements for the year ended 31 March 2022, as
amended where relevant to reflect the new standards, amendments and
interpretations which became effective in the period. Following
clarification by IFRIC on the classification of monies held in
restricted accounts, monies that are restricted by use only are
classified at 30 September 2022 as 'Cash and cash equivalents',
whereas monies to which access is restricted remain classified as
'Monies held in restricted accounts and deposits'. The comparative
balances have been restated where applicable to reflect this change
in classification. There has been no material impact on the
financial statements of adopting any other new standards,
amendments and interpretations.
3. Segmental information
--------------------------
The Group's operations are all in the UK and are managed across
four operating segments, being Central London, Major retail
destinations (Major retail), Mixed-use urban neighbourhoods
(Mixed-use urban) and Subscale sectors.
The Central London segment includes all assets geographically
located within central London. Major retail includes all regional
shopping centres and shops outside London and our outlets. The
Mixed-use urban segment includes those assets where we see the most
potential for capital investment. Subscale sectors mainly includes
assets that will not be a focus for capital investment and consists
of leisure and hotel assets and retail parks.
Management has determined the Group's operating segments based
on the information reviewed by senior management to make strategic
decisions. The chief operating decision maker is the Executive
Leadership Team (ELT), comprising the Executive Directors and the
Managing Directors. The information presented to ELT includes
reports from all functions of the business as well as strategy,
financial planning, succession planning, organisational development
and Group-wide policies.
The Group's primary measure of underlying profit after tax is
EPRA earnings. However, segment net rental income is the lowest
level to which the profit arising from the ongoing operations of
the Group is analysed between the four segments. The administrative
costs, which are predominantly staff costs for centralised
functions, are all treated as administrative expenses and are not
allocated to individual segments.
The Group manages its financing structure, with the exception of
joint ventures and non-wholly owned subsidiaries, on a pooled
basis. Individual joint ventures and non-wholly owned subsidiaries
may have specific financing arrangements in place. Debt facilities
and finance expenses, including those of joint ventures, are
managed centrally and are therefore not attributed to a particular
segment. Unallocated income and expenses are items incurred
centrally which are not directly attributable to one of the
segments.
All items in the segmental results note are presented on a
proportionate basis. The following table reconciles the Group's
income statement to the segmental results.
Reconciliation of segmental information note to interim
reporting
Six months ended 30 September
2022
Adjustment
for non-wholly
owned Capital
Group income Joint subsidiaries EPRA and other
statement ventures(1) (2) Total earnings items
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ ------------ --------------- ------ --------- ----------
Rental income 307 27 (4) 330 330 -
Finance lease interest 1 - - 1 1 -
------------------------------------- ------------ ------------ --------------- ------ --------- ----------
Gross rental income (before
rents payable) 308 27 (4) 331 331 -
Rents payable (5) (1) - (6) (6) -
------------------------------------- ------------ ------------ --------------- ------ --------- ----------
Gross rental income (after rents
payable) 303 26 (4) 325 325 -
------------ ------------ --------------- ------ --------- ----------
Service charge income 43 5 (1) 47 47 -
Service charge expense (51) (6) 1 (56) (56) -
------------ ------------ --------------- ------ --------- ----------
Net service charge expense (8) (1) - (9) (9) -
Other property related income 13 1 - 14 14 -
Direct property expenditure (48) (5) 1 (52) (52) -
Movement in bad and doubtful - - - - - -
debts provisions
Segment net rental income 260 21 (3) 278 278 -
Other income 1 - - 1 1 -
Administrative expenses (38) (1) - (39) (39) -
Depreciation (3) - - (3) (3) -
------------------------------------- ------------ ------------ --------------- ------ --------- ----------
EPRA earnings before interest 220 20 (3) 237 237 -
Share of post-tax profit from
joint ventures 15 (15) - - - -
Profit on disposal of trading
properties 1 - - 1 - 1
Loss on disposal of investment
properties(3) (92) - - (92) - (92)
Net (deficit)/surplus on revaluation
of investment properties (331) 1 7 (323) - (323)
Loss on changes in finance leases (6) - - (6) - (6)
Impairment of goodwill (5) - - (5) - (5)
Impairment of trading properties (8) - - (8) - (8)
Depreciation (2) - - (2) - (2)
Operating (loss)/profit (208) 6 4 (198) 237 (435)
Finance income 57 - (2) 55 6 49
Finance expense (41) (6) - (47) (46) (1)
(Loss)/profit before tax (192) - 2 (190) 197 (387)
Taxation - - - -
------------------------------------- ------------ ------------ --------------- ------
(Loss)/profit for the period (192) - 2 (190)
------------------------------------- ------------ ------------ --------------- ------
1. Reallocation of the share of post-tax profit from joint
ventures reported in the Group income statement to the individual
line items reported in the segmental results table.
2. Removal of the non-wholly owned share of results of the
Group's subsidiaries. The non-wholly owned subsidiaries are
consolidated at 100% in the Group's income statement, but only the
Group's share is included in EPRA earnings reported in the
segmental results table. The non-owned element of the Group's
subsidiaries are included in the 'Capital and other items' column
presented in the Group's income statement, together with items not
directly related to the underlying rental business such as
investment properties valuation changes, profits or losses on the
disposal of investment properties, the proceeds from, and costs of,
the sale of trading properties, income from and costs associated
with long-term development contracts, amortisation and impairment
of intangibles, and other attributable costs, arising on business
combinations.
3. Included in the loss on disposal of investment properties for
the period ended 30 September 2022 is a GBP7m charge related to the
provision for fire safety remediation works on properties no longer
owned by the Group but for which the Group is responsible for
remediating under the Building Safety Act 2022.
Segmental results
-------------------------- -------------------------------------------- --------------------------------------------
Six months ended Six months ended
30 September 2022 30 September 2021(2)
EPRA earnings Central Major Mixed-use Subscale Central Major Mixed-use Subscale
London retail urban sectors Total London retail urban sectors Total
--------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------- ------- --------- -------- ----- ------- ------- --------- -------- -----
Rental income 160 88 28 54 330 146 77 17 42 282
Finance lease interest 1 - - - 1 4 - - 1 5
-------------------------- ------- ------- --------- -------- ----- ------- ------- --------- -------- -----
Gross rental income
(before
rents payable) 161 88 28 54 331 150 77 17 43 287
Rents payable(1) (1) (4) - (1) (6) (2) (3) - - (5)
-------------------------- ------- ------- --------- -------- ----- ------- ------- --------- -------- -----
Gross rental income (after
rents payable) 160 84 28 53 325 148 74 17 43 282
------- ------- --------- -------- ----- ------- ------- --------- -------- -----
Service charge income 22 20 5 - 47 20 19 2 - 41
Service charge expense (23) (26) (6) (1) (56) (20) (22) (3) (2) (47)
------- ------- --------- -------- ----- ------- ------- --------- -------- -----
Net service charge expense (1) (6) (1) (1) (9) - (3) (1) (2) (6)
Other property related
income 6 6 1 1 14 6 6 1 1 14
Direct property
expenditure (17) (21) (7) (7) (52) (15) (15) (4) (5) (39)
Movement in bad and
doubtful
debts provisions 1 3 (4) - - (2) 5 1 (1) 3
Segment net rental income 149 66 17 46 278 137 67 14 36 254
Other income 1 3
Administrative expense (39) (41)
Depreciation (3) (3)
-------------------------- ------- ------- --------- -------- ----- ------- ------- --------- -------- -----
EPRA earnings before
interest 237 213
Finance income 6 4
Finance expense (40) (33)
Joint venture net finance
expense (6) (4)
-------------------------- ------- ------- --------- -------- ----- ------- ------- --------- -------- -----
EPRA earnings attributable
to shareholders of the
parent 197 180
-------------------------- ------- ------- --------- -------- ----- ------- ------- --------- -------- -----
1. Included within rents payable is lease interest payable of
GBP1m (2021: GBP2m) for the Central London segment.
2. A reconciliation from the Group income statement to the
information presented in the segmental results table for the six
months to 30 September 2021 is included in table 25.
4. Performance measures
-------------------------
In the tables below, we present earnings per share and net
assets per share attributable to shareholders of the parent,
calculated in accordance with IFRS, together with certain measures
defined by the European Public Real Estate Association (EPRA),
which have been included to assist comparison between European
property companies. Three of the Group's key financial performance
measures are EPRA earnings per share, EPRA Net Tangible Assets per
share and total accounting return.
EPRA earnings, which is a tax adjusted measure of underlying
earnings, is the basis for the calculation of EPRA earnings per
share. We believe EPRA earnings and EPRA earnings per share provide
further insight into the results of the Group's operational
performance to stakeholders as they focus on the rental income
performance of the business and exclude Capital and other items
which can vary significantly from period to period.
Earnings per share Six months ended Six months ended
30 September 2022 30 September 2021
Loss for Profit for
the period EPRA earnings the period EPRA earnings
GBPm GBPm GBPm GBPm
-------------------------------------------- ----------- ------------- ----------- -------------
(Loss)/profit attributable to shareholders
of the parent (190) (190) 275 275
Valuation and loss/(profit) on disposals - 435 - (93)
Net finance income (excluded from
EPRA earnings) - (48) - (2)
(Loss)/profit used in per share calculation (190) 197 275 180
-------------------------------------------- ----------- ------------- ----------- -------------
IFRS EPRA IFRS EPRA
-------------------------------------------- ----------- ------------- ----------- -------------
Basic (loss)/earnings per share (25.7)p 26.6p 37.2p 24.3p
Diluted (loss)/earnings per share(1) (25.7)p 26.5p 37.1p 24.3p
-------------------------------------------- ----------- ------------- ----------- -------------
1. In the six months ended 30 September 2022, share options are
excluded from the weighted average diluted number of shares when
calculating IFRS diluted loss per share because they are not
dilutive.
Net assets per share 30 September 2022 31 March 2022
EPRA EPRA EPRA EPRA
Net assets NDV NTA Net assets NDV NTA
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------- ---------- ------ ------ ---------- ------ ------
Net assets attributable to shareholders
of the parent 7,569 7,569 7,569 7,917 7,917 7,917
Shortfall of fair value over net
investment in finance leases book
value - (1) (1) - (6) (6)
Deferred tax liability on intangible
asset - - 1 - - 1
Goodwill on deferred tax liability - (1) (1) - (1) (1)
Other intangible asset - - (2) - - (2)
Fair value of interest-rate swaps - - (69) - - (21)
Excess of fair value of trading properties
over book value - 7 7 - - -
Shortfall/(excess) of fair value
of debt over book value - 373 - - (107) -
Net assets used in per share calculation 7,569 7,947 7,504 7,917 7,803 7,888
------------------------------------------- ---------- ------ ------ ---------- ------ ------
IFRS EPRA EPRA IFRS EPRA EPRA
NDV NTA NDV NTA
Net assets per share 1,023p n/a n/a 1,070p n/a n/a
Diluted net assets per share 1,019p 1,070p 1,010p 1,067p 1,052p 1,063p
------------------------------------------- ---------- ------ ------ ---------- ------ ------
Number of shares Six months Six months
ended ended
30 September 30 September
2022 2021
Weighted 30 September Weighted 31 March
average 2022 average 2022
million million million million
--------------------------------- ------------- ------------ ------------- --------
Ordinary shares 751 751 751 751
Treasury shares (7) (7) (7) (7)
Own shares (4) (4) (4) (4)
--------------------------------- ------------- ------------ ------------- --------
Number of shares - basic 740 740 740 740
Dilutive effect of share options 3 3 1 2
--------------------------------- ------------- ------------ ------------- --------
Number of shares - diluted 743 743 741 742
--------------------------------- ------------- ------------ ------------- --------
Total accounting return is calculated as the cash dividends per
share paid in the period plus the change in EPRA NTA per share,
divided by the opening EPRA NTA per share. We consider this to be a
useful measure for shareholders as it gives an indication of the
total return on equity over the period.
Total accounting return based on Six months ended Six months ended
EPRA NTA 30 September 2022 30 September 2021
pence pence
-------------------------------------- ------------------ ------------------
(Decrease)/increase in EPRA NTA per
share (53) 27
Dividend paid per share in the period
(note 8) 22 9
-------------------------------------- ------------------ ------------------
Total return (a) (31) 36
-------------------------------------- ------------------ ------------------
EPRA NTA per share at the beginning
of the period (b) 1,063 985
Total accounting return (a/b) (2.9)% 3.7%
-------------------------------------- ------------------ ------------------
5. Revenue
------------
All revenue is classified within the 'EPRA earnings' column of
the income statement, with the exception of proceeds from the sale
of trading properties, income from long-term development contracts
and the non-owned element of the Group's subsidiaries which are
presented in the 'Capital and other items' column.
Six months ended Six months ended
30 September 2022 30 September 2021
Capital Capital
EPRA and other EPRA and other
earnings items Total earnings items Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- ---------- ----- --------- ---------- -----
Rental income (excluding adjustment
for lease incentives) 306 4 310 269 - 269
Adjustment for lease incentives (3) - (3) (11) - (11)
----------------------------------------- --------- ---------- ----- --------- ---------- -----
Rental income 303 4 307 258 - 258
Service charge income 42 1 43 36 - 36
Trading property sales proceeds - 15 15 - - -
Other property related income 13 - 13 12 - 12
Finance lease interest 1 - 1 5 - 5
Long-term development contract income(1) - 14 14 - 1 1
Other income 1 - 1 3 - 3
----------------------------------------- --------- ---------- ----- --------- ---------- -----
Revenue per the income statement 360 34 394 314 1 315
----------------------------------------- --------- ---------- ----- --------- ---------- -----
The following table reconciles revenue per the income statement
to the individual components of revenue presented in the segmental
results table in note 3.
Six months ended Six months ended
30 September 2022 30 September 2021
Adjustment Adjustment
for non-wholly for non-wholly
Joint owned Joint owned
Group ventures subsidiaries Total Group ventures subsidiaries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
Rental income 307 27 (4) 330 258 24 - 282
Service charge income 43 5 (1) 47 36 5 - 41
Other property related
income 13 1 - 14 12 2 - 14
Finance lease interest 1 - - 1 5 - - 5
Other income 1 - - 1 3 - - 3
------------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
Revenue in the segmental
information note 365 33 (5) 393 314 31 - 345
------------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
Long-term development contract
income(1) 14 - - 14 1 - - 1
Trading property sales
proceeds 15 - - 15 - - - -
------------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
Revenue including Capital
and other items 394 33 (5) 422 315 31 - 346
------------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
1. Development contract income for the six months to 30
September 2022 relates to the income released from the contract
liability recorded on the disposal of 21 Moorfields, recognised in
line with costs incurred on the development in Note 6.
6. Cost
-----------
All costs are classified within the 'EPRA earnings' column of
the income statement, with the exception of the cost of sale of
trading properties, costs arising on long-term development
contracts, amortisation and impairments of intangible assets, other
attributable costs arising on business combinations and the
non-owned element of the Group's subsidiaries which are presented
in the 'Capital and other items' column.
Six months ended Six months ended
30 September 2022 30 September 2021
Capital Capital
EPRA and other EPRA and other
earnings items Total earnings items Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- --------- ---------- ----- --------- ---------- -----
Rents payable 5 - 5 4 - 4
Service charge expense 50 1 51 42 - 42
Direct property expenditure 47 1 48 34 - 34
Administrative expenses 38 - 38 41 - 41
Depreciation 3 2 5 3 - 3
Cost of trading property disposals - 14 14 - - -
Long-term development contract expenditure(1) - 14 14 - 1 1
Impairment of goodwill - 5 5 - - -
Impairment of trading properties - 8 8 - - -
Costs - other per the income statement 143 45 188 124 1 125
---------------------------------------------- --------- ---------- ----- --------- ---------- -----
Movement in bad and doubtful debts
provisions - rent - - - (3) - (3)
Movement in bad and doubtful debts
provisions - service charge - - - (4) - (4)
---------------------------------------------- --------- ---------- ----- --------- ---------- -----
Total costs per the income statement 143 45 188 117 1 118
---------------------------------------------- --------- ---------- ----- --------- ---------- -----
The following table reconciles costs per the income statement to
the individual components of costs presented in the segmental
results table in note 3.
Six months ended Six months ended
30 September 2022 30 September 2021
Adjustment Adjustment
for non-wholly for non-wholly
Joint owned Joint owned
Group ventures subsidiaries Total Group ventures subsidiaries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
Rents payable 5 1 - 6 4 1 - 5
Service charge expense 51 6 (1) 56 42 5 - 47
Direct property expenditure 48 5 (1) 52 34 5 - 39
Administrative expenses 38 1 - 39 41 - - 41
Depreciation 3 - - 3 3 - - 3
Movement in bad and doubtful
debts provisions - rent - - - - (3) 4 - 1
Movement in bad and doubtful
debts provisions - service
charge - - - - (4) - - (4)
Costs in the segmental
information note 145 13 (2) 156 117 15 - 132
----------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
Cost of trading property
disposals 14 - - 14 - - - -
Long-term development
contract expenditure(1) 14 - - 14 1 - - 1
Impairment of goodwill 5 - - 5 - - - -
Impairment of trading
properties 8 - - 8 - - - -
Depreciation 2 - - 2 - - - -
Costs including Capital
and other items 188 13 (2) 199 118 15 - 133
----------------------------- ----- --------- --------------- ----- ----- --------- --------------- -----
1. Development contract expenditure for the six months to 30
September 2022 relates to the ongoing development of 21 Moorfields
following the sale of the property during the period.
The Group's costs include employee costs for the period of
GBP37m (2021: GBP33m), of which GBP3m (2021: GBP3m) is within
service charge expense, GBP6m (2021: GBPnil) is within direct
property expenditure and GBP28m (2021: GBP30m) is within
administrative expenses.
7. Net finance expense
----------------------------------------------------------------------------------------------------
Six months ended Six months ended
30 September 2022 30 September 2021
Capital Capital
EPRA and other EPRA and other
earnings items Total earnings items Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- --------- ---------- ----- --------- ---------- -----
Finance income
Interest receivable from joint ventures 6 - 6 4 - 4
Fair value movement on interest-rate
swaps - 51 51 - 2 2
6 51 57 4 2 6
---------------------------------------- --------- ---------- ----- --------- ---------- -----
Finance expense
Bond and debenture debt (34) - (34) (33) - (33)
Bank and other short-term borrowings (20) (1) (21) (7) - (7)
(54) (1) (55) (40) - (40)
Interest capitalised in relation
to properties under development 14 - 14 7 - 7
---------------------------------------- --------- ---------- ----- --------- ---------- -----
(40) (1) (41) (33) - (33)
---------------------------------------- --------- ---------- ----- --------- ---------- -----
Net finance (expense)/income (34) 50 16 (29) 2 (27)
Joint venture net finance expense (6) (4)
---------------------------------------- --------- ---------- ----- --------- ---------- -----
Net finance expense included in EPRA
earnings (40) (33)
---------------------------------------- --------- ---------- ----- --------- ---------- -----
Lease interest payable of GBP1m (2021: GBP2m) is included within
rents payable as detailed in note 3.
8. Dividends
Dividends paid Six months ended 30 September
Pence per share 2022 2021
Payment PID Non-PID Total GBPm GBPm
date
---------------------------- --------- ------ ------- ------- ------ ---------
For the year ended 31 March
2021:
23 July
Final 2021 9.00 - 9.00 66
For the year ended 31 March
2022:
7 April
Third interim 2022 8.50 - 8.50 63
22 July
Final 2022 13.00 - 13.00 96
---------------------------- --------- ------ ------- ------- ------ ---------
Gross dividends 159 66
--------------------------------------- ------ ------- ------- ------ ---------
Dividends in the statement
of changes in equity 159 66
Timing difference on payment
of withholding tax (4) 9
--------------------------------- ---
Dividends in the statement
of cash flows 155 75
--------------------------------- ---
On 7 October 2022, the Company paid a first interim dividend in
respect of the current financial year of 8.6p per ordinary share
(2021: 7.0p), wholly as a Property Income Distribution (PID),
representing GBP64m in total (2021: GBP52m).
The Board has declared a second interim dividend of 9.0p per
ordinary share to be payable wholly as a PID (2021: 8.5p) on 3
January 2023 to shareholders registered at the close of business on
24 November 2022.
A Dividend Reinvestment Plan (DRIP) has been available in
respect of all dividends paid during the period. The last day for
DRIP elections for the second interim dividend is close of business
on 8 December 2022.
9. Net cash generated from operations
--------------------------------------------------- ------------- -------------
Reconciliation of operating (loss)/profit to net Six months Six months
cash generated from operations ended ended
30 September 30 September
2022 2021
GBPm GBPm
--------------------------------------------------- ------------- -------------
Operating (loss)/profit (208) 302
Adjustments for:
Net deficit/(surplus) on revaluation of investment
properties 331 (94)
Loss/(gain) on changes in finance leases 6 (6)
Profit of disposal of trading properties (1) -
Loss/(profit) on disposal of investment properties 92 (6)
Share of (profit)/loss from joint ventures (15) 1
Share-based payment charge 3 1
Rents payable 5 4
Depreciation 5 3
Development contract income (14) -
Other 9 1
213 206
Changes in working capital:
Increase in receivables (7) (11)
(Decrease)/increase in payables and provisions (10) 7
Net cash generated from operations 196 202
--------------------------------------------------- ------------- -------------
Reconciliation to adjusted net cash inflow from Six months Six months
operating activities ended ended
30 September 30 September
2022 2021
GBPm GBPm
------------- -------------
Net cash inflow from operating activities 176 158
Joint ventures net cash (out)/inflow from operating
activities (8) 14
Adjusted net cash inflow from operating activities(1) 168 172
------------------------------------------------------ ------------- -------------
1. Adjusted net cash inflow from operating activities is now
presented inclusive of cash flows from trading property activities,
whereas previously it had excluded these cashflows. There were no
cash flows from trading property activities in the period to 30
September 2021, therefore there has been no change to the
presentation for that period. Refer to the Glossary for the
definition of Adjusted net cash inflow from operating
activities.
10. Investment properties
------------------------------------------- ------------- -------------- -------------
Six months Six months Six months
ended ended ended
30 September 31 March 2022 30 September
2022 2021
GBPm GBPm GBPm
Net book value at the beginning of
the period 11,207 9,822 9,607
Transfer from joint venture 23 - -
Acquired through acquisition of group
of subsidiaries - 619 -
Acquisitions of investment properties 2 247 -
Net movement in head leases capitalised(1) (11) 63 (1)
Capital expenditure 187 180 163
Capitalised interest 14 10 7
Disposals(2)(3) (904) (56) (42)
Net (deficit)/surplus on revaluation
of investment properties (331) 322 94
Transfers to trading properties - - (6)
Net book value at the end of the
period 10,187 11,207 9,822
------------------------------------------- ------------- -------------- -------------
1. See note 14 for details of the amounts payable under head
leases and note 6 for details of the rents payable in the income
statement.
2. Includes impact of disposals of finance leases.
3. Includes GBP766m impact of disposal of 21 Moorfields. Gross
proceeds of GBP742m (inclusive of development costs to go) were
received following adjustments to the headline price of GBP809m for
rent top up and fit-out contributions.
The fair value of investment properties at 30 September 2022 was
determined by the Group's external valuers, CBRE, JLL and Savills.
The valuations are in line with RICS standards and were arrived at
by reference to market evidence of transactions for similar
properties. The valuations performed by the independent valuers are
reviewed internally by senior management and relevant people within
the business. This includes discussions of the assumptions used by
the external valuers, as well as a review of the resulting
valuations. Discussions about the valuation process and results are
held between senior management, the Audit Committee and the
external valuers on a half-yearly basis.
The Group considers all of its investment properties to fall
within 'Level 3', as defined by IFRS 13. There were no changes in
the Group's valuation processes, valuation techniques, and types of
inputs used in the fair value measurement of investment properties
during the period.
The market value of the Group's investment properties, as
determined by the Group's external valuers, differs from the net
book value presented in the balance sheet due to the Group
presenting tenant finance leases, head leases and lease incentives
separately. The following table reconciles the net book value of
the investment properties to the market value.
30 September 2022 31 March 2022
Adjustment Adjustment
Group for Group for
(excl. non-wholly (excl. non-wholly
joint Joint owned Combined joint Joint owned Combined
ventures) ventures(1) subsidiaries Portfolio ventures) ventures(1) subsidiaries Portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ----------- ------------ ---------- --------- ----------- ------------ ----------
Market value 10,296 774 (141) 10,929 11,362 800 (145) 12,017
Less: properties
treated
as finance leases (20) - - (20) (66) - - (66)
Plus: head leases
capitalised 112 9 - 121 123 9 - 132
Less: tenant lease
incentives (201) (37) - (238) (212) (38) - (250)
------------------ --------- ----------- ------------ ---------- --------- ----------- ------------ ----------
Net book value 10,187 746 (141) 10,792 11,207 771 (145) 11,833
------------------ --------- ----------- ------------ ---------- --------- ----------- ------------ ----------
Net
(deficit)/surplus
on revaluation of
investment
properties (331) 1 7 (323) 416 (3) (4) 409
------------------ --------- ----------- ------------ ---------- --------- ----------- ------------ ----------
1. Refer to note 12 for a breakdown of this amount by
entity.
As at 30 September 2022, the Group had contractually committed
development capital expenditure obligations of GBP127m .
11. Trading properties
------------------------------------- ------------------------ ----------- -----
Development
land and infrastructure Residential Total
GBPm GBPm GBPm
------------------------------------- ------------------------ ----------- -----
At 1 April 2021 24 12 36
Transfers from investment properties - 6 6
At 30 September 2021 24 18 42
Acquisitions 128 - 128
Capital expenditure 1 5 6
Disposals (25) - (25)
Impairment provision - (6) (6)
At 31 March 2022 128 17 145
------------------------------------- ------------------------ ----------- -----
Capital expenditure 4 8 12
Disposals (5) (9) (14)
Impairment provision (7) (1) (8)
At 30 September 2022 120 15 135
------------------------------------- ------------------------ ----------- -----
The cumulative impairment provision at 30 September 2022 in
respect of Development land and infrastructure was GBP7m (31 March
2022: GBPnil) and in respect of Residential was GBP7m (31 March
2022: GBP6m).
12. Joint arrangements
------------------------
The Group's principal joint arrangements are described
below:
Joint ventures Percentage Business Year end Joint venture partner
owned & segment date(2)
voting
rights(1)
----------------------------- ---------- -------------- -------- --------------------------------
Held at 30 September
2022(3)
Nova, Victoria(4) 50% Central London 31 March Suntec Real Estate Investment
Trust
Southside Limited Partnership 50% Major retail 31 March Invesco Real Estate European
Fund
St. David's Limited 50% Major retail 31 March Intu Properties plc(5)
Partnership
Westgate Oxford Alliance 50% Major retail, 31 March The Crown Estate Commissioners
Limited Partnership Subscale
sectors
Harvest(6)(7) 50% Subscale 31 March J Sainsbury plc
sectors
The Ebbsfleet Limited 50% Subscale 31 March Ebbsfleet Property Limited
Partnership(7) sectors
West India Quay Unit 50% Subscale 31 March Schroder UK Real Estate
Trust(7) sectors Fund
Mayfield(7)(8) 50% Mixed-use 31 March LCR Limited, Manchester
urban City Council, Transport
for Greater Manchester
Curzon Park Limited(7) 50% Subscale 31 March Derwent Developments
sectors (Curzon) Limited
Plus X Holdings Limited(7) 50% Subscale 31 March Paul David Rostas, Matthew
sectors Edmund Hunter
Landmark Court Partnership 51% Central London 31 March TTL Landmark Court Properties
Limited(7) Limited
----------------------------- ---------- -------------- -------- ------------------------------
Joint operation Ownership Business Year end Joint operation partners
interest segment date(2)
----------------------------- ---------- -------------- -------- ------------------------------
Held at 30 September
2022
Bluewater, Kent 48.75% Major retail 31 March M&G Real Estate and GIC
Royal London Asset Management
Aberdeen Standard Investments
----------------------------- ---------- -------------- -------- ------------------------------
1. Investments under joint arrangements are not always
represented by an equal percentage holding by each partner. In a
number of joint ventures that are not considered principal joint
ventures and therefore not included in the table above, the Group
holds a majority shareholding but has joint control and therefore
the arrangement is accounted for as a joint venture.
2. The year end date shown is the accounting reference date of
the joint arrangement. In all cases, the Group's accounting is
performed using financial information for the Group's own reporting
year and reporting date.
3. During the period to 30 September 2022, Wind Farms are no
longer classified as a joint venture and are consolidated together
with other subsidiary undertakings. Wind Farms includes DS
Renewables LLP, Hendy Wind Farm Limited and Rhoscrowther Wind Farm
Limited.
4. Nova, Victoria includes the Nova Limited Partnership, Nova
Residential Limited Partnership, Nova GP Limited, Nova Business
Manager Limited, Nova Residential (GP) Limited, Nova Residential
Intermediate Limited, Nova Estate Management Company Limited, Nova
Nominee 1 Limited and Nova Nominee 2 Limited.
5. Intu Properties plc went into administration in June 2020 and
its subsidiary, our joint venture partner Intu the Hayes Limited,
was subsequently placed in receivership by its secured creditors in
November 2020.
6. Harvest includes Harvest 2 Limited Partnership, Harvest
Development Management Limited, Harvest 2 Selly Oak Limited,
Harvest 2 GP Limited and Harvest GP Limited.
7. Included within Other in subsequent tables.
8. Mayfield includes Mayfield Development Partnership LP and
Mayfield Development (General Partner) Limited.
All of the Group's joint arrangements have their principal place
of business in the United Kingdom. All of the Group's joint
arrangements own and operate investment property, with the
exception of The Ebbsfleet Limited Partnership, which is a holding
company, and Harvest, which is engaged in long-term development
contracts. The activities of all the Group's principal joint
arrangements are therefore strategically important to the business
activities of the Group.
All joint ventures are registered in England and Wales with the
exception of Southside Limited Partnership and West India Quay Unit
Trust which are registered in Jersey.
Joint ventures Six months ended 30 September 2022
Westgate
Southside St. David's Oxford
Nova, Limited Limited Alliance
Victoria Partnership Partnership Partnership Other Total Total
Group
Comprehensive income statement 100% 100% 100% 100% 100% 100% share
-----------------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Revenue(1) 24 5 17 17 3 66 33
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Gross rental income (after
rents payable) 18 5 14 14 3 54 26
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Net rental income 18 (1) 10 12 3 42 21
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
EPRA earnings before interest 17 (1) 9 12 3 40 20
Finance expense (9) (3) - - - (12) (6)
--------- ------------ ------------ ------------ ----- ----- ------
Net finance expense (9) (3) - - - (12) (6)
EPRA earnings 8 (4) 9 12 3 28 14
Capital and other items
Net (deficit)/surplus
on revaluation of investment
properties (31) 1 6 7 19 2 1
(Loss)/profit before tax (23) (3) 15 19 22 30 15
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Post-tax (loss)/profit (23) (3) 15 19 22 30 15
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Total comprehensive (loss)/income (23) (3) 15 19 22 30 15
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Group share of (loss)/profit
before tax (12) (2) 8 10 11 15
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Group share of post-tax
(loss)/profit (12) (2) 8 10 11 15
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Group share of total comprehensive
(loss)/income (12) (2) 8 10 11 15
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
1. Revenue includes gross rental income (before rents payable),
service charge income, other property related income, trading
properties disposal proceeds and income from long-term development
contracts.
Joint ventures Six months ended 30 September 2021
Westgate
Southside St. David's Oxford
Nova, Limited Limited Alliance
Victoria Partnership Partnership Partnership Other Total Total
Group
Comprehensive income statement 100% 100% 100% 100% 100% 100% share
-----------------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Revenue(1) 23 5 14 19 2 63 31
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Gross rental income (after
rents payable) 17 5 11 12 2 47 23
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Net rental income 9 6 6 10 2 33 16
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
EPRA earnings before interest 8 6 5 10 2 31 16
Finance expense (4) (3) - - - (7) (4)
Net finance expense (4) (3) - - - (7) (4)
EPRA earnings 4 3 5 10 2 24 12
Capital and other items
Net (deficit)/surplus
on revaluation of investment
properties (4) (3) (14) (7) 1 (27) (13)
(Loss)/profit before tax - - (9) 3 3 (3) (1)
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Post-tax (loss)/profit - - (9) 3 3 (3) (1)
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Total comprehensive (loss)/income - - (9) 3 3 (3) (1)
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Group share of (loss)/profit
before tax - - (4) 1 2 (1)
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Group share of post-tax
(loss)/profit - - (4) 1 2 (1)
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Group share of total comprehensive
(loss)/income - - (4) 1 2 (1)
----------------------------------- --------- ------------ ------------ ------------ ----- ----- ------
1. Revenue includes gross rental income (before rents payable),
service charge income, other property related income, trading
properties disposal proceeds and income from long-term development
contracts.
Joint ventures 30 September
2022
Westgate
Southside St. David's Oxford
Nova, Limited Limited Alliance
Victoria Partnership Partnership Partnership Other Total Total
Group
Balance sheet 100% 100% 100% 100% 100% 100% share
---------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ------------ ------------ ------------ ----- ------ ------
Investment properties(1) 784 134 237 239 99 1,493 746
--------- ------------ ------------ ------------ ----- ------ ------
Non-current assets 784 134 237 239 99 1,493 746
Cash and cash equivalents 22 4 16 24 6 72 36
Other current assets 64 3 12 15 110 204 85
--------- ------------ ------------ ------------ ----- ------ ------
Current assets 86 7 28 39 116 276 121
--------------------------- --------- ------------ ------------ ------------ ----- ------ ------
Total assets 870 141 265 278 215 1,769 867
Trade and other payables
and provisions (22) (10) (11) (9) (115) (167) (52)
--------- ------------ ------------ ------------ ----- ------ ------
Current liabilities (22) (10) (11) (9) (115) (167) (52)
Non-current liabilities (126) (145) (16) - (42) (329) (144)
--------- ------------ ------------ ------------ ----- ------ ------
Non-current liabilities (126) (145) (16) - (42) (329) (144)
--------------------------- --------- ------------ ------------ ------------ ----- ------ ------
Total liabilities (148) (155) (27) (9) (157) (496) (196)
Net assets 722 (14) 238 269 58 1,273 671
--------------------------- --------- ------------ ------------ ------------ ----- ------ ------
Market value of investment
properties(1) 839 134 226 249 99 1,547 774
--------------------------- --------- ------------ ------------ ------------ ----- ------ ------
Net cash/(debt)(2) 22 3 - 24 5 54 27
--------------------------- --------- ------------ ------------ ------------ ----- ------ ------
Joint ventures 31 March 2022
Westgate
Southside St. David's Oxford
Nova, Limited Limited Alliance
Victoria Partnership Partnership Partnership Other Total Total
Group
Balance sheet 100% 100% 100% 100% 100% 100% share
---------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Investment properties(1) 815 133 235 236 132 1,551 771
--------- ------------ ------------ ------------ ----- ----- ------
Non-current assets 815 133 235 236 132 1,551 771
Cash and cash equivalents 27 4 10 12 10 63 31
Other current assets 63 7 13 14 53 150 105
--------- ------------ ------------ ------------ ----- ----- ------
Current assets 90 11 23 26 63 213 136
--------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Total assets 905 144 258 262 195 1,764 907
Trade and other payables
and provisions (22) (10) (9) (10) (12) (63) (44)
--------- ------------ ------------ ------------ ----- ----- ------
Current liabilities (22) (10) (9) (10) (12) (63) (44)
Non-current liabilities (139) (145) (22) (3) (131) (440) (168)
--------- ------------ ------------ ------------ ----- ----- ------
Non-current liabilities (139) (145) (22) (3) (131) (440) (168)
--------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Total liabilities (161) (155) (31) (13) (143) (503) (212)
Net assets 744 (11) 227 249 52 1,261 695
--------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Market value of investment
properties(1) 870 133 226 247 124 1,600 800
--------------------------- --------- ------------ ------------ ------------ ----- ----- ------
Net cash/(debt)(2) 27 2 (6) 12 4 39 19
--------------------------- --------- ------------ ------------ ------------ ----- ----- ------
1. The difference between the book value and the market value of
investment properties is the amount recognised in respect of lease
incentives, head leases capitalised and properties treated as
finance leases, where applicable.
2. Excludes funding provided by the Group and its joint venture
partners.
Joint ventures Westgate
Southside St. David's Oxford
Nova, Limited Limited Alliance
Victoria Partnership Partnership Partnership Other Total
Net investment Group Group Group Group Group Group
share share share share share share
----------------------------------
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- ------------ ------------ ------------ ------ ------
At 1 April 2021 351 (7) 124 125 32 625
Total comprehensive (loss)/income - - (4) 1 2 (1)
Non-cash contributions 5 - - - - 5
Cash distributions - - - - (2) (2)
---------------------------------- --------- ------------ ------------ ------------ ------ ------
At 30 September 2021 356 (7) 120 126 32 627
---------------------------------- --------- ------------ ------------ ------------ ------ ------
Total comprehensive income 16 2 1 10 5 34
Acquisitions - - - - 54 54
Cash distributions - - (8) (11) (1) (20)
At 31 March 2022 372 (5) 113 125 90 695
---------------------------------- --------- ------------ ------------ ------------ ------ ------
Total comprehensive (loss)/income (12) (2) 8 10 11 15
Cash distributions - - (2) - - (2)
Other distributions - - - - (8) (8)
Transfer from joint arrangements - - - - (24) (24)
Other non-cash movements - - - - (5) (5)
At 30 September 2022 360 (7) 119 135 64 671
---------------------------------- --------- ------------ ------------ ------------ ------ ------
Comprised of:
---------------------------------- --------- ------------ ------------ ------------ ------ ------
At 31 March 2022
Non-current assets 372 - 113 125 90 700
Non-current liabilities - (5) - - - (5)
At 30 September 2022
Non-current assets 360 - 119 135 64 678
Non-current liabilities - (7) - - - (7)
---------------------------------- --------- ------------ ------------ ------------ ------ ------
13. Capital structure
------------------------- -------------------------------------------------------------------------------------------
30 September 2022 31 March 2022 (2)
Adjustment Adjustment
for non-wholly for non-wholly
Joint owned Joint owned
Group ventures subsidiaries Combined Group ventures subsidiaries Combined
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- --------- --------------- -------- ------ --------- --------------- --------
Property portfolio
Market value of
investment
properties 10,296 774 (141) 10,929 11,362 800 (145) 12,017
Trading properties
and long-term contracts 135 - - 135 145 1 - 146
Total property portfolio
(a) 10,431 774 (141) 11,064 11,507 801 (145) 12,163
------------------------- ------- --------- --------------- -------- ------ --------- --------------- --------
Net debt
Borrowings(1) 3,614 - (73) 3,541 4,430 3 (73) 4,360
Monies held in restricted
accounts and deposits (1) - - (1) (4) - - (4)
Cash and cash equivalents (47) (36) 3 (80) (146) (31) 5 (172)
Fair value of
interest-rate
swaps (72) - 3 (69) (21) - 2 (19)
Fair value of foreign
exchange swaps and
forwards (19) - - (19) (5) - - (5)
------------------------- ------- --------- --------------- -------- ------ --------- --------------- --------
Net debt (b) 3,475 (36) (67) 3,372 4,254 (28) (66) 4,160
Less: Fair value of
interest-rate swaps 72 - (3) 69 21 - (2) 19
Adjusted net debt (c) 3,547 (36) (70) 3,441 4,275 (28) (68) 4,179
------------------------- ------- --------- --------------- -------- ------ --------- --------------- --------
Adjusted total equity
Total equity (d) 7,639 - (70) 7,569 7,991 - (74) 7,917
Fair value of
interest-rate
swaps (72) - 3 (69) (21) - 2 (19)
Adjusted total equity
(e) 7,567 - (67) 7,500 7,970 - (72) 7,898
------------------------- ------- --------- --------------- -------- ------ --------- --------------- --------
Gearing (b/d) 45.5% 44.6% 53.2% 52.5%
Adjusted gearing (c/e) 46.9% 45.9% 53.6% 52.9%
Group LTV (c/a) 34.0% 31.1% 37.2% 34.4%
Security Group LTV 32.5% 36.4%
Weighted average cost
of debt 2.2% 2.7% 2.1% 2.4%
------------------------- ------- --------- --------------- -------- ------ --------- --------------- --------
1. Borrowings used in the net debt and adjusted net debt
calculated for gearing, adjusted gearing, Group LTV and weighted
average cost of debt is calculated for excluding amounts payable
under head leases.
2. Cash and cash equivalents and monies held in restricted
accounts and deposits have been restated as at 31 March 2022
following a clarification by IFRIC on classification of funds with
externally imposed restrictions. There was no impact on computed
net debt, adjusted net debt, gearing, adjusted gearing, Group LTV
and Security Group LTV.
14. Borrowings
30 September 2022 31 March 2022
Effective Nominal/ Nominal/
interest notional Fair Book notional Fair Book
Secured/ Fixed/ rate value value value value value value
unsecured floating % GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ---------- --------- --------- ------ ------ --------- ------ ------
Current borrowings
Commercial paper
SONIA +
Sterling Unsecured Floating margin - - - 140 140 140
SONIA +
Euro Unsecured Floating margin 132 132 132 217 217 217
SONIA +
US Dollar Unsecured Floating margin 292 292 292 142 142 142
Euro loan note Unsecured Fixed 4.8 - - - 30 30 30
Syndicated and bilateral SONIA +
bank debt Secured Floating margin - - - 2 2 2
Syndicated and bilateral Euribor
bank debt Secured Floating + margin - - - 10 10 10
Total current borrowings 424 424 424 541 541 541
---------------------------------------------------- --------- --------- ------ --------- ------ ------
Amounts payable under
head leases - - - - - -
--------------------------- ----------- ---------- --------- --------- ------ ------ --------- ------ ------
Total current borrowings
including amounts
payable under head
leases 424 424 424 541 541 541
---------------------------------------------------- --------- --------- ------ ------ --------- ------ ------
Non-current borrowings
Medium term notes
(MTN)
--------- ------ ------ --------- ------ ------
A10 4.875% MTN due
2025 Secured Fixed 5.0 10 10 10 10 10 10
A12 1.974% MTN due
2026 Secured Fixed 2.0 400 381 399 400 399 399
A4 5.391% MTN due
2026 Secured Fixed 5.4 17 17 17 17 18 17
A5 5.391% MTN due
2027 Secured Fixed 5.4 87 86 87 87 93 87
A16 2.375% MTN due
2027 Secured Fixed 2.5 350 303 348 350 351 348
A6 5.376% MTN due
2029 Secured Fixed 5.4 65 63 65 65 74 65
A13 2.399% MTN due
2031 Secured Fixed 2.4 300 249 299 300 299 299
A7 5.396% MTN due
2032 Secured Fixed 5.4 77 77 77 77 107 77
A11 5.125% MTN due
2036 Secured Fixed 5.1 50 49 50 50 68 50
A14 2.625% MTN due
2039 Secured Fixed 2.6 500 353 494 500 491 494
A15 2.750% MTN due
2059 Secured Fixed 2.7 500 315 495 500 497 495
--------- ------ ------ --------- ------ ------
2,356 1,903 2,341 2,356 2,407 2,341
Syndicated and bilateral SONIA +
bank debt Secured Floating margin 849 849 849 1,546 1,546 1,546
Syndicated and bilateral Euribor
bank debt Secured Floating + margin - - - 2 2 2
Total non-current
borrowings 3,205 2,752 3,190 3,904 3,955 3,889
---------------------------------------------------- --------- --------- ------ --------- ------ ------
Amounts payable under
head leases 3.3 112 177 112 123 164 123
---------------------------------------------------- --------- --------- ------ ------ --------- ------ ------
Total non-current
borrowings including
amounts payable under
head leases 3,317 2,929 3,302 4,027 4,119 4,012
---------------------------------------------------- --------- --------- ------ ------ --------- ------ ------
Total borrowing including
amounts payable under
head leases 3,741 3,353 3,726 4,568 4,660 4,553
---------------------------------------------------- --------- --------- ------ ------ --------- ------ ------
Total borrowings excluding
amounts payable under
head leases 3,629 3,176 3,614 4,445 4,496 4,430
---------------------------------------------------- --------- --------- ------ ------ --------- ------ ------
Reconciliation of the movement in borrowings Six months ended
30 September Year ended
2022 31 March 2022
GBPm GBPm
--------------------------------------------- ---------------- --------------
At the beginning of the period 4,553 3,516
Bank debt assumed through acquisition
of subsidiaries - 403
Proceeds from new borrowings - 1,053
Repayment of bank debt (858) (489)
Foreign exchange movement on non-Sterling
borrowings 42 8
Movement in amounts payable under head
leases (11) 62
At the end of the period 3,726 4,553
--------------------------------------------- ---------------- --------------
Reconciliation of movements in liabilities Six months ended 30
arising from financing activities September 2022
Non-cash changes
At the
At the Other end
beginning Foreign changes of
of the Cash exchange in fair Other the
period flows movements values changes period
GBPm GBPm GBPm GBPm GBPm GBPm
Borrowings 4,553 (858) 42 - (11) 3,726
Derivative financial instruments (26) 27 (42) (51) 1 (91)
--------------------------------- ---------- ------ ---------- -------- -------- -------
4,527 (831) - (51) (10) 3,635
--------------------------------- ---------- ------ ---------- -------- -------- -------
Year ended 31 March
2022
--------------------------------- ---------- ------ ---------------------------------------
Borrowings 3,516 564 8 - 465 4,553
Derivative financial instruments 3 (3) (8) (12) (6) (26)
--------------------------------- ---------- ------ ---------- -------- -------- -------
3,519 561 - (12) 459 4,527
--------------------------------- ---------- ------ ---------- -------- -------- -------
Medium term notes
The MTNs are secured on the fixed and floating pool of assets of
the Security Group. The Security Group includes investment
properties, development properties, the X-Leisure fund, and the
Group's investment in Westgate Oxford Alliance Limited Partnership,
Nova, Victoria, St. David's Limited Partnership and Southside
Limited Partnership, in total valued at GBP10.2bn at 30 September
2022 (31 March 2022: GBP11.2bn). The secured debt structure has a
tiered operating covenant regime which gives the Group substantial
flexibility when the loan-to-value and interest cover in the
Security Group are less than 65% and more than 1.45x respectively.
If these limits are exceeded, the operating environment becomes
more restrictive with provisions to encourage a reduction in
gearing. The interest rate of each MTN is fixed until the expected
maturity, being two years before the legal maturity date of the
MTN. The interest rate for the last two years may either become
floating on a SONIA basis plus an increased margin (relative to
that at the time of issue), or subject to a fixed coupon uplift,
depending on the terms and conditions of the specific notes.
The effective interest rate is based on the coupon paid and
includes the amortisation of issue costs. The MTNs are listed on
the Irish Stock Exchange and their fair values are based on their
respective market prices.
During the period, the Group did not purchase any MTNs (31 March
2022: GBPnil) .
Syndicated and bilateral
bank debt Authorised Drawn Undrawn
Maturity
as at 30
September 30 Sept 31 March 30 Sept 31 March 30 Sept 31 March
2022 2022 2022 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ------- -------- ------- -------- ------- --------
Syndicated debt 2022 - 12 - 12 - -
Syndicated debt 2024-27 2,782 2,785 781 1,393 2,001 1,392
Bilateral debt 2026 225 225 68 155 157 70
------------------------- ----------- ------- -------- ------- -------- ------- --------
3,007 3,022 849 1,560 2,158 1,462
------------------------------------- ------- -------- ------- -------- ------- --------
All syndicated and bilateral facilities are committed and
secured on the assets of the Security Group, with the exception of
facilities secured on the assets at MediaCity. During the period
ended 30 September 2022, the amounts drawn under the Group's
facilities decreased by GBP711 m .
The terms of the Security Group funding arrangements require
undrawn facilities to be reserved where syndicated and bilateral
facilities mature within one year, or when commercial paper is
issued. The total amount of cash and available undrawn facilities,
net of commercial paper, at 30 September 2022 was GBP1,781m (31
March 2022: GBP1,109m, restated for the impact of the change in
classification between cash and monies held in restricted accounts
during the period).
Fair values
The fair value of the amounts payable under the Group's lease
obligations, using a discount rate of 2.2% (31 March 2022: 2.2%),
is GBP177m (31 March 2022: GBP164m). The fair value of the Group's
net investment in tenant finance leases, calculated by the Group's
external valuer by applying a weighted average equivalent yield of
7.5% (31 March 2022: 4.9%), is GBP19m (31 March 2022: GBP66m).
The fair values of any floating rate financial liabilities are
assumed to be equal to their nominal value. The fair values of the
MTNs fall within Level 1 of the fair value hierarchy, the
syndicated and bilateral facilities, commercial paper,
interest-rate swaps and foreign exchange swaps fall within Level 2,
and the amounts payable and receivable under leases fall within
Level 3.
The fair values of the financial instruments have been
determined by reference to relevant market prices, where available.
The fair values of the Group's outstanding interest-rate swaps have
been estimated by calculating the present value of future cash
flows, using appropriate market discount rates. These valuation
techniques fall within Level 2.
The fair value of the other investments is calculated by
reference to the net assets of the underlying entity. The valuation
is not based on observable market data and therefore the other
investments are considered to fall within Level 3.
15. Contingencies
---------------------
The Group has contingent liabilities in respect of legal claims,
tax queries, guarantees and warranties arising in the ordinary
course of business, as well as contingent liabilities for fire
safety remediation arising from the Building Safety Act 2022. It is
not anticipated that any material liabilities will arise from the
contingent liabilities.
16. Related party transactions
--------------------------------
There have been no related party transactions during the period
that require disclosure under Section 4.2.8 (R) of the Disclosure
and Transparency Rules or under IAS 34 Interim Financial
Reporting.
17. Events after the reporting period
---------------------------------------
On 31 October 2022, the Group sold its interest in 56 Regency
Street for a headline price of GBP12m. On 4 November 2022, the
Group sold its interest in the Crispin Centre for a headline price
of GBP1m.
Since 30 September 2022, the Group sold or exchanged contracts
to sell certain interests in trading properties acquired as part of
U+I Group PLC in the previous financial year.
On 11 November 2022, the Group entered into an option to acquire
the first phase of Mayfield from Mayfield Development Partnership
Limited Partnership.
Alternative performance measures
Table 14: Alternative performance measures
The Group has applied the European Securities and Markets
Authority (ESMA) 'Guidelines on Alternative Performance Measures'
in these results. In the context of these results, an alternative
performance measure (APM) is a financial measure of historical or
future financial performance, position or cash flows of the Group
which is not a measure defined or specified in IFRS.
The table below summarises the APMs included in these results
and where the reconciliations of these measures can be found. The
definitions of all APMs are included in the Glossary.
Alternative performance measure Nearest IFRS measure Reconciliation
------------------------------- ----------------------- --------------
EPRA earnings Profit/loss before tax Note 3
------------------------------- ----------------------- --------------
EPRA earnings per share Basic earnings/loss per Note 4
share
------------------------------- ----------------------- --------------
EPRA diluted earnings per Diluted earnings/loss Note 4
share per share
------------------------------- ----------------------- --------------
EPRA Net Tangible Assets Net assets attributable Note 4
to shareholders
------------------------------- ----------------------- --------------
EPRA Net Tangible Assets Net assets attributable Note 4
per share to shareholders
------------------------------- ----------------------- --------------
Total accounting return n/a Note 4
------------------------------- ----------------------- --------------
Adjusted net cash inflow Net cash inflow from Note 9
from operating activities operating activities
------------------------------- ----------------------- --------------
Combined Portfolio Investment properties Note 10
------------------------------- ----------------------- --------------
Adjusted net debt Borrowings Note 13
------------------------------- ----------------------- --------------
Group LTV n/a Note 13
------------------------------- ----------------------- --------------
EPRA disclosures
Table 15: EPRA net asset measures
EPRA net asset measures 30 September 2022
EPRA NRV EPRA NTA EPRA NDV
GBPm GBPm GBPm
------------------------------------------------ --------- -------- --------
Net assets attributable to shareholders 7,569 7,569 7,569
Shortfall of fair value over net investment
in finance lease book value (1) (1) (1)
Deferred tax liability on intangible asset 1 1 -
Goodwill on deferred tax liability (1) (1) (1)
Other intangible asset - (2) -
Fair value of interest-rate swaps (69) (69) -
Shortfall of fair value of debt over book value - - 373
Excess of fair value of trading properties
over book value 7 7 7
Purchasers' costs(1) 655 - -
------------------------------------------------- -------- -------- --------
Net assets used in per share calculation 8,161 7,504 7,947
------------------------------------------------- -------- -------- --------
EPRA NRV EPRA NTA EPRA NDV
------------------------------------------------- -------- -------- --------
Diluted net assets per share 1,098p 1,010p 1,070p
------------------------------------------------- -------- -------- --------
31 March 2022
EPRA NRV EPRA NTA EPRA NDV
GBPm GBPm GBPm
--------------------------------------------- --------- -------- --------
Net assets attributable to shareholders 7,917 7,917 7,917
Shortfall of fair value over net investment
in finance lease book value (6) (6) (6)
Deferred tax liability on intangible asset 1 1 -
Goodwill on deferred tax liability (1) (1) (1)
Other intangible asset - (2) -
Fair value of interest-rate swaps (21) (21) -
Excess of fair value of debt over book value - - (107)
Purchasers' costs(1) 698 - -
---------------------------------------------- -------- -------- --------
Net assets used in per share calculation 8,588 7,888 7,803
---------------------------------------------- -------- -------- --------
EPRA NRV EPRA NTA EPRA NDV
--------------------------------------------- --------- -------- --------
Diluted net assets per share 1,157p 1,063p 1,052p
---------------------------------------------- -------- -------- --------
1. EPRA NTA and EPRA NDV reflect IFRS values which are net of
purchasers' costs. Purchasers' costs are added back when
calculating EPRA NRV.
Table 16: EPRA performance measures
30 September 2022
Landsec EPRA
Measure Definition for EPRA measure Notes measure measure
----------------------
EPRA earnings Recurring earnings from core 4 GBP197m GBP197m
operational activity
EPRA earnings per EPRA earnings per weighted
share number of ordinary shares 4 26.6p 26.6p
EPRA diluted earnings per weighted
EPRA diluted earnings number of ordinary
per share shares 4 26.5p 26.5p
EPRA Net Tangible Net assets adjusted to exclude 4 GBP7,504m GBP7,504m
Assets (NTA) the fair value of interest-rate
swaps, intangible assets and
excess of fair value over net
investment in finance lease
book value
EPRA Net Tangible Diluted Net Tangible Assets
Assets per share per share 4 1,010p 1,010p
EPRA net disposal Net assets adjusted to exclude 4 GBP7,947m GBP7,947m
value (NDV) the fair value of debt and
goodwill on deferred tax and
to include excess of fair value
over net investment in finance
lease book value
EPRA net disposal Diluted net disposal value
value per share per share 4 1,070p 1,070p
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
EPRA loan-to-value a proportionate basis, expressed
(LTV)(1) as a percentage 32.6% 32.6%
Table
ERV of vacant space as a %
of ERV of Combined Portfolio
Voids/vacancy rate excluding the development programme(2) 17 4.9% 4.9%
Annualised rental income less
non-recoverable costs as a
Net initial yield % of market value plus assumed
(NIY) purchasers' costs(3) 5.1% 5.1%
NIY adjusted for rent free
Topped-up NIY periods(3) 5.4% 5.4%
Total costs as a percentage
of gross rental income (including
Cost ratio(4) direct vacancy costs)(4) 25.4% 26.2%
Total costs as a percentage
of gross rental income (excluding
direct vacancy costs)(4) n/a 21.5%
1. EPRA LTV is a new measure introduced by EPRA in the current
period. The EPRA measure differs from the Group LTV presented in
Note 13 as it includes net payables and receivables, and includes
trading properties at fair value and debt instruments at nominal
value rather than book value. EPRA LTV was not presented in the
financial statements at 31 March 2022 as the measure had not yet
been introduced. EPRA LTV would have been presented as 35.6% at 31
March 2022.
2. Our measure reflects voids in our like-for-like portfolio
only, excluding properties where the scale of refurbishment is such
that the property is not deemed lettable. The EPRA measure reflects
voids in the Combined Portfolio excluding only properties under
development.
3. Our NIY and Topped-up NIY relate to the Combined Portfolio,
excluding properties in the development programme that have not yet
reached practical completion, and are calculated by our external
valuer. EPRA NIY and EPRA Topped-up NIY calculations are consistent
with ours but exclude only properties currently under development.
Topped-up NIY reflects adjustments of GBP40m and GBP40m for rent
free periods and other incentives for the Landsec measure and EPRA
measure, respectively.
4. The EPRA cost ratio is calculated based on gross rental
income after rents payable and excluding costs recovered through
rents but not separately invoiced of GBP4m, whereas our measure is
based on gross rental income before rents payable and costs
recovered through rents but not separately invoiced. We do not
calculate a cost ratio excluding direct vacancy costs as we do not
consider this to be helpful. Provisions for bad and doubtful debts
have been excluded from our cost ratio.
Table 17: EPRA vacancy rate
The EPRA vacancy rate is based on the ratio of the estimated
market rent for vacant properties versus total estimated market
rent, for the Combined Portfolio excluding properties under
development. There are no significant distorting factors
influencing the EPRA vacancy rate.
30 September
2022
GBPm
ERV of vacant properties 29.5
ERV of Combined Portfolio excluding properties under development 606.3
EPRA vacancy rate (%) 4.9
Table 18: Change in net rental income from the like-for-like
portfolio(1)
30 September 30 September
2022 2021 Change
GBPm GBPm GBPm %
------------
Central London 124 118 6 5
Major retail 57 63 (6) (10)
Subscale sectors 47 34 13 38
------------
228 215 13 6
------------ ----
1. Excludes surrender premiums received during the period.
Table 19: Acquisitions, disposals and capital expenditure
Six months Six months
ended ended
30 September 30 September
2022 2021
Investment properties Group
(excl. Adjustment
joint Joint for non-wholly Combined Combined
ventures) ventures owned subsidiaries Portfolio Portfolio
GBPm GBPm GBPm GBPm GBPm
Net book value at the beginning of
the period 11,207 771 (145) 11,833 10,342
Transfer from joint venture 23 (12) - 11 -
Acquisitions 2 - - 2 -
Capital expenditure 187 (14) (3) 170 167
Capitalised interest 14 - - 14 7
Net movement in head leases capitalised (11) - - (11) (1)
Disposals (904) - - (904) (42)
Net (deficit)/surplus on revaluation
of investment properties (331) 1 7 (323) 81
Transfers to trading properties - - - - (6)
Net book value at the end of the period 10,187 746 (141) 10,792 10,548
(Loss)/profit on disposal of investment
properties (92) - - (92) 6
Trading properties GBPm GBPm GBPm GBPm GBPm
Net book value at the beginning of
the period 145 1 - 146 36
Transfers from investment properties - - - - 6
Capital expenditure 12 (1) - 11 -
Disposals (14) - - (14) -
Movement in impairment (8) - - (8) -
Net book value at the end of the period 135 - - 135 42
Profit on disposal of trading properties 1 - - 1 -
Acquisitions, development and other Investment Trading Combined Combined
capital expenditure properties(1) properties Portfolio Portfolio
GBPm GBPm GBPm GBPm
Acquisitions(2) 2 - 2 -
Development capital expenditure(3) 154 8 162 127
Other capital expenditure 16 3 19 40
Capitalised interest 14 - 14 7
Acquisitions, development and other
capital expenditure 186 11 197 174
Disposals GBPm GBPm
Net book value - investment property disposals 904 42
Net book value - trading property disposals 14 -
Net book value - other net assets of investment
property disposals 51 4
(Loss)/profit on disposal - investment properties (92) 6
Profit on disposal - trading properties 1 -
Other (1) -
Total disposal proceeds 877 52
1. See EPRA analysis of capital expenditure table 20 for further
details.
2. Properties acquired in the period.
3. Development capital expenditure for investment properties
comprises expenditure on the development pipeline and completed
developments.
Table 20: EPRA analysis of capital expenditure
Six months ended 30 September 2022
Other capital expenditure
Total capital Adjustment Total
Total expenditure for non-wholly capital
No capital - joint owned expenditure
Development Incremental incremental expenditure ventures subsidiaries -
capital lettable lettable Tenant Capitalised - Combined (Group GBPm Group
Acquisitions(1) expenditure(2) space(3) space improvements Total interest Portfolio share)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Central London
West End Offices - - - 3 - 3 - 3 - - 3
City Offices - - - 1 - 1 - 1 - - 1
Retail and other - - - 1 - 1 - 1 - - 1
Developments - 153 - - - - 14 167 - - 167
Total Central London - 153 - 5 - 5 14 172 - - 172
Major retail
Shopping centres - - 1 1 - 2 - 2 (2) - 4
Outlets - - - (2) 3 1 - 1 - - 1
Total Major retail - - 1 (1) 3 3 - 3 (2) - 5
Mixed-use urban
Completed investment - - - 5 - 5 - 5 - (3) 8
Developments 2 1 - - - - - 3 (11) - 14
Total Mixed-use urban 2 1 - 5 - 5 - 8 (11) (3) 22
Subscale sectors
Leisure - - - (1) 1 - - - (1) - 1
Hotels - - - 1 - 1 - 1 - - 1
Retail parks - - - 1 1 2 - 2 - - 2
Total Subscale sectors - - - 1 2 3 - 3 (1) - 4
Total capital expenditure 2 154 1 10 5 16 14 186 (14) (3) 203
Timing difference between
accrual and cash basis (43) - - (43)
Total capital expenditure
on a cash basis 143 (14) (3) 160
1. Investment properties acquired in the period.
2. Expenditure on the future development pipeline and completed
developments.
3. Capital expenditure where the lettable area increases by at
least 10%.
Other business analysis
Table 21: Top 12 occupiers at 30 September 2022
% of Group
rent(1)
----------
Central Government 5.8
Deloitte 5.5
Accor 4.5
Cineworld 1.8
Boots 1.7
Taylor Wessing 1.4
Peel 1.3
BBC 1.3
M&S 1.1
Sainsbury's 1.1
H&M 1.0
Next 1.0
----------
27.5
----------
1. On a proportionate basis.
Table 22: Committed and future development pipeline and trading
property development schemes at 30 September 2022
Central
London
Total Forecast
Net development total
Ownership Letting Market income/ Estimated costs development
Description interest Size status value ERV completion to date cost
Property of use % sq ft % GBPm GBPm date GBPm GBPm
Committed
development
pipeline
------------ ----------- -------- -----------
The Forge,
SE1 Office 100 139,000 - 155 10 Dec 2022 133 152
Retail 1,000
------------------------- ----------- -------- -----------
Lucent, W1 Office 100 120,000 19 222 14 Mar 2023 209 252
Retail 21,000
Residential 3,000
------------------------- ----------- -------- -----------
n2, SW1 Office 100 164,000 27 172 14 Jun 2023 153 208
Retail 1,000
------------------------- ----------- -------- -----------
Property Description Ownership Proposed Potential
of use interest sq ft start
% date
Future near-term
development
pipeline
----------- -------- -----------
Timber Square,
SE1 Office 100 380,000 2023
----------- -------- -----------
Portland House,
SW1 Office 100 300,000 2023
----------- -------- -----------
Liberty of Southwark, Office/
SE1 Residential 100 200,000 2023
----------- -------- -----------
Red Lion Court,
SE1 Office 100 230,000 2024
----------- -------- -----------
Total Forecast
Sales development total
Ownership Size exchanged Estimated costs development
Description interest sq Number by unit completion to date cost
Property of use % ft of units % date GBPm GBPm
Trading property
development
schemes
-------------------- ------------ --------- ---------- ----------- ------------ ------------
Castle Lane, SW1 Residential 100 52,000 89 99 Jan 2024 20 47
-------------------- ---------- ----------- ------------ ------------
Mixed-use urban
Property Ownership Proposed Potential
interest sq ft start
% date
Future development
pipeline
---------
Mayfield, Manchester 50-100 2,500,000 2023
---------
MediaCity, Greater
Manchester 75 1,900,000 2023
---------
Finchley Road,
NW3 100 1,400,000 2023
---------
Buchanan Galleries,
Glasgow 100 1,400,000 2024
---------
Lewisham, SE13 100 1,800,000 2025
---------
Where the property is not 100% owned, floor areas and letting
status shown above represent the full scheme whereas all other
figures represent our proportionate share. Letting % is measured by
ERV and shows letting status at 30 September 2022. Trading property
development schemes are excluded from the future development
pipeline.
Total development cost
Refer to the Glossary for definition.
Net income/ERV
Net income/ERV represents headline annual rent on let units plus
ERV at 30 September 2022 on unlet units, both after rents
payable.
Table 23: Combined Portfolio analysis
Like-for-like segmental analysis
Valuation Annualised Net estimated
Market value(1) movement(1) Rental income(1) rental income(2) rental value(3)
30 30 30 30 30
September 31 March Surplus/ Surplus/ September September September 31 March September 31 March
2022 2022 (deficit) (deficit) 2022 2021 2022 2022 2022 2022
GBPm GBPm GBPm % GBPm GBPm GBPm GBPm GBPm GBPm
Central London
West End offices 2,761 3,013 (116) -4.2% 72 70 132 135 143 147
City offices 1,746 1,928 (183) -9.7% 40 38 79 76 104 101
Retail and other 1,089 1,131 2 0.2% 30 37 43 47 53 54
Developments(6) 1,102 1,709 (7) -0.6% 19 5 5 10 64 112
Total Central
London 6,698 7,781 (304) -4.4% 161 150 259 268 365 414
Major retail
Shopping centres 1,150 1,141 12 1.1% 60 51 106 108 104 101
Outlets 740 743 (5) -0.6% 28 26 57 56 61 61
Total Major
retail 1,890 1,884 7 0.4% 88 77 163 164 165 162
Mixed-use urban
Completed
investment 393 409 (20) -4.8% 11 - 24 24 24 24
Developments(6) 497 486 11 2.0% 17 17 29 29 32 32
Total Mixed-use
urban 890 895 (9) -1.0% 28 17 53 53 56 56
Subscale sectors
Leisure 563 569 (14) -2.6% 24 22 50 49 51 51
Hotels 444 422 23 5.3% 15 6 25 16 25 25
Retail parks 444 466 (26) -5.4% 15 15 29 29 29 29
Total Subscale
sectors 1,451 1,457 (17) -1.2% 54 43 104 94 105 105
Combined
Portfolio 10,929 12,017 (323) -2.9% 331 287 579 579 691 737
Properties
treated
as finance
leases (1) (5)
Combined
Portfolio 10,929 12,017 (323) -2.9% 330 282
Represented by:
Investment
portfolio 10,155 11,217 (324) -3.1% 303 258 533 531 640 687
Share of joint
ventures 774 800 1 0.2% 27 24 46 48 51 50
Combined
Portfolio 10,929 12,017 (323) -2.9% 330 282 579 579 691 737
Total portfolio analysis Notes:
Net initial Equivalent 1. Refer to Glossary for
yield(4) yield(5) definition.
Movement 2. Annualised rental income
30 September in 30 September Movement is annual 'rental income'
2022 like-for-like(7) 2022 in like-for-like(7) (as defined in the
% bps % bps Glossary)
------------------- ------------ ------------------ ------------ ------------------- at the balance sheet date,
Central London except that car park and
West End offices 4.6% 36 4.8% 21 commercialisation income
City offices 3.3% (34) 4.9% 27 are included on a net basis
Retail and other 4.2% (30) 4.6% 14 (after deduction for
Developments(6) 0.3% n/a 4.5% n/a operational
Total Central outgoings). Annualised
London 3.5% - 4.7% 21 rental
Major retail income includes temporary
Shopping centres 7.7% (8) 7.4% 5 lettings.
Outlets 5.9% 10 6.7% (4) 3. Net estimated rental
Total Major retail 7.0% 2 7.1% 1 value
Mixed-use urban is gross estimated rental
Completed value, as defined in the
investment 5.3% 21 5.9% 18 Glossary, after deducting
Development(6) 5.2% n/a 5.3% n/a expected rent payable.
------------------- ------------------ ------------------- 4. Net initial yield -
Total Mixed-use refer
urban 5.2% 21 5.6% 18 to Glossary for definition.
Subscale sectors This calculation includes
Leisure 6.9% 37 7.2% 27 all properties including
Hotels 5.2% 99 5.5% (1) those sites with no income.
Retail parks 6.1% 43 6.0% 29 5. Equivalent yield - refer
Total Subscale to Glossary for definition.
sectors 6.1% 54 6.3% 17 Future developments are
Combined Portfolio 4.6% 13 5.4% 19 excluded
------------------- from the calculation of
equivalent
yield on the Combined
Portfolio.
Represented by: 6. Comprises the
Investment development
portfolio 4.5% n/a 5.4% n/a pipeline - refer to
Share of joint Glossary
ventures 5.6% n/a 5.8% n/a for definition.
------------------- ------------------ ------------------- 7. The like-for-like
Combined Portfolio 4.6% n/a 5.4% n/a portfolio
------------------- - refer to Glossary for
definition.
Table 24: Floor Areas
30 September
Million sq
ft
------------
Central London
West End offices 2.8
City offices 1.8
Retail and other 1.0
Developments n/a
------------
Total Central London 5.6
------------
Major retail
Shopping centres 6.6
Outlets 1.5
------------
Total Major retail 8.1
------------
Mixed-use urban
Completed investment 3.0
Developments n/a
------------
Total Mixed-use urban 3.0
------------
Subscale sectors
Leisure 3.4
Hotels 2.0
Retail parks 1.8
------------
Total Subscale sectors 7.2
------------
Total 23.9
------------
Table 25: Reconciliation of segmental information note to
interim reporting for the six months to 30 September 2021
Six months ended 30 September
2021
Adjustment
for non-wholly Capital
Group income Joint owned EPRA and other
statement ventures(1) subsidiaries(2) Total earnings items
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ ---------------- --------- ----------
Rental income 258 24 - 282 282 -
Finance lease interest 5 - - 5 5 -
------------ ---------------- --------- ----------
Gross rental income (before rents
payable) 263 24 - 287 287 -
Rents payable (4) (1) - (5) (5) -
------------ ---------------- --------- ----------
Gross rental income (after rents
payable) 259 23 - 282 282 -
------------ ----------------
Service charge income 36 5 - 41 41 -
Service charge expense (42) (5) - (47) (47) -
------------ ----------------
Net service charge expense (6) - - (6) (6) -
Other property related income 12 2 - 14 14 -
Direct property expenditure (34) (5) - (39) (39) -
Movement in bad and doubtful debts
provisions 7 (4) - 3 3 -
Segment net rental income 238 16 - 254 254 -
Other income 3 - - 3 3 -
Administrative expenses (41) - - (41) (41) -
Depreciation (3) - - (3) (3) -
------------ ---------------- --------- ----------
EPRA earnings before interest 197 16 - 213 213 -
Share of post-tax loss from joint
ventures (1) 1 - - - -
Profit on disposal of investment
properties 6 - - 6 - 6
Net surplus/(deficit) on revaluation
of investment properties 94 (13) - 81 - 81
Gain on modification of finance leases 6 - - 6 - 6
Operating profit 302 4 - 306 213 93
Finance income 6 - - 6 4 2
Finance expense (33) (4) - (37) (37) -
Profit before tax 275 - - 275 180 95
Taxation - - - -
------------ ----------------
Profit for the period 275 - - 275
------------ ----------------
1. Reallocation of the share of post-tax loss from joint
ventures reported in the Group income statement to the individual
line items reported in the segmental information note.
2. Removal of the non-wholly owned share of results of the
Group's subsidiaries. The non-wholly owned subsidiaries are
consolidated at 100% in the Group's income statement, but only the
Group's share is included in EPRA earnings reported in the
segmental results table.
Table 26: Lease lengths
Weighted average unexpired
lease term at 30 September
2022
Like-for-like
portfolio,
Like-for-like completed developments
portfolio and acquisitions
Mean(1) Mean(1)
Years Years
----------------------- ------------- -----------------------
Central London
West End Offices 6.5 6.5
City offices 7.8 7.8
Retail and other 7.6 7.6
Total Central London 7.0 7.0
-----------------------
Major retail
Shopping centres 4.2 4.2
Outlets 3.2 3.2
Total Major retail 3.9 3.9
-----------------------
Mixed-use urban n/a 9.7
----------------------- ------------- -----------------------
Subscale sectors
Leisure 10.4 10.4
Hotels 8.7 8.7
Retail parks 4.3 4.3
Total Subscale sectors 8.0 8.0
-----------------------
Combined Portfolio 6.3 6.4
----------------------- ------------- -----------------------
1. Mean is the rent weighted average of the unexpired lease term
across all leases (excluding short-term leases). Term is defined as
the earlier of tenant break or expiry.
Investor information
1. Company website: landsec.com
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 . 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 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
The Company's shares can be traded through most banks, building
societies and stockbrokers. They can also be traded through
Equiniti. To use their service, shareholders should contact
Equiniti: 0345 603 7037 from the UK. Lines are ordinarily open
Monday to Friday 08:00 to 16:30 for dealing and until 18:00 for
enquiries, excluding UK public holidays.
5. 2022/23 second quarterly dividend
The Board has declared a second quarterly dividend for the year
ending 31 March 2023 of 9.0p per ordinary share which will be paid
on 3 January 2023 to shareholders registered at the close of
business on 24 November 2022. This will be paid wholly as a
Property Income Distribution (PID). Together with the first
quarterly dividend of 8.6p already paid on 7 October 2022 wholly as
a PID, the first half dividend will be 17.6p per ordinary share
(six months ended 30 September 2021: 15.5p).
6. Dividend related services
Dividend payments to UK shareholders - Dividend mandates
Dividends are no longer paid by cheque. Shareholders whose
dividends have previously been paid by cheque will need to have
their dividends paid directly into their personal bank or building
society account or alternatively participate in our Dividend
Reinvestment Plan (see below) to receive dividends in the form of
additional shares. To facilitate this, please contact Equiniti or
complete a mandate instruction available on our website:
landsec.com/investors 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 .
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 .
7. Financial reporting calendar 2023
Financial year end 31 March
Preliminary results announcement 16 May
Half year results announcement 14 November*
* Provisional date only
8. Investor relations enquiries
For investor relations enquiries, please contact Edward Thacker,
Head of Investor Relations at Landsec, by telephone on +44 (0)20
7413 9000 or by email at enquiries@landsec.com.
Glossary
Adjusted net cash inflow from operating activities
Net cash inflow from operating activities including the Group's
share of our joint ventures' net cash inflow from operating
activities.
Adjusted net debt
Net debt excluding cumulative fair value movements on
interest-rate swaps and amounts payable under head leases. It
generally includes the net debt of subsidiaries and joint ventures
on a proportionate basis.
Book value
The amount at which assets and liabilities are reported in the
financial statements.
BREEAM
Building Research Establishment's Environmental Assessment
Method.
Combined Portfolio
The Combined Portfolio comprises the investment properties of
the Group's subsidiaries, on a proportionately consolidated basis
when not wholly owned, together with our share of investment
properties held in our joint ventures.
Completed developments
Completed developments consist of those properties previously
included in the development programme, which have been transferred
from the development programme since 1 April 2021.
Development pipeline
The development programme together with proposed
developments.
Development programme
The development programme consists of committed developments
(Board approved projects), projects under construction and
developments which have reached practical completion within the
last two years but are not yet 95% let.
Diluted figures
Reported results adjusted to include the effects of potentially
dilutive shares issuable under employee share schemes.
Dividend Reinvestment Plan (DRIP)
The DRIP provides shareholders with the opportunity to use cash
dividends received to purchase additional ordinary shares in the
Company immediately after the relevant dividend payment date. Full
details appear on the Company's website.
Earnings per share
Profit after taxation attributable to owners divided by the
weighted average number of ordinary shares in issue during the
period.
EPRA
European Public Real Estate Association.
EPRA earnings
Profit after tax, excluding profits on the sale of non-current
assets and trading properties, profits on long-term development
contracts, valuation movements, fair value movements on
interest-rate swaps and similar instruments used for hedging
purposes, debt restructuring charges, and any other items of an
exceptional nature.
EPRA earnings per share
Earnings per share based on EPRA earnings after related tax.
EPRA loan-to-value (LTV)
Ratio of adjusted net debt, including net payables, to the sum
of the net assets, including net receivables, of the Group, its
subsidiaries and joint ventures, all on a proportionate basis,
expressed as a percentage. The calculation includes trading
properties at fair value and debt at nominal value.
EPRA net disposal value (NDV) per share
Diluted net assets per share adjusted to remove the impact of
goodwill arising as a result of deferred tax, and to include the
difference between the fair value and the book value of the net
investment in tenant finance leases and fixed interest rate
debt.
EPRA net initial yield
EPRA net initial yield is defined within EPRA's Best Practice
Recommendations as the annualised rental income based on the cash
rents passing at the balance sheet date, less non-recoverable
property operating expenses, divided by the gross market value of
the property. It is consistent with the net initial yield
calculated by the Group's external valuer.
EPRA Net Reinstatement Value (NRV) per share
Diluted net assets per share adjusted to remove the cumulative
fair value movements on interest-rate swaps and similar
instruments, the carrying value of deferred tax on intangible
assets and to include the difference between the fair value and the
book value of the net investment in tenant finance leases and add
back purchasers' costs.
EPRA Net Tangible Assets (NTA) per share
Diluted net assets per share adjusted to remove the cumulative
fair value movements on interest-rate swaps and similar
instruments, the carrying value of goodwill arising as a result of
deferred tax and other intangible assets, deferred tax on
intangible assets and to include the difference between the fair
value and the book value of the net investment in tenant finance
leases.
Equivalent yield
Calculated by the Group's external valuer, equivalent yield is
the internal rate of return from an investment property, based on
the gross outlays for the purchase of a property (including
purchase costs), reflecting reversions to current market rent and
such items as voids and non-recoverable expenditure but ignoring
future changes in capital value. The calculation assumes rent is
received annually in arrears.
ERV - Gross estimated rental value
The estimated market rental value of lettable space as
determined biannually by the Group's external valuer. For
investment properties in the development programme, which have not
yet reached practical completion, the ERV represents management's
view of market rents.
Fair value movement
An accounting adjustment to change the book value of an asset or
liability to its market value (see also mark-to-market
adjustment).
Finance lease
A lease that transfers substantially all the risks and rewards
of ownership from the Group as lessor to the lessee.
Gearing
Total borrowings, including bank overdrafts, less short-term
deposits, corporate bonds and cash, at book value, plus cumulative
fair value movements on financial derivatives as a percentage of
total equity. For adjusted gearing, see note 13.
Gross market value
Market value plus assumed usual purchaser's costs at the
reporting date.
Head lease
A lease under which the Group holds an investment property.
Interest Cover Ratio (ICR)
A calculation of a company's ability to meet its interest
payments on outstanding debt. It is calculated using EPRA earnings
before interest, divided by net interest (excluding the
mark-to-market movement on interest-rate swaps, foreign exchange
swaps, capitalised interest and interest on the pension scheme
assets and liabilities). The calculation excludes joint
ventures.
Interest-rate swap
A financial instrument where two parties agree to exchange an
interest rate obligation for a predetermined amount of time. These
are generally used by the Group to convert floating-rate debt or
investments to fixed rates.
Investment portfolio
The investment portfolio comprises the investment properties of
the Group's subsidiaries on a proportionately consolidated basis
where not wholly owned.
Joint venture
An arrangement in which the Group holds an interest and which is
jointly controlled by the Group and one or more partners under a
contractual arrangement. Decisions on the activities of the joint
venture that significantly affect the joint venture's returns,
including decisions on financial and operating policies and the
performance and financial position of the operation, require the
unanimous consent of the partners sharing control.
Lease incentives
Any incentive offered to occupiers to enter into a lease.
Typically, the incentive will be an initial rent-free period, or a
cash contribution to fit-out or similar costs. For accounting
purposes, the value of the incentive is spread over the
non-cancellable life of the lease.
Like-for-like portfolio
The like-for-like portfolio includes all properties which have
been in the portfolio since 1 April 2021 but excluding those which
are acquired or sold since that date. Properties in the development
pipeline and completed developments are also excluded.
Loan-to-value (LTV)
Group LTV is the ratio of adjusted net debt, including
subsidiaries and joint ventures, to the sum of the market value of
investment properties and the book value of trading properties of
the Group, its subsidiaries and joint ventures, all on a
proportionate basis, expressed as a percentage. For the Security
Group, LTV is the ratio of net debt lent to the Security Group
divided by the value of secured assets.
Market value
Market value is determined by the Group's external valuer, in
accordance with the RICS Valuation Standards, as an opinion of the
estimated amount for which a property should exchange on the date
of valuation between a willing buyer and a willing seller in an
arm's-length transaction after proper marketing.
Mark-to-market adjustment
An accounting adjustment to change the book value of an asset or
liability to its market value (see also fair value movement).
Net assets per share
Equity attributable to owners divided by the number of ordinary
shares in issue at the end of the period. Net assets per share is
also commonly known as net asset value per share (NAV per
share).
Net initial yield
Net initial yield is a calculation by the Group's external
valuer of the yield that would be received by a purchaser, based on
the Estimated Net Rental Income expressed as a percentage of the
acquisition cost, being the market value plus assumed usual
purchasers' costs at the reporting date. The calculation is in line
with EPRA guidance. Estimated Net Rental Income is determined by
the valuer and is based on the passing cash rent less rent payable
at the balance sheet date, estimated non-recoverable outgoings and
void costs including service charges, insurance costs and void
rates.
Net rental income
Net rental income is the net operational income arising from
properties, on an accruals basis, including rental income, finance
lease interest, rents payable, service charge income and expense,
other property related income, direct property expenditure and bad
debts. Net rental income is presented on a proportionate basis.
Net zero carbon building
A building for which an overall balance has been achieved
between carbon emissions produced and those taken out of the
atmosphere, including via offset arrangements. This relates to
operational emissions for all buildings while, for a new building,
it also includes supply-chain emissions associated with its
construction.
Over-rented
Space where the passing rent is above the ERV.
Passing cash rent
Passing cash rent is passing rent excluding units that are in a
rent free period at the reporting date.
Passing rent
The estimated annual rent receivable as at the reporting date
which includes estimates of turnover rent and estimates of rent to
be agreed in respect of outstanding rent review or lease renewal
negotiations. Passing rent may be more or less than the ERV (see
over-rented, reversionary and ERV). Passing rent excludes annual
rent receivable from units in administration save to the extent
that rents are expected to be received. Void units at the reporting
date are deemed to have no passing rent. Although temporary lets of
less than 12 months are treated as void, income from temporary lets
is included in passing rents.
Planning permission
There are two common types of planning permission: full planning
permission and outline planning permission. A full planning
permission results in a decision on the detailed proposals on how
the site can be developed. The grant of a full planning permission
will, subject to satisfaction of any conditions, mean no further
engagement with the local planning authority will be required to
build the consented development. An outline planning permission
approves general principles of how a site can be developed. Outline
planning permission is granted subject to conditions known as
'reserved matters'. Consent must be sought and achieved for
discharge of all reserved matters within a specified time-limit,
normally three years from the date outline planning permission was
granted, before building can begin. In both the case of full and
outline planning permission, the local planning authority will
'resolve to grant permission'. At this stage, the planning
permission is granted subject to agreement of legal documents, in
particular the s106 agreement.
On execution of the s106 agreement, the planning permission will
be issued. Work can begin on satisfaction of any 'pre-commencement'
planning conditions.
Pre-development properties
Pre-development properties are those properties within the
like-for-like portfolio which are being managed to align vacant
possession within a three-year horizon with a view to
redevelopment.
Pre-let
A lease signed with an occupier prior to completion of a
development.
Property Income Distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out
of qualifying profits. A REIT is required to distribute at least
90% of its qualifying profits as a PID to its shareholders.
Qualifying activities/Qualifying assets
The ownership (activity) of property (assets) which is held to
earn rental income and qualifies for tax-exempt treatment (income
and capital gains) under UK REIT legislation.
Real Estate Investment Trust (REIT)
A REIT must be a publicly quoted company with at least
three-quarters of its profits and assets derived from a qualifying
property rental business. Income and capital gains from the
property rental business are exempt from tax but the REIT is
required to distribute at least 90% of those profits to
shareholders. Corporation tax is payable on non-qualifying
activities in the normal way.
Rental income
Rental income is as reported in the income statement, on an
accruals basis, and adjusted for the spreading of lease incentives
over the term certain of the lease in accordance with IFRS 16
(previously, SIC-15). It is stated gross, prior to the deduction of
ground rents and without deduction for operational outgoings on car
park and commercialisation activities.
Rental value change
Increase or decrease in the current rental value, as determined
by the Group's external valuer, over the reporting year on a
like-for-like basis.
Return on average capital employed
Group profit before net finance expense, plus joint venture
profit before net finance expense, divided by the average capital
employed (defined as shareholders' funds plus adjusted net
debt).
Return on average equity
Group profit before tax plus joint venture tax divided by the
average equity shareholders' funds.
Reversionary or under-rented
Space where the passing rent is below the ERV.
Reversionary yield
The anticipated yield to which the initial yield will rise (or
fall) once the rent reaches the ERV.
Security Group
Security Group is the principal funding vehicle for the Group
and properties held in the Security Group are mortgaged for the
benefit of lenders. It has the flexibility to raise a variety of
different forms of finance.
SONIA
The Sterling Overnight Index Average reflects the average
overnight interest rate paid by banks for unsecured sterling
transactions with a range of institutional investors. It is
calculated based on actual transactions and is often used as a
reference rate in bank facilities.
Temporary lettings
Lettings for a period of one year or less. These are included
within voids, but excluded from vacancy rates.
Topped-up net initial yield
Topped-up net initial yield is a calculation by the Group's
external valuer. It is calculated by making an adjustment to net
initial yield in respect of the annualised cash rent foregone
through unexpired rent-free periods and other lease incentives. The
calculation is consistent with EPRA guidance.
Total accounting return
Dividend paid per share in the year plus the change in EPRA Net
Tangible Assets per share, divided by EPRA Net Tangible Assets per
share at the beginning of the year.
Total cost ratio
Total cost ratio represents all costs included within EPRA
earnings, other than rents payable, financing costs and provisions
for bad and doubtful debts, expressed as a percentage of gross
rental income before rents payable adjusted for costs recovered
through rents but not separately invoiced.
Total development cost (TDC)
Total development cost refers to the book value of the site at
the commencement of the project, the estimated capital expenditure
required to develop the scheme from the start of the financial
period in which the property is added to our development programme,
together with capitalised interest, being the Group's borrowing
costs associated with direct expenditure on the property under
development. Interest is also capitalised on the purchase cost of
land or property where it is acquired specifically for
redevelopment. The TDC for trading property development schemes
excludes any estimated tax on disposal.
Total property return (TPR)
The change in market value, adjusted for net investment, plus
the net rental income of our investment properties expressed as a
percentage of opening market value plus the time weighted capital
expenditure incurred during the period.
Total Shareholder Return (TSR)
The growth in value of a shareholding over a specified period,
assuming that dividends are reinvested to purchase additional units
of the stock.
Trading properties
Properties held for trading purposes and shown as current assets
in the balance sheet.
Turnover rent
Rental income which is related to an occupier's turnover.
Vacancy rates
Vacancy rates are expressed as a percentage of ERV and represent
all unlet space, including vacant properties where refurbishment
work is being carried out and vacancy in respect of pre-development
properties, unless the scale of refurbishment is such that the
property is not deemed lettable. The screen at Piccadilly Lights,
W1 is excluded from the vacancy rate calculation as it will always
carry advertising although the number and duration of our
agreements with advertisers will vary.
Valuation surplus/deficit
The valuation surplus/deficit represents the increase or
decrease in the market value of the Combined Portfolio, adjusted
for net investment and the effect of accounting for lease
incentives under IFRS 16 (previously SIC-15). The market value of
the Combined Portfolio is determined by the Group's external
valuer.
Voids
Voids are expressed as a percentage of ERV and represent all
unlet space, including voids where refurbishment work is being
carried out and voids in respect of pre-development properties.
Temporary lettings for a period of one year or less are also
treated as voids. The screen at Piccadilly Lights, W1 is excluded
from the void calculation as it will always carry advertising
although the number and duration of our agreements with advertisers
will vary. Commercialisation lettings are also excluded from the
void calculation.
Weighted average cost of capital (WACC)
Weighted average cost of debt and notional cost of equity, used
as a benchmark to assess investment returns.
Weighted average unexpired lease term
The weighted average of the unexpired term of all leases other
than short-term lettings such as car parks and advertising
hoardings, temporary lettings of less than one year, residential
leases and long ground leases.
Yield shift
A movement (negative or positive) in the equivalent yield of a
property asset.
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END
IR KZLFFLFLLFBB
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November 15, 2022 02:00 ET (07:00 GMT)
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