Annual Report 2017 The A–Z of experience £14.4bn portfolio 120 at or 23.2 million sq ft assets a glance 638 employees Founded Welcome to Landsec. Number of staff 1944 We buy, sell, develop Largest commercial and manage property company commercial property in UK by market in the UK. capitalisation

Our aim is to create a great experience Portfolio for everyone we rely on, from our customers to our communities, partners and employees. We believe that’s the best way to create long-term 6.5 sustainable value for our shareholders million sq ft portfolio and everyone else we affect. With the background of geopolitical and economic uncertainty 3.1 affecting the UK, our markets lost million sq ft momentum during the year. However, development by having a clear strategy and acting programme completed early, we’ve been able to achieve a good relative performance this year. We consider both the short and long-term effects of our actions. £8.3 billion of assets And in this Annual Report, we’ve further integrated important content about our broader social and environmental impacts.

Performance measures: Retail Portfolio £112m Profit before tax (2016: £1,336m) 1.4% 16.7 Total business return (2016: 13.4%) million sq ft portfolio 3.7% Total property return (2016: 11.5%) 38.55p 13 Dividend up 10.1% shopping centres 4.3 out of 5 Customer satisfaction, both London and Retail 13 retail parks 18.5% 2 Reduced carbon intensity (kgCO2/m ) by 18.5% compared to 2013/14 baseline 20 962 leisure destinations Employment created for 962 disadvantaged people to date Everything we do starts with Contents Strategic Report understanding the changing needs Strategic Report 16 Chief Executive’s statement and expectations of the people 18 Our market 20 Our strategy who matter most to us – our 24 Key performance indicators 26 Our business model customers, communities, partners 28 Creating sustainable long-term value 30 Financial review and employees. 36 Physical review 38 Social review 42 Managing risk We then draw on our experience 44 Our principal risks and uncertainties 46 London Portfolio review to create the very best experiences 50 Retail Portfolio review 54 Going Concern for them. By getting that right 54 Viability Statement we’re able to create long-term Governance 56 Letter from the Chairman value for our shareholders. 58 Board of Directors 60 Executive Committee 61 Leadership Put simply, for us “Everything 64 Letter from the Chairman of the Nomination Committee is experience”. 66 Effectiveness 68 Letter from the Chairman of the Audit Committee Over the following pages we 70 Accountability 75 Investor relations explore 26 stories that capture 76 Directors’ Remuneration Report – Chairman’s Annual Statement our approach in action, from 78 Remuneration at a glance 80 Annual Report on Remuneration A to Z. And we report on 90 Summary of Directors’ Remuneration Policy what our approach achieved 92 Directors’ Report Financial statements this year – financially, socially 96 Statement of Directors’ Responsibilities and physically. 97 Independent Auditor’s Report 103 Income statement 103 Statement of comprehensive income 104 Balance sheets 105 Statement of changes in equity 106 Statement of cash flows 107 Notes to the financial statements

Additional information 156 Business analysis – Group 160 Business analysis – London 161 Business analysis – Retail 162 Sustainability reporting 168 Combined Portfolio analysis 170 Lease lengths 171 Development pipeline and trading property development schemes 172 Alternative performance measures 172 Five year summary 174 Acquisitions, disposals and capital expenditure 175 Remuneration policy 180 Subsidiaries, joint ventures and associates 183 Shareholder information 186 Key contacts and advisers 187 Glossary Visit our new website www.landsec.com IBC Cautionary statement

Landsec Annual Report 2017 1 2 the placeeven more inviting for visitors. That’s and energy cut costs use, and helpsmake effective we’ve turned off theairconditioning. At Bluewater, ourupgraded system isso supplies airasfresh as you’d findatthecoast. ventilation system at The ZigZag Building spaces.and productive Which is why our We designourbuildingsto healthy, be efficient Landsec Annual Report 2017 Report Landsec Annual A breath of fresh air Our year Strategic Report

This year brought political, social and economic uncertainty. That affected our markets, weakening demand for space. Put simply, our markets don’t know what’s next. In London, the office market reached a turning point. Supply-constrained conditions eased and the vacancy rate rose, with the Brexit vote a catalyst for change. In the retail sector, a range of factors impacted retailers’ confidence, from the threat of cost inflation to online sales growth. But we also saw opportunities. Successful businesses continued to look for innovative, technically resilient space in London. And in retail, there remained continued demand from dynamic brands for new and repurposed space in the best locations.

Landsec Annual Report 2017 3 We also saw the continuation of four long-term trends – each driven by expectation, each creating opportunities for us: Smart office occupiers expect their work environment to deliver business benefits. That includes operational efficiency, but it’s also about attracting, inspiring and enabling talent. People expect more from their shopping experience. Destination centres must go way beyond convenience and choice and provide a truly memorable day (and night) out. People also expect the best businesses to lead on creating better environmental and social outcomes. That means recognising the deeper, Designed with care long-term effects of decisions We work to create memorable customer experiences while and actions. minimising our impact. For example, at 1 New Street Square smart design choices saved 200 And talented employees expect a tonnes of carbon and reduced material costs by more than great career experience. Which is why £600,000. a compelling employer brand is an increasingly valuable asset.

4 Landsec Annual Report 2017 Strategic Report

Employer brand We aim to provide employees with a great career experience, so we’re delighted to be one of ’s ‘Best Places to Work in Property’ list – the only listed REIT included in their list.

Community impact We’ve launched the UK’s first scaffolding academy inside a prison, helping offenders at HMP Brixton get the skills and experience they need to find employment outside – reducing the risk of re-offending.

Blend of experience It’s vital our team has the right Film stars blend of experience, skills and Destination centres give people knowledge – including at the top. plenty of reasons to spend time as This year, Nicholas Cadbury joined well as money. Which is why you’ll the Board, further enhancing our now find 28 boutique and multiplex financial and consumer expertise. cinemas within our Retail Portfolio.

Landsec Annual Report 2017 5 Knowing our market From smart technologies embedded in buildings to more flexible leases, we’re using our experience to prepare now for what our customers will need tomorrow.

Lighting up London At Piccadilly Lights we’re creating Europe’s most technically advanced digital screen, giving customers extraordinary new ways to interact with two million people each week.

Healthy HQ From collaborative working spaces and smart acoustics to a healthy food bar, our new HQ in Victoria has transformed the workplace experience for our employees.

6 Landsec Annual Report 2017 Strategic Report

Insights drive relationships By working to understand the business, we’ve helped TripAdvisor grow. Their customer experience has inspired them to triple space with us at Soho Square and commit through to 2023.

Multi-channel opportunities Jobs change lives Fashionista Missguided opens at Bluewater this summer, part of the At our Lewisham shopping trend for online retailers to provide centre we’re supporting an a deeper brand experience through innovative approach to work physical stores. experience, helping young people gain skills, develop self-discipline and find jobs.

Girls Can Do It Too The proportion of female workers in UK construction is just 11%. To give young women an experience of working in construction, our Girls Can Do It Too project invited students at two girls’ schools to plan, design and model a development, pitching their ideas to a panel of ‘dragons’.

Landsec Annual Report 2017 7 8 and theRoyal Parks. transformation of thisarea between StationVictoria andstrikingarchitecture completepublic art the with hundreds of alfresco diningseats. Pedestrianisation, kioskspop-up are setto thissummer, open together work, visit andplay. 17 new restaurants andthree eateries anddeliciousplaceto makingthisastylish of SW1, with landmarkofficespace andanarray of We’ve created astunning new destinationintheheart

Landsec Annual Report 2017 Report Landsec Annual Nova shines bright

So how did we address our Strategic Report opportunities this year? We drew our speculative London development programme to a close and sharpened our focus on letting space, actively managing assets and patiently tracking potential acquisitions. We worked to improve further our Retail Portfolio, finding new ways to help retailers and restaurateurs delight customers. We became the first property company in the world to have its science-based carbon targets formally approved. We also helped take our industry forward on community employment and wellbeing. And we enhanced the career experience we offer, moving to a new headquarters designed for collaborative working and developing new ways to strengthen our culture.

Landsec Annual Report 2017 9 Our resilient results this year are down to the actions we have taken over the past few years to upgrade our assets and strengthen our balance sheet. In March 2010 when we restarted development, our Combined Portfolio Queuing around was valued at £9.5bn and debt was the block Our student lock-ins promise £4.2bn. Today, our portfolio is valued discounts, freebies and a top night out. They really draw the crowds, at £14.4bn and we’ve reduced debt with over 27,700 students at our to £3.3bn. event this year at St David’s. Our net assets have increased by £4.9bn over seven years. And at the same time, we have increased revenue profit by 52%. Our balance sheet is in robust health, with low levels of gearing and development. That gives us the firepower to buy when the time is right. Our high quality assets are well matched to the changing needs of our customers and communities – a vital advantage in uncertain times. We’ve recommended a full year dividend of 38.55p per share, up 10.1%.

10 Landsec Annual Report 2017 Strategic Report

Oxford welcomes Westgate Opening in October, Westgate will provide everything from global brands to a boutique cinema, from street food to rooftop dining. Developed with The – and the strong support of local people – it’s a place set to inspire and delight.

Sustainability Matters All employees are taking part in Sustainability Matters, a training experience designed to embed sustainable thinking in decision- making across the Company.

Re-imagining space By taking a fresh approach to design at 20 Eastbourne Terrace – a 1960s office tower in Paddington Pride at work – we’ve been able to raise ceiling Inspired by our support for Pride – heights, bring in more daylight and the biggest lesbian, gay, bisexual introduce a planted roof terrace. and transgender parade in the UK The asset was fully let within a year – this year employees launched the of completion. Company’s first LGBT network.

Landsec Annual Report 2017 11 Tastes change Food is a vital ingredient in the shopping centre experience; that’s why we’re constantly refreshing our restaurant mix – like bringing Indian street food brand Mowgli to this year.

Understanding shoppers’ needs We now measure customer satisfaction across every one of our retail destinations, using online surveys to track feedback on events and the overall customer experience.

Young talent In an industry lagging on diversity, our Trainee Academy provides opportunities for school leavers from a broad range of backgrounds to develop a career here.

12 Landsec Annual Report 2017 Strategic Report

Validated carbon targets We are the first property company in the world to have its science- based emissions target formally approved – clear evidence we’re serious about sustainability and the environment.

Working together Through our Customer Improvement Groups we bring supply partners together regularly – so they understand our priorities, we hear their views and customers are assured of terrific service.

X marks the spot We focus our activity where businesses and people want to spend their time and money, from regional cities to London’s most dynamic and well-connected centres.

Landsec Annual Report 2017 13 14 World ArchitectureFestival. ‘Bestofficewas named scheme inthe world’atthe exceptional natural light – justsome of the reasons it terraces, shower rooms, filtered air, stunning viewsand public realm inSW1. The officesfeature outdoor officespace with retail, restaurants and re-imagined productive. The ZigZag Buildingcombines high-end makes employees happier, andmuchmore healthier Research tell usthatenrichingthe work environment

Landsec Annual Report 2017 Report Landsec Annual Zig Zag – truly world-class Uncertainty will continue to shape our Strategic Report markets, but we go forward in great shape – with clear priorities: In London, we’ll focus on active asset management and preparations for future acquisitions and developments. In Retail, we’ll continue to enhance our destination assets and strengthen our portfolio. We will do even more to sustain the success of our Company, customers and communities, further embedding sustainability in our approach. And we’ll keep developing our people, enhancing the know-how we need to compete, thrive and lead our industry. Above all else, we’ll work to understand and address people’s changing needs, using our experience to create great experiences for others. Because – ultimately – Everything is experience.

Landsec Annual Report 2017 15 Robert Noel reports on Landsec is in a great position. We have a Chief portfolio of first-class assets combined with our performance during historically low levels of operational and financial gearing at a time of geopolitical Executive’s the year and shares his and economic uncertainty. outlook for the next We’ve largely completed and let our statement speculative development programme. Despite 12 months. being net sellers in the previous year, revenue profit is up 5.5% to £382m and adjusted diluted earnings per share are up 5.7% to 48.3p. Our adjusted diluted net asset value per share is down marginally to 1,417p. Our Combined Portfolio is valued at £14.4bn and, with adjusted net debt broadly unchanged over the year at £3.3bn, our loan-to-value is 22.2%. We’ve reduced our cost of debt and have access to the funds needed to buy when opportunities appear. Despite uncertainty in the outside world, we remain confident of our core strengths inside the Company and we’re recommending a final dividend of 11.7p – raising the dividend for the year by 10.1%.

Market environment Put simply, our markets remain in good health but they’ve paused for breath. In the London office market, we expected the occupational balance to shift from demand to supply during the course of 2017. The Brexit vote brought that inflexion point forward. In last year’s report, I said a vote to leave the EU would create business uncertainty, leading to lower occupational demand, falling rental values and a reduction in construction commitments. This is happening, though less than we expected. Overall, the UK economy continued to perform well during the year. In the retail market, the effect of the referendum was less clear-cut although, faced with pressure on disposable income, shoppers have started to show more caution. Retailers were a little slower to take up new space during the year but we continued to see opportunities to meet the ever-evolving needs of the most successful brands. We won’t be sure of the long-term effect of Brexit on our markets for some time. Negotiations with the EU can only begin in earnest after the general election. Although the business community remains in uncharted territory, that doesn’t mean we should wait for change to happen to us. We’re taking this time to prepare the business for the opportunities and challenges we see ahead. We hope the new government can give businesses as much certainty as possible on areas including tax, regulation, access to skilled labour and public spending such as investment in infrastructure – including desperately needed homes. A clear and ambitious strategy for improving digital connectivity would have a particularly powerful impact.

Robert Noel Robert Executive Chief

16 Landsec Annual Report 2017 First class portfolio Evolving market conditions require role changes Strategic Report The foundations of the business are rock solid, in our teams as our emphasis shifts from selling Our results underpinned by our resilient portfolio and low and development to management and buying. leverage. Our people relish these challenges. We are In London, our modern, well-located assets also enriching our culture, recruiting more are well let, with a weighted average unexpired from outside our industry so we gain fresh lease term on offices of 10.3 years. Having perspectives and new capabilities. During the 3.7% already scaled back speculative development year, we introduced stretching targets on gender Ungeared total property return activity before the year started, the last and ethnic diversity and fairness. 12 months saw us put the finishing touches on over 1 million sq ft of space, including high- Outlook profile developments at 1 New Street Square, We’ve achieved our plan to have minimal 1.2% development exposure and longer lease terms EC4; 20 Eastbourne Terrace, W2; and Nova, Decrease in adjusted diluted in London offices, a transformed Retail Portfolio Victoria, SW1, which completed shortly after net assets per share the year end. Of the 3.1 million sq ft programme and low gearing at this point. Over the next we started in 2010, we have let or sold all but 12 months, we’re unlikely to see rental values 283,000 sq ft. grow in London unless we have more certainty Our Retail Portfolio is a collection of vibrant on movement of people and the UK’s terms destinations that attract dynamic brands and of trade with the EU and the rest of the world. 1.4 % are well-matched to consumer trends. During In the retail sector, the extent to which higher Total business return the year, we built and let a leisure extension supply chain costs are passed on to customers at White Rose, Leeds. Our newest destination, remains to be seen. Whatever the outcome, higher costs tend to reduce take up of space. Westgate Oxford, is on schedule to open in Our activity October and is 80% spoken for. Since the year In the short term, with significantly reduced end, we’ve acquired a portfolio of three outlet risk and a portfolio of first-class assets, we centres, establishing our position as the leading go forward in excellent shape, ready to make £28m owner-manager of outlets in the UK. acquisitions when the time is right. Longer- of investment lettings term, we remain confident in our market and Strong relationships our ability to deliver sustainable growth. We’ll £13m Throughout the year, we pursued our vision of continue to address the trends that shape of development lettings being the best property company in the UK our business in coming years. For example, in the eyes of our customers, communities, the combination of an ageing population and partners and employees. Ultimately, their technological progress will have a huge effect £15m of acquisitions experience drives our performance. We’re on the way we live, work, shop, play, travel and responsible for ensuring that Landsec can are cared for. In turn, this will affect the way we thrive for many years to come. That’s why we design, construct and manage buildings, and £286m set ourselves even higher expectations this year how we attract the best talent. of development and on issues we share with our customers and The importance of thinking ahead and refurbishment expenditure communities, such as local employment and acting early was brought home to me by our place-making. We’ve also improved the way completion of Nova in April. Design on this £413m we address our climate impacts and risks. project started in 2003, when the iPhone was of disposals still an idea in Steve Jobs’ head. We must continue to anticipate change so that we can keep providing the right space for our customers and communities whatever their We go forward future demands – helping businesses and in excellent shape, ready people to thrive. to make acquisitions when the time is right.”

Great people In January, we completed the move into new headquarters at 100 Victoria Street, SW1. This Robert Noel is one of our buildings and it expresses the Chief Executive best of who we are and what we do. We’re on one floor of open-plan workspace supported by innovative technology. Thought has gone into everything from the way we collaborate to how we minimise energy and waste. It’s the UK’s highest rated office fit-out according to sustainability assessment scheme BREEAM.

Landsec Annual Report 2017 17 Our market 3 Economic uncertainty Wider uncertainty has affected the ability of Six big drivers many customers to plan and take decisions. For of opportunities consumers, increased economic uncertainty may lead to lower spending. For businesses and challenges that have to take new space, there’s generally a combination of good choice and attractive 6 market drivers incentives available. Others are opting to sit tight, extending leases and taking additional space if required. The impact of this has not yet been seen in investment values. Brexit brings potential for economic and financial benefits as 1 well as challenges, not least for exporters and businesses looking to move into or expand in Evolving customer needs the UK. For many London office occupiers, location is no 5 longer the only consideration. Flexibility of layout and lease terms; efficient, attractive space; Product innovation technical resilience; and physical and digital connectivity are now just as important. And cost Technology and design innovation have the per head is more important than £ per sq ft. In potential to change the face and functionality retail, successful operators are generally looking of buildings in exciting ways. They will also for fewer but larger spaces where they can impact the construction process. While markets showcase their entire online range and provide a evolve at remarkable speed, the design, brand experience. People are shopping less often construction, leasing and operational processes but will travel further for – and stay longer in – for commercial property remain relatively slow the most successful destination centres. and inflexible. Our industry must do more to reduce time-to-market, cut cost and increase flexibility, resilience, efficiency and sustainability. 2 And we will have to continue designing buildings today that will appeal to and work well for a Balance of supply and demand 4 new generation tomorrow. We anticipated that the balance between occupational supply and demand in the London UK competitiveness office market would shift during 2017. Since In the short term, ongoing Brexit negotiations Brexit, we have seen lower levels of demand. are likely to fuel uncertainty and commercial As a result, the vacancy rate is rising, headline caution. Looking further out, we see the rents have stalled and net effective rents have potential for the UK to emerge from this period weakened. If investment values fall further, this in good shape. We fully expect London to may present opportunities for companies with continue as one of the world’s most successful capital to buy assets. In retail, the market is financial and cultural centres. over-supplied with space but assets providing a great experience or convenience will do better than those caught between the two. As catchments evolve, shopping destinations must ensure they can compete against others further afield.

6

Sustainability as an advantage Businesses, government and the public increasingly recognise the need for long-term thinking on social and environmental issues. The best companies in our industry are expected to take a lead on diversity, local employment, community, responsible supply chains, the wellbeing of occupiers and visitors, climate risks, energy and biodiversity. Smart, progressive thinking can help to support the people and resources companies rely on to prosper and grow – and bring all sorts of business benefits.

See how we’re responding to these opportunities and challenges on page 21

18 Landsec Annual Report 2017 Strategic Report London London’s strengths attract a large and diverse Market during the year mix of property investors, many from overseas. Portfolio’s This helps us when selling assets but increases market in 2017 competition when buying. 11.7m sq ft Challenges Take-up of office space We buy, develop, manage Challenges for London include: in central London (2016: 14.7 million sq ft) and sell office, retail, leisure — Uncertainty over the outcome of the Brexit and residential space in negotiations central London. — Limitations on economic growth due to restrictions on immigration — Lack of housing at affordable or 4.7% Dynamics Vacancy rate This year we moved from supply-constrained attractive prices (2016: 2.7%) conditions into a market with more supply and — Pressure on an ageing infrastructure weaker occupational demand. The UK’s vote to — Continued lack of clarity around airport leave the EU triggered a weakening in demand expansion for London office space, stalling growth in rental — High levels of stamp duty values and asset prices. The market is also driven — Demand for better/faster digital connectivity 8.3% by the evolving needs and expectations of Decline of the prime headline Outlook customers and communities. office rents in the West End We expect current uncertainty will continue Enduring appeal to impact demand for space. Headline rents Prime headline office rents Central London has enduring appeal for have started to fall and we expect incentives in the City were flat investors and occupiers offering: to increase and average lease terms to shorten Source: CBRE further. London is an increasingly polycentric city — Capabilities and opportunities of a global and location is no longer the only consideration financial centre for occupiers. This may result in buying — Deep and liquid property investment market opportunities outside traditional core areas. — International gateway — Reasonable and relatively stable tax rates — Strong business and transport infrastructure — Diverse community and English-speaking population — Access to top universities

Retail Opportunities Market during the year The best destinations continue to drive above Portfolio’s average performance for retailers and attract market in 2017 the greatest demand for space from the broadest range of retailers. A retreat from the -1.9% Physical retail store sales1 We buy, develop, manage UK by some international retailers has been balanced by the expansion plans of others. and sell retail and leisure Successful shopping destinations deliver higher space in the best locations. dwell time and average spend per visit by providing consumers with a great experience +0.3% All retail sales Dynamics and an appropriate mix of retail, food and (including online)1 We’re continuing to see the market polarised beverage and leisure. between destination centres and convenience. Challenges The growth of online shopping is driving the An uncertain economic environment is putting rationalisation of store estates, with only the pressure on discretionary spending. At the same strongest locations holding ground. Some -2.5% time, retailer confidence is muted as they deal 2 online brands are moving into physical stores UK footfall with the challenges of increased business rates, as convergence drives efficiency and they see increases to the living wage and the requirement Source: opportunities to create great brand experiences. 1. British Retail Consortium to continue investment in multi-channel offers 2. ShopperTrak Stores are the best place to see, touch, feel and fulfilment. and buy and they remain at the heart of most transactions. Outlook We expect to see consumer caution led by concern about higher cost of living combined with lower wage growth. Destination and convenience centres will continue to outperform compared with those centres that fail to meet consumers’ needs and respond to online retailing: and the gap in performance is likely to widen further.

Landsec Annual Report 2017 19 Our strategy helps us pursue our vision of being We buy assets and start development early in Our strategy the best property company in the UK in the eyes the cycle; manage assets actively to ensure of our customers, communities, partners and they generate strong income; and sell at the employees. appropriate time and recycle capital. We aim We make understanding and meeting to make sound, long-term investments so Our strategy is designed people’s needs our top priority, always looking to our assets keep their appeal, meet changing use our experience to provide them with great regulations and generate returns for years to ensure we are a experiences. We act early in response to changes to come. sustainable business and trends in our markets. And we aim to lead our industry forward on critical long-term issues, through the market from diversity to community employment, cycles, creating and carbon and climate resilience. protecting value over the long-term.

Our strategic objectives — Deliver sustainable long-term shareholder value — Maximise the returns from the investment portfolio — Manage our balance sheet effectively — Maximise development performance — Ensure high levels of customer satisfaction — Attract, develop, retain and motivate high performance individuals — Continually improve sustainability performance

Go to page 24 for more information

Nova: our strategy in action Completed in April 2017, Nova’s extraordinary office, residential and restaurant spaces reflect the changing expectations of our customers.

20 Landsec Annual Report 2017 Our strategic choices Strategic Report How we’re addressing Relationships our biggest opportunities Develop close relationships with our customers, communities, partners and and challenges employees, so we understand their evolving needs and they trust us to 6 opportunities meet their expectations.

Market Focus on two dynamic sectors of the UK 1 commercial property market – offices, retail and leisure in London; and retail and leisure Evolving customer needs outside London. Being active in these two — Strategic focus on creating great experiences sectors rather than one provides us with — Designing in greater flexibility, connectivity greater financial stability as they work to and technical resilience different cycles. — Focus on well-connected locations in London and dominant retail destinations Timing — Prioritising cost per head over cost per sq ft Apply our experience and insight so we buy, develop, manage and sell assets at the appropriate time in the property cycle. 2 Scale Maintain our size and strength so when we Balance of supply and demand judge the timing is right we can deploy our — Speculative development programme capital and acquire or develop a number of brought to a close in London major assets at the same time. — Monitoring buying opportunities closely — Significant asset management activity Locations across the business Buy and develop in thriving locations or places — Delivering the largest current retail with excellent potential. Good transport development in the UK this year in a city links are becoming more highly valued than with a significant shortage of contemporary fashionable postcodes. retail space

Finance Enhance returns through appropriate levels 3 5 of debt using our assets as security to drive down costs. Economic uncertainty Product innovation — Operational and financial gearing at — Investment in customer insight Risk historic low and forecasting Address the risk that space will be left — Access to capital for acquisitions — Strengthening our customer-led culture unlet – or let at low rents – if supply — Preparing now for the next cycle — Leadership on sustainable design and outstrips demand by owning assets with innovation strong appeal, developing early in the cycle — Working groups with partners to improve and managing actively. Act early to 4 industry processes mitigate risks related to changes in climate, legislation and resource availability. UK competitiveness — Strong belief in prospects of London and 6 the UK — Ongoing investment in London’s physical Sustainability as advantage and social infrastructure — Vision is to lead UK listed — Company well represented in public debate sector in sustainability and industry groups — Innovative collaboration on community employment — First property company to have an approved science-based carbon target — Pioneering use of green gas and renewable electricity

Get an overview of these opportunities and challenges on page 18

Landsec Annual Report 2017 21 Market cycle

Sell Selling some assets at the right point in a rising market means value can be crystallised and the portfolio can be biased towards high quality assets with long lease lengths.

Buy Develop Starting schemes at Falling values the right point in a rising bring opportunities market helps maximise to buy assets at value and minimise risk. attractive prices.

P s r e o u p l e a r v t y y t v r a e l p u o e r s P Manage Active management of assets through the cycle helps to reduce voids and ensure space meets occupiers’ changing needs.

We’ve drawn our large We de-risk developments by speculative development seeking substantial pre-lettings programme to a close for before we start construction. this cycle. We have plenty of And we ensure we contribute to options for development within the environmental, social and our portfolio and the financial economic fabric of the local London capacity to acquire new Retail area and community, which development sites. helps to make our centres busy The London office market sees The retail property market is less and well regarded. marked periods of over- and Manage volatile than London offices and under-supply, and the balance We talk to our customers is fundamentally driven by long- Manage can shift from one to the other regularly so we understand their term structural changes such as We are proactive managers, quite quickly. changing needs and can respond consumer spending, population constantly looking for quickly. This helps us to retain trends or the impact of online opportunities to enhance our Buy customers and improve rental retailing. We are focused on space in line with the changing We aim to buy assets when values, keeping our portfolio London and the best regional needs of our customers and values are falling or low, or when attractive and resilient. destinations. communities. We continually we see a long-term opportunity refresh the tenant mix in our to enhance value. We’re currently Sell Buy destinations and work hard to watching the market carefully, We sell assets when we see We acquire when we see an create the most compelling monitoring around £2 billion of better ways to use the capital. opportunity to transform an blend of retail and leisure. potential acquisitions. Our strong We aim to sell when there’s under-managed property or balance sheet and access to strong demand for the space land into a great destination for Sell capital mean we can buy when and ahead of a turn in the cycle shoppers and visitors. We dispose of an asset when we we spot the right opportunity. from demand to supply. We see opportunities to use capital look to add value through asset Develop elsewhere to create better, Develop management or refurbishment We put strong emphasis more valuable space with We start to develop early in the ahead of selling an asset. on creating attractive, well greater appeal. cycle so we benefit from lower considered space where people construction costs, aiming to For more on our want to spend time and return For more on our deliver completed schemes when London Portfolio frequently. We help customers Retail Portfolio demand from customers is rising see pages 46-49 pursue multi-channel strategies see pages 50-53 and levels of available space and we ensure our environments are low. use new technology to enhance the shopper’s experience.

22 Landsec Annual Report 2017 We believe that responding to people’s needs, When we have control of assets we can take Strategic Report We aim to buy, develop, and giving careful consideration to the decisive action to improve things for the better. manage and sell assets environment, economy and community, helps We aim to develop and manage buildings us to create enduring financial, social and in a sustainable and innovative way; make in a way that benefits physical value over the long term. efficient use of natural resources in everything those closest to us – our Where we acquire or develop, we work closely we do; and create jobs and opportunities for with customers and communities to ensure the the people who live near our assets, including customers, communities, new space meets their needs and expectations. disadvantaged groups who are furthest from We manage most of the buildings we own employment. partners and employees. (by value) which means we get to see how people interact with them and hear their views.

Investing through the life-cycle

Refurbish or retrot to re-let

Invest Reinvest capital capital

Buy Develop Manage Sell We acquire an asset if it We develop when we see an We work with customers, We sell an asset when we has the potential to meet opportunity to create space communities and partners to see an opportunity to deploy the evolving needs of our that will appeal to customers, ensure our buildings operate our capital more effectively customers and communities, enhance the area and create efficiently and to help increase elsewhere. Through our can be acquired at the right financial value for us. local prosperity. investment and activity, price, and is likely to create We design for the We redesign and the building we sell should financial value for us over time. safety, health and wellbeing refurbish space if we spot an perform at a higher level Published this year, of occupants. We also opportunity to make it more than the building we bought our Responsible Property design for efficiency and attractive, useful and valued. – financially, socially and Investment Policy sets out the productivity. And we design We work with occupiers to environmentally. This should standards for acquisitions. to improve the public manage energy, waste and make it more valuable. realm around our buildings, water as cost efficiency and We aim to build a positive including connectivity and environmental factors. 100% legacy, leaving a place in a wider infrastructure. Our of the electricity we buy for better state than when we development activity creates our managed portfolio is now arrived. By helping to improve job opportunities, both during renewable and we collaborate people’s lives, we strengthen construction and when the with customers to reduce our reputation and add value development opens. energy consumption. Thinking to our asset. To help us pursue our aim about sustainability helps us of being a sustainability leader to protect the building from in our industry, by the end of external risks such as price this year we had enhanced the volatility, changing regulation, Sustainable Development Brief supply issues and premature we give to partners. Going obsolescence. And it enables forward, we will set tougher us and them to meet our targets and higher expectation commitments. levels around innovation. The brief gives equal weight to social and environmental issues.

Landsec Annual Report 2017 23 Key Strategic objectives 1 Deliver sustainable long- 5 Ensure high levels of performance term shareholder value customer satisfaction

Maximise the returns Attract, develop, retain indicators 2 from the investment 6 and motivate high portfolio performance individuals

We work to turn our strategic Manage our balance Continually improve objectives into tangible 3 sheet effectively 7 sustainability performance performance, using individual 4 Maximise development key performance indicators performance to measure our progress.

Three year total 1 Three year total 2 One year total 2 shareholder return (TSR) (%) property return (TPR) (%) property return (TPR) (%)

Progress: Not Achieved Progress: Achieved Progress: Not Achieved Three year TSR performance compared to the TSR Three year TPR performance compared to the IPD One year TPR compared to all March valued performance of a comparator group (weighted by Quarterly Universe, weighted to the sectors in properties within IPD market capitalisation) of property companies within which the Group is invested One year TPR of 3.9% was below the estimated the FTSE 350 Real Estate Index TPR of 12.7% per annum for the three year period IPD benchmark of 4.8% TSR of 9.2% for the three year period from April 2014 from April 2014 exceeded our benchmark at 11.5% did not exceed our comparator group at 16.2% per annum Chart 1 Chart 2 Chart 3 4.7 4.8 25.2 23.3 22.9 3.9 19.6 3.4 16.2 3.1

9.2 13.0 12.7 11.7 11.5 1.9 2015/16 0.8 1.1 2014/15 2016/17 3 years 3.9 2.5 (8.1) (12.7) 2014/15 2015/16 2016/17 3 years p.a. London Portfolio Retail Portfolio Total portfolio

Landsec Comparator group Landsec IPD Quarterly Universe Landsec IPD relevant sector IPD March universe excluding Landsec (estimate)

Revenue profit(£m) 2 Development lettings (£m) 4 Customer satisfaction 5

Progress: Achieved Progress: Partially Achieved Progress: Achieved Revenue profit compared to an internal minimum Progress development lettings and residential sales Maintain overall customer satisfaction rates in Retail threshold which is re-set every three years within our development programme and London customer surveys Revenue profit of £382m was above the internal £28.0m of lettings achieved against a threshold London and Retail both achieved 4.3 out of 5 threshold for 2016/17 set in April 2015 of £23.4m

Chart 4 Chart 5 Chart 6 382 47.6 4.3 4.3 4.3 4.3 362 4.2 4.2 329 315 325 33.8 259 28.0

2014/15 2015/16 2016/17 2014/15 2015/16 2016/17 2014/15 2015/16 2016/17

Reported Threshold Reported Threshold Retail London

24 Landsec Annual Report 2017 Strategy Delivery Reward Strategic Report

Performance vs KPIs Strategic objectives Remuneration Management of risk

Read more on page 42 Read more on pages 81-82

Internal customer 5 External customer 5 New ways of working 6 focus programme focus programme

Progress: Not Achieved Progress: Achieved Progress: Achieved Deliver an internal customer focus programme Deliver an external customer focus programme Ensure that the new ways of working, including those Not achieved as the programme was delayed to A programme of external customer engagement associated with the head office move, help to embed coincide with the launch of the new Landsec brand activities has been delivered the purpose, vision and values in a measurable way in June 2017 The office move to Victoria embedded the purpose, vision and values and created a step change in a more collaborative and innovative culture

35% increase in Leesman employee survey score versus 2016

Sustainability Matters 7 Operational efficiency 7 Community Employment 7 Programme

Progress: Achieved Progress: Achieved Progress: Achieved Deliver an impactful “Sustainability Matters” Support operational efficiency by conducting A further 173 people into jobs via our Community awareness raising and training programme site-specific energy reduction assessments of the Employment Programme and Trainee Academy Sustainability Matters level 1 and level 2 modules like-for-like portfolio to accelerate our existing delivered to employees energy management programme Initiatives selected from the assessments will be implemented in at least two-thirds of our most energy-intensive sites

95% 89% 186 of employees completed the Sustainability of our most energy-intensive sites have Our programmes placed 186 Matters programme during the year initiatives selected for implementation people into jobs this year

Landsec Annual Report 2017 25 How we set about Creating and protecting value Our We aim to be a sustainable business through creating sustainable, the market cycles by anticipating and responding to the changing needs of our business long-term value for customers, communities, partners and our shareholders and employees. We always try to act early to position the Group for the conditions we see ahead. model the wider world.

Inputs Core activities

£ Financial Including the different types of funds we use t en tm es to invest in our business, nv ei l r from shareholder capital ita ap to borrowings. C

Physical Sell Buy Including our land and buildings, the materials and technologies we use, and the natural environment.

Manage Develop

t n e m st e v n ei l r ta pi Ca Social Including the relationships we have with customers, communities and partners and the capabilities of our employees.

26 Landsec Annual Report 2017 We take a long-term view of value creation. Strategic Report For us, that’s about returning financial value to our shareholders while making a positive contribution to society. We work hard to provide our customers with a great experience, support local communities, recruit and develop great people, enhance the built environment and minimise our impact.

Core activities Outputs

£ Further reading Read more about our value outputs Financial over the page on Long-term growth in page 28 income and asset values, creating capacity for us to increase dividends for our shareholders.

Further reading Read more about Physical our value outputs over the page on Space that creates value for page 29 us by meeting the changing requirements of our customers and communities and a healthy environment for all.

Further reading Read more about Social our value outputs Our ability to help over the page on page 29 businesses and people to thrive – including our own employees.

Landsec Annual Report 2017 27 Here’s some more Creating sustainable insight on the breadth long-term value of outputs our activities can generate and how we work to both create and protect value.

£ Financial

Profit Asset value Balance sheet Dividend We aim to grow our long-term Our markets are cyclical. The Loan-to-value (LTV) shows the We judge the level of dividend underlying profit. We manage the London office market tends to have amount of our debt relative to the payments carefully, paying out business for the long term and greater swings between rising and value of our assets. While a low most of our underlying earnings, growth in underlying profit ensures falling values. Our valuations reflect LTV tends to represent a strong but retaining some funds so that we can provide a sustainable where we’re at in the cycle and how balance sheet, at times we will we have maximum flexibility dividend for shareholders. Revenue we’re doing in relative terms to our want to increase debt so we can around investments and disposals. profit and earnings per share are peers. Our strategy is to act early, fund buying and development Our progressive dividend policy particularly helpful indications of reshaping our portfolios so we can activity. At other times, we will means we aim to increase returns how we’re doing. be resilient through the downturns fund that activity by selling assets. to shareholders at a sustainable and ready for opportunities to buy Our adjusted diluted net assets level over time. and develop as the cycle evolves. per share measure is important because it enables shareholders to monitor the movement in the value of the net assets of the business and to compare this with the share price.

Revenue profit1 (£m) Chart 7 Valuation surplus/ Chart 9 Adjusted diluted Chart 10 Dividend Chart 12 (deficit)1, 2 (£m) net assets (pence per share) (pence per share)

500 2,500 1,600 40 1,434 1,417 38.55 2,037 1,400 1,293 400 382 2,000 35.0 362 1,200 35 320 329 1,013 291 1,500 1,000 903 31.85 300 30.7 800 30 29.8 200 1,000 907 764 600 400 25 100 500 218 200 0 0 0 20 2013 2014 2015 2016 2017 (147) 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 (500) 1. Includes proportionate share of joint ventures and subsidiaries as explained in the notes to 2013 2014 2015 2016 2017 the financial statements. 1. Includes proportionate share of joint ventures and subsidiaries as explained Adjusted net debt and Chart 11 Adjusted diluted Chart 8 in the notes to the financial statements. loan-to-value ratio 2. The surplus/(deficit) represents the increase/ earnings (pence per share) decrease in value of the Combined Portfolio £000 % over the year, adjusted for net investment. 50 48.3 4,500 4,290 40 45.7 4,172 4,000 3,948 40.5 41.5 40 36.8 3,500 3,239 3,261 3,000 30 30 2,500 2,000 20 1,500 20

10 1,000 500 0 0 10 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Adjusted net debt (LHS) Group LTV (RHS)

28 Landsec Annual Report 2017 New HQ Strategic Report Our new headquarters is designed to promote Physical productivity and enrich our employees’ time at work. Portfolio quality We constantly look to strengthen our portfolio, ensuring it meets the changing needs of our customers and communities. We always aim to bring social, economic and environmental benefits to the areas where we operate.

Sustainable design and innovation We think about the long-term Social appeal, impacts and resilience of our assets, designing with long- term value in mind. We look to Customers enhance biodiversity and support From retailers to shoppers and the wellbeing of those who use diners, from office occupiers our buildings. And we work closely and their employees who work with our partners to minimise in our spaces to their visitors, we environmental impacts. aim to provide our customers with a fabulous experience. We Natural resources design our buildings to support Being efficient helps us to the wellbeing and productivity mitigate our impacts and reduce of those who visit and work cost. Our aim is to reduce carbon in them. Diversity intensity, energy and waste while A broad range of backgrounds maximising the benefits of the Jobs and opportunities and perspectives make us a space we create and manage. We create income for our stronger business. We always look to be thoughtful employees and those of our and smart in the way we buy, use, many suppliers. We aim to Living wall re-use and dispose of resources. Featuring 52,000 plants, ensure that everyone who ’s living Target works on our behalf is treated Health, safety and wall enriches both the ——To reduce carbon intensity and paid fairly and promptly. security (kgCO /m2) by 40% by 2030 We believe our business should visitor experience and urban 2 We work to maintain an compared with a 2013/14 reflect the diversity of the biodiversity. exceptional standard of health, baseline, for property under communities we serve. And safety and security in all the our management for at least we help disadvantaged people working environments we two years, with a longer-term and young people to access job control. We also partner and ambition of an 80% reduction opportunities in our industry. collaborate with others to help by 2050 raise standards in our industry ——To continue to procure 100% renewable electricity across Target our portfolio and achieve ——To help a total of 1,200 3 MW of renewable electricity disadvantaged people capacity by 2030 secure jobs by 2020 ——To send zero waste to landfill ——To ensure the working with at least 75% recycled environments we control are across all our operational and fair and ensure that everyone construction activities by 2020. who is working on our behalf – within an environment we control – is paid at least the Living Wage by 2020.

Landsec Annual Report 2017 29 £ Financial review

Highlights

£382m Revenue profit1 (2016: £362m)

48.3p Adjusted diluted earnings per share1 (2016: 45.7p) 38.55p Dividend per share (2016: 35.0p) £14.4bn Combined Portfolio1 (2016: £14.5bn) 1,417p Adjusted diluted net assets per share (2016: 1,434p)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information on page 31.

Martin Greenslade Greenslade Martin Chief Financial Officer

30 Landsec Annual Report 2017 Martin Greenslade reports Strategic Report Presentation of on our financial performance financial information in detail and explains Our property portfolio is a combination of properties the movements in our key that are wholly owned by the Group, part owned through financial measures. joint arrangements and those owned by the Group but where a third party holds a non-controlling interest. Internally, management review the results of the Group on a basis that adjusts for these forms of ownership to In my financial review last year, I explained how the quality present a proportionate share. The Combined Portfolio, and resilience of our assets had been enhanced this decade with assets totalling £14.4bn, is an example of this through investment in developments and acquisitions, approach, reflecting the economic interest we have in funded by the sale of weaker assets. our properties regardless of our ownership structure. We Our balance sheet had also been strengthened by rising consider this presentation provides a better explanation values leading to lower gearing, with the additional disposals to stakeholders of the activities and performance of the in the second half of last year reinforcing the position. This Group, as it aggregates the results of all of the Group’s year, as the property market lost direction following the EU property interests which under IFRS are required to be referendum, our high quality assets and low gearing have presented across a number of line items in the statutory helped limit the impact of declining values in our financial statements. core markets. The same principle is applied to many of the other Over the year, our assets fell in value by 1.0% or £147m measures we discuss and, accordingly, a number of (including our proportionate share of subsidiaries and joint our financial measures include the results of our joint ventures) compared with an increase last year of £907m. ventures and subsidiaries on a proportionate basis. The decline in asset values is behind both the fall in earnings Measures that are described as being presented on a per share (14.3p compared with 169.4p last year) and the proportionate basis include the Group’s share of joint reductions in basic and adjusted diluted net assets per ventures on a line-by-line basis, but exclude the non- share. In contrast, the Group has delivered strong underlying owned elements of our subsidiaries. This is in contrast earnings growth despite the impact of disposals we made to the Group’s statutory financial statements, where last year. Both revenue profit and adjusted diluted earnings the Group’s interest in joint ventures is presented as per share increased this year; revenue profit was up 5.5% one line on the income statement and balance sheet, from £362m to £382m and adjusted diluted earnings per and all subsidiaries are consolidated at 100% with any share were up 5.7% at 48.3p. 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. Most of the measures discussed in this financial review are presented on a proportionate basis. Measures presented on a proportionate basis are alternative performance measures as they are not defined under IFRS. For further details see table 119 on page 172.

Landsec Annual Report 2017 31 Revenue profit increased by £20m from £362m last year to £382m for the Income statement year ended 31 March 2017. Following asset disposals we made last year, net rental income declined. However, this was more than offset by lower Our income statement has two key components: the income we generate net interest expense as explained further below. from leasing our investment properties net of associated costs (including finance expense), which we refer to as revenue profit, and items not Net rental income directly related to the underlying rental business, principally valuation Net rental income (£m) NetYear ended rental 31 March income 2017 1 (£m) Chart 15 changes, profits or losses on the disposal of properties and exceptional items, which we refer to as capital and other items. 650 17 2 (40) We present two measures of earnings per share; the IFRS measure of 10 10 earnings per share is based on the total profit for the year attributable to 604 (3) 600 owners of the parent, while adjusted diluted earnings per share is based 600 on tax-adjusted revenue profit, referred to as adjusted earnings. 550 Income statement Table 13

Year ended Year ended 500 31 March 31 March 2017 2016 £m £m 1 April 2015 April 1 Like-for-like

Revenue profit (see table 14) 382 362 Non-property 31 March 2017 March 31 31 March 2016 March 31 related income related Acquisitions since Acquisitions Net rental income rental Net income rental Net Capital and other items (see table 17) (270) 974 year ended the for year ended the for Sales since 1 April 2015 April 1 Sales since investment properties investment Completed developments Completed Profit before tax 112 1,336 programme Development

Taxation 1 2 Net rental income movement in the year

Profit attributable to owners of the parent 113 1,338 1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Basic earnings per share 14.3p 169.4p Net rental income decreased by £4m this year as rental income growth Adjusted diluted earnings per share 48.3p 45.7p from our developments and like-for-like portfolio was more than offset by the impact of properties sold since 1 April 2015. Significant disposals Profit before tax was £112m, £1,224m lower than last year principally due included The Printworks, Manchester and The Cornerhouse, Nottingham, to the valuation deficit this year compared with a valuation surplus last both sold this year, and Thomas More Square, E1, Holborn Gate, WC1 year. The same movement drives a 155.1p reduction in earnings per share and Times Square, EC4 in London and three retail parks in Gateshead, from 169.4p last year to 14.3p this year. Adjusted diluted earnings per Dundee and Derby, all sold last year. The impact of this year’s disposals share increased by 5.7% from 45.7p last year to 48.3p this year as a result will continue to be felt in the coming year as they contributed £9m of net of an increase in revenue profit from £362m to £382m. rental income to this year’s results. Our developments generated £27m The reasons behind the movements in each component of our income of additional rent following completion of 20 Eastbourne Terrace, W2 and statement are discussed in more detail below. 1 New Street Square, EC4, alongside a full year’s income at The Zig Zag Building and 62 Buckingham Gate, both SW1 and 1 & 2 New Ludgate, EC4. Revenue profit Like-for-like net rental income growth was £10m due to rent reviews and Revenue profit is our measure of underlying pre-tax profit. It excludes higher turnover related rents, together with a reduction in bad debts. all capital items, such as valuation movements and profits and losses Further information on the net rental income performance of the on disposals, as well as items of an exceptional nature. Revenue profit London and Retail portfolios is given in the respective business reviews. is presented on a proportionate basis. We believe revenue profit better represents the results of the Group’s operational performance to stakeholders as it focuses on the rental income performance of the business and excludes capital and other items which can vary significantly from year to year. A full definition of revenue profit is given in the glossary. The main components of revenue profit, including the contributions from London and Retail, are presented in the table below.

Revenue profit Table 14

Year ended 31 March 2017 Year ended 31 March 2016 Retail London Retail London Portfolio Portfolio Total Portfolio Portfolio Total Change £m £m £m £m £m £m £m Gross rental income1 335 302 637 355 293 648 (11) Net service charge expense (4) (1) (5) (2) (1) (3) (2) Net direct property expenditure (16) (16) (32) (24) (17) (41) 9 Net rental income 315 285 600 329 275 604 (4) Indirect costs (22) (17) (39) (25) (19) (44) 5 Segment profit before finance expense 293 268 561 304 256 560 1 Net unallocated expenses (40) (34) (6) Net finance expense (139) (164) 25 Revenue profit 382 362 20

1. Includes finance lease interest, after rents payable.

32 Landsec Annual Report 2017 Net indirect expenses Capital and other items Strategic Report The indirect costs of the London and Retail portfolios and net unallocated An explanation of the main capital and other items is given below. expenses should be considered together as collectively they represent the net indirect expenses of the Group including joint ventures. In total, Capital and other items1 Table 17 net indirect expenses were £79m compared with £78m last year. The £1m Year ended Year ended increase is largely the result of higher IT and corporate communication 31 March 31 March and sustainability costs, largely offset by lower staff costs due to 2017 2016 decreased headcount and reduced share-based payment costs. £m £m Our net finance expense has decreased by £25m to £139m, primarily Valuation and profits on disposal due to interest savings following the redemption of the £400m A8 bond Valuation (deficit)/surplus (147) 907 in March 2016 and other refinancing undertaken this year, together with Movement in impairment of trading properties 12 16 lower average drawings under our bank facilities. This has been partly offset by lower capitalised interest following completion of developments. Profit on disposal of investment properties 20 79 Net nance expense (£m) Profit on disposal of trading properties 36 41 31 March 2017 1 Net finance expense (included in revenue profit) (£m) Chart 16 Other profits on disposal 11 – 200 Net finance expense 34 (39)

175 Exceptional items 164 (21) Head office relocation 1 (6) 150 (7) 6 (3) 139 Redemption of medium term notes (170) (27) 125 Other 1 3 100 Capital and other items (270) 974

75 1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above. Other interest net debt Renancing year ended year ended

Net nance Net nance Net Valuation of investment properties Lower average Lower 31 March 2017 March 31 31 March 2016 March 31 expense for the for expense the for expense Lower capitalised Lower Our Combined Portfolio declined in value by 1.0% or £147m compared with an increase last year of £907m. A breakdown of valuation movements by 1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above. category is shown in table 18.

Valuation analysis Table 18

Movement Market value Valuation Rental value Net initial Equivalent in equivalent 31 March 2017 movement change1 yield yield yield £m % % % % Shopping centres and shops 3,663 (1.3) 1.6 4.3 4.8 9 Retail parks 855 (4.2) 0.6 5.5 5.6 24 Leisure and hotels 1,361 2.3 0.2 5.2 5.4 (6) London offices 4,153 (4.4) 2.5 4.0 4.7 18 Central London shops 1,267 6.9 4.7 2.5 4.1 7 Other (Retail and London) 61 (6.0) 3.4 1.9 3.6 2 Total like-for-like portfolio 11,360 (1.4) 1.9 4.2 4.8 11 Proposed developments 6 (33.2) n/a – n/a n/a Development programme 1,138 1.3 n/a 0.1 4.2 n/a Completed developments 1,841 (0.4) 1.9 2.0 4.2 10 Acquisitions 94 0.4 n/a 3.7 3.8 n/a Total Combined Portfolio 14,439 (1.0) 1.9 3.6 4.7 9

1. Rental value change excludes units materially altered during the year and Queen Anne’s Gate, SW1.

Over the year to 31 March 2017, we have seen values fall in most London shops is largely due to Piccadilly Lights where a replacement screen categories of our Combined Portfolio, largely due to outward yield is being installed. Outside the like-for-like portfolio, the development movements. programme saw values increase as construction risk reduced at Nova, Within the like-for-like portfolio, our shopping centres fell in value Victoria, SW1 and Westgate Oxford. Completed developments, which by 1.3% as rental value growth was insufficient to offset a 9 basis points largely comprises our recent London office schemes, proved more resilient increase in yields. The value of our retail parks was down 4.2% as lower than our like-for-like London office assets, falling in value by 0.4%. investor appetite led to yields increasing by 24 basis points. In contrast, leisure and hotels saw yields reduce by 6 basis points with little change Movement in impairment of trading properties in rental values. In London, our offices saw values decline 4.4% as yields The movement in impairment of trading properties of £12m (2016: £16m) increased. The 2.5% rental value increase in London offices is distorted relates to the reversal of previous impairment charges related to residential by the valuer moving from net effective to headline rents on a number land at Ebbsfleet, , where the valuer’s assessment of net realisable of assets. On a consistent basis, net effective rents in London offices were value has increased over the year. virtually unchanged over the year. The 6.9% valuation uplift in central

Landsec Annual Report 2017 33 Profits on disposals Our net assets principally comprise the Combined Portfolio less net debt. Profits on disposals relate to the sale of investment properties, trading We calculate an adjusted measure of net assets, which is lower than our properties, joint ventures and other investments. We made a total profit net assets reported under IFRS due to an adjustment to increase our net on disposals of £67m, compared with £120m last year. The profit on disposal debt to its nominal value. We believe this better reflects the underlying of investment properties of £20m includes the disposal of The Printworks, net assets attributable to shareholders as it more accurately reflects the Manchester and Ealing Filmworks. The profit on disposal of trading properties future cash flows associated with our debt instruments. of £36m includes a profit on the settlement of our remaining interest in the At 31 March 2017, our net assets per share were 1,458p, a decrease Kodak land at Harrow, together with the sale of residential units at Nova of 24p or 1.6% from 31 March 2016. At 31 March 2017, adjusted diluted and Kings Gate, both SW1. Other profits on disposal amounted to £11m. net assets per share were 1,417p, a decrease of 17p or 1.2% from 31 March 2016, driven by the reduction in the valuation of the Combined Portfolio. Net finance expense (included in capital and other items) Chart 20 summarises the key components of the £159m decrease in This largely comprises the amortisation of the bond exchange our adjusted net assets over the year. de-recognition adjustment (as explained in the notes to the financial Movement in adjusted net assets (£m) statements) and the fair value movement on interest-rate swaps. 1 YearMovement ended 31 March in2017 adjusted net assets (£m) Chart 20 Exceptional items 12,000 This year we’ve classified two items totalling £169m as exceptional. 382 (147) 67 (289) They’re excluded from revenue profit by virtue of their exceptional nature, 11,365 (140) (32) but form part of our pre-tax profits. 11,206 During the year, we purchased some of our bonds with a nominal value 11,000 of £690m, paying a premium of £137m. The redemption premium and £30m of the bond exchange de-recognition adjustment associated with the redeemed bonds, £2m of unamortised issue costs and £1m of associated 10,000 fees (£170m in total) have been charged to the income statement as a finance expense. Further details are given in the financing section below. Other Dividends At 31 March 2016, we provided for the onerous lease on our head Revenue prot Revenue Redemption of Redemption at 1 April 2016 April 1 at Valuation decit Valuation office at 5 Strand, which arose following our commitment to move to 2017 March at 31 Prots on disposals Prots medium term notes medium term 100 Victoria Street, SW1. During the year, we agreed to assign the lease assets net Adjusted assets net Adjusted on 5 Strand to a third party at a lower net cost than originally estimated 1. Including our proportionate share of subsidiaries and joint ventures, as explained in the and we’ve therefore released the balance of the provision of £2m. Partly Presentation of financial information above. offsetting this release is £1m of relocation costs incurred during the year.

Taxation Net debt and gearing As a consequence of the Group’s REIT status, income and capital gains from Net debt and gearing Table 21 the qualifying property rental business are exempt from corporation tax. A property income distribution of at least 90% of this qualifying income must 31 March 31 March be made, and this distribution is taxed as property income at the shareholder 2017 2016 level to give a similar tax position to direct property ownership. Profits on Net debt £2,905m £2,861m non-qualifying activities, such as residential sales, are subject to corporation Adjusted net debt £3,261m £3,239m tax and can be distributed as ordinary dividends. This year, we were able to offset taxable gains on non-qualifying activities with brought forward losses. In the year, there was a tax credit of £1m (2016: £2m) being a current tax Gearing 25.2% 24.5% credit of £nil (2016: £1m) and a deferred tax credit of £1m (2016: £1m). Adjusted gearing1 29.1% 28.5% The Group fully complies with tax regulations and HMRC confirmed the Group’s low risk rating. In the year, total taxes borne and collected by the Group were £129m (2016: £109m), of which we directly incurred £41m Group LTV2 22.2% 22.0% (2016: £32m), including environmental taxes, business rates and stamp Security Group LTV 28.3% 23.4% duty land tax. Weighted average cost of debt2 4.2% 4.9%

1. Adjusted net debt divided by adjusted net assets. 2.  Including our proportionate share of subsidiaries and joint ventures, as explained in the Balance sheet Presentation of financial information above. Over the year, our net debt increased by £44m to £2,905m. The main Balance sheet Table 19 elements behind this increase are set out in our statement of cash flows 31 March 31 March and note 21 to the consolidated financial statements. 2017 2016 £m £m Adjusted net debt was up £22m to £3,261m. For a reconciliation of net debt to adjusted net debt, see note 20 to the financial statements. Combined Portfolio 14,439 14,471 Chart 22 sets out the main movements behind the small increase in our Adjusted net debt (3,261) (3,239) adjusted net debt. Other net assets 28 133 Adjusted net assets 11,206 11,365 Fair value of interest-rate swaps (4) (34) Bond exchange de-recognition adjustment 314 368 Net assets 11,516 11,699

Net assets per share 1,458p 1,482p Adjusted diluted net assets per share 1,417p 1,434p

34 Landsec Annual Report 2017 Adjusted net debt1 (£m) Strategic Report AdjustedYear ended 31 March net 2017 debt (£m) Chart 22 Purchase of medium term notes Table 23 Medium term note series 4,000 A3 A10 A4 A5 A7 Total 288 (410) £m £m £m £m £m £m 35 3,261 3,239 (379) 289 26 140 33 Nominal value purchased 3,000 – Tender offer 206 265 164 – – 635 – Ad hoc purchases 3 7 20 23 2 55 209 272 184 23 2 690 2,000 Premium paid Other

Disposals – Tender offer 28 56 40 – – 124 Operating cash inow expenditure Acquisitions Development/ Dividends paid 31 March 2017 March 31 Redemption of Redemption at 1 April 2016 April 1 at Renancing of of Renancing – Ad hoc purchases 1 1 4 6 1 13 interest-rate swaps interest-rate Adjusted net debt net Adjusted medium term notes medium term

refurbishment capital refurbishment 29 57 44 6 1 137 Adjusted net debt at debt net Adjusted Fees/unamortised finance fees written off – 2 1 – – 3 1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above. 29 59 45 6 1 140 Net operating cash inflow was £379m, largely offset by dividend Amortisation of bond exchange payments of £289m. Capital expenditure was £288m (£258m on de-recognition adjustment 19 – 6 5 – 30 investment properties and £30m on trading properties), largely relating Redemption of medium term notes to our development programme. Net cash flows from the disposal of – total cost 48 59 51 11 1 170 investment properties were £297m, from the disposal of trading properties £110m and the disposal of investments in joint ventures £3m. The premium payable for the purchase of the medium term notes was £137m. Most of our gearing measures have increased marginally since 31 March Dividend 2016 due to the decrease in the value of our assets and the small increase in We’re recommending a final dividend of 11.7p to be paid on 27 July 2017 our adjusted net debt. The measure most widely used in our industry is loan- entirely as a Property Income Distribution to shareholders registered at the to-value (LTV). We focus most on Group LTV, presented on a proportionate close of business on 23 June 2017. Taken together with the three quarterly basis, which increased marginally from 22.0% at 31 March 2016 to 22.2% dividends of 8.95p per share already paid, our full year dividend will be up at 31 March 2017. The increase in our Security Group LTV from 23.4% to 10.1% at 38.55p per share (2016: 35.0p) or £305m (2016: £276m). The first 28.3% relates to the medium term notes we purchased this year. These are quarterly dividend for 2017/18 will be 9.85p per share (2016: 8.95p). held in a different entity to the issuing company and, for the purposes of Landsec has a progressive dividend policy, which aims to deliver calculating this measure, cannot be offset. sustainable growth in dividends over time, broadly in line with our underlying earnings growth as measured by our adjusted earnings per share. The reason we use underlying earnings is that it excludes capital and other items Financing such as valuation movements and non-recurring income or costs. We don’t pay out a fixed percentage of adjusted earnings each year, At 31 March 2017, our committed revolving facilities totalled £1,940m due to the earnings volatility that can come from our investment decisions. (31 March 2016: £1,865m). The £75m increase in committed facilities is the For example, when we empty a building in advance of development, we lose result of two new debt facilities totalling £560m, offset by the cancellation rent which isn’t recovered until after the new building has been built and let. of two existing facilities. The pricing of our facilities which fall due in more Similarly, selling assets in the current low interest rate environment is likely to than one year are between LIBOR +75 basis points and LIBOR +80 basis be earnings dilutive. Our dividend policy aims to smooth out that earnings points. Borrowings under our commercial paper programme typically have volatility with a more consistent dividend progression. a maturity of less than three months, carry a weighted average interest The degree to which our adjusted earnings per share exceeds the rate of approximately LIBOR +29 basis points and are unsecured. Overall, dividend per share (known as our dividend cover) will vary for the reasons the amounts drawn under the syndicated bank debt and commercial described above. In addition, when setting our dividend, we’re mindful paper programme totalled £441m (31 March 2016: £432m). of the earnings risks we have in the business (for example, from unlet During the year, we purchased £690m (nominal value) of our medium speculative developments) and the degree of flexibility we believe we term notes (MTNs). On 8 February 2017, we conducted a tender exercise require (for example, if we intend to sell properties despite the negative which resulted in us buying back £635m (nominal value) of MTNs in impact on earnings). three series. In addition during the year, we bought back £55m (nominal Last year, we raised our dividend by almost 10% as earnings rose due value) of MTNs in a number of ad hoc purchases, following enquiries by to our successful development programme. This year, we’ve increased the bondholders. Further details are set out in the table below and note 21 to dividend above our underlying earnings growth as we’ve now completed the financial statements. In conjunction with the tender offer, we issued our disposal programme, our speculative development risk is lower than a new £400m MTN with an expected maturity of 2024 and a £300m MTN for many years and we’re unlikely to add to that risk in the short term. In with an expected maturity of 2029. addition to our focus on risk and flexibility when setting the dividend, we also A premium to par of £137m was paid across all of the MTN purchases, consider underlying cash flows, recognising that these are generally lower reflecting future coupon savings of £206m. Taking into account the than underlying earnings due to the lease incentives we give our customers interest cost of the facilities used for the purchases, we estimate the and refurbishment capital expenditure. Taking all these factors together, Group’s net interest saving next year will be a further £16m. we anticipate that dividend cover will be in the range of 1.2x to 1.3x. This The Group’s debt (on a proportionate basis) has a weighted average range is indicative only although it’s unlikely that we would consistently pay maturity of 9.4 years, a weighted average cost of 4.2% and 89% is at a dividend per share in excess of our adjusted earnings per share and, as a fixed interest rates. At 31 March 2017, we had £1.6bn of cash and available minimum, we will satisfy our dividend obligation under the REIT legislation. facilities. This gives the business considerable flexibility to deploy capital At 31 March, the Company had distributable reserves of £3.5bn quickly should acquisition opportunities arise. which compares to the dividend payable in respect of this year of £305m. Since the end of the year, we have redeemed the Queen Anne’s Gate We don’t anticipate that the level of distributable reserves will limit bond in its entirety. The nominal value amounted to £273m at 31 March distributions for the foreseeable future. 2017 and the premium paid was £63m. The redemption was funded by our existing short term facilities and is expected to result in an interest saving of £8m in the year to 31 March 2018. Our pro forma cost of debt Martin Greenslade at 31 March 2017, taking into account this transaction, is 3.7%. Chief Financial Officer Landsec Annual Report 2017 35 Energy Natural resources This year’s carbon intensity performance is largely due to our active energy management When we buy, use, re-use and dispose of programme, which is reducing the energy we resources efficiently we see big benefits. We use to power our offices and shopping centres. Physical minimise our impact on the environment. We This year we set our first Group KPI for energy. reduce costs, both for us and for our customers This required us to create detailed energy review and partners. And we give our assets and our reduction plans for each of our properties and business greater resilience in the face of climate approve energy reduction measures at those change challenges, from scarcity of resources consuming the most energy. A focus on the materials to new regulation. We’re now generating more of our own and technologies we electricity through on-site renewable sources Carbon such as solar panels on our properties. We set use to create and Last year we set a science-based target for ourselves a new target this year to achieve reducing emissions. This target helps companies 3 megawatts (MW) capacity of renewable operate our assets, and determine how much they must cut emissions electricity by 2030. Currently we have a the effect our spaces to prevent the worst impacts of climate change renewable electricity capacity of 0.6 MW across and stay in line with the Paris Agreement. eight assets. The solar installation schemes in have on people and the This year the Science-based Targets initiative progress at White Rose and Trinity Leeds will add approved our target, making us the first real an additional 0.8 MW this coming year, taking natural environment. estate company in the world to achieve this. us to a total of 1.4 MW. During the year we reduced our carbon As of 1 April 2016, all the sites we manage intensity by 18.5% compared to our 2013/14 are supplied by SmartestEnergy, the UK’s first baseline, which puts us well on track to achieving officially certified 100% renewable electricity our target for 2030 of a 40% reduction and our producer. We are also helping to pioneer the use Our portfolio 2050 ambition of an 80% reduction. of green gas, a low-carbon substitute for mined or fracked gas. Green gas made up 15% of our Top ten assets by value forward gas purchases for the coming year. 01 New Street Square, EC4 Contemporary offices with retail and restaurants. Annualised net rent £33.1m 02 , SW11 Landmark site, home to blue-chip businesses and retailers. Annualised net rent £22.7m 03 Bluewater, Kent The dominant shopping centre in the south east of . Annualised net rent £28.6m (Landsec share) 04 , EC4 Office and leisure destination in an iconic building. Annualised net rent £28.3m 05 1 Sherwood Street/Piccadilly Lights, W1 Offices, retail, leisure and a world famous advertising landmark. Annualised net rent £7.3m 06 20 Fenchurch Street, EC3 688,000 sq ft of offices and a unique public Sky Garden. Annualised net rent £20.3m (Landsec share) 07 Trinity Leeds 778,000 sq ft retail destination developed by us. Annualised net rent £28.0m 08 , Portsmouth Outlet shopping, leisure and entertainment on a waterfront location. Annualised net rent £27.1m 09 1 & 2 New Ludgate, EC4 396,000 sq ft of modern, technically resilient office space, restaurant and retail. Annualised net rent £3.1m 10 Queen Anne’s Gate, SW1 BREEAM ‘Excellent’ offices: built by us in 1977, refurbished in 2008. Annualised net rent £31.6m

1. Cardinal Place, SW1 now excludes 16 Palace Street, SW1.

36 Landsec Annual Report 2017 Thanks to our scale and the amount of green Strategic Report gas we buy, we can drive demand, boost the Sustainable design renewables industry and increase the proportion of green gas in the UK’s energy mix. This makes and innovation the whole industry greener – and in turn helps us hit our carbon targets. The way we design buildings has a huge impact on how people use them. Great design increases efficiency and encourages people to spend time Landsec energy intensity Chart 24 in our spaces, improving wellbeing. This is good

250 247 for our customers, communities and partners – and good for us. 213 200 Climate resilience Climate change is affecting our business today.

2 Warmer temperatures, higher rainfall and more 150 variable weather are putting new pressures on 129 KWh/m our buildings. This year we introduced a new 112 resilience commitment – ‘assess and mitigate 100 site-specific climate change adaptation risks 77 which are material across our portfolio’. Our 64 62 new assets will be designed to resist the onset 50 of climate change and we’ll also focus on how we can upgrade existing assets to meet

0 climate challenges. 2013/ 2016/ 2013/ 2016/ 2013/ 2016/ 2014 2017 2014 2017 2014 2017 Baseline Baseline Baseline Scope 3 emissions and embodied carbon London Retail Landsec Scope 3 emissions are those outside our direct We’ve now identified the properties with the

2030 target control. They include the emissions involved greatest potential for biodiversity gain and will in constructing our properties, including the focus our activity there, giving particularly close manufacture and transportation of materials, attention to how our sites connect with the Waste and they represent 91% of our total emissions. wider landscape. Waste can have a significant effect on the Since embodied carbon makes up such a big environment. It also has financial impacts. part of our carbon footprint, we need to find Wellbeing For example, our proactive approach to waste ways to reduce it. Whenever we design a new development we management over the past three years has We’re already hard at work on this. For think hard about the experience of the people enabled us to avoid over £8m in landfill tax. example, our approach to sustainable design who will use and visit it – everyone from office This year, our London business sent over 77% of at Westgate has enabled us to avoid as many workers and their clients to shoppers and retail used materials for recycling – an improvement carbon emissions during construction as the staff, local neighbours and tourists. This year we on last year’s rate of 74%; and we continued to centre is expected to generate in operation developed two stretching metrics on wellbeing divert 100% of waste from landfill. In Retail, we over the next 30 years, putting us well ahead for new developments: diverted 99.9% of waste from landfill, up from of Oxford City Council’s environmental — To assess and design optimum air quality, 99.0% the previous year. We also sent 68.4% of requirements. This year we worked with the daylight, lighting and noise factors used materials for recycling – a slight decrease Carbon Trust to develop a consistent and — Where appropriate, to design and construct on last year’s 69.3%. We are now investigating transparent way of reporting Scope 3 emissions new developments to be prepared for circular economy principles for further waste across our business. With better data, we can certification by the WELL Building Institute, reduction across the portfolio. focus on identifying and implementing the which recognises buildings that maximise measures that will make the most difference. positive effects on people.

Biodiversity We’re now pursuing these across our This year we continued our work with The developments. This year we also continued to Wildlife Trusts, exploring ways to increase sponsor the Better Places for People Campaign, biodiversity across our Retail Portfolio. Together, an initiative from the World Green Building we’ve developed a methodology that enables us Council that aims to inspire companies to think to determine each site’s potential for biodiversity about the effects of property on people. and to measure biodiversity at a local and Company-wide level.

The table below shows the key actions we took to reduce embodied carbon at Westgate Oxford:

Actions Carbon Savings (TCO2) Earthworks and excavation – local disposal 10,700 96% recycled content steel reinforcement 9,000 Replacing cement with industrial waste products 9,850 100% recycled content sheet piling 1,000 Total savings to date 30,550

Landsec Annual Report 2017 37 Charity partnerships Jobs and opportunities This was the third and final year of our national partnership with Mencap, the UK’s leading Community employment learning disability charity. Across our business Our Community Employment Programme is a we raised over £360,000 over the three years. Social collection of employment initiatives involving This year we asked employees to nominate training providers, charities and partners from charities that could help us achieve our goal review our supply chain. It targets those furthest from of creating jobs and opportunities, and we put the job market, including homeless people, the our final shortlist to a Company vote – 70% of long-term unemployed, people with learning respondents chose Barnardo’s. They will become A focus on some of the disabilities, ex-offenders and serving prisoners. our national partner from 2017. key activities we carry The programme plays a real part in the planning During the year our teams in London process and beyond, showing local authorities continued to help tackle homelessness. We also out to support our how our work can benefit an area. In 2016/17, expanded our work in homelessness across the 183 people found work through our Community UK. We’re particularly focusing on Oxford, where customers, communities, Employment Programme. During the year homelessness is rising. partners and employees. we extended our prison work, launching a scaffolding training centre in HMP Brixton – Fairness a UK first. We were delighted this year when we became an When we started the programme in 2011, accredited Living Wage Employer by The Living we focused on helping candidates in London Wage Foundation. All of our own employees are Customers find work on construction sites. In 2015, we paid at least the Living Wage. In our London launched the programme at our Westgate business, 100% of those working on our behalf We aim to use our experience to ensure we give development in Oxford. This year we expanded – within an environment we control – are paid our customers a great experience. We work with the programme geographically, from Portsmouth at least the Foundation Living Wage (£9.75 an a diverse mix of businesses and organisations, to Leeds. We’re now offering more opportunities hour in London; £8.45 outside London). In Retail, from global corporations and international in customer service – a reflection of our strategic we’re confident we’ll meet our commitment consumer brands to trend operators, fast- shift from development activity towards asset that everyone working on our behalf is paid at growing tech companies and dynamic local management. So far we have helped 962 people least the Foundation Living Wage by 2020. businesses. Understanding and meeting from disadvantaged backgrounds. In 2015 we asked construction supply chain customers’ changing needs is at the heart of partners to pay the Foundation Living Wage in everything we do. We work hard to understand Education their own supply chain. This year we started to future market dynamics and anticipate evolving Our education programmes help us engage the check whether this is being achieved across our expectations and requirements. Ensuring high wider community, including students, schools developments. Moving forward, we’ll also include levels of customer satisfaction is one of our KPIs and families. The programmes raise awareness a formal commitment in every contract. and we carry out annual surveys with customers of our developments, start conversations, and The Modern Slavery Act came into force in to assess our performance and gain insight. develop our local relationships. In many of the 2015. We’ve taken steps to make sure our staff For more on our work with occupiers see our areas where we work there’s a degree of social and supply chain partners are aware of the Act London Portfolio and Retail Portfolio reviews inequality – so we particularly want to reach out and its requirements. In 2016 we issued our first on pages 46-53. to those pockets of disadvantage and support statement explaining how we’re addressing our ambitions to improve diversity in our sector. the risk of slavery and human trafficking in our This year we worked with over 400 students business. We then examined our recruitment between the ages of 12 and 18. Projects included processes, and trained teams to help them spot Landsec’s customer Girls Can Do It Too, an inspiring partnership the risks of modern slavery. engagement survey with two girls’ schools that challenged students to design, model and pitch a new property development. And we’re supporting The Sir Simon Milton Westminster University Technical College: a new kind of college for students 85.7% wishing to pursue a career in construction, “Landsec is acting responsibly engineering and other roles that require both and making tangible improvements academic and technical ability. to the management of Energy, Water and Waste” (2015: 82.9%, 2.8% increase) Cumulative total number of jobs secured Chart 25

1,200 84.5% 1,000 962 779 “We feel that Landsec is 800 acting responsibly and 583 is having a positive effect 600 on the local community” 426 400 (2015: 82.2%, 2.5% increase) 206 200 105 26 0 2011 2012 2013 2014 2015 2016 2017

Jobs Target

38 Landsec Annual Report 2017 Strategic Report Health, safety and security Our priorities are: — Health: to make sure every worker has a transferable occupational health record, and to make sure all our maintenance and construction partners have a wellbeing policy — Safety: to have zero reportable health and safety incidents — Security: to raise awareness of physical and cyber security, in our own organisation and across our industry

Despite our efforts, incidents reported under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 (RIDDORs) increased this year. This is partly because our system for logging and reporting of incidents is better, and partly because we worked on several complex developments – including Nova, which had over 2,000 people on site at one time. The good news is that, by bringing our many partners together in Customer Improvement Groups, we’ve created a more transparent culture. Partners are more likely to tell us about safety incidents instead of hiding them. Clive Johnson, our Group Head of Health, Safety and Security, continued to chair the Health in Construction Leadership Group (HCLG). This aims to make sure health gets as much attention as safety in our industry. In January 2017, HCLG held its second summit, drawing over 300 industry leaders. This saw the launch of Mates in Mind, a programme that shows people how to support colleagues with mental ill health. In future, we’ll require all contractors to sign up. For the coming year, we have set new objectives to train all our people in physical and cyber security. The training will help with everything from protecting data when working remotely to staying safe during terrorist incidents.

Our partnership with Mencap helped: 21 people to get a job 52 people to get work placements 1,000+ Over 1,000 people took part in Mencap events

Landsec Annual Report 2017 39 — Improve female representation at Leader Property Week Best Places to Our employees level to 30% Work Survey 2016 — Improve the Engagement scores for Black, Diversity Asian and Minority Ethnic colleagues – — We were the only listed REIT Getting greater diversity into the Company bringing them into parity with employee to make the published list of – including gender, ethnicity, social mobility, scores overall disability and sexuality – is very important for us. — Improve the transparency of our reporting 32 Best Places to Work It means we better reflect the character of our of all diversity data, including the accurate customers and communities and are more likely — Overall engagement – 86% measurement, and tracking of engagement to understand their changing needs. This year of other specific groups – including LGBT — Proud to work for we’ve set out these very specific objectives for and disabled colleagues. Landsec – 93% the business, to be achieved by 2020: — Willing to give extra effort — Ensure that Landsec continues to meet all to help this organisation the voluntary targets set by the Hampton- Alexander Review. Currently 36% of senior succeed – 92% management (including the Executive Committee) are female National Equality Standard assessment — At the first assessment, we fully met 27 out of 49 criteria, and partially met the remaining 22 — Key positives: leadership; training and external partnerships; diversity aspects of new HQ — Improvements needed: setting of clear targets; measurement of the impact of our diversity initiatives RICS Inclusive Employer Quality Mark — Seen as a role model against all six criteria – leadership, recruitment, staff development, staff retention, staff engagement and continuous improvement

40 Landsec Annual Report 2017 Investment in our people Strategic Report 2016 has been another year of significant Gender pay investment in our people. We continued to roll out our established management and The UK Government has introduced legislation leadership programmes, Positive Impact and that will require employers with 250 or more Positive Influence. Almost 150 managers and UK employees to disclose information on their leaders have now taken part, and the feedback gender pay gap. The first disclosures will be continues to be positive. We have also invested based on amounts paid in April 2017 and must in our senior executives, who have been be published by 4 April 2018. given access to a bespoke development offer Improving all aspects of the diversity of our including one-to-one coaching, business school workforce is a key people priority for Landsec, as programmes, and peer-to-peer networking is being a leader in promoting change across our and mentoring. In all, 67% of our people have sector. We have therefore chosen to publish our undergone some form of training. data in this year’s Annual Report. In line with the focus from the Health, The table below shows the gender pay Safety and Security team, improving our picture for Landsec, calculated in accordance wellbeing offer has been a key priority, and we with the published requirements. The definition have taken advantage of the move to Victoria of pay shown is an hourly pay rate for each to re-design the way all our people (including relevant employee as at 5 April 2017, reflecting those based outside London) can access high base salary and certain allowances. The bonus quality medical care, including detailed health figures shown include total variable pay over assessments. This has been supported by a new, the previous 12 months (bonus paid plus any healthier catering provision, and a range of proceeds on exercise of SAYE, ESOP or vesting wellbeing initiatives including stress awareness, of LTIP awards). mindfulness and yoga. We are proud that our investment in people Pay element Male Female % difference has been recognised externally. In November Mean hourly salary £43.26 £28.86 (33.3) 2016, we were the only listed REIT to be named in the Property Week “Best Places to Work” Median hourly salary £33.36 £21.27 (36.3) survey. 93% of our people said that they were Proportion of employees receiving 79.0% 77.1% proud to work for Landsec. a bonus Mean bonus £42,894 £14,282 (66.7) Key employee figures: Median bonus £12,741 £4,780 (62.5)

While at a headline level, the figures would suggest a significant pay gap between males and females in our business, we are satisfied that the issue is one of female representation in higher- 638 paying roles, rather than of equal pay for equivalent roles. The analysis below, which includes Total headcount additional data on hourly rate and mean bonus levels by pay quartile, illustrates this more fully:

Male Female % % mean mean difference difference Quartile % % hourly hourly in hourly in mean 20.4 % split Number Male Female rate rate rate bonus Employee turnover – 12% resignations Lower 138 23.9 76.1 £14.15 £15.00 6.0 (17.4) (stable year-on-year) Lower middle 138 40.6 59.4 £21.98 £22.13 0.7 (18.3) Upper middle 138 58.0 42.0 £33.17 £32.95 (0.7) (25.9) 50% Upper 138 69.6 30.4 £74.08 £71.03 (4.1) (20.7) Percentage of Senior Leader and Leader roles filled by Like other companies across our industry, we surprising. However, this can partly be explained internal people have a lower proportion of females in senior by the relatively high proportion in these groups roles than we would like. As we have said of part-time females, whose bonus payments elsewhere in the Annual Report, we have seen are pro-rated. For example, in the lower quartile, encouraging progress at the most senior levels, 14.2% of our employees are part-time and they 46:54% and we already exceed the Hampton-Alexander are all female. Overall male:female ratio review target of 33% female representation Encouraging more females into senior (female representation up 1%) at Executive Committee and the level below roles has become a key priority for us, which is (the top 28 executives). However, the majority why we have committed to a specific target of of our upper quartile roles (encompassing our improving our female representation at Leader Executive, Senior Leader and Leader levels) are level (broadly the lower end of upper quartile) still occupied by males. from 20% to 30% by 2020. This is underpinned In the pay quartiles where there is a greater by some specific initiatives such as the female prevalence of females, their hourly pay matches, mentoring programme and a new set of or even exceeds, that of their male counterparts. industry-wide recruitment guidelines which we Given this, the differential in mean bonus have developed in collaboration with our peers. payments at the lower levels of pay may seem

Landsec Annual Report 2017 41 Governance Identification, evaluation Managing The Board has overall responsibility for oversight and management of risk of risk and for maintaining a robust risk The identification of risk is a continual process management and internal control system. It through discussion with management, external risk recognises the importance of identifying and agencies and stakeholders. A full and detailed actively monitoring the full range of financial review of the risks, the controls and the and non-financial risks, and other longer- mitigation strategies is undertaken with the By being both risk-agile term threats or challenges potentially facing executive committees of the London and Retail the business. The Audit Committee supports businesses four times a year. These form the and risk-resilient, we the Board in the management of risk and is basis for the principal risks and uncertainties, as will be in a stronger responsible for reviewing the effectiveness of the well as emerging risks, which are challenged and risk management and internal control systems validated by the Executive Committee. These position to embrace during the year. The Executive Committee is are then presented to the Audit Committee to opportunities, deliver responsible for the day-to-day management of ensure representatives of the Board are aware risk, which includes the ongoing identification, of, and contribute to, the latest position. In sustained success and assessment and mitigation of risk as well as addition, a wholesale and in-depth risk session the design, implementation and evaluation of is held with the Board every two years to ensure enhance shareholder the system of internal control, and for ensuring full Board participation in our risk management value. its operational effectiveness. The Company’s process. Such a session is next due to be Risk Management and Internal Audit function undertaken in 2017/18. supports the Audit Committee and Executive Senior management from across the Committee in evaluating the design and business will also attend the Executive operating effectiveness of the risk mitigation Committee and the Audit Committee to discuss Our key focus areas in 2016/17 strategies and internal controls implemented specific risk areas, such as a continuing focus by management. on cyber risk, accompanied by external advisers — Third party review of our risk The Board undertakes an annual where relevant. assessment of the principal risks, taking account The Risk Management function, headed by management processes of those that would threaten our business the Director of Risk Management and Internal — Crisis management exercises model, future performance, solvency or liquidity Audit, assists management by facilitating the for the Executive Committee as well as the Group’s strategic objectives. risk discussions and providing challenge and and senior management insight where appropriate. Risk appetite We evaluate each risk on three factors: — Third party review of our crisis The Board is responsible for the level and likelihood; financial impact, both to income and management processes type of risk that the Group is willing to take capital values; and reputational impact, from and ensuring that it remains in line with our — Cyber threats and other the business unit through to Group level. We also strategy. By regularly reviewing the risk appetite consider the inherent (gross) risk (the impact of security risks, including building of the business and re-assessing the latest the risk before any mitigating action is taken) management systems risk related information, the Board seeks to and the residual (net) risk (the risk that remains — Disruptors to our key target ensure risk exposure remains appropriate at after the effect of mitigating actions and any point in the cycle. Our risk appetite is markets controls are considered). From this we identify cascaded throughout the organisation by being principal risks (current risks with relatively embedded within our policies and delegated high impact and certainty) and emerging Our key priorities for 2017/18 authorities. risks (those risks for which the extent and implications are not yet fully understood). This Risk management framework — Continue to enhance the risk also informs the business as to those risks that We have an established risk management and management framework have a high dependency on the internal control control framework that enables us to identify, systems, which then directly helps to focus the and further embed the risk evaluate and manage our principal risks. This is work of the internal audit team. The business management culture amongst supported by a strong risk management culture considers the full range of external and internal amongst our employees. Our approach is not all employees risk, including strategic, operational, people intended to eliminate risk entirely but to provide and technology. A risk scoring matrix is used to — Deep dive reviews into specific a structure by which we’re risk aware and able ensure a consistent approach is followed. to respond effectively and appropriately to areas of risk Ownership and management of the risks create value for our shareholders. — Enhanced reporting for are assigned to members of the Executive the Board and executive Committee. They are responsible for ensuring the operating effectiveness of the internal management control systems and for implementing key risk — Continue to enhance our mitigation plans. approach to crisis management Internal Audit independently reviews the internal control systems using a risk — Construct scenarios to based approach and, on a quarterly basis, determine the impact of management self-certify that the key controls climate change on our within their area of responsibility have been operating effectively. existing portfolio and our future developments

42 Landsec Annual Report 2017 Risk management framework Strategic Report

Risk Board Top-down governance — Oversight of risk Oversight, — Set the risk culture identification, — Approve risk appetite assessment — Annual assessment of the principal risks. and mitigation of risk at a 1st line of defence 2nd line of defence 3rd line of defence Group level Risk Executive Committee: Risk Management: Audit Committee management — Define the risk appetite — Assist management — Supports the Board in — Evaluate proposed with the identification monitoring risk exposure strategies against risk and assessment of against risk appetite appetite principal risks — Review the effectiveness of — Identify the principal risks — Aggregate risk our risk management and — Design, implementation information internal control systems. and evaluation of the — Monitor risks and risk system of internal control, response plans Internal Audit: and for ensuring its — Create a common risk — Provide assurance on operational effectiveness. framework and language effectiveness of the risk — Provide direction on programme, testing of key Bottom-up applying framework controls and risk response — Provide guidance and Identification, plans for significant risks. training assessment — Facilitate risk escalations. and mitigation of risk at Risk Business units: Support functions: business unit ownership — Identify and assess risks — Provide guidance/ and functional — Respond to risks support to the risk team level — Monitor risks and risk and business units. response — Ensure operational effectiveness of key controls.

Risk heat map

The risk heat map illustrates the relative positioning of our principal risks before and after mitigating actions.

Very high 01 Customers — Structural changes in 06 Security threat or attack — Failure to customer and consumer behaviours. identify or prevent a major physical security 2 related threat or attack or react immediately 02 Market cyclicality — Market and political and effectively. uncertainty or change in legislation. 3 07 Cyber threat or attack — External and 03 Disruption — Failure to react effectively to 1 internal intrusion to corporate and building new disruptors within our sectors, including

Impact management systems and data. 7 technological advances. 08 Sustainability — Increasing environment 4 04 People and skills — Inability to attract, pressure and/or properties do not comply 5 retain and develop the right people and skills. 8 6 with legislation, or meet customer 9 05 Major health and safety incident — expectations or are unable to withstand Accident causing injury or loss of life to the expected challenges of climate change. employees, contractors, occupiers or visitors 09 Development — Unable to deliver capex to our properties. Low programme to agreed returns and/or occupiers reluctant to commit to take

Unlikely Likelihood Almost certain new space in our developments. Key movement of risk after mitigating actions

Landsec Annual Report 2017 43 Our principal Change in the year risks and Increased Reduced No change New uncertainties

Risk Mitigation Opportunity Strategic Change in objective the year

Customers — Large and diversified customer base (no single Enhance and maintain — Shareholder value Structural changes in customer and customer represents more than 5.2% of rents) our position as the — Investment portfolio consumer behaviours leading to an —  Of our total income, 68.0% is derived from partner of choice for — Customer satisfaction adverse change in demand for office occupiers who individually make less than a 1% our customers. and retail space and the consequent contribution to rent roll KPI impact on rental growth. — Clear retail strategy focused on “Everything — Total shareholder return Executives responsible: is experience” — Total property return Colette O’Shea/Scott Parsons — Development programme has delivered a — Customer satisfaction modern office portfolio well suited to occupier rates requirements — Experienced asset management team — Strong relationships with occupiers.

Market cyclicality — Large multi-asset portfolio Acquisition or — Shareholder value Market and political uncertainty or —  Monitor asset concentration (our largest asset is development — Investment portfolio change in legislation leading to a 5.5% of the total portfolio) opportunities could arise reduction in demand or deferral of — Average investment property lot size of £120m out of the uncertainty. KPI decisions by occupiers, impacting real — Average unexpired lease term of 9.1 years with a — Total shareholder return estate values, the ability to sell assets maximum of 10.4% of gross rental income expiring — Total property return and to raise further funding. or subject to break clauses in any single year. Executive responsible: Robert Noel

Disruption — Regular Board and Executive Committee Recognising and — Shareholder value Failure to react effectively to new discussion item managing change — Investment portfolio disruptors within our sectors, including — Dedicated resources focused on innovation. effectively will enable — Development Advances in technological advances, innovation, us to maintain our — Customer satisfaction emerging resulting in asset obsolescence and loss competitive advantage — High performance technologies, of competitive advantage. and increase the individuals such as the attractiveness of our Executive responsible: merging of Robert Noel assets to customers. KPI — Total shareholder return the virtual — Total property return and physical — Lettings and sales environments, — Customer satisfaction threaten rates to disrupt — New ways of working organisations’ core business assumptions. New entrants focused on disrupting existing business models are likely to impact most sectors, including ours and those of our customers.

44 Landsec Annual Report 2017 Risk Mitigation Opportunity Strategic Change in Strategic Report objective the year

People and skills — Strong employee brand and dynamic, proactive Build further expertise, — Shareholder value Inability to attract, retain and develop resourcing strategy knowledge and — High performance the right people and skills required to — Competitive remuneration plans capability in the business. individuals deliver the business objectives. — Appropriate mix of insourcing and outsourcing Executive responsible: — Clear employee objectives and development KPI Diana Breeze plans — Total shareholder return — Clear organisation and individual accountabilities — New ways of working — Annual employee engagement survey to identify issues early — Succession planning and talent management — High profile, market leading developments and assets to manage.

Major health and safety incident — CEO chairs Group Health, Safety and Security Lead the industry in — Customer satisfaction Accident causing injury or loss of life to Committee health and safety to employees, contractors, occupiers or — Regular Board reporting reduce incident levels. KPI visitors to our properties, leading to: — Dedicated specialist personnel — Customer satisfaction — Sharing of best practice across the business and rates — criminal/civil proceedings and industry through our “One Best Way” approach resultant reputational damage — Annual cycle of health and safety audits across — delays to building projects and access the portfolio restrictions to shopping centres. — Established policy and procedures including Executive responsible: ISO 18001 certification Robert Noel — Engagement with the enforcing authorities

Security threat or attack — Dedicated property security teams, supported Enhance our reputation — Customer satisfaction Failure to identify or prevent a major by CCTV and other physical security measures as a trusted and security related threat or attack or react —  Experienced property management teams responsible partner. KPI immediately and effectively, resulting in —  Regular on-site and national security training — Customer satisfaction injury, loss of life, damage to buildings — Group insurance programme protects against rates and a loss of consumer confidence and losses of rent and service charge due to terrorism the consequent impact on rental growth —  Business continuity and crisis management and loss of income. practice Executive responsible: —  Sharing of best practice with our external Robert Noel customers through our Customer Improvement Groups —  Engagement with the National Counter Terrorism Security Office (NaCTSO).

Cyber threat or attack — Dedicated Information Security team, which Enhance our reputation — Customer satisfaction External and internal threat to corporate monitors information security risk as a trusted and and building management systems and — Regular review of Information Security policy responsible partner. KPI data resulting in a negative reputational — Independent information security audit and — Customer satisfaction impact and adverse operational and penetration testing rates financial impact. —  Employee awareness training. Executive responsible: Martin Greenslade Sustainability — ISO accredited environmental and energy Consolidate our — Customer satisfaction Increasing environmental pressure and/ management systems position as a leader — Sustainability or properties that do not comply with — Active involvement in legislative working parties in sustainability and performance Refer to our legislation, meet customer expectations — Active environmental programme addressing an environmentally sustainability or are unable to withstand the expected key areas of carbon, energy, waste and responsible partner. KPI report for challenges of climate change resulting biodiversity — Customer satisfaction more details. in an increased cost base; an inability to — Energy reduction plan for every key asset rates attract or retain occupiers, premature — Scenarios to determine how climate change will — Sustainability matters obsolescence and loss of asset value. affect the existing portfolio and future — Energy reduction plans Executive responsible: developments. Miles Webber Development — Amount of speculative development restricted Maximise returns by — Shareholder value Unable to deliver capex programme to so that the impact of failing to lease the un-let delivering developments — Development agreed returns and/or occupiers element of our development programme does at the right point in the performance As we have reluctant to commit to take new space not exceed the Group’s retained earnings cycle. less capital in our developments leading to negative — Proportion of capital employed in development KPI invested our valuation movements and a reduction programme (based on total costs to Enhance and maintain — Total shareholder return risk is in income. completion) will not exceed 20% of our total our position as the — Lettings and sales considered to capital employed, save that where a material partner of choice for Executives responsible: be lower. Colette O’Shea/Scott Parsons part of the development programme is pre-let, our customers. this proportion can rise to 25% — Monitor market cycle and likely occupier demand before committing to new developments and secure pre-lets where appropriate — Assessment of developments against hurdle rates — Pre-let targets set for Retail developments.

Landsec Annual Report 2017 45 “As a result of our actions, the portfolio is in great shape. It’s occupied by a broad customer base and we now have our longest ever weighted average lease term.”

Colette O’Shea Managing Director, London Portfolio

46 Landsec Annual Report 2017 London Strategic Report Portfolio review

Actions and outcomes Our results

Focus for 2016/17 Progress in 2016/17 Focus for 2017/18

— Outperform IPD — The total return of — Outperforming IPD 1 sector benchmark the London Portfolio sector benchmark 1.3% was 3.1% Valuation deficit — Growing like-for-like underperforming net rental income its IPD sector benchmark at 3.4% — Completing the letting of The 3.1% — Complete the letting — 1 & 2 New Ludgate Zig Zag Building, Ungeared total property of 1 & 2 New Ludgate, fully let; The Zig Zag 20 Eastbourne return underperformed EC4; The Zig Zag Building 89% let; Terrace and its IPD Quarterly Universe Building, SW1; and and 20 Eastbourne Nova, Victoria sector benchmark at 3.4% 20 Eastbourne Terrace 90% let — Completing the Terrace, W2 construction and letting of Piccadilly — Progress — Nova, Victoria Lights £13m of investment lettings development 47% let — Progressing build lettings at Nova, to grade to time Victoria, SW1 and budget at 21 Moorfields, EC2 — Submit a planning — Planning resolution £9m — Growing future of development lettings application at granted at development Southwark Street, Southwark Street pipeline through SE1 and secure and planning acquisitions and planning consent for consent secured 2 1.4 million sq ft new screens at for new screens at of existing 7.0 % Piccadilly Lights, W1 Piccadilly Lights opportunities Like-for-like voids within portfolio (31 March 2016: 2.9%) — Progress to revised — All achieved except — Securing time and to budget Nova, Victoria over 1. On a proportionate basis. at our committed budget and delayed employment for 2. Reduces to 3.3% when Piccadilly Lights, developments a further 95 SW1, which remains in like-for-like during candidates via the screen replacement, is excluded. our Community — Secure employment — Secured Employment for a further 129 employment for Programme candidates via our 134 candidates Community — Improving energy Employment management in Programme support of 2030 corporate commitments

Landsec Annual Report 2017 47 Develop station, ready for building 522,000 sq ft in two This year supply- At 20 Eastbourne Terrace, W2, we completed buildings. Completing the raft in July 2018 will constrained conditions a major refurbishment during the year, mean we can complete construction of the creating 93,000 sq ft of contemporary space buildings in 24 months, providing an excellent in the occupational in an 18-storey tower overlooking Paddington prospect for the pre-letting market. market gave way to station. The building offers 6,000 In Westminster at 1 Sherwood Street, W1 sq ft floorplates and a stunning communal behind Piccadilly Lights, we secured planning weaker demand. rooftop garden. All of the space is now let, on an consent for a 142,000 sq ft mixed use scheme average lease length of more than ten years at and in Southwark, at Sumner Street, SE1, record rents. resolution to grant planning consent for In the City, we completed 1 New Street 134,000 sq ft. However, we’ve been positioning the business Square, EC4. This 275,000 sq ft scheme was pre- We have a further 360,000 sq ft in for these conditions, and so are well-placed. let in its entirety to Deloitte on a 20 year lease. feasibility at Red Lion Court, SE1. Over the past 12 months, we’ve completed our Nova, Victoria, SW1 completed just after the speculative development programme, focused year end in April – a high point in our long-term Manage on letting the remaining space, worked to regeneration of Victoria. The scheme features We were very active asset managers this year, maximise income and lease length through two exceptional office buildings, 170 apartments moving early to address lease expiries and rent proactive asset management and readied and a fantastic line-up of restaurants, creating reviews, as well as securing reversions ahead the business to start buying when conditions London’s newest food destination. 49% of the of expectation. are right. 480,000 sq ft office space and 93% of the retail At Dashwood House, EC2, we completed In addition, we’ve increased our emphasis and food-related space is now let. 148 of the rent reviews on £6m (86%) of the income, on anticipating change to ensure our apartments have now been sold, 10 of them increasing the rent by 26%. At One New buildings and our service meet our customers’ during the year. Change, EC4, we reviewed £19m (65%) of the needs, while at the same time enhancing The complexities of construction – together rent increasing the offices by 3% and the retail the environment for our communities. This with competition for labour in a busy sector – by 18%. At Cardinal Place, SW1, we reviewed approach will deliver long-term value for us. delayed final completion and impacted costs. £11m (48%) of rent increasing the offices by 14% As a result of our actions, the portfolio is in However, the scheme is proving very popular and the retail by 23%, as well as letting 113,000 great shape. It’s occupied by a broad customer and we’re confident we’ll let the remaining sq ft of available space. At 140 Aldersgate Street, base spanning sectors from finance to fashion space in good time. At Nova East, the second EC1, we reviewed £1m (44%) of the rent and and we now have our longest ever weighted phase of Nova, Victoria, we’re finalising achieved a 33% uplift, as well as letting 25,000 average unexpired lease term of 10.3 years. statutory approvals ready to start on site when sq ft of available space. the time is right. At Piccadilly Lights, W1, we obtained Buy We secured planning consent for 798,000 planning consent to replace the six screens We made no material acquisitions this year. sq ft of space in three London boroughs. In the with Europe’s most technically advanced digital We have the firepower needed for when the City at 21 Moorfields, EC2, we’ve completed screen, maintaining the heritage of the site while right opportunities appear, but we will be demolition and will shortly commence piling giving advertisers innovative ways to interact patient and disciplined. and construction of a raft that will sit above the with more than 100 million passers-by each year. eastern entrance to Liverpool Street Crossrail Coca-Cola committed to continuing its 60 year residence and will be joined by Samsung and Hyundai. We have three remaining advertising opportunities and are in discussion with other major brands to complete the line-up. We’ll be launching the new screen at this major tourist attraction in November.

48 Landsec Annual Report 2017 Strategic Report

Sell Outlook In 2015, to reduce risk, we started a disposal In the current uncertain environment, programme of weaker assets after we had investment demand is likely to be lower for all completed asset management plans to but the very best assets. In the occupational maximise value. The majority of these sales market, we expect net effective rental values to were executed last year and we successfully weaken but demand from dynamic businesses completed the programme this year with to continue for high quality, resilient space. disposals totalling £46m. Trading property We’re well prepared for these conditions with a disposals of £135m include sales at Nova, portfolio of assets designed to meet the needs Victoria, SW1 following completion of residential of these customers. units, further disposals at Kings Gate, SW1 We’re ready to add to our portfolio and the disposal of our remaining interest when the time is right. Our team is tracking in the Kodak land at Harrow. Sales of other around £2bn of opportunities, building up investments totalled £13m. our intelligence network ready for a future investment phase. In addition, we’re preparing Net rental income 1.4 million sq ft of future development Net rental income in the London Portfolio has opportunities for when conditions are right increased by £10m from £275m to £285m, with to proceed. additional income from recently completed developments largely offset by lost income from properties sold last year. Income from our developments contributed Net rental income1 Table 26 an additional £28m this year, principally at 31 March 31 March 1 New Street Square, EC4, 20 Eastbourne 2017 2016 Change Terrace, W2 and Nova, Victoria, SW1. We also £m £m £m benefited from a full year’s income at The Like-for-like investment properties 203 199 4 Zig Zag Building, SW1, 1 & 2 New Ludgate, EC4 Proposed developments – – – and 62 Buckingham Gate, SW1. The increase in Development programme 16 5 11 the like-for-like portfolio of £4m reflects new lettings and settled rent reviews, partly offset by Completed developments 62 45 17 reduced income at Piccadilly Lights following the Acquisitions since 1 April 2015 2 1 1 start of refurbishment. Overall, these increases Sales since 1 April 2015 – 21 (21) are largely offset by a £21m reduction in net rental income from disposals since 1 April 2015, Non-property related income 2 4 (2) most notably Thomas More Square, E1, Times Net rental income 285 275 10 Square, EC4 and Haymarket House, SW1. 1. On a proportionate basis.

Landsec Annual Report 2017 49 Retail Portfolio review

Our results Actions and outcomes

Focus for 2016/17 Progress in 2016/17 Focus for 2017/18

1 — Outperform IPD — The total return — Outperforming IPD 0.8% sector benchmark of the Retail sector benchmark Valuation deficit Portfolio was 4.7% — Growing like-for-like outperforming net rental income its IPD sector — Progressing lettings benchmark at 1.1% at Westgate Oxford; 4.7% Selly Oak, Ungeared total property — Progress lettings at — Westgate Oxford ; return outperformed its Westgate Oxford; 68% pre-let; Selly and the Plaza IPD Quarterly Universe sector Selly Oak, Oak 73% pre-let; reconfiguration benchmark at 1.1% Birmingham; and and White Rose at Bluewater the White Rose, leisure extension — Progressing Leeds leisure 100% let the Plaza extension reconfiguration at £15m Bluewater to time Investment lettings and budget — Resolution to grant — Planning consent — Successfully planning consent at at Worcester launching Westgate Worcester Woods Woods rejected Oxford after achieving practical £4m — Achieve planning — Planning consent for completion on time Development lettings consent and Glow space at and on budget progress lettings for Bluewater achieved. — Integrating the three Glow space at Space 69% pre-let newly acquired Bluewater, Kent outlet centres 2.8% — Further developing Like-for-like voids — Progress to time and — Westgate Oxford on the Community (31 March 2016: 2.0%) budget at our time and budget Employment committed Programme beyond developments its current focus on construction with — Expand the — Expanded the 75 people being 0.4% Community Community supported into jobs Units in administration: Employment Employment in retail (31 March 2016: 0.5%) Programme to other Programme to — Improving energy retail sites St David’s, Cardiff; management in 1. On a proportionate basis. White Rose; and support of 2030 Gunwharf Quays, corporate Portsmouth and commitments secured employment for 49 candidates

50 Landsec Annual Report 2017 “It’s been a productive Strategic Report year in our Retail business. In a challenging retail and economic environment, we’ve delivered a good set of results.”

Scott Parsons Managing Director, Retail Portfolio

Landsec Annual Report 2017 51 Despite uncertainty in the wider market, retail Develop We went into the destinations that provide consumers with a Our Westgate Oxford development with year with a portfolio great experience held up well. The Crown Estate is on time and on budget Retailers’ and consumers’ use of online for opening in October 2017. We’ve made well matched to the retailing continues to influence demand for good progress on lettings with 80% of the evolving needs and physical space, and inflation is now putting scheme now pre-let or in solicitors’ hands. pressure on consumer spending. However, we’ve The latest brands to sign up include Uniqlo, expectations of our continued to see good demand for the best Cath Kidston, Levis and Molton Brown. We’ve space in the right locations. also invested to ensure the sustainability of customers. the development, including extending our Buy Community Employment Programme so local Our acquisitions during the year were limited to a disadvantaged people will continue to benefit small number of properties adjacent to space we from job opportunities after the centre opens. own. Since the year end, we’ve acquired a At Selly Oak, Birmingham, 91% of the portfolio of three outlet centres for £333m, which, retail is either pre-let or in solicitors’ hands, alongside our existing outlet centres at Gunwharf demonstrating occupier support for this Quays, Portsmouth, and The Galleria, Hatfield, potential retail and student housing scheme. establishes our position as the leading owner- manager of outlets in the UK. Manage This year we’ve secured £15m of investment lettings. Our like-for-like portfolio is virtually full, with voids of just 2.8% and a weighted average lease term of 8.2 years. We have strong relationships with vibrant customers, from groundbreaking start-ups to global brands. Trinity Leeds continues to be the beating heart of the city and we’ve brought new brands to the centre including Lindt, Côte Brasserie and Indian street food operator Mowgli. We’re also creating an upsized unit for New Look and expanding the centre’s vibrant leisure offer with two new operators. At White Rose, Leeds, the demise of BHS enabled us to deliver a 55,000 sq ft Next store, doubling its previous space. We also upsized space for JD Sports, Pandora, Schuh and Holland & Barrett. Construction of our leisure extension is now complete and fully let, with the six new restaurants and IMAX cinema units being fitted out to open later this year. At Gunwharf Quays, Portsmouth, we introduced Armani and Coach to build on the centre’s strong aspirational offer. We also opened one of the first Under Armour ‘athleisure’ outlet stores in the UK. At Bluewater, Kent, we delivered a 40,000 sq ft flagship for H&M, who had outgrown their existing unit. We’ve continued to broaden the wide range of retail brands on offer, with eight new openings including Mint Velvet and Michael Kors, and upgraded stores for LK Bennett and Jigsaw. Online retailer Missguided also committed to Bluewater. We started construction of the Plaza leisure reconfiguration this year and expect to complete by December. The project enables us to bring new leisure operators to Bluewater and the scheme is 80% pre-let or in solicitors’ hands, with Showcase taking a lease for a four screen extension. We’ve also continued to invest in the Learning Shop, which connects retailers and local unemployed people.

52 Landsec Annual Report 2017 Throughout the year, we developed new Outlook Strategic Report relationships and ideas to keep the customer Current uncertainty and rising costs will Key indicators experience fresh and exciting. For example, we continue to affect consumer confidence and attracted on trend operators out of central retailers’ readiness to invest and expand. As London and into regional locations, including a result, we expect letting activity to larger 1.6% Footfall in our shopping centres was Dirty Bones and Sticks’n’Sushi at Westgate. occupiers of retail space and leisure operators down 1.6% (national benchmark We brought Mercedes into St David’s, Cardiff, to slow in the year ahead. However, we believe down 2.5%) and Buchanan Galleries, Glasgow. Cycle brand that the best physical stores will play a critical Ribble’s pop-up at St David’s was so successful role for retailers, not least in enabling them to they’re looking at more sites. In total, we create memorable brand experiences and to 1.7% Same centre non-food retail sales, brought 150 pop-up stores and kiosk operators engage with their customers. Internet sales taking into account new lettings and into our assets this year. provide competition to physical space, but we’re occupier changes, were up 1.7% Our retail parks are well matched to also seeing opportunities to help brands develop (national benchmark for same customers’ needs and remain 100% let. Our their multi-channel offer. We’ll remain alert to centre physical store non-food retail leisure parks are 99% let and are all anchored buying opportunities over the next 12 months, sales down 1.9%; national by the dominant cinema for their catchment, but our focus will be on enhancing the space benchmark for all retail sales, providing a broad, family-friendly entertainment and offer at our most successful destinations, including online, up 0.3%) and food offer. launching Westgate Oxford in October and successfully integrating the three new outlet 1.1% Sell centres into the portfolio. Same store non-food retail sales Disposals totalled £219m during the year. We were down 1.1% (national sold the Ealing Filmworks development site to benchmark for same store a residential developer, crystallising an element physical store non-food retail of the development profit up front, without risk. sales down 2.2%) As we continue our focus on family-orientated leisure assets, we sold our two drinks-led 10.3% city centre leisure schemes, The Printworks, Retailers’ rent to sales ratio in our Manchester, and The Cornerhouse, Nottingham. portfolio was 10.3%, with total And since the year end, we’ve sold our 50% occupancy costs (including rent, interest in Clapham Shopstop, SW11 to our rates, service charges and insurance) former joint venture partner. representing 17.6% of sales In February 2016, Accor exercised its right to break the leases on seven of their 29 hotels. All seven hotels have since been sold at a premium to their investment values and the remaining Accor leases, where breaks weren’t exercised, now extend to 2031.

Net rental income Net rental income reduced by £14m from £329m to £315m. This was largely due to disposals since 1 April 2015. These include The Cornerhouse, Nottingham and The Printworks, Manchester both sold in the current year and retail parks in Gateshead, Dundee and Derby, a leisure park in Maidstone and a supermarket in Crawley, all sold in the second half of last year. The increase in our like-for-like portfolio of £6m is due to a combination of new lettings, improved turnover performance and a reduction in bad debt provisions compared to last year.

Net rental income1 Table 27 31 March 31 March 2017 2016 Change £m £m £m Like-for-like investment properties 295 289 6 Proposed developments – – – Development programme – 1 (1) Completed developments – – – Acquisitions since 1 April 2015 2 1 1 Sales since 1 April 2015 9 28 (19) Non-property related income 9 10 (1) Net rental income 315 329 (14)

1. On a proportionate basis.

Landsec Annual Report 2017 53 Going Viability Concern Statement

The Directors confirm they have a reasonable The Directors have assessed the viability of the The viability scenario assesses the impact of expectation that the Company has adequate Group over a five year period to March 2022, considerably worse macro-economic conditions resources to continue in operational existence for taking account of the Group’s current position than are currently expected. In London, it is at least 12 months from the date of signing these and the potential impact of our principal risks. assumed that rental values are impacted by an financial statements. This confirmation is made The Directors have determined five years excess of available space in the market, while, after having reviewed assumptions about future to be the most appropriate period for the in Retail, inflationary pressure on consumer trading performance, valuation projections, capital viability assessment as it fits well with the spending, together with a faster migration to expenditure, asset sales and debt requirements Group’s development and leasing cycles, and is on-line sales, maintain downward pressure contained within the Group’s current five year broadly aligned to the maturity of the Group’s on rental values. In London, rental values are plan. The Directors also considered potential risks floating rate debt facilities. Our financial assumed to fall for three financial years before and uncertainties in the business, credit, market planning process comprises a budget for the starting to recover in the final two years of the and liquidity risks, including the availability and next financial year, together with a forecast for plan. In Retail, rental values are assumed to fall repayment profile of bank facilities, as well as the following four financial years. Achievement for the next four financial years, and only start forecast covenant compliance. Based on the of the one year budget has a greater level of to recover slowly in the final year. Where voids above, together with available market information certainty and is used to set near-term targets occur, these are expected to take longer to fill and the Directors’ knowledge and experience of across the Group. Achievement of the five year across the portfolio. The fall in rental values, the Group’s property portfolio and markets, the plan is less certain than the budget, but provides together with an outward movement on yields, Directors continue to adopt the going concern a longer-term outlook against which strategic results in lower rental income and a significant basis in preparing the accounts for the year ended decisions can be made. The financial planning fall in capital values over the next two financial 31 March 2017. process considers the Group’s profitability, years. In this viability scenario, we assume capital values, gearing, cash flows and other that any uncommitted forecast acquisitions, key financial metrics over the plan period. disposals or developments do not take place. These metrics are subject to sensitivity analysis, Similarly, we assume no uncommitted debt in which a number of the main underlying refinancing takes place, and no new debt or assumptions are flexed to consider alternative bank facilities are raised. macro-economic environments. Additionally, We have assessed the impact of these the Group also considers the impact of potential assumptions on the Group’s key financial structural changes to the business in light of metrics over the period, including profitability, varying economic conditions, such as significant net debt, loan-to-value ratios and available additional sales and acquisitions or refinancing. financial headroom. The scenario represents a The Directors consider the key principal significant contraction in the size of the business risks that could impact the viability of the over the five year period considered, with net Group to be ‘Customers’, Market cyclicality’, asset value falling by around 35% at the lowest ‘Development’, ‘Liability structure’ and point. However, our assessment is that such a ‘Financing’. We have considered the potential scenario would not threaten the viability of the impact of these on the Group’s ability to remain Group. The Group would be required to renew in operation and meet its liabilities as they fall a minimum of £1bn of its debt facilities at the due through a ‘viability scenario’. end of the period considered, but the Directors consider this would be possible considering the Group’s expected loan-to-value ratio, and the range of alternative financing options if bank facilities were not available. Based on this assessment, the Directors have a reasonable expectation that the Group will continue in operation and meet its liabilities as they fall due over the period to March 2022.

This Strategic Report was approved by the Board of Directors on 17 May 2017 and signed on its behalf by:

Robert Noel Chief Executive

54 Landsec Annual Report 2017 Governance Contents 56 Letter from the Chairman 58 Board of Directors 60 Executive Committee 61 Leadership 64 Letter from the Chairman of the Nomination Committee 66 Effectiveness 68 Letter from the Chairman of the Audit Committee 70 Accountability 75 Investor relations 76 Directors’ Remuneration Report – Chairman’s Annual Statement 78 Remuneration at a glance 80 Annual Report on Remuneration 90 Summary of Directors’ Remuneration Policy 92 Directors’ Report Dear Shareholder, market of various economic outcomes flowing Letter from decisions which might be taken. Overview We continue to believe in the sustainability During the year, Landsec continued to deliver of our business model and the deliverability from the against its business objectives. Our retail of superior relative returns. Our revenue assets focus on thriving shopping destinations profit is up 5.5% and we are confident in the Chairman and our teams work in partnership with our underlying strength and prospects for the occupiers to deliver a great experience to our Group. Consequently, we are recommending consumers. Our London assets are prime and a 10.1% increase in the full year dividend. our regeneration in Victoria has been hugely We expect a continuation of a wide successful. Landsec is in a strong financial range of technological innovations in the near Highlights position, with historically low levels of financial future and we are discussing the speed at which they will affect the way we work and ——More time allocated to risk and operational gearing and a portfolio of the requirements for our business and our in an unpredictable year first class, enduring assets. customers’ businesses. Examples of anticipated ——Nicholas Cadbury joined Board priorities change range from different construction the Board Given the political events we are witnessing, techniques and materials, more sophisticated ——Strong supportive relationships the Board has spent considerable time building management systems, greater use of with shareholders and assessing the possible effects on the property pre-fabrication, the use of customer data and stakeholders ——Sector leadership in Health, Safety and Security.

Dame Alison Carnwath Chairman

56 Landsec Annual Report 2017 Governance 57

Landsec Annual Landsec Report 2017 Nicholas Cadbury Non-executive Director Non-executive and have been and have be appointed to Landsec’s Board Landsec’s and key advisers and key I was delighted to was delighted I the Company. My My the Company. and to get a goodand to has enabled me to my fellow Directors, Directors, fellow my Senior Management understanding of the of understanding right from the outset from right opportunities ahead.” induction programme impressed by the deep by impressed quickly, to get to know know get to to quickly, knowledge throughout understand the business understand Nicholas Cadbury joins Landsec

We conducted an internal evaluation evaluation conducted an internal We of our Board’s effectiveness during the year. year. effectiveness during the our Board’s of this of and outcome followed The process on page set out 66. are and its results review Looking ahead a have to fortunate we are Landsec, At who are and Senior Management Board well very experienced and exceptionally with providing engaged We are qualified. with shareholders attractive whilst returns property a top-class giving customers work hard All our employees experience. the business for our enthusiasm and share their commitment. and I thank them for Dame Alison Carnwath Chairman The expectations being placed on companies, The expectations being placed on companies, being judged, are which they ways in and the these debates The Board rapidly. changing are specificwhen considering investments issues when looking at future broadly and more opportunities can that Landsec the role and will see parts in other You sense. wider in a play this how Annual Report of examples this of the business. practicethroughout is put into will Reportyou Sustainability In our separate the building the business for we are see how for legacy a strong we leave so that future partAs our contribution of us. those following currently governance of wider issues the to the we responded to under consideration, Green Governance Corporate Government’s review that of and await the outcome Paper initiatives. governance and other and securitysafety Health, our customers, of and security safety The health, remains visitors and contractors employees, with our work closely We us. for priority a top that record partners a safety and maintain Our industry benchmarks. well ahead of is on mental year the last leadership position over health us in the construction industry saw ourvisit in December to with the recognised for State of the Minister Victoria by in site Nova Reflecting Work. Health and Disabled People, vigilant we remain threats, the ever-changing both and cyber physical security. on matters of Board changes and effectiveness Nicholas Cadburywelcome to I am delighted January and 1 Nicholas joined on our Board. to experience that commercial wealth of brings a I said inAs discussions. our Board will inform will O’Byrne Kevin year, last you letter to my year this later the Board from be retiring as over will take Nicholas when he does, and, CommitteeAudit had having the Chairman of year’s this of oversight Kevin’s of the benefit special thanks my convey to would like I results. and on the Board years his nine for Kevin to Committee. Audit the of his leadership

We appreciate the impactwhich a appreciate We We have recently completed a detailed completed recently have We We continue to embrace the benefitsof embrace to continue We The Board recognises and, by its own by and, recognises The Board by our vision to be the best in the eyes of of be the bestvision to in the eyes our by employees communities, our customers, that. but it goes beyond and partners, company like Landsec can have on a wider on a can have Landsec like company This is reinforced stakeholders. of group third party feedback survey of our shareholders our shareholders partythird of feedback survey the positive results. by reassured were and and our Senior Management In particular, valued. highly capabilities are execution the survey to widely contributed Shareholders some constructive suggestionsand provided agendas including in our Board are we which were that they the extent and discussions to part our normal business. already not of a high remains engagement Shareholder team. me and the management for priority Shareholders and stakeholders Shareholders our investor of the strength of proud are We was I year and during the programme relations a representing meetpleased shareholders to in the UK register our of significant percentage the business and discuss and the to composition and answer Board and its strategy The meetings succession planning questions. weekwith most being held the timely were for grateful are We vote. the Brexit following these set aside for the time that shareholders welcome. meetings feedback and their is always Days at Investor occasions, other were There which shareholders at presentations, and results Directors. could meet me and our Non-executive workforce diversity and the need to prioritise and the need to diversity workforce skillsthe growth and development leadership of 30% of represent Women within our teams. the Senior Management and 36% of the Board Committee)we still(including the Executive but ethnic minorities do on embracing work to have allocatesThe Board and disabled people. to succession time on its significant agenda In all these development. planning and talent will be better is and placed Landsec to ways, change. the pace of address example, promotes the importance a strong of promotes example, benefits and the the organisation within culture and the Company to brings a culture which such putsmove our office recent Our its employees. providing our business by of people at the centre with a cross-functional and workplace a modern will be awe I believe atmosphere. collaborative effectivea result and business as efficient more Rob year, during the Furthermore, this move. of on refreshing focused team and his executive that it reflects ensure to brand the Company’s our people and the aspirations of values the our customers. of the seamless digital environment which envelops envelops which environment the seamless digital our Directors of experience The diverse us today. on expanded and our debates has informed these matters. Board of Directors Executive Directors 1. Robert Noel Chief Executive Robert was appointed to the Board in January 2010 as Managing Director, London Portfolio, and became Chief Executive in April 2012. Career A chartered surveyor and graduate of the University of Reading, Robert was Property Director at plc between August 2002 and September 2009. Prior to that, he was a director of the property services group, Nelson Bakewell. He is a former director of the New West End Company and former Chairman of the Westminster Property Association. Robert is a director of the European Public Real Estate Association (EPRA). On 5 July 2016, he was appointed a Director of the British Property Federation. He is also a trustee of the Natural History Museum. Skills, competencies and experience Robert has over 30 years’ experience in a number of sectors within the property market, and extensive knowledge of the London commercial property market in particular. He has substantial executive leadership and listed company experience. Committees Chairman of the Group’s Executive, Asset and Liability, Health, Safety & Security, Investment and Sustainability Committees. He attends the Audit, Remuneration and Nomination Committees at the invitation of the Committee Chairmen.

2. Martin Greenslade Chief Financial Officer Martin joined the Board as Chief Financial Officer in September 2005. Career A chartered accountant, having trained with Coopers & Lybrand, Martin was previously Group Finance Director of Alvis plc. He has also worked in corporate finance serving as a member of the executive committee of Nordea’s investment banking division and Managing Director of its UK business. Martin is a trustee of International Justice Mission UK. Skills, competencies and experience Martin brings extensive and wide-ranging financial experience to the Group from the property, engineering and financial sectors in the UK and overseas. He also has extensive financial expertise, particularly in relation to corporate finance and investment arrangements, and significant listed company experience at board level. His oversight responsibilities cover the Group’s finance, tax, treasury, risk management and internal audit, insurance and information technology teams. Committees A member of the Group’s Executive, Asset and Liability and Investment Committees. He attends Audit Committee meetings at the invitation of the Committee Chairman.

58 Landsec Annual Report 2017 Governance 59 A member of the Audit A member of the

Nicholas is Group FinanceNicholas Group Director is Cressida spent almost years 20

Before that, he held the position of Cressida was previously a member of member a previously was Cressida Cressida received a CBE in 2014 Landsec Annual Landsec Report 2017 Independent (as per the UK Corporate Independent (as per the UK Code). Governance Chief Financial OfficerPremier of Farnell whichPLC, he and joined prior to in 2011, that he worked at Dixons in a Retail PLC as including roles, management of variety Chief Financial Officer2011. to from 2008 Nicholas originally qualifiedan as Waterhouse. with Price accountant experience and competencies Skills, Nicholas brings and wide-ranging international financial and general management experience the Group to gained working consumer facing in from leisure retail, the in particularly businesses, and hospitality sectors. He also has extensive commercial and operational strategy to relation in skills and knowledge development. IT and Committees Committee. He will become Chairman of that Committee, in succession Kevin to O’Byrne, at a date be to confirmed2017. in 10. Nicholas Cadbury Nicholas 10. Director* Non-executive Nicholas joined the Board as a Non- executive Director on 1 January 2017. Career of a position PLC, he has held 2012. November since the advisory board for Infrastructure UK, the HM Treasury unit that works on the UK’s is She priorities. infrastructure long-term of Head Director, Managing currently Infrastructure, of the Canada Pension Plan Investment Board and a non-executive director of Anglian Group Water Limited and of Associated British Ports Holdings Ltd. for services infrastructure to investment and policy. experience and competencies Skills, Cressida has a deep understanding of projects infrastructure long-term large, considerable has She businesses. and general experience returns, investment of leadership. and management Committees Committee. Remuneration *  with Group plc having joined themin from JP Morgan.1995 She co-founded 3i’s infrastructure business becoming in 2005, Managing and led Partner the in 2009, team which acted as Investment Adviser 3i Infrastructureto plc, a FTSE 250 investment She company. advised on all Infrastructure’sof 3i transactions from through its flotation2007 to herin leaving in2014. Non-executive Director* Non-executive Cressida joined the Board asa Non- executive Director in January 2014. Career 9. Cressida Hogg9. CBE

Chairman the of A member of the Audit

A senior figure withinthe private Stacey isStacey a Director Emeritus of

Simon is a trustee of the University Stacey hasStacey served as Chairman of 8. Simon8. Palley Director* Non-executive Simon was appointed the Board to as a Non-executive Director in August 2010. Career equityindustry, Simon has had a successful and broad ranging career in investment banking, consulting and private equity. He started his career at Chase Manhattan before moving Bain to & Company. He left join to there in 1988 Bankers as Trust a Vice President and moved BC Partners, to a private equity 1990 wherefirm, in he worked17 years, for rising the position to of Managing Partner. Simon then became Chairman of the Partners Centerbridge equity firm private Europe, a post He he is held until 2013. non-executivenow a director of UK Adviser Senior a Investments, Government TowerBrook Capitalto Partners and an adviser the private to equity arm of GIC. He is an MBA graduate of The Wharton School, Pennsylvania. of Pennsylvania and Foundation. The Tate experience and competencies Skills, Simon has extensive understanding of portfolio management, financial metrics and the impact of interest rates on capital markets. He has expertise in private equity markets and considerableand capital experience managing highly talented professionals. Committees Remuneration Committee and a member of the Nomination Committee. Non-executive Director* Director* Non-executive joinedStacey the Board as a Non- executive Director in January 2012. Career McKinsey & Company where she served clients in the US and internationally for Whilst there, she24 years. co-founded the New Jersey office and was the first woman be to appointed as an industry practice She leader. was a leader in the Retail and firm’s Consumer Goods Practices, served as the head of the North and ApparelAmerican Practice Retail and acted as the Global Retail Practice SheConvener. retired from McKinsey & Company in September and has 2010 since then pursued a portfolio career. the Board of Fiesta Restaurant GroupInc listed company) since (a NASDAQ February and as a non-executive 2017 positions Former 2012. director since include non-executive director Inc of CEB listed NYSE member-based(a advisory listed NYSE (a ANN Inc company), specialty and apparelwoman’s retailer) Corporation. Holding Tops experience and competencies Skills, brings deep analyticalStacey thought to the Board, with considerable expertise of retail trends and insights gained at a management international leading She has significant board consultancy. non- through gained experience level executive positions held in retail and other industries. Committees Committee a and, from 1 April 2017, member of the Nomination Committee. 7. Stacey Rauch Stacey 7.

Chairman of the Audit A member of the Audit Kevin is a chartered a is accountant Kevin Chris is a chartered He surveyor.

Chris is currently a Wilkins Fellow 6. Chris Bartram6. 5. Kevin O’Byrne Kevin 5. Director* Non-executive Kevin was appointed the Board to as a Non-executive Director in April and 2008 Independent Senior of position the held Director July 21 from to 2016. April 2012 Career who trained with Arthur Andersen. He was appointed Chief Financial Officer of joiningJ Sainsbury on 9 January PLC 2017, them from Poundland where Group PLC beenhe had Chief Executive Officerfrom December until 31 2016 1 July 2016. heFormerly, was Group Finance Director of Kingfisher 2012 plc2008 to from following which he became of its CEO KoçtasB&Q and businesses in China, and the UK, untilTurkey, he left that business His previous in May 2015. of Director Finance Group include roles Dixons Retail plc and European Finance Director of The Quaker Oats Company. experience and competencies Skills, Kevin has extensive understanding of retail trends, operations and insights gained during a number of senior financial and large at positions management general listed retailers. He is a long-standing Non-executive Director and Chairman of the Audit Committee who is able use to his experience property gained a across cycle to challenge additional bring to management. Committees Committee and a member of the Committee. Nomination Non-executive Director* Non-executive Chris was appointed the Board to as a Non-executive Director in August 2009. Career was Chairman and Partner of Orchard LLP, Management Investment Street property investment commercial a leading manager focused on until the UK market, and continued March 2015, act31 to as an adviser that to 2017. 31 firmMarch until He was a Board Counsellor of The Crown Estate having until 31 December 2015, previously served as a Board Member. Managing include positions Former Director of Chairman Haslemere of NV, Management, Fund Wootton Lang Jones President of the British Property Federation and Chairman of the Bank of England Property Forum. of University College, of Downing advisory board an and Cambridge, member certain to overseas entities within the Brack Capital Real Estate Group. experience and competencies Skills, Chris is a scion of the property industry, property investment, of decades with allocation and capital fund management experience gained across a range of real the within disciplines and businesses estate He sector. has significant a as management general of experience former Chief Executive and Chairman of significant businesses. Committees and Nomination Committees. Committees. Nomination and A member of the Chairman the of

Edward became Chairman Vice of Edward Dame Alison workedin

Edward joined Jupiter as a in 1994 Edward is a Board member of The Dame Alison is currently a non- Dame Alison was appointed a Dame Jupiter Fund Management plc in March having2014, been Chief Executive Officer Duringof the company his since June 2007. Edward steeredtime as CEO, the company its from buy-out management a through previous owners, Commerzbank, in 2007 and oversaw listing the firm’s theon London Exchange Stock in 2010. managerUK fund and held the position Investmentof Chief Officer 1999 to from He started2000. his career at as an investment analystin 1982 before moving Electra to Investment inTrust 1986 where he was a fund manager. Investor Forum, a trustee of the Esmeé Fairbairn Foundation and a trustee of the Orchestra of the Age of Enlightenment Trust. experience and competencies Skills, has experience significant Edward of general management as a former of CEO a private equity backed and a large listed Havingcompany. been a fund manager for many years, he also has an excellent and markets stock of understanding expectations.investor Committees Remuneration Committee and, from a member29 September 2016, of the Committee. Nomination 4. Edward4. Bonham Carter Director* Independent Senior Edward joined the Board as a Non- executive Director in January He was 2014. on Director Independent Senior appointed 21 July 2016. Career investment banking andcorporate finance20 yearsfor before pursuing a portfolio During career. her banking she became first the female career, director Henry of J. Schroder Wagg & Co. Dame Alisonwas also a Senior Partner at Managing a and Securities Phoenix Director at Donaldson, Lufkin & Jenrette. She has served as a non-executive director of Friends Provident plc, Gallaher Group plc, Glas Cymru Cyfyngedig (Welsh plc andWater), Man Group plc. Insurance Zurich director of executive Group Limited, Fortune Paccar Inc (a 500 company) and CICAP Limited, and a senior advisor Evercore Partners. to She is also a member of the UK Panel on and Takeovers supervisory member a and board Mergers and audit committee chair of the Frankfurt SE. BASF listed chemicals company, for herin services 2014 business. to experience and competencies Skills, Dame Alison has very significant board level experience gained across a range of industries enables This and countries. her createto the optimal Board environment and get the best out of her fellow Directors both during and outside meetings. She has management, asset alternative in expertise global manufacturing.banking and Committees Nomination Committee and a member of Committee. Remuneration the 3. Dame3. Alison Carnwath Chairman of the Board DameAlison was appointedthe Board as to a Non-executive Director in September 2004 and became Chairman in November 2008. Career Non-executive Directors Non-executive Executive Committee

Responsibilities Miles’ broad 1. Robert Noel 4. Scott Parsons 5. Diana Breeze responsibilities cover sustainability, public Chief Executive Managing Director, Retail Portfolio Group Human Resources Director relations (both financial and business-to- business), internal communications, public Full biography on page 58 Scott re-joined Landsec in 2010 and was Diana joined Landsec in June 2013 as affairs, investor relations and corporate Head of Property, London Portfolio, before Group Human Resources Director. marketing (including brand and being appointed as Managing Director, reputational management). Retail Portfolio, in April 2014. Career Diana has over 20 years’ HR and 2. Martin Greenslade organisational consulting experience, and Miles is a board director of the Foreign Chief Financial Officer Career Scott’s career to date includes she has previously held a number of senior Policy Centre and the Westminster Forum. three years as Managing Partner of HR roles at J Sainsbury plc, where she led Full biography on page 58 Committees A member of the Group’s Brookfield Asset Management, where he many people focused change initiatives. Executive and Sustainability Committees. led their European business, more than ten Prior to that, she was a senior manager in Attends Investment Committee meetings. years at GE Capital Real Estate (including the Human Capital practice of Accenture. 3. Colette O’Shea as Head of Business Development), and Managing Director, London Portfolio three years as Business Development Responsibilities In her current role, Diana Director at Landsec in his first position has end-to-end responsibility for the 7. Tim Ashby Colette joined Landsec in 2003 and was with the Company. articulation and delivery of a clear people Group General Counsel and Head of Development, London Portfolio, strategy for Landsec, including talent, Company Secretary before being appointed its Managing Responsibilities In his current role, Scott reward, organisational design and Director in April 2014. has responsibility for Landsec’s £6.1bn engagement. Since joining the Company, Tim joined Landsec in September 2015 Retail Portfolio of shopping centres, retail Diana has focused upon the key areas of as Group General Counsel and Career Colette has over 20 years’ parks and leisure properties throughout talent and leadership, and has Company Secretary. property experience in London, operating the UK comprising some 16.7 million sq ft implemented a number of initiatives to in investment, asset management and Career Tim is a solicitor and has more of accommodation. Previously, as Head of evolve the culture of the business. development. Prior to joining Landsec, than 20 years of significant legal, Property for Landsec’s London Portfolio, Diana is a member of the she was Head of Estates at the Mercers’ compliance and commercial experience he led the investment, asset and property International Advisory Board for Executive Company where she led the property gained across a number of different management teams for the Group’s office Education at the Saïd Business School, team whilst also gaining extensive office, sectors and businesses both in the UK and retail space in central London. University of Oxford. She also advises the retail and residential experience. and overseas. He joined Landsec after Scott was previously a member of the Board of Trustees, and is a member of the five years as Group General Counsel and Strategic Board of the New West End Personnel and Nominations Committees Responsibilities In her current role, Company Secretary of Mothercare plc. Company and was previously Vice of the UK Green Building Council. Colette has responsibility for Landsec’s Before that, he worked at Yum Brands £8.3bn London Portfolio comprising some President of the City Property Association. Committees A member of the Group’s (KFC, and Taco Bell) as Region 6.5 million sq ft of London offices, leisure, He was appointed a Property Committee Executive and Sustainability Committees. Counsel for Europe and Africa, and as a retail and residential property both in member of the RNLI in April 2016. Attends Investment Committee meetings Senior International Counsel at PepsiCo development and asset management. Committees A member of the Group’s and both the Remuneration and working in various businesses in the UK, She has led the London business through Executive, Asset and Liability and Nomination Committee meetings at the Eastern Europe and Africa. Tim started his its 2010 three million sq ft speculative Investment Committees. Chairman of invitation of the Committee Chairmen. career in private practice at Dentons, development programme in the City and the Retail Executive Committee. where he specialised in commercial law. West End, including the transformation of Victoria. Responsibilities Tim leads the Legal, Colette was appointed as a Business 6. Miles Webber Company Secretarial and Real Estate Board Member of the Mayor of London’s Director of Corporate Affairs Information Management teams and is London Local Enterprise Partnership for and Sustainability responsible for legal, compliance and London (LEAP) in 2016. governance activity across the Group. He Miles joined Landsec in May 2015 as provides advice and support to the Board Director of Corporate Affairs and Committees A member of the Group’s and its Committees and holds the Group’s Sustainability. Executive, Asset and Liability and relationships with its external law firms, Investment Committees. Chairman of and investor and shareholder bodies. the London Executive Committee. Career Before joining Landsec, Miles was Head of External Affairs, UK & Ireland, for Committees A member of the Group’s General Electric, having previously held Executive Committee. Attends all Board other senior external affairs and relations and Audit, Nomination and Remuneration positions with them since he joined in Committee meetings in his capacity as 2005. Prior to that, he spent six years with Company Secretary. He also attends Merrill Lynch, his first two years as Vice meetings of the Investment Committee President, Corporate Communications, and the Asset and Liability Committee. followed by four years as Director of Public Affairs, EMEA.

60 Landsec Annual Report 2017 Governance 61 Landsec Annual Landsec Report 2017 Health, Safety Safety and Health, Security Committee forResponsible the Group’s overseeing policy health and safety security and operations, and policy governance, at all Group procedures performanceproperties, and against targets goals. towards progress The Board and each Committee receive sufficient, reliable and and each CommitteeThe Board sufficient, receive provided meetings and are of in advance information timely and expertise all necessary resources to access to with or given theirresponsibilities and undertake fulfil their enable them to duties in an effective manner. The role of the Boardthe of role The its committeesand Nomination Committee size and composition the structure, Reviews and its the Board Committees andof the Board to recommendations makes responsibility It has oversight accordingly. and the Board succession planning of for and leadsSenior Management the process It monitors appointments. Board new for and governance in corporate developments accordingly. advises the Board pages on 64-67. details More Sustainability Committee developing for Responsible theand implementing sustainability Group’s to linked strategy, with and integrated overall the Group’s In strategy. corporate it also considers doing so, social, environmental, economic and energy issues affecting the business. and Retail London CommitteesExecutive the for Responsible and operational financial, performancegovernance and Retail the London of business portfolios. Each Committee can also transactions up approve £10m. of value a to Chief Executive Chief the leadership of for Responsible and articulation the Group’s Group of andwith developing together Vision, managing the strategy, implementing the business and performance of overall ensuring an effective and motivated He can approve is in place. leadership team betweenvalue £10mwith a transactions below. details More and £20m. Remuneration Committee Remuneration the Board to and recommends Reviews and policy remuneration the executive of packages the remuneration determines members and other Directors the Executive It also has Committee. the Executive of remuneration the Group’s of oversight all employees. for policy pages on 76-91. details More The matters reserved to the Board and the terms of reference reference of and the terms the Board The matters reserved to on an reviewed which are its Committees, each of for atwebsite on the Company’s can be found annual basis, within these fall matters outside of Any www.landsec.com. He reports and authority. responsibility Executive’s the Chief Committeeson the activities all Management through of reports regular Financial Officer’s) to his (and the Chief the Board.

Committee Investment considering for Responsible significant and approving transactions, investment including the acquisition, disposal development and of assets with a value between and £20m of It also reviews £150m. higherand recommends the transactions to value for It is responsible Board. the annualimplementing approved funding strategy the Board. by Executive CommitteeExecutive which comprises and Executive the Chief of An advisory under the direction committee and authority that operates the and determines the Group Vision for It sets the the business (see page opposite). across from senior management Financial Officer and the Chief Executive It assists the Chief Vision. in support the Group the of of and culture strategy and managing the operational policies and procedures, budgets, plans, operating strategy, and agreeing in preparing including matters, related business and corporate key other addresses It also the Group. of and financial performance organisational succession planning, allocation, resource branding, management, risk and reputation competitive forces, remuneration. and employee development Board Board and other shareholders views of the to With due regard the Group. of success the long-term for responsible Collectively theand direction leadership to it provides and partners), employees communities, its (including customers, stakeholders and setting strategy the organisation; and ethics of values the culture, This includes establishing whole. business as a and governance corporate for responsibility and taken; are risks acceptable ensuring only its implementation overseeing the Group. of financial performance the overall on pages 62-63. details More

Audit Committee Audit oversight for and is responsible Reviews financial and narrative the Group’s of of reporting and the integrity processes the It scrutinises the financial statements. valuer and the external auditor work of by made judgements significant and any the risk reviews It regularly management. including the framework, management and internal risk management of systems audit. internal work of and the control, pages on 68-74. details More

Asset and LiabilityAsset Committee forResponsible considering the impact of purchases, proposed sales, and debtdevelopments funding arrangements balance on the Group’s control sheet and internal the shortmetrics over It also and medium term. impact the likely considers macro-economic of on thedevelopments 1 April business. From this Committeewill 2017, thebe subsumed into Committee.Investment

Board committees committees Board Management committees Management Board Matters reserved to the Board and delegated authorities the reservedMatters to In order to retain control of key decisions and ensure there decisions and ensure key of control retain to In order the at the head of responsibilities is a clear division of and the running the Board betweenCompany of the running certain has identified the Board business, the Company’s of Other matters, it can approve. matters’‘reserved that only its been and authorities have to responsibilities delegated Committees as above. certain and Committees, Management Leadership Board composition and roles Table 28

The Board currently comprises a Non-executive Chairman (who was independent on appointment), two Executive Directors and seven Independent Non-executive Directors. They are advised and supported by the Group General Counsel and Company Secretary. Their key responsibilities are as set out in the table below:

Chairman Dame Alison Carnwath Responsible for leading the Board, its effectiveness and governance and for monitoring and measuring progress against strategy and the performance of the Chief Executive. Ensures Board members are aware of and understand the views and objectives of major shareholders and other key stakeholders. Maintains a culture of openness and debate and helps set the tone from the top in terms of the purpose, vision and values for the whole organisation. Chief Executive Robert Noel Responsible for developing the Group’s strategic direction for consideration and approval by the Board, implementing the agreed strategy, running the business day-to-day and leading the executive team. Maintains a close working relationship with the Chairman. Chief Financial Officer Martin Greenslade Supports the Chief Executive in developing and implementing strategy, and in relation to the financial and operational performance of the Group. Independent Edward Bonham Carter, Kevin O’Byrne, Responsible for bringing an external perspective, sound judgement and objectivity to Non-executive Chris Bartram, Simon Palley, the Board’s deliberations and decision-making. Support and constructively challenge Directors Stacey Rauch, Cressida Hogg CBE the Executive Directors using their broad range of experience and expertise. Monitor the and Nicholas Cadbury. delivery of the agreed strategy within the risk management framework set by the Board. Senior Independent Edward Bonham Carter Acts as a sounding board for the Chairman and a trusted intermediary for other Directors. Director Available to discuss with shareholders any concerns that cannot be resolved through the normal channels of communication with the Chairman or the Executive Directors. Leads the other independent Non-executive Directors in the performance evaluation of the Chairman. Group General Counsel Tim Ashby Provides advice and assistance to the Board, the Chairman and other Directors, particularly and Company Secretary in relation to corporate governance practices, induction training and development. Ensures that Board procedures are complied with, applicable rules are followed and good information flow exists to the Board and its Committees. The appointment and removal of the Company Secretary is a matter for the Board as a whole.

Board meetings and attendance Table 29

AGM

1 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sept 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 31 Mar 17

Audit Nomination Remuneration Director Board Committee Committee Committee Dame Alison Carnwath 8/8 3/3 3/3 Robert Noel 8/8 Martin Greenslade 6/8* Kevin O’Byrne 7/8 4/4 3/3 Chris Bartram 8/8 4/4 3/3 Simon Palley 8/8 3/3 3/3 Stacey Rauch 8/8 4/4 Cressida Hogg CBE 8/8 3/3 Edward Bonham Carter 8/8 1/1*** 3/3 Nicholas Cadbury 2/2** 1/1** Tim Ashby 8/8

* Martin Greenslade attended an executive management course in Stanford, California in June and July 2016. ** Nicholas Cadbury joined the Board and the Audit Committee on 1 January 2017. *** WEF 29 September 2016.

62 Landsec Annual Report 2017 Governance 63

Table 30 Table

Internal co ntrol and ers ris ld k m ho a re n a ag sh e d m n e a n t rs e ld o h Annual Landsec Report 2017 e k a t s , e c n a n r e Considered the financial performance of theof the financial performance Considered budget, the annual approved business and year plan and five targets key performance and annual results the half-yearly Reviewed analysts and approved to and presentations the Annual Report year and full the half-yearly Considered portfolio the by Group’s of the valuation external valuer and structure tax the Group’s Reviewed programme. insurance v — — — —

o

5. Financial performance Financial 5. — — e — —

G l

p

o

e

p

d

n

a

p

i

h

s

r

e

d

a g

e

n L i

d activity Board n during the year

Five key areas of areas key Five u

f

d

n

a

y

t

r

e

p

o

r

p

,

y

g

e

t

a r

t S

ce an orm perf Financial Discussed the composition of the Board and the Board Discussed the composition of planning including succession its Committees, Bonham Edward of appointment Agreed Senior IndependentCarter Director as new appointment of and approved Considered Audit and Director Non-executive new Committee Chairman people and of the development Reviewed including in the Group, talent potential Senior Leaders. succession planning for Reviewed the Group’s risk register and the register risk the Group’s Reviewed internal of systems the of effectiveness management and risk control and the risk framework Reviewed reporting structure risks, and emerging significant Debated the loss terrorism, including cyber security, the from uncertainty arising people, key of politicaland other risks. process Brexit — — — — — — — 4. Leadership and people Leadership 4. — — — — 3. Internal control and risk management management and risk control Internal 3. — — —

Reviewed the Group’s strategy, in particular strategy, the Group’s Reviewed and both the London of review an in-depth businesses Retail the property of status Debated the changing risk position, including the Company’s cycle, business impactfor any and preparations profile political and other risks Brexit Considered versus performance the Group’s Reviewed and benchmarks external budget and targets, its peers to reference by approval Board versus performance Reviewed completed schemes and assets acquired, for key or developed portfolioConsidered and analysis liquidity exposure development and acquisitions and approved Considered in excess value propertieswith a disposals of of £150m Going the Group’s and approved Considered dividend Statements, Viability Concern and and funding arrangement debt policy, gearing levels the bond fundingand approved Considered and including the bond tender strategy, issuance. new evaluation the Board of Discussed the outcome and agreed review, and effectiveness opportunitiesimprovement sustainability 2020 the Group’s Considered annualversus including progress strategy, planned improvements and targets and safety health, regular Reviewed security updates in corporate developments Reviewed legal and key and received governance updates regulatory and strategy relations the investor Reviewed the independent depth in reportconsidered with consultation a which followed carried out reviewed regularly investors; our institutional shareholders, institutional feedback from activities engagement and other roadshows proposition brand Landsec the new Reviewed meeting reports regular Received the from and Remuneration Audit, the Chairman of Nomination Committees the no change to and approved Reviewed Directors Non-executive for annual fees andAbuse Regulations the Market Considered Securities an updated Dealing Code approved and Human Slavery the Group’s Approved for publication on statement Trafficking its website with continue to and agreed Considered Pension scheme Defined Benefit American the of the closure Agreed Depositary Receipt programme. — — — — — — — — — — — — — — — — — — — — — — — — — — — — — and shareholders stakeholders Governance, 2. — — — — — — — — — — — — The diagram below shows the key areas of Board activity during the year. year. activity the Board during of areas shows the key below The diagram property funding and Strategy, 1. — Board activity Dear Shareholder, Board composition and succession Letter I am pleased to present the Nomination We believe that the current composition of the Committee report which summarises our Board and its Committees remains appropriate work over the past year. for the time being but this is kept under from the regular review. Governance The Committee supports the ongoing I can report that we complied in full with the development of Directors. It agreed the scope Chairman principles of the 2014 UK Corporate Governance of a comprehensive induction programme for Code throughout the year. You will find more Nicholas Cadbury that started when he joined of the detail regarding our compliance, governance the Board and was pleased to support the and effectiveness elsewhere in this report. ongoing professional development of Martin Greenslade who attended a six-week world-class Board and Committee changes Nomination Executive Program at Stanford University, USA, Last year, I explained that Kevin O’Byrne, who last summer. joined our Board as a Non-executive Director Board succession is a very live topic at Committee in April 2008, would be standing down as Committee meetings. In particular, we discuss Senior Independent Director in July 2016, and executive talent and leadership in the wider would retire from the Board in 2017. We started property industry. Our goal is to retain and the external search to find Kevin’s successor recruit the best at Board and senior leadership in early 2016, appointing Spencer Stuart (an Committee members levels. As a matter of prudence, we monitor independent search consultancy appointed a range of candidates who may be suitable Dame Alison Carnwath (Chairman) following a tender process) to assist with replacements for existing Directors. We believe Chris Bartram* the recruitment. that Non-executive Directors should generally I am delighted to say that Edward Simon Palley* stay for nine years, with the appointment of Bonham Carter became the Company’s Senior Stacey Rauch* new Directors providing an opportunity to Independent Director in July 2016, and that add diverse perspectives and skills. However, Edward Bonham Carter* the search for a new Non-executive Director it is important to ensure that the experience *Independent Non-executive Director was successful with Nicholas Cadbury joining gained through one property cycle is available our Board on 1 January 2017. Nicholas will for the next, and that we have a mixture of real succeed Kevin O’Byrne as Chairman of the estate, financial, retail and general expertise to Highlights Audit Committee later this year. We will issue hand. As such, the Committee may determine ——Successful and thorough appointment an announcement in due course to confirm occasionally that it is in the Company’s best process to find Nicholas Cadbury the date of Kevin’s retirement. interests for a Non-executive Director with Nicholas is CFO at Whitbread PLC ——Increased focus on changes to the particular skills to stay beyond the nine year and therefore has all the technical skills governance landscape affecting term identified in the UK Corporate Governance required to become Chairman of the Audit the Company Code at which point some investors or Committee. However, it was important to ——Thorough assessment of succession plans. governance bodies may begin to question their the Committee that any new Director could independence. Should this occur, we will explain bring complementary non-financial skills and the decision and the rationale to shareholders. experience, and Nicholas’ role at a consumer- Key responsibilities Finally, the Committee supports the Board facing business like Whitbread – and previously ——Reviews the structure, size and in its work to secure the long-term health of the at companies such as Dixons – will be a true composition of the Board and Company, and its strategy for success in a fast- asset to our Board discussions. On behalf of its Committees and makes changing world. This can only be achieved with the Committee, I extend my warm welcome recommendations to the the right people in the organisation, and the to Nicholas as a member of the Board. Board accordingly Committee has considered the likely business Also, Stacey Rauch joined the Nomination needs of the Company and its management ——Oversight responsibility for succession Committee on 1 April 2017 to broaden her capability – and succession plans – at executive planning of the Board and Senior perspective of and contribution to the Company. Management and leads the process and senior management level. We also for new Board appointments recognise and support the extensive leadership development work that is being undertaken ——Monitors developments in corporate with all management levels within the Group. governance and advises the Board accordingly.

64 Landsec Annual Report 2017 Governance 65 Landsec Annual Landsec Report 2017

You will find more information on these information will find more You

Committeeeffectiveness reportpleasedI am Board to the recent that concluded the that performance evaluation Nomination Committee very well. operated The Committee the increase decided has to year meetings the held during number of to response this is in Partly four. two to from succession and external internal the ongoing the to it is a response but also work, planning expected in the number scope and increase changes. governance of the Committee, work of the other and topics evaluation the Board of details and more on the and its outcomes, process following pages. following Dame Alison Carnwath Nomination Committee Chairman,

Chairman

Dame Alison Carnwath Carnwath Alison Dame

Independence and re-election to the Board the Independenceto re-election and effectiveness and The independence, the Non-executive each of of commitment the Committee by has been Directors reviewed and on the contributions which satisfied itself the Non-executive all of time commitment the of On behalf year. during the Directors in I conducted a specificreview Committee, he has been as in office Simon Palley to relation The Committeewas years. than six more for other the of and each that Simon, confident independent remains Directors, Non-executive theirwill be discharge in a position to and year. in the coming duties and responsibilities whose Nicholas Cadbury of With the exception time, for the first is beingappointment ratified re-election at for will stand all the Directors with the support Meeting General the Annual Board. of the Effectiveness Board, Committee and Directors’ performance evaluation cycle

Year 3 Board evaluation 2016/17 Year 2 Year 1 Progress reviewed Review focused on Following the external evaluation of the Board Independent, generally coupled with Year 1 issues raised externally focused questionnaire and its Committees last year, this year’s review and any new issues facilitated review and/or interviews with arising of the Board’s effectiveness was conducted the Chairman internally and was led by the Chairman with the support of the Company Secretary. In accordance with the Board evaluation cycle, the evaluation this year focused on any issues raised in last year’s externally facilitated review and any new issues arising from this year’s process. Board evaluation The first part of the evaluation required 2016/17 each Director to complete anonymously an online survey and questionnaire that focused on matters such as the Board’s performance, Effectiveness Conclusions from review of the Board Progress review the performance of each of its Committees, this year’s review Areas of focus and Committee against targets set and areas identified for 2017/18 workings conducted for 2016/17 the nature and content of Board meetings and for improvement the relationship between the Non-executive externally and Executive Directors. The survey included open questions that encouraged Directors to provide comments or enabled them to raise any to supplement its existing programme Areas of focus for 2017/18 concerns. The output of this survey was collated (and to identify the enablers that will facilitate ——Strategy – Board meetings to allocate and provided to each Director. the execution of the strategy). The Board sufficient time to both medium and longer- The Chairman then met separately with will ensure that its meeting agendas are term strategic discussion each Director and used the output of the survey forward looking in terms of the cycle and the ——Innovation – appreciate the impact of and questionnaire, together with a tailored set business opportunities, and retain oversight rapid technological development on us of questions, to conduct a detailed interview. over execution of the five year plan. Also, the and our customers These meetings were helpful in that they allowed Board will ensure that, at a time when the risk ——Risk – further develop the approach to the Chairman to explore in more detail some of profile faced by businesses is changing rapidly, risk, especially in the context of the wider the themes arising from the questionnaire its assessment of risk remains dynamic (being economic and political framework in which and to obtain supplementary comments revisited and adjusted as facts or scenarios we will be operating and observations. change). Finally, regarding succession planning, Mr Bonham Carter, as the Senior the overall level of skills and expertise will remain ——Culture and people – provide oversight Independent Director, separately evaluated a matter of priority, with particular importance and support to management as Landsec the performance of the Chairman having first attached to maintaining real estate expertise introduces its new brand framework. collated points of view and questions from at Board level. the other Directors and then discussing the The Chairman will continue to lead the outcome with her. process of building on current strengths of the A final report and recommendations was Board and innovating further to build on the prepared based on the collective comments points outlined above, with support from the from all the Directors and this was discussed Chief Executive and Company Secretary. by the Board. Separate reports were prepared for each of the Audit, Remuneration and Progress against targets set for 2016/17 Nomination Committees based on the feedback In addition to considering the results of this received, and in each case the conclusions year’s externally facilitated evaluation, the were discussed by those Committees at their Directors reviewed progress against the targets meetings in March 2017. identified last year as set out in the table below:

Conclusions from this year’s review Objective Performance The conclusion from this year’s evaluation was that the Board and its Committees continue Board meetings to increase the amount of This is being achieved, helped by the time allocated in time allocated to risks and challenges that meetings to assess some of the unexpected events during to operate to a high standard, and work well could impact the business, particularly at the year, and will continue this year. Examples include and effectively. The results overall ranged from a time of increasing market uncertainty external advisers addressing the Board in June and July positive to very positive, and there were no 2016 (shortly before, and immediately following, the specific concerns raised by any of the Directors EU referendum); further analysis of political and economic to the Chairman or anonymously through the risk at the December Board meeting; and a Strategy Day online survey. Areas that were assessed as being agenda that was largely devoted to risks and challenges particularly strong included the culture and affecting (or which may affect) the business. relationships in the Boardroom, the Board’s Time to be allocated to site visits, supported Site visits were arranged for Directors and Directors have collective judgement and overall performance, by ongoing professional development, attended results presentations and investor days. Board information and the involvement of in order to increase their level of business Directors in succession planning. awareness and engagement As with every high performing board, Review the way the Board tracks progress We held an in-depth review of each of the London and the Directors continue to look for areas of on previously approved major projects and Retail operating businesses, assessing past decisions, improvement. The Board will devote more time initiatives, using experience gained from current performance and future strategy. to engage in “blue sky” strategy discussion past investment decisions

66 Landsec Annual Report 2017 Governance 67 Table 31 Table

Landsec Annual Landsec Report 2017 Diversity is more than just gender based, based, than just gender is more Diversity Our mentoring programme, introduced last introduced programme, Our mentoring to all levels women at to assist specifically year the Company, within full potential their reach well. operate to continues in the focus to will continue and the Board on this importantyear wider in its issue coming set specific has objectives Landsec to context. in improvements including 2020, be by achieved andAsian its Black, of scores the engagement and these employees, Ethnic and LGBT Minority objectives supported the Board. are by interest of Conflicts identify and, to a policy operates The Board potential manage any appropriate, where have. may that Directors interest conflictsof theThe Nomination Committee monitors the actions and determines necessarysituation as interest conflictsof potential address to below. in the table detailed Nomination Committee decision and mitigating actions taken Since the Group’s insurance programme and policy and policy programme insurance Since the Group’s Directors the Executive handledmatters by are with its (and in consultation the Board outside of the Committee brokers), own independent insurance involving concluded interest in practice that conflictsof were Insurance Zurich and Alison Carnwath Dame occur. to unlikely of conflict potential The Committee see not any did advisory Bartram’s Mr. arising from situations interest at OSIM. role are leasing, such as retail matters, operational As the Committee level, be at Board considered to unlikely involving concluded interest that in practice conflictsof occur. to unlikely were Mr O’Byrne his employers and his positionMr O’Byrne at Poundland resigned up his position and took at2016 on 30 December 2017. January J Sainsbury on 9 involvement any have will not Ms Hogg In her role, in question as this is managedwith the development As an within CPPIB. business unit different by a any share will not the Group additional precaution, with her on that development information sensitive participate to Board not and she has agreed in any it. to discussion that relates positionMr Bonham Carter’s is such that he is in the selection be particular involved to of unlikely participate to not agreed and has in any investments the Group’s involve which may decisions investment such as office matters, Since operational securities. level, be at Board considered to are unlikely leasing, the Committee concluded that in practice conflictsof Mr Bonham Carter involving and his employer interest occur. to unlikely were are leasing, such as retail matters, Since operational the Committee level, be at Board considered to unlikely involving concluded interest that in practice conflictsof occur. to unlikely were Mr Cadbury and his employer a Non-executive was appointed Nicholas Cadbury 2017. January 1 on the Board of Director

Potential conflict Potential situation of director non-executive A Company Insurance Zurich whom with Limited the places certainGroup of policies its and insurance pension investments. Street Orchard An adviser to Management Investment 2017 March 31 until (OSIM) of in some areas which is, a competitor operation, the Group. of Poundland of Executive Chief and Chief PLC Group Financial Officer of both of J Sainsbury PLC, retail which lease a number of properties the Company from the country. around Head of Managing Director, the Canada of Infrastructure, Plan Investment Pension which is the (CPPIB) Board partnerventure joint Group’s at a major development. Jupiter Vice Chairman of plc, Management Fund which a fund manager that investments evaluates include not or may may Jupiter the Group. those of of is also a customer the Group. Finance Director Group Whitbread which, PLC of Coffee its Costa through leases a number operations, properties from retail of around the Company the country.

Landsec continues to make good progress make to continues Landsec Diversity policy Diversity in its broadest diversity embraces The Board experience, of range wide believing a that sense, skills and knowledge perspective, background, a high towards contribute combine to is which better effective Board, performing, supportable to direct and the Company. of The addition diversity. greater of in terms has meant that the the Board Mr Cadbury to has reducedwomen on the Board of percentage will this However, year). last 33% (from 30% to O’Byrne retires when Kevin 2017 in later reverse voluntary will again be meeting the we and review the Hampton-Alexander set by targets 350 companies. FTSE of Board women on the for report pleased to are we that 36% of Further, (comprising the in Landsec Senior Management are CommitteeExecutive and Senior Leaders) target voluntary with this again in line women, review. in the Hampton-Alexander identified Dame Alison Carnwath interest of conflicts Potential Director Chris Bartram O’Byrne Kevin HoggCressida CBE Bonham Edward Carter Nicholas Cadbury

Directors continued to receive regular receive continued to Directors The Board and its CommitteesThe Board receive the rapidly developingthe technology that may affectthe business and itscustomers challenges and threats longer-term possible commercial the propertyto market geopolitical and macro-economic trends. — — — Board strategy Board strategy the throughout strategy considers The Board such as funding and encompassing topics year, competition and emerging allocation, capital held its regular the Board Additionally, sectors. that meeting in February strategy two-day a in detail and debate explore enabled it to such as: items of wide range — — — reports facilitating greater awareness and awareness reports greater facilitating and business the Group’s of understanding and industry-specific regulatory the legal, This is which it operates. in environment propertiesvisits to owned, by complemented the Group managed or being developed by thewhich enable a deeper into insight Directors the business and provide of operations with senior andwith the opportunity meet to local teams. management Professional development, support development, Professional Directors for and training specific knowledge held several The Board on year, the sessions during development politicalother and andsuch matters as Brexit affect the that may economic risk factors in the UK. wider property market business or the Induction induction exists comprehensive programme A was and Directors appointed newly any for Mr Cadburywhen joined the Boardused the inductionThe priorities of year. during the with anCadbury Nicholas provide to were culture, history, the Group’s of understanding This and financial position. strategy business, with the Chairman meetings included early with together Directors, and the Executive and Senior Directors Non-executive other were also There meetings with Management. Committee, Audit the to external advisers will become Chairman Mr Cadbury of which later in 2017. papers in a timely fashion and Directors have and Directors fashion papers in a timely support and advice from information, access to his and members of Secretary the Company year. the throughout team Board environment and access to access and Board environment information appropriate of and its culture environment The Board rated was again and openness transparency In review. effectiveness year’s in this favourably private and the meetings, the Board addition to sessions scheduled at each meeting Board and the Non-executive the Chairman held by opportunities other are arranged there Directors, meet and at Directors when year during the can be discussed in detail. items which relevant Dear Shareholder, and external advisers provides us with the Letter from I am pleased to report on the key activities and best insight into areas of risk and appropriate focus of the Audit Committee during the year. controls, and allows us to provide assurance to This will be my last report to you as Chairman the Board that the system of internal processes the Chairman of the Committee as I intend to step down later is robust. this year after nine years on the Board. Nicholas Cadbury, who joined the Board in January, will External valuations and valuer of the Audit take over as the Chairman of the Committee. CBRE was appointed in 2015 to act as the The Committee monitors the integrity of Group’s valuer following a tender process. We Committee the Group’s reporting process and financial are pleased with the level of support provided management. It ensures that risks are carefully by CBRE, the rigorous process that they apply identified and assessed, and that sound systems to their work and their broad industry expertise of risk management and internal control are and knowledge. in place. It scrutinises the full and half-yearly External auditor Committee members financial statements before proposing them Ernst & Young LLP (EY) was appointed as the Kevin O’Byrne (Chairman)* to the Board for approval, and reviews in detail Company’s auditor in 2013. This year’s internal the work of the external auditor and valuer Stacey Rauch* review of their effectiveness and performance and any significant financial judgement made concluded that they continue to operate at Chris Bartram* by management. The Committee reviews the a high standard. We have agreed a new fee Nicholas Cadbury* risk management framework and reports to basis for EY’s services for this year and through the Board on matters of existing and emerging *Independent Non-executive Director to 2018/19, details of which are contained on risk affecting the Group. The Committee page 71 in the Accountability section. Based on receives detailed reports from management, the Committee’s recommendation, the Board Highlights supplemented by other conversations and is proposing that EY be reappointed to office meetings as appropriate during the year. ——Reviewed changing risk factors and at this year’s AGM. reporting matrix Acquisitions and disposals AQRT ——Assessment of skills and competencies The Company made a number of property During the year, an Audit Quality Review Team of internal audit acquisitions and disposals during the year (AQRT) from the FRC undertook an inspection ——Quality and appropriateness of as it continued to execute its strategy. The of EY’s audit of the Group’s financial statements property valuation process. Committee ensured that the accounting for the year ended 31 March 2016. As part of treatment of all transactions was scrutinised that process I spoke with the AQRT to share and appropriate. Key responsibilities my (and the Audit Committee’s) perspectives on the quality of EY’s audit and its delivery on ——Monitors the integrity of the Changing risk landscape commitments made by the audit firm as part Group’s reporting process and The risk landscape has evolved during the year. of the audit tender process. On completion financial management We reviewed changes at a macro-economic and political level and a range of other risks affecting of the review, the Audit Committee received ——Ensures that risks are carefully identified the business including cyber security and rapid and considered the AQRT’s final report on and assessed, and that sound systems technological change. Also, we considered other its inspection and discussed it with Eamonn of risk management and internal factors such as the market cycle, the Brexit McGrath, the audit partner at EY. The report control are in place negotiation process, and property and consumer does not give the Committee any concerns ——Scrutinises the full and half-yearly trends that are relevant to our business planning over the quality, objectivity or independence financial statements in the medium to long term. of the audit. ——Reviews in detail the work of the The Group’s Executive Committee regularly Fair, balanced and understandable external auditor and valuer and any reviews the risk register and this is used by the The Committee assessed and recommended significant financial judgement made Committee as the basis of its risk assessment. to the Board that, taken as a whole, the by management During the year, we refreshed the risk reporting Company’s 2017 Annual Report is fair, matrix within the business to provide more ——Reviews the risk management framework. balanced and understandable. scope for emerging threats to be identified before they are considered as potential risks Viability Statement affecting the business. We have also revised The Viability Statement, together with the the way that risks are reported to the Board rationale behind the chosen five year time with more regular updates through the Chief horizon, is set out on page 54. The Committee Financial Officer’s Board report. considered whether there should be any change to the period chosen for the Statement, Internal audit particularly in the context of any implications The Company maintains its own risk resulting from the UK’s decision to leave the management and internal audit function. The EU, but was of the opinion that five years Committee again reviewed the scope, skills and remained appropriate. competencies of this function, and the level of resource available to it. We decided that the UK Corporate Governance Code/FRC knowledge, skills and resources of our internal Guidance on Audit Committees audit team, and their understanding of the The Committee considered its compliance with business, were appropriate. However, there are the 2014 UK Corporate Governance Code and occasions when we require and benefit from the FRC Guidance on Audit Committees. We the expertise that can be offered by specialist believe that we have addressed both the spirit external advice and, accordingly, the Committee and the requirements of both; this conclusion considered when such advice was appropriate. is supported by our external auditor. We believe that the combination of internal

68 Landsec Annual Report 2017 Governance 69

Landsec Annual Landsec Report 2017 I would like to thank the other members thank the other to would like I the by was followed process rigorous A and the review, find this you I hope that

Committeeeffectiveness carried out an Board the year, the During its performance of evaluation facilitated internally This evaluation its Committees. and that of the Committee that toconfirmed continued with clear priorities, at a high standard, operate around responsibilities clarity and well-defined its workplan. The year ahead changing the rapidly to already referred I have operates, which the Company in environment with important political economic and changes the EU. leave the decision to from follow to change is technological pace of The increasing and opportunitywe assessboth a threat that Committeewill continueThe basis. on a regular clear provide and with management, work to it addresses that ensure to reports Board, the to with the that is consistent way these issues in a values. and culture Company’s with management together Committee, of the their support for year. during the and EY, Chairman new – Committee Audit year last this is my I mentioned earlier, As I have Committee. Audit the as Chairman of and time at Landsec, my enjoyed thoroughly fellow my thank the Chairman, to would like management, and the Company’s Directors the for and shareholders external advisers support throughout received that I have tenure. my Nomination Committee in appointing my will Nicholas Nicholas Cadbury. successor, as Chairmanyear this me later be replacing Whitbread CFO of the As this Committee. of customer-facing a highly-regarded PLC, with an extensive 100 in the FTSE company property Nicholas has the knowledge portfolio, and relevant skills (and recent and technical to leadexperience) this Committee. financial having the benefitof been have will Nicholas CommitteeAudit through the a member of supported his by and, process year-end the this I am confident induction programme, a smooth transition. will ensure continuity of explanation a helpful report that follows, the Committeeyear. during the of the work O’Byrne Kevin Audit Committee Chairman,

Chairman, Audit Committee Audit Chairman, Kevin O’Byrne Kevin Accountability Audit Committee activity The key areas of Committee activity during ——quarterly reports on investigated internal the year included the planning, monitoring, control issues significant to the Group Structure and operations reviewing and approving of the following: ——quarterly reports on the Group’s risk The Audit Committee’s structure and register, including significant and operations, including its delegated Financial reporting emerging risks responsibilities and authority, are governed ——the quality, appropriateness and ——compliance by management concerning by terms of reference which are reviewed integrity of the half-yearly and full the operation of the business for which annually and approved by the Board. year financial statements they are responsible To maintain effective communication between all relevant parties, and in support ——the information, underlying assumptions ——the adequacy and effectiveness of of its activities, the Chief Executive, Chief and stress test analysis presented in the Group’s internal control and risk Financial Officer, Director of Risk Management support of Going Concern and the management systems. and Internal Audit, the partner and Viability Statement representatives of the Company’s external ——the consistency and appropriateness Internal audit auditor, Ernst & Young LLP (EY), and other of the financial control and ——the scope of the internal audit plan and members of the senior finance team reporting environment resourcing requirements regularly attend Committee meetings. ——the dividend policy and the payment ——the independence, appropriateness and The Company Chairman and all Non- of dividends, with due regard to the effectiveness of internal audit. executive Directors are invited to attend Company’s REIT status meetings when the Group’s external valuer, ——the fair, balanced and understandable CBRE, makes property valuation presentations. External property valuation assessment of the Annual Report (and The Committee has private sessions ——the quality and appropriateness of any other financial statements such with the internal and external audit teams. the half-yearly and full year external as the half-yearly statement). In addition, the Committee Chairman has valuation of the Group’s property private and informal sessions with the audit portfolio, together with an assessment teams and the valuer to ensure that open lines External audit of the methodology applied of communication exist in case they wish to ——the scope of the external audit plan ——the independence and effectiveness of raise any concerns outside of formal meetings. ——the independence and objectivity of EY the external valuer. Nicholas Cadbury has participated in these ——the quality and effectiveness of EY’s meeting following his appointment as a Director audit services in January 2017. Other The Committee members collectively have ——the level of fees paid to EY in accordance ——the Committee’s terms of reference a broad range of financial, commercial and with the policy for the provision of and performance effectiveness property sector expertise that enables them non-audit services ——compliance with the Code and the to provide oversight of both financial and risk ——EY’s reappointment to office as Group’s regulatory and legislative matters, and to advise the Board accordingly. external auditor. environment. Kevin O’Byrne and Nicholas Cadbury are the members determined by the Board as having Risk management and Significant financial matters recent and relevant financial experience for the purposes of satisfying the UK Corporate internal control During the year, the Committee considered Governance Code. ——the scope of the internal control and risk the appropriateness of significant financial The Committee works to a structured management programme matters made in connection with the financial statements as set out on pages programme of activities and meetings to ——the results of internal audit reviews 72 and 74. coincide with key events around the Company’s and the progress made against agreed financial calendar. Following each meeting, management actions the Committee Chairman reports on the main discussion points and findings to the Board.

External auditor EY, as the external auditor, is engaged to conduct a statutory audit and express an opinion on the Company’s and the Group’s financial statements. Their audit includes a review and test of the systems of internal control which produce the information contained in the financial statements, and a review by EY of the asset valuation process and methodology using its own chartered surveyors (more details below), in each case to the extent necessary to express an audit opinion.

70 Landsec Annual Report 2017 Governance

71

£ year Table 32 Table 100,000 during the during the Aggregate Aggregate <100,000 >290,000 – 290,000 –

£ Per 25,000 >100,000 – 100,000 assignment assignment 0 – 25,000 Landsec Annual Landsec Report 2017 The Committee monitors compliance with compliance The Committee monitors CFO Audit Committee Committee Audit Chairman Committee Details of the fees charged by EY during the during EY by charged the fees of Details the financial 8 to in note beyear can found non-audit services, for fees Total statements. and other review year including the half to amounted services, related assurance the of 42% This sum represented £248,000. the total and 34% of audit fees, total Group during EY to the Group by payable audit fees its joint (including the audit of the year approved were No non-audit fees ventures). or paid basis. on a contingent Audit fee Audit fees of The Committee the level reviewed services audit for the terms as EY to payable had expired. engagement the original for agreed EY payable to audit fees that the was agreed It 2016/17 for review year half the audit and for in £793,000 (up from would be £800,000 in each £25,000 of 2015/16),with an increase years subjectto financial the two following of remaining business and audit requirements year on year. consistent Non-audit services objectivity and EY’s help safeguard To a operates the Company independence, which sets out thenon-audit services policy which within and financial limits circumstances be certain permitted may provide to they work) non-audit services (such as assurance provide to bewill not required which they on an audit opinion. required including the prior approvals the policy as follows: which are non-audit servicesfor

Under current regulations, the Company the Company regulations, Under current Audit the of On the recommendation the confirmationthe thatfrom theyEY maintain appropriate safeguards internal line in with applicable professional standards mitigationthe Company the actions by taken in seeking independent safeguard to EY’s includingstatus, operation the of policies designedregulate amount the of to non- audit services provided EY by and the employment of former EY employees audit of the tenure engagementthe partner beingyears) five greater than (not performance internal the and effectiveness above of EYreview to referred the outcomethe independent of the AQRT above. to referred review — — — — — Objectivity and independence monitoring The Committeefor is responsible objectivity the independence and and reviewing In undertaking its annual auditor. the external of Committee the has reviewed: assessment, — — — — — the account, into the above review Taking remainedCommittee concluded that EY objective as and independent in their role external auditor. tendering Audit of auditor, office to the appointed first were EY in process, a competitive tender following Having 2013/14 the respect of year. financial has the Company such a process, undertaken Audit complied Serviceswith The Statutory Investigation Companies Market Large for Competitive Processes Use of (Mandatory CommitteeAudit Order Responsibilities) and on the CMA published by (Article 2014 7.1), 2014. 26 September no later the audit by retender to will be required the However, 2023/24than the year. financial at the situation review Committee to proposes audit engagement the same time as the current rotate. is due to McGrath, Eamonn partner, the Company’s of has held the role Mr McGrath andyears partneraudit engagement four for 2018/19 this position during the will relinquish of following completion year and financial are There 2017/18 financial statements. the the to restrictions in relation no contractual external auditor. choice of Company’s a resolution is proposing the Board Committee, Meeting that EY General Annual year’s at this for a further year. office to be reappointed EY successfully completed their audit for their audit for completed successfully EY During the year, an Audit Quality Review Review Quality Audit an year, During the Audit planAudit year financial the the audit for In respect of their proposed presented EY under review, with in consultation audit plan (prepared Risk of and the Director senior management the to Audit) and Internal Management and approval. Committee consideration for work that their ensure was to The objective and structure the Group’s aligned to remained was again risk and The audit plan strategy. challenge based and focused, materiality insights beyond valuable provide designed to the audit. the financial year. The Committee’s preliminary The Committee’s year. the financial with the conclusions from in line is that, view had again EY performance review, year’s last performed their audit services effectively, Areas standard. to a high and efficiently with will be shared for development identified and service inclusion in their audit them for delivery plans going forward. Team (AQRT) from the FRC undertook FRC the from an (AQRT) Team financial the Group’s audit of inspection EY’s of March ended 31 year the for statements The reportCommittee the give did not 2016. objectivity or the quality, concerns over any the audit. independence of Effectiveness of the external auditexternal the of Effectiveness Annual the Company’s of the issue Following Risk Management of the Director Report, conductsAudit a performance and Internal theof review and effectiveness evaluation This is conducted against external audit. with in consultation guidelines structured the and members of Directors the Executive to regard with due team and senior finance Inspection Quality Audit Report onthe latest Reporting the Financial issued by Council EY will again include an review year’s This (FRC). based assessment on the new audit quality the FRC. also issuedAid guidelines by Practice The Committee Chairman meets privately partnerwith the audit engagement the before the review. Committee of the results considers External valuations and valuers Significant financial matters During the year, the Committee commissioned The valuation of the Group’s property The Committee reviewed two significant an external report to be carried out on the portfolio, including properties held within the financial matters in connection with the Company’s risk management framework and development programme and in joint ventures, financial statements, namely the valuation the approach to risk. No major weaknesses were is undertaken by independent external valuers. of the Group’s property portfolio and revenue identified but a number of recommendations The Group provides input, such as source data, recognition. Further details are set out in table were suggested and considered by the and support to the valuation process. CBRE 33 on page 74. Committee. These will be implemented in the have been the Company’s principal valuer These items were considered to be coming year. since September 2015. The valuation helps to significant taking into account the level of determine a significant part of the Group’s net materiality and the degree of judgement Internal control asset value, reported performance and Senior exercised by management and, in respect of the The key elements of the Group’s internal control Management remuneration. Accordingly, the valuation, the external valuer. The Committee are as follows: scrutiny of each valuation, and the valuer’s discussed these with both parties, as well as EY. ——an established organisation structure with independence, objectivity and effectiveness, In addition, the Committee considered, took clear lines of responsibility, approval levels represents such an important part of the action and made onward recommendations to and delegated authorities Committee’s work. the Board, as appropriate, in respect of other ——a disciplined management and committee Valuations for the full and half year were key matters including the Viability Statement, structure which facilitates regular presented to the Committee by CBRE. These the Going Concern basis on which the financial performance review and decision-making were reviewed and challenged by management statements are prepared, accounting for ——a comprehensive strategic review and annual and the Committee, with reference to CBRE’s property acquisitions and disposals, bond buy- planning process approach, methodology, valuation basis and back and new issue, maintenance of the Group’s underlying property and market assumptions. REIT status and other specific areas of individual ——a robust budgeting, forecasting and financial Other Non-executive Directors attended the property and audit focus. reporting process final presentation. The Committee Chairman The Committee was satisfied that all issues ——various policies, procedures and guidelines and Nicholas Cadbury also met separately had been fully and adequately addressed, underpinning the development, asset with CBRE. that the judgements made were reasonable management, financing and main operations Additionally, CBRE met with EY and and appropriate and had been reviewed of the business, together with professional exchanged information independently of and debated with the external auditor services support including legal, human management. EY has experienced chartered who concurred with the approach taken resources, information services, tax, company surveyors on its team who consider the valuer’s by management. secretarial and health, safety and security qualifications and assess and challenge ——a compliance certification process from Risk management framework the valuation approach, assumptions and management conducted in relation to the The Board is responsible for determining both judgements made by them. Their audit half-yearly and full year results, and business the nature and extent of the Group’s risk procedures are targeted at addressing the risks activities generally in respect of the valuations and the potential management framework and the risk appetite ——a quarterly self-certification by management for any undue management influence in arriving that is acceptable in seeking to achieve its confirming that key internal controls within at them. This year, EY identified 36 properties strategic objectives. The framework and their area of responsibility have been (comprising 69% of the portfolio by valuation) the ongoing process in place for identifying, operating effectively for substantive review by its valuation experts evaluating and managing the principal risks primarily on the basis of their value, type, risk faced by the Group are described on pages ——a risk management and internal audit profile and location. EY performed site visits for 42-45. These are regularly reviewed by function whose work spans the whole Group a sample of assets and completed analytical the Board. ——a focused post-acquisition review and reviews over the input data for the valuations, Primary responsibility for operation of integration programme to ensure the comparing this to market data. The Committee the Company’s internal control and risk Group’s governance, procedures, standards reviewed their findings. management systems, which extend to include and control environment are implemented An internal evaluation of CBRE’s financial, operational and compliance controls effectively and on time (and accord with the FRC’s 2014 ‘Guidance on performance and effectiveness will be ——a financial and property information Risk Management, Internal Control and Related conducted after the year-end results are management system. finalised (and annually thereafter) with the Financial and Business Reporting’), has been results reported on the following year. delegated to management. These systems A fixed-fee arrangement (subject to have been designed to manage, rather than adjustment for acquisitions and disposals) is in eliminate, the risk of failure to achieve the place with CBRE for the valuation of the Group’s Group’s business goals and can provide only properties and, given the importance of their reasonable, not absolute, assurance against work, we have disclosed the fees paid to them material misstatement or loss. in note 9 to the financial statements. The total valuation fees paid by the Company to CBRE during the year represented less than 5% of their total fee income for the year.

72 Landsec Annual Report 2017 Governance 73 Landsec Annual Landsec Report 2017 Taking the above into account, together account, into the above Taking whistleblowing a runs The Company Fair, balanced and understandable balanced understandable and Fair, same the The Committeeyear applied this previous in adopted approach due diligence Code the key assess one of to in order years Annual Report. the in respect of requirements an editorial of This included the establishment preparing, for responsible were who team and, verifyingand compiling content the with the meetings review regular through ensuring that consistent Directors, Executive between existed links reporting and appropriate Annual and sections messages the of key to the specific was presented paper A Report. assist in itsCommittee to the Board) (and balanced and a fair, of challenge and testing assessment. understandable the Committee EY, by views expressed with the confirmed, Board the turn in and recommended, as a taken Annual Report, 2017 that the balanced and understandable is fair, whole, for the necessary information and provides position, assess the Company’s to shareholders business model and strategy. performance, policy Whistleblowing The Committee the Group’s reviews within a specific incorporated arrangements, report to concerns employees which allow policy, wrongdoing about or suspected impropriety otherwise) within the(whether financial or anonymously and basis, on a confidential Group These include an independent third- preferred. if party reporting comprising a telephone facility matters Any and an online process. hotline the Company by reported investigated are the Committee, to and escalated Secretary nowere there year, During the as appropriate. whistleblowing incidents reported. and theyear campaign every awareness part also form the inductionarrangements of The policy employees. new for programme been cover have extended to and facilities the of and the requirements suppliers key slavery and human legislation covering new reporting. trafficking Bribery policy and corruption bribery for policy tolerance has a zero The Board in The Company, sort. any of and corruption to training regular gives the policy, operating of areas highlighting on the procedures, staff to required are employees New vulnerability. when they module an online training complete have to required Our principal are suppliers join. withinsimilar policies and practices in place their own businesses.

Additionally, the Committee and receives Additionally, the Group’s risk register, including significant risk register, Group’s the and emerging risks, and how exposures have changed during period the summary reports and progress against agreed actions audit internal from on effectiveness of the their review various of elements system control internal of the maintained Group. the by — — Effectiveness Effectiveness assessment a robust has undertaken The Board the Group, by the principal faced risks of the business including those that could threaten or liquidity. solvency performance, future model, also the Board the Committee, by Assisted systems the of the effectiveness reviewed and risk management control internal of the and up to year the in place throughout the account into took This this report. of date the by work undertaken assurance valuable audit function and internal risk management external specialist by (which is supplemented process, as necessary) and the relevant resource EY by work undertaken testing and controls and full review as part their half-yearly of failures weaknesses or control No audit. year identified. were to the Group significant — discusses on a quarterly basis: basis: discusses on a quarterly — identified, were improvement for areas Where been have to introduced procedures new will themselves and the controls strengthen as part thebe review subject of regular to process. ongoing assurance Risk management management Risk supervisionthe Committee, the overall Under of work sub-committees and several are there manage day-to- and that oversee groups has The Group the business. within risk day and Internal Risk Management of a Director direct (with a Audit reporting the to line provides who CommitteeAudit Chairman) evaluates risk matters, of oversight regular affect the business that may risks emerging that any ensure compliance to and monitors managed and mitigating actions properly are in consultation The Committee, completed. work annual the agrees with management, be that may assistance plan (including any risk external specialists) the from of required audit functionto and internal management the businesswith the needs of alignment ensure charter. with its governance and compliance Significant financial matters considered How the Committee addressed the matters Table 33 Valuation of the Group’s property portfolio The Audit Committee adopts a formal approach The valuer proposed changes to the values (including properties held within the by which the valuation process, methodology, of our properties and developments during development programme and in joint assumptions and outcomes are reviewed and the year, which were discussed by the Committee arrangements) robustly challenged. This includes separate review in detail and accepted. The valuation of the Group’s property portfolio is and scrutiny by management, the Committee Based on the degree of oversight and challenge a major determinant of the Group’s performance Chairman and the Committee itself. The Group applied to the valuation process, the Committee and drives an element of the variable remuneration uses CBRE, a leading firm in the UK property concluded that the valuations had each been for senior management. Although the portfolio market, as its principal valuer. It also includes EY conducted appropriately, independently and in valuation is conducted externally by an as the external auditor which is assisted by its own accordance with the valuer’s professional standards. independent valuer, the nature of the valuation specialist team of chartered surveyors who are estimates is inherently subjective and requires the familiar with the valuation approach and the UK making of significant judgements and assumptions property market. by management and the valuer. EY met with CBRE separately from management Significant assumptions and judgements made by and their remit extends to investigating and the valuer in determining valuations may include confirming that no undue influence has been the appropriate yield (based on recent market exerted by management in relation to the external evidence), changes to market rents (ERVs), what valuer arriving at its valuations. will occur at the end of each lease, the level CBRE submits its valuation report to the of non-recoverable costs and alternative uses. Committee as part of the half-yearly and full Development valuations also include assumptions year results process. They were asked to attend around costs to complete the development, the and present their report to the Board and to level of letting at completion, incentives, lease highlight any significant judgements made or terms and the length of time space remains void. disagreements which existed between themselves and management. There were none.

Revenue recognition The Committee and EY considered the main In its assessment, the Committee, in consultation Certain transactions require management to make areas of judgement exercised by management with EY, considered all relevant facts, challenged judgements as to whether and to what extent they in accounting for matters related to revenue the recoverability of occupier incentives, the should be recognised as revenue in the year. Market recognition, including timing and treatment of options that management had in terms of expectations and revenue profit based targets may rents, incentives, surrender premia and other accounting treatment and the appropriateness place pressure on management to distort revenue property related revenue. of the judgements made by management. These recognition. This may result in overstatement or EY reviewed and tested individual transactions on matters had themselves been the subject of prior deferral of revenues to assist in meeting current or a sample basis to ensure there was a contractual discussion between EY and management. future targets or expectations. relationship and consistency of accounting The Committee, having consulted with EY, treatment between last year and this year. concurred with the judgements made by It performed data analytics over the whole management and were satisfied that the population of leases in the Group’s portfolio, revenue reported for the year had been analysing data held in the Group’s document appropriately recognised. and property management system.

The above description of the significant financial matters should be read in conjunction with the Independent Auditor’s Report on pages 97-102 and the significant accounting policies disclosed in the notes to the financial statements. Further details on significant accounting judgements and key estimations of uncertainty can be found in note 2 to the financial statements on page 108.

74 Landsec Annual Report 2017 Governance 75

Landsec Annual Landsec Report 2017 Rivel interviewed over 50 investors based 50 investors interviewed over Rivel department relations alsoThe investor by reportwas approved The Governance Annual General Meeting (AGM) Meeting General Annual with all shareholders provided AGM 2016 The andan opportunity the Board question to Committee each Board on of the Chairmen the including the meeting, matters put to who attended Shareholders Annual Report. update progress a strategic received the AGM from and a presentation the Chairman from on the business activities Executive the Chief the over Group and performance of the general at voting The results of year. preceding published on the Company’s meetings are www.landsec.com/investors. website: relations feedback on investor Independent commissioned the Board Rivel, year, During the conduct to an investor an independent adviser, the Company, of perceptions investor audit of and governance strategy, its management, An investor programme. relations the investor place every takes audit usually relations two years. obtain North and America to Europe in the UK, and businessviews on management their to presented were The results performance. with suggestions and improvements the Board management. by forward being taken that investors found study The perception in confidence of high degree a very have supportwas broad and there management strategy. Company’s for the analysts and investors feedback from received corporate the Group’s through year during the also received Secretary The Company advisers. mattersfeedback directly on governance The bodies. and shareholder investors from to with the Board was shared information their understanding help members develop needs and expectations. of shareholders’ Other disclosures 7.2.6 paragraph by required Other disclosures and Rules Transparency and the Disclosure of set out in the are 2006 Act the Companies ReportDirectors’ on pages 92-94. 2017. 17 May on the Board the Board On behalf of Tim Ashby Counsel and General Group Secretary Company

In addition In our annual conference, investor to hostedwe various presentations and tours of some of our major assets Retail the in and London portfolios. Thesewere tours Leeds, Trinity conducted Kent, at Bluewater, Oxford, key Leeds, Westgate White Rose, properties and 20 Fenchurch in Victoria, SW1, Street, EC3 Our treasury held team non-deal specific meetings with credit side institutional andinvestors analysts after half the year and full year results Regular dialogue maintained is with our key relationship banks, including at least bi- annual meetings with our treasury and team in-house dinners hosted Executive the by and Directors Non-executive business and financialDuring year, the updates provided our were treasury by team and senior & management Standard to and Fitch Ratings Moody’s Poor’s, We conducted salesWe meetings team 12 during year the which provided Executive the Directors with opportunity the present to our strategy and performance directly the to sales major of investment the teams banks. Executive provide conferences Industry Directors with meet a chance to a large number of on investors a formal and informal Conferences basis. attended this year included UBS the Global Property, JP Morgan and Bank of America Merrill Lynch conferences in London, Bank the of America the conference in New York, Merrill Lynch Kempen conferences in Amsterdam and and Citi Conference the in Miami. New York The Chairman and Chief Executive held a dinner for senior the heads of equities from UK institutions. addition,In met team the with 40 around accounts as part deal of the roadshow for bondthe tender and new in issue exercise January/February year. of this Our treasury also team actively engaged with lenders.potential Further information on our debt can investors be www.landsec.com/investors. found at: — — — — — — — — — — Investor tours and presentations and presentations tours Investor — — conferences Industry — Other initiatives — programme shareholders’ Private give to encouraged are shareholders Private with the and communicate feedback to Secretary. the Company through Directors meet also able to were they year During the Kingdom Shareholders’ at the United Directors Annual Association meeting and at the General Meeting. programme Debt investors’ investors side institutional Credit and analysts — — Banks — — agencies rating Credit — —

During the year, the programme of investor investor of the programme year, During the The Company approaches its debt investor its investor debt approaches The Company The Company has a comprehensive has a comprehensive The Company The conference investor held is annually and focuses and London on Retail the portfolios conference the This year, in alternate years. and heldwas focused in Victoria, on SW1, the management senior with Portfolio London presenting updates on aspects all of its business. The day included ofof five our tours buildings in Victoria including Nova. a visit to The conference also provided an opportunity for attendees meet to management the business in the teams The Executive Directors had meetings with shareholders representing more half than valuethe register during by year the The Chairman maintained contact with principal shareholders and undertook her usual biennial roadshows investor UK in the Netherlands the and The geographic spread programme of the North Europe, America,covered South Africa East and Far the The Senior Independent and other Director, Non-executive Directors, available were to shareholders meet with to access the information provided. information the access to The presentations and an audio of recording made conferencethe were available on the enablecorporate to website non-attendees Institutional shareholders invited to were attend full year Company’s the and half- yearly results presentations. — — — — — — — — Investor conference Investor — Institutional shareholders’ programme shareholders’ Institutional principal shareholders with Meetings — — — — — events included: events relations on a partnership basis, ensuring that on a partnership relations basis, and the Company feedback is considered any best account practice guidance from into takes the Association. Investment investor relations programme (designed for programme relations investor shareholders private investors, institutional existing help which aims to investors) and debt the understand investors and potential and performance. strategy business, Group’s the Board to feedback is provided Shareholder the objectives understand they that ensure to major investors. views of and

Approach to investor relations investor to Approach is committed maintaining The Board to and with shareholders an open dialogue the importancerecognises that relationship of The Chairman, process. in the governance has Directors, supported Executive the by ensuring effective for responsibility overall communication with shareholders. Investor relations Dear Shareholder, As I have highlighted previously, the Directors’ I am pleased to introduce the Directors’ remuneration outcomes for the executives at Remuneration Report for the year. Landsec are largely driven by outperformance The political and economic uncertainty versus our peers and do not always reflect our Remuneration to which I alluded last year has certainly absolute performance. For Total Property accelerated in some unexpected ways, Return, our performance is compared to beginning with the UK’s decision to leave the IPD, a widely-used industry benchmark over Report – European Union. Although the UK economy both a one year and three year period, for has continued to perform well overall, the the calculation of bonus and LTIP outturns Chairman’s property industry has been impacted by respectively. Over one year, we estimate wavering consumer and business confidence. that we will have slightly underperformed We believe our decision to complete speculative the benchmark which now encompasses all Annual development earlier than others remains the March-valued properties within IPD. Over a right one. The priorities over the past year have three year period, where we are still measured Statement been to lengthen lease terms in London offices, against a sector weighted index of the IPD and to lease up our development programme, Quarterly Universe, I am pleased to say we have including Westgate Oxford, due to open in outperformed the benchmark. To have achieved October. Behind the scenes, we have also been this while putting the business on such a strong active in ensuring that the business is in the financial footing is a very good performance. Committee members best possible position – financially, culturally, In terms of Total Shareholder Return, we are reputationally and capability-wise – to take measured over a three year period and were Simon Palley (Chairman)* advantage of new opportunities to deliver disappointed not to outperform our peer group. Dame Alison Carnwath shareholder value. Edward Bonham Carter* Cressida Hogg CBE* *Independent Non-executive Director

Highlights ——Reviewed and approved the remuneration outcomes for 2016/17 for Executive Directors and the Executive Committee ——Gathered insight on the sentiment of shareholders and other key stakeholders as context for planning the review of the remuneration policy in 2018 ——Oversaw the approach to the reporting of gender pay.

Key responsibilities ——Reviews and recommends to the Board the executive remuneration policy ——Determines the remuneration packages of the Executive Directors and other members of the Executive Committee ——Oversight of the Group’s remuneration policy for all employees.

Simon Palley Chairman, Remuneration Committee

76 Landsec Annual Report 2017 Governance 77

Landsec Annual Landsec Report 2017 I look forward to discussions with some of of with some discussions I look to forward Turning to the Long-Term Incentive Plan, Plan, Incentive the Long-Term to Turning Our Total Property Return of 12.7% per Property of 12.7% Our Return Total years three the annum outperformed over that of our benchmark, sector-weighted the per QuarterlyIPD which Universe, 11.5% was element As this annum. a result, vests in full. Shareholder over Return our Total However, for versus 16.2% samethe period 9.2%, was This element comparatorthe of the group. vest. not does therefore, LTIP, — — pay is an area that is attracting an area is pay a great including quarters, many from focus deal of work to very keen we are ever, As government. while sentiment, stakeholder within the spirit of drive to continue proposals ensuring that any who executives, our behavioursthe right from on the delivery of focused completely remain outperform our peer group “To – goal our stated through return shareholder total of in terms the property cycles”. year. the coming in you Palley Simon Committee Remuneration Chairman, When this performance was combined with was combined this performanceWhen performance individual against their the strong 88.1% was bonus pay-out the total objectives, Robert salary for maximum) Noelof (58.7% of of Martin for (57.4% Greenslade and 86.1% year. both lower than last maximum), to years the three performance over which is for the outturn is as follows: 2017, March 31 — — awards 2014 the 50% of in total, Therefore, will vest. Looking forward we will this year Later be consulting on our representatives with shareholder the for preparation in Policy, Remuneration Executive AGM. year’s at next vote binding

As I mentioned above, our measure of Total As I mentioned our measure of Total above, Property now uses Return a broader and benchmark IPD unweighted of March- all valued properties. The benchmark not was available at of time writing, but the we expect underperform, slightly to resulting in no payment element this from bonus. of the The profit revenue performancewas again verythreshold above significantly our strong, This reflects increasedrents from set in 2015. our successful development programme and lower interest costs, more outweighing than lost Thererent disposalsthrough last year. has also been strong ongoing discipline management the around of costs. This element plan of the paid out in full. Performance against specific the business objectives had a Retail more was mixed. strong performance, with high demand for space Oxford, at and successful the Westgate pre-letting extension of the White Rose, to Leeds as particular London, highlights. In where impact the political of current and economic uncertainty on demand has been development ambitious the felt, keenly more letting have been targets challenging to meet. Other corporate objectives have focused on the evolving through culture the pressingmove officeand ahead ourwith ambitious sustainability agenda, and these have largely been met. — — — More detail on remuneration remuneration on detail More year the for outcomes slightly was year the bonusThe annual for but below Directors, Executive for above target performanceThe be can outturn. year’s last summarised as follows: — — —

Following positive feedback from Following The full details of the Remuneration Policy, Policy, the Remuneration of The full details contained are 2015, in shareholders by approved Annual Report, in the back section the of a reference, ease of For 179. to 175 on pages of implementation the proposed summary of 2017/18within the is included for the policy Report on page Remuneration Directors’ 90. including information, included the key have We the outturns summary for of a glance” an “at statement. my following immediately year, the Our relative share price has been price a impacted share by Our relative towards sentiment including factors number of and particularly London, sectors, our market out the lay chosen to we have shareholders, year. last to way reportvery similar in a no exposure to continental Europe at a time Europe continental to no exposure devaluation. sterling of Remuneration at a glance

Fixed pay

Robert Noel (£000) Chart 34 Martin Greenslade (£000) Chart 35

769 192 21 500 125 19 2017 982 2017 644 754 189 23 491 123 20 2016 966 2016 634

0 100 200 300 400 500 600 700 800 900 1,000 0 100 200 300 400 500 600 700 800 900 1,000

Base pay Pension Benets Base pay Pension Benets

Annual bonus outturns

Robert Noel 2017 Chart 36 Martin Greenslade 2017 Chart 37

Individual – max 20% TPR – max 39% Individual – max 20% TPR – max 39% Individual – actual 17% TPR – actual 0% Total Property Return Individual – actual 15% TPR – actual 0% Total Property Return Revenue Prot Revenue Prot KPIs KPIs Individual Individual * Estimated * Estimated Total (£000) Total (£000) 677* 431*

KPIs – max 52% Rev Prot – max 39% KPIs – max 52% Rev Prot – max 39% KPIs – actual 32% Rev Prot – actual 39% KPIs – actual 32% Rev Prot – actual 39%

Robert Noel 2016 Chart 38 Martin Greenslade 2016 Chart 39

Individual – max 20% TPR – max 39% Individual – max 20% TPR – max 39% Individual – actual 17% TPR – actual 13.5% Total Property Return Individual – actual 17% TPR – actual 13.5% Total Property Return Revenue Prot Revenue Prot KPIs KPIs Individual Individual Total (£000) Total (£000) 760 494

KPIs – max 52% Rev Prot – max 39% KPIs – max 52% Rev Prot – max 39% KPIs – actual 31% Rev Prot – actual 39% KPIs – actual 31% Rev Prot – actual 39%

78 Landsec Annual Report 2017 Governance 79 Chart 41 Chart 43 Chart 45 1 Actual Total Shareholder Return Total Property Return Total Shareholder Return Total Property Return £1,794 * Estimated Total Property Return – max 50% Total Property Return – actual 13% Total Property Return – max 50% 50% Total Property Return – actual £2,831 Maximum

Landsec Annual Landsec Report 2017 * 193 719 £1,738 On-target On-target Total (£000) Total Total (£000) Total Long-term incentives (40%) Annual bonus (24.1%) (£000) £644 Fixed payFixed

0 £1,000 £3,000 £2,000 £5,000 £4,000 Pension (6.9%) Beneƒts (1.1%) Base salary (27.9%) Total Shareholder Return – max 50% Total Shareholder Return – actual 0% Total Shareholder Return – max 50% Total Shareholder Return – max 0% Total Shareholder Return – actual Martin Greenslade 2016 Martin Greenslade 2017 1. Percentages are of the actual. 1. Martin Greenslade Chart 42 Chart 44 Chart 40 1 Actual Total Shareholder Return Total Property Return Total Shareholder Return Total Property Return £2,721 * Estimated Total Property Return – actual 13% Total Property Return – max 50% Total Property Return – actual 50% Total Property Return – actual Total Property Return – max 50% £4,260 Maximum *

285 £2,622 1,062 On-target On-target Total (£000) Total Total (£000) Total Annual bonus (24.5%) Long-term incentives (39.2%) £982 Fixed payFixed (£000)

0 £1,000 £3,000 £2,000 £5,000 £4,000 Pension (7.1%) Bene‚ts (0.8%) Base salary (28.4%) Total Shareholder Return – max 50% Total Shareholder Return – actual 0% Total Shareholder Return – max 50% Total Shareholder Return – max 0% Total Shareholder Return – actual Robert Noel 2016 Robert Noel 2017 1. Percentages are of the actual. 1. Summary of Remuneration outturns versus target and actual target versus outturns Remuneration Summary of Robert Noel Long Term Incentive Plan outturns Incentive Term Long ——Reviewing and determining the outturns ——Monitoring Directors’ compliance with the Annual against the performance conditions, and Company’s share ownership guidelines subsequent vesting outcome, of awards ——Monitoring developments in stakeholder granted under the Long-Term Incentive Plan sentiment on executive pay and corporate Report on (LTIP) and Matching Share Plan (MSP) in 2013 governance more generally, including ——Determining the annual level of LTIP participating in consultation exercises Remuneration and/or MSP grants to Executive Directors, where appropriate. Executive Committee members and Unless otherwise stated, narrative and senior management tables are unaudited. The Annual Report on Remuneration describes how the Directors’ Remuneration Policy (“The Dates of appointment for Directors Table 46 Policy”), approved by shareholders at the Annual General Meeting in July 2015, has been applied Name Date of appointment Date of contract in the financial year ended 31 March 2017, and how it will be applied in the financial year Executive Directors commenced 1 April 2017. Robert Noel 1 January 2010 23 January 2012 During the course of 2016/17, the Martin Greenslade 1 September 2005 9 May 2013 Remuneration Committee was engaged in a Non-executive Directors number of key matters, including: Dame Alison Carnwath 1 September 2004 13 May 2015 ——Determining salary increases for the Executive Directors and Executive Committee Kevin O’Byrne 1 April 2008 13 May 2015 members, together with the overall level of Chris Bartram 1 August 2009 13 May 2015 salary increases for employees across Simon Palley 1 August 2010 13 May 2015 the Group Stacey Rauch 1 January 2012 13 May 2015 ——Setting and subsequently reviewing the Edward Bonham Carter 1 January 2014 13 May 2015 outcomes for corporate, business unit and personal targets under the annual bonus Cressida Hogg 1 January 2014 13 May 2015 scheme for Executive Directors and Executive Nicholas Cadbury 1 January 2017 1 January 2017 Committee members

1. Remuneration outcomes for Directors during the year In this section, we explain the pay outcomes for Directors in relation to the financial year ended 31 March 2017. Table 47 shows the payments we expect to make and then tables 49 and 50 give more detail on how we have measured the performance outcomes with respect to the annual bonus and LTIP in the context of value created for shareholders.

1.1 Directors’ emoluments (Audited) The basis of disclosure in the table below is on an ‘accruals’ basis. This means that the annual bonus column includes the amount that will be paid in June 2017 in connection with performance achieved in the financial year ended 31 March 2017. It should be noted that the annual bonus figure has been estimated for the purposes of the table, as final data on the Company’s Total Property Return versus the peer group using the benchmark (i.e. all March-valued properties) will not be available until after the date of this report’s publication. The estimate has been derived from the most up- to-date performance information available, and any payment made will be based on the final performance data when received and verified. The values shown for the 2014 LTIP awards vesting for the three year performance period ended 31 March 2017 are based on estimated achievements against the performance measures and calculated using the average share price for the quarter then ended. The actual share price is not known at the time of writing as the awards do not formally vest until July 2017.

Single total figure of remuneration for each Director (£000) (Audited) Table 47

Annual bonus Long-term Pension Annual bonus deferred into Total incentives Basic salary1 Benefits2 allowance3 paid in cash shares4 emoluments vested5 Total

2016/17 2015/16 2016/17 2015/16 2016/17 2015/16 2016/17 2015/16 2016/17 2015/16 2016/17 2015/16 2016/17 2015/16 2016/17 2015/16 Executive Directors Robert Noel 769 754 21 23 192 189 384 377 293 383 1,659 1,726 1,062 285 2,721 2,011 Martin Greenslade 500 491 19 20 125 123 250 245 181 249 1,075 1,128 719 193 1,794 1,321

1. Basic salary is stated as a per annum figure based on current annual salary at the end of 2016/17. Actual salaries paid in the year were £766,156 (Robert Noel) and £498,724 (Martin Greenslade). 2. Benefits consist of a car allowance, private medical insurance, income protection and life assurance premiums. 3. The pension allowance shown is a cash emolument of 25% of base salary. 4. The annual bonus for 2015/16 was estimated in last year’s report and therefore the amounts for the bonus deferred into shares have been adjusted to reflect actual values. The impact of the adjustment was a reduction of £3,527 for Robert Noel and a reduction of £2,296 for Martin Greenslade. 5. The long-term incentives for 2016/17 have been calculated using a share price of £10.35 (which is the three-month average to 31 March 2017). The long-term incentives vesting in 2015/16 were estimated in last year’s report, so have been adjusted to reflect actual values. The impact of the adjustment was a reduction of £31,076 for Robert Noel and a reduction of £21,021 for Martin Greenslade.

80 Landsec Annual Report 2017 Governance – 81 95 80 5.2 5.2 0.0 0.0 0.0 12.1 350 67.5 67.5 67.5 67.5 Total 39.0 salary 2015/16 of base of awarded Table 49 Table 70 70 70 85 Percentage Percentage 375 17.4 76.8 92.8 2016/17

– – – – – – – –

(Audited) Table 48 Table (Audited) vested 2015/16 – – – – – – – – incentives incentives Long-term Long-term 2016/17

– 95 80 Landsec Annual Landsec Report 2017 350 67.5 67.5 67.5 67.5 Total 2015/16 70 70 70 85 emoluments 375 17.4 76.8 92.8 2016/17

– – – – – – – – for the year was 3.9%, an under- was 3.9%, year the for 1 2015/16 deferred deferred – – – – – – – – into shares into Annual bonus bonus Annual 2016/17

– – – – – – – – 2015/16 – – – – – – – – paid in cash Annual bonus bonus Annual 2016/17

– – – – – – – – in total. the maximum. paid out at 66.4% of the bonus therefore of This element The Group’s Total Property Return Total The Group’s and a £23.4m, of a threshold The outturn on the basis of is calculated £34.0m maximum of exceeded, were and Leeds, at Oxford lettings the Retail targets, Both was achieved £28m lettings levels. while London threshold achieved performance of 0.7% versus the estimated IPD benchmark the estimated versus 0.7% performance of out. pay to is likely this element none of Therefore, Revenue profit for the year (£382m) significantly exceeded the threshold year significantly (£382m) for the profit Revenue 2015 set in level paid out in full. therefore This element The outturn is calculated on the basis of a threshold of £65m. £65m. of a threshold The outturn on the basis of is calculated the to threshold basis from on a straight-line is calculated Achievement £102m maximum of threshold was below which £51m, sales of relevant secured The Group paid.was not the bonus therefore of This element Although three out of four of the named developments were completed were the named developments of four out of Although three was not one (Nova) budgets, target to paid.was not the bonus therefore of This element The proposed rollout of the internal customer excellence programme was programme excellence customer the internal of rollout The proposed June in brand Landsec the new with the launch of coincide to delayed activities engagement external customer has of a programme However, and Retail in London satisfaction scores and customer been delivered, maintained were the maximum. paid out at 66.6% of the bonus therefore of This element The relevant survey scores improved by 35% by improved scores survey The relevant paid out in full. the bonus therefore of This element 2015/16 — — — — — — — — — — — — — — — — — Pension Pension Assessment — — — — — — — — — — — — — — — — — – – – – – – – – allowance

2016/17 7.8 5.2 4.2 6.2 18.2

39.0 39.0 – – – – – – – – Percentage Percentage (maximum) 2015/16 of base salary base of Benefits – – – – – – – – 2016/17

– 95 80 Fees 350 67.5 67.5 67.5 67.5 2015/16 70 70 70 85 375 17.4 76.8 92.8 2016/17 Annual bonus outturnAnnual

The outturn is adjusted to take account of the performance of trading properties and the capital and income extracted from Queen Anne’s Gate, SW1, through a bond issue in 2009. a bond issue in through SW1, Gate, Anne’s properties Queen and income extracted trading from and the capital the performance of of account The outturn take to is adjusted

Non-executive Directors Non-executive 1. Development lettings – specific targets were set for both set were targets specific – lettingsDevelopment on thewith a focus portfolios, and Retail the London (opening Oxford Westgate and developments London Net Leeds. Rose, White of and the extension 2017) in usedas the were rents rather than headline, effective, performance. of measure key Key business targets Key Target Total ungeared The Group’s – Property Return Total an IPD benchmark to (TPR) relative Property Return propertiescomprising all March-valued (excluding £170bn. c. value benchmark Total Landsec). In the year under review, each Executive Director had the potential to receive a maximum annual bonus of up to 150% of base salary. Of this, 130% was 130% this, Of base salary. 150% of up to a maximum annual bonus of receive to had the potential Director each Executive review, under year In the The following year. the set at the beginning of were All targets dependent20% on meeting personal targets. and targets dependent on meeting Group salary. of expectation75% bonus is on-target The respective and their targets outcomes. the confirms table bonus outturn Annual 1.2 Dame Alison Dame Alison Carnwath (£000) (£000) for Director each remuneration of figure total Single Share in long-term real growth in Group revenue profit. growth real revenue in long-term in Group Share for the set were targets specific – sales Residential developments. Victoria residential Project budgets – specific aggregate and individual specific aggregate – Project budgets projects and set for in both London were budget targets Terrace Eastbourne 20 Square, Street New (Nova, Retail and White Rose). Kevin O’Byrne Kevin Customers – recognising the importance a creating of – Customers were targets specific culture, customer-focused truly and external customer internal of the rollout set around (already to An improvement programmes. excellence was also sought. satisfaction scores high) customer People – ensuring that the office move to Victoria was Victoria to move ensuring that the office – People maximised as an opportunity embed to the purpose, change in a more a step and create values vision and be measured to culture, and innovative collaborative and “after” employee in “before” movement through a recognised external benchmark.versus surveys Chris Bartram Simon Palley Stacey Rauch Stacey Edward Bonham Carter Edward Cressida Hogg Cressida Nicholas Cadbury Annual bonus outturn continued

Percentage Percentage of base of base salary salary Target (maximum) Assessment awarded Sustainability – clear progress in delivery of the agenda, 5.2 —— In order to achieve maximum payout, three levels of sustainability 5.2 via the rollout of internal training programmes, and training, including a core mandatory module completed by at least 95% the commencement of measurable energy reduction of employees, needed to be delivered. In addition, quantifiable energy initiatives in the most energy-intensive sites. reduction initiatives should be identified for implementation in two thirds of our most energy-intensive sites —— The target on training was achieved in full, and energy reduction initiatives were identified in 88% of energy-intensive sites —— This element of the bonus therefore paid out in full.

Community Employment Programme – a target was 5.2 —— Employment was secured for 186 candidates on the programme across 4.4 set to secure permanent employment for 170 (target) the Group and 188 (maximum) candidates on the Community —— This element of the bonus therefore paid out at 85% of maximum. Employment Programme.

130.0 Total Group elements 71.1

Executive Directors’ personal targets Each Executive Director received a number of personal 20.0 Each Executive Director was scored against objectively measurable targets set targets, which included: at the beginning of the year. The outturn was as follows: —— Creating and embedding a new public affairs agenda —— Robert Noel 17.0 —— Creating and activating a new corporate brand —— Martin Greenslade 15.0 —— Ensuring that Landsec’s culture is further developed through a successful office move —— Positive feedback from the annual shareholder survey —— Continued focus on talent, development and succession —— Review of the funding strategy in preparation for increased investment activity.

Total 150.0 Robert Noel 88.1 Martin Greenslade 86.1

1.3 Long-Term Incentive Plan and Matching Share Plan outturns The table below summarises how we have assessed our LTIP performance achievement over the three years to 31 March 2017. Awards granted in 2014 under the LTIP for this period are subject to performance conditions that measure and compare the Group’s relative performance against its peers in terms of Total Property Return (TPR) and Total Shareholder Return (TSR), with each measure representing 50% of the total award. Please see table 61 for more detail on how vesting levels are determined.

The performance calculation for awards granted in 2014 and vesting in 2017 are illustrated below:

Long-Term Incentive Plan and Matching Share Plan outturns Table 50

Outturn

Percentage of base Percentage of Target salary (maximum Assessment maximum Ungeared Total 75 + 75 (maximum The Group’s Total Property Return1 over the three year period was 12.7% 50.0 Property Return shares pledged) per annum compared with the performance of the sector-weighted IPD Quarterly Universe of 11.5% per annum. Therefore, this element vests in full.

Total Shareholder Return 75 + 75 (maximum The Group’s Total Shareholder Return over the three year period was 9.2% 0.0 shares pledged) versus that of the comparator group at 16.2%. As this return was below the benchmark, this element of the total award does not vest.

1. The outturn is adjusted to take account of the performance of trading properties and the capital and income extracted from Queen Anne’s Gate, SW1, through a bond issued in 2009.

In total, therefore, 50% of the awards made in 2014 will vest in July 2017. For awards granted in 2015, the Group’s performance over the two years to 31 March 2017 would, if sustained over the three year period to 31 March 2018, result in 0% of the LTIP share awards vesting. For awards granted in 2016, performance over the one year period to 31 March 2017 would, if sustained over the second and third years of the period to 31 March 2019, result in 22.4% of the LTIP share awards vesting.

82 Landsec Annual Report 2017 Governance 1 83 21 19 75 131 192 125 719 769 2017 356 546 500 1,062 2,721 (£000) (£000) 1,794 Outturn Outturn Table 51 Table Table 53 Table Year of awardYear n/a n/a n/a n/a n/a n/a 75.0 54.7 54.7 85.0 50.0 50.0 (Unaudited) Table 55 Table (Unaudited) maximum maximum maximum achieved (%) achieved (%) Percentage of of Percentage of Percentage 2016 21 19 192 125 154 100 769 650 500 999 2,125 1,437 (£000) (£000) 2,831 4,260 potential potential potential Landsec Annual Landsec Report 2017 Maximum Maximum Maximum 2015 2014

2 2 1 1 Company Performance element Performance Company Company Performance element Performance Company Individual element Individual element £180,680 of the annual bonus will be deferred into shares for one year. one for shares into will be the annual bonus deferred of £180,680 2017. March period month 31 the three to price for share the £10.35 average on basis calculated of 2017 in vesting shares of Value £292,939 of the annual bonus will be deferred into shares for one year. one for shares into will be the annual bonus deferred of £292,939 2017. March period month 31 the three to price for share the £10.35 average on basis calculated of 2017 in vesting shares of Value — — — —

Element of pay of Element Element of pay of Element Base salary Base salary — 1. 2. — 1. 2. Total Total Pension Pension Benefits — Long-term incentives Long-term — Benefits Annual bonus Long-term incentives Long-term Annual bonus

1 1 4 1 79 72 tual tual

Chart 52 £1, Chart 54 Ac £2, Ac 1 0 26 £2,83 £4, Maximum Maximum 8 get get nnual bonus (24.1%) nnual bonus (24.5%) A Long-term incentives (40%) A Long-term incentives (39.2%) 73 ar ar £1, £2,622 On-t On-t y y

£644 £982 Fixed pa Fixed pa Individual outcomes by Executive Director versus Target and Maximum Target versus Director Executive by Individual outcomes 0 0 0 0 Base salary (27.9%) Pension (6.9%) Bene ts (1.1%) Pension (7.1%) Bene ts (0.8%) Base salary (28.4%) As proposed to apply for awards to be made this year under the LTIP. year be made this to awards for apply to proposed As Percentages are of the actual. of are Percentages ,000 ,000

£1,000 £1,000 £3 £3 £2,000 £2,000 £5,000 £5,000 Name PLC Segro PLC Group Workspace 1. Tritax Big Box REIT PLC REIT Big Box Tritax Trust Property Commercial UK PLC UNITE Group St ModwenProperties St PLC PLC Company The NewRiver REIT PLC REIT NewRiver PLC REIT International Redefine Holdings PLC PropertiesIntu PLC PLC Wilson Europe Kennedy Property PLC Londonmetric PLC Hammerson PLC Holdings Hansteen Great Portland Estates PLC Estates Portland Great Grainger PLC PLC Ltd Trust Property F&C Commercial PLC Group Yellow Big Properties Counties & PLC Capital CLS Holdings PLC Assura Total Shareholder Return – comparator groups comparator – Return Shareholder Total 1. £4,00 Martin (£000) Greenslade Chief Financial Officer Chief £4,00 Robert Noel (£000) Executive Chief 1.4 2. Directors’ interests (Audited)

2.1 Total shareholding Details of the Directors’ interests, including those of their immediate families and connected persons, in the issued share capital of the Company at the beginning and end of the year are set out in the table below. It also shows the value of each Director’s interest compared to the required holding value under the Company’s share ownership guidelines.

Directors’ shares (Audited)Table 56

Required Holding Holding Deferred holding (ordinary (ordinary bonus shares Value of Salary/Fee value shares) shares) under holding holding Name (£) (£) 1 April 2016 31 March 2017 period (£)1 Robert Noel2 766,156 1,915,390 260,508 293,849 61,939 3,111,861 Martin Greenslade3 498,724 997,448 386,223 386,233 40,927 4,090,207 Dame Alison Carnwath4 375,000 375,000 147,005 151,338 1,602,669 Kevin O’Byrne4 92,807 92,807 11,552 11,552 122,336 Chris Bartram4 70,000 70,000 14,478 14,478 153,322 Simon Palley4 85,000 85,000 17,061 17,061 180,676 Stacey Rauch4 70,000 70,000 8,000 8,000 84,720 Edward Bonham Carter4 76,756 76,756 10,000 10,000 105,900 Cressida Hogg4 70,000 70,000 10,000 10,000 105,900 Nicholas Cadbury4 70,000 70,000 – 1,900 20,121

1. Using the closing share price of £10.59 on 31 March 2017. 2. Requirement for the Chief Executive to own shares with a value of 2.5x base salary within five years of appointment. 3. Requirement for other Executive Directors to own shares with a value of 2.0x base salary within five years of appointment. 4. Requirement for Non-executive Directors to own shares with a value of 1.0x their annual fee within three years of appointment.

2.2 Outstanding share awards held by Executive Directors (Audited) The table below shows the LTIP share awards granted and the LTIP and MSP awards vested during the year to the Executive Directors, together with the outstanding and unvested LTIP and MSP share awards at the year end. From 2015, MSP awards for Executive Directors have been discontinued.

Outstanding LTIP and MSP share awards and those which vested during the year (Audited)Table 57

Market Market price at price at Performance award date of period to Award date Shares Shares vesting Vesting 31 March date (p) awarded vested (p) date Robert Noel LTIP shares 2016 08/07/2013 921 112,964 14,798 962 08/07/2016 2017 01/07/2014 1,039 102,638 01/07/2017 2018 10/08/2015 1,335 170,240 10/08/2018 2019 27/06/2016 1,005 229,453 27/06/2019 Matching shares 2016 08/07/2013 921 112,964 14,798 962 08/07/2016 2017 01/07/2014 1,039 102,638 01/07/2017 Martin Greenslade LTIP shares 2016 08/07/2013 921 76,416 10,010 962 08/07/2016 2017 01/07/2014 1,039 69,431 01/07/2017 2018 10/08/2015 1,335 110,816 10/08/2018 2019 27/06/2016 1,005 149,361 27/06/2019 Matching shares 2016 08/07/2013 921 76,416 10,010 962 08/07/2016 2017 01/07/2014 1,039 69,431 01/07/2017

84 Landsec Annual Report 2017 Governance 85 2.2 3.1 15.0 10.0

70.0 20.0 dates

375.0 (£000) Table 59 Table Table 60 Table Exercisable Exercisable over five years (including 2017/18) (including Average % increase increase % Average 08/2017 – 02/2018 08/2018 – 02/2019 (Audited)Table 58 (Audited)Table 2.0 2.0 878 1,938 1,060 % increase 31 March 31 2017 Landsec Annual Landsec Report 2017 Number of options at – – (£) 510 784 (£000) Market exercise exercise price at at price From 1 June 2017 – – Number exercised 769 500 Exercised/(lapsed) during year during Exercised/(lapsed) (£000) Current – – per share(p) Exercise price price Exercise

– – options granted in year to Number of Number 31 March 31 2017 848.5 Exercise Exercise 1,024.0 price per price share (p) share

878 1 April April 1 1,060 1,938 options at at options Number of Number Chairman Non-executive Director’s fees Director’s Non-executive 3.2 Non-executive Directors’ fees Directors’ 3.2 Non-executive 2016. April 1 effect and took from benchmarking exercise, a market following 2015 In December reviewed were Directors Non-executive for The fees Robert Noel Accordingly, the following salary increases will take effect from 1 June 2017: June 1 effect from will take salary increases the following Accordingly, Directors Executive 3.1 Executive Directors’ base salaries Directors’ Executive 3.1 the Committee 2015, in roles Financial Officer Officer and Chief Executive both the Chief of benchmarkingHaving conducted exercise a detailed a base Directors both Executive awarded It has therefore best practice. with emerging in line year, was necessary this exercise concluded formal that no increases. and exceptional promotions excluding the Group, across employees by received increase with the average This is in line 2%. of salary increase Martin Greenslade the published base he received 2017, January 1 on the Board to was appointed CadburyWhen Nicholas 2016/17. unchanged for remained have They per annum. £70,000 of fee Director Non-executive CommitteeAudit Chairman Committee ChairmanRemuneration Senior Independent Director 3. Application of Policy for 2016/17 for Policy of Application 3. Martin Greenslade 2.3 Directors’ options over ordinary shares (Audited) shares ordinary over 2.3 options Directors’ all is open Scheme The to Scheme. Option Share Related Savings Company’s the to Martin for relate below set out Greenslade shares over The options does performance include rules conditions. not under HMRC and qualifyingDirectors) Executive (including employees 3.3 Performance targets for the coming year Table 61

Metric Link to strategy and value for shareholders Performance measure Performance range

Long-Term Incentive Plan (LTIP) —— Total Shareholder Return —— Rewards our outperformance of Measured over a period of three —— Threshold: Matching the (50.0% of overall award). the returns generated by our listed financial years: performance of the index company peers —— The Group’s total shareholder return —— Target: Outperformance of the —— Encourages efficient use of capital (TSR) relative to an index based on index by 1.3% per annum a comparator group comprising all through good sector allocation and —— Maximum: 3% or more per annum appropriate gearing of the property companies within the FTSE 350 Real Estate Index outperformance of the index for —— Based on a market capitalisation weighted by market capitalisation maximum vesting. of £8.4bn, a 3% per annum (excludes Landsec) outperformance over three years would generate approximately —— 10% of the overall award vests for £0.8bn of value for shareholders matching the index, and 50% of the over and above that which overall award for outperforming it would have been received had by 3% per annum. Vesting is on we performed in line with our a straight-line basis between comparator group of property the two. companies within the FTSE 350 Real Estate Index.

—— Ungeared Total Property Return —— Rewards sustained outperformance Measured over a period of three —— Threshold: Matching the (50.0% of overall award). by our portfolio compared with financial years: performance of the benchmark the industry’s commercial property —— The Group’s ungeared Total Property —— Target: Outperformance of the benchmark Return (TPR) relative to an IPD benchmark by 0.4% per annum benchmark comprising all March- —— Incentivises increasing capital values —— Maximum: Outperformance of and rental income valued properties. Total benchmark value c. £170bn (excluding Landsec) the benchmark by 1% or more —— Capital value growth is reflected in per annum. an increased net asset value, which —— 10% of the overall award vests for is the measure with the strongest matching the benchmark and 50% correlation to share price of the overall award vesting where we outperform the benchmark —— On the basis of a portfolio with a by 1% per annum. Vesting is on a value of £14.4bn, 1% per annum straight-line basis between the two. outperformance over three years generates approximately £0.4bn of value over and above that which would have been received had the portfolio performed in line with the benchmark.

Annual bonus —— Ungeared Total Property Return —— Rewards annual outperformance —— The Group’s ungeared Total Property —— Threshold: Matching the (26.0% of award, or 39.0% by our portfolio compared with Return (TPR) relative to an IPD performance of the benchmark of salary). the industry’s commercial property benchmark comprising all March- —— Target: Outperformance of the benchmark valued properties. Total benchmark benchmark by 0.7% for the year value c. £170bn (excluding Landsec) —— Incentivises increasing capital values —— Maximum: Outperformance of the and rental income —— 6% of the overall award for benchmark by 2% for the year for —— Capital value growth is reflected in matching the benchmark and the maximum award. an increased net asset value, which 26% of the overall award for is the measure with the strongest outperforming the benchmark by correlation to share price 2%. Payment is on a straight-line basis between the two. —— On the basis of a portfolio with a value of £14.4bn, 2% outperformance would generate approximately £0.3bn of return over and above the returns of commercial property within our sectors.

—— Absolute growth in revenue profit —— Encourages above inflation growth —— Once the Group has met a —— Will be confirmed in 2018 report. (26.0% of award, or 39.0% in income profits, year-on-year, on threshold level on revenue profit, of salary). the basis of a new three year plan a portion (5%) of the excess is set in 2015 contributed to the bonus pool for —— Adjustment for significant net the Group. This will be capped at investment/disinvestment gives a 26% of the overall award. like-for-like view of performance —— Encourages sustainable dividend growth and cover over the medium term.

86 Landsec Annual Report 2017 Governance 87

Landsec Annual Landsec Report 2017 Will be confirmed in 2018 report. 2018 Will be in confirmed Will be confirmed in 2018 report. 2018 Will be in confirmed Will be confirmed in 2018 report. 2018 Will be in confirmed Significant improvement in both improvement Significant and consumer satisfaction internal maximum for is required scores payout. For maximum, two out of four two out of maximum, For with 2018, achieved targets by the towards progress measurable two.other Tangible examples of innovation of examples Tangible in will be stated and will be required report.2018 : A further 156 candidates furtherA : Threshold employment into candidates 174 furtherA : Target employment into candidates 194 furtherA : Maximum employment. into : Commence : Threshold of in 40% implementation sites identified Commence implementation : Target identified sites in 60% of Commence : Maximum of in 80% implementation identify and sites identified further opportunities. Will be confirmed in 2018 report. 2018 Will be in confirmed — — — — — — — — — — — — — — Performance range Performance — — — — — — — — — — — —

Specific threshold and stretch and stretch Specific threshold the been have set for targets (leasing and development Oxford projecton time and on completion budget). Specific leasing targets have have beenSpecifictargets leasing individual assets in London, set for objective fully with the broad of letting developments. the new Specific threshold, target andtarget Specific threshold, outperformance objectives have andbeen set aiming at replacing lettingfully all screens. Completion of major internal Completion of embed fully to programme behaviours customer-centric the activation of Internal brand new the impact the of of Measurement an independent by programme partythird Consumer satisfaction scores. Measurable progress, by the end by progress, Measurable our stated towards 2018, March of gender around targets 2020 and data ethnicity balance, transparency. Evidence will be to sought Evidence the clear outputs from demonstrate capability. innovation A target has been set around target A securing permanent employment number an increased of for the extending by candidates its current beyond programme on Construction.focus Clear targets have been have setClear targets of the implementation around reduction in a initiatives energy high proportion our highest of consuming sites. A mix of short-term of individual goals mix A year. the set at the beginning of — — — — — — — — — — — — — Performance measure Performance — — — — — — — — — — —

A high profile new opening and key key opening and new profile high A profit revenue income and of driver in the future the development of value the Proves growth. capital and drives Key driver of income, revenue profit profit revenue income, of driver Key growth.and capital Ensures that momentum is that momentum Ensures a behind the delivery of maintained project. iconic key Ensures that the needs of Ensures and future, both current customers, ways at the heartare our culture, of and decision-making.working of Allows us to attractAllows us to and retain of (in terms talent the diverse and background) ethnicity gender, the anticipate fully necessary to our customers. changing needs of Ensures that we remain sufficiently sufficiently we remain that Ensures in our strategic future-facing ensuring the long-term focus, the business. of sustainability A key way in which Landsec can which Landsec in way key A the on its to deliver commitment which it operates, communities in by future a sustainable and create workforce. building a skilled Key to our long-term sustainability sustainability our long-term to Key as a responsible and reputation business. Ensures that each Executive Ensures on his individual focuses Director sense, in the broadest contribution to, limited but not with, aligned specifictargets business on personal a focus Encourages development. — — — — — — — — — — — — — Link to strategy and value for shareholders for value and strategy Link to — — — — — — — — —

Completion and lettingCompletion of Westgate Oxford (6.9% of award, award, of (6.9% Oxford Westgate salary). of 10.4% or Completion of leasing of the London London the leasing of of Completion of (6.9% Programme Development salary). of 10.4% or award, Replacement and leasing of the and leasing of Replacement of (3.5% screens Lights Piccadilly salary). or 5.2% of award, Customer-centricity salary). of or 7.8% award, (5.3% of Diversity – achieving real progress progress real achieving – Diversity of (3.5% targets 2020 on our stated salary). or 5.2% of award, Innovation – extending our business extending – Innovation and embeddingcapability the award, (2.7%value of innovation or 3.9% of salary). of or 3.9% Community Employment Community or award, of (3.5% Programme 5.2% salary). of Environment – driving energy energy driving – Environment the across initiatives management portfolio or 3.9% award (2.7% of salary). of Individual targets for Executive for Individual targets 20.0% or award, of (13.0% Directors salary). of — — — — — — — — — — continued Metric — 3.3 Performance targets for the coming year coming the for targets 3.3 Performance

Annual bonus – specific business targets specific business – bonus Annual — — — — — — — — — 4. Comparison of Chief Executive pay to Total Shareholder Return The following graph illustrates the performance of the Company measured by Total Shareholder Return (share price growth plus dividends paid) against a ‘broad equity market index’ over a period of eight years. As the Company is a constituent of the FTSE 350 Real Estate Index, this is considered to be the most appropriate benchmark for the purposes of the graph. An additional line to illustrate the Company’s performance compared with the FTSE 100 Index over the previous eight years is also included. Adjacent to this chart is a table showing how the ‘single figure’ of total remuneration for the Chief Executive has moved over the same period. It should be noted that Robert Noel became Chief Executive in March 2012.

Total Shareholder Return (Unaudited) Chart 62

400

359.9

350 325.2 323.9 324.7

300 285.0 304.0 303.0

250 264.4 224.1 250.3

188.2 207.5 200 183.6 214.2 201.5 203.0 162.5 176.4 170.3 188.9 Value (£) (rebased ) 156.7 150 161.6 163.6 150.4

100

50

0 Mar-09Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Land Securities Group PLC FTSE 100 FTSE 350 Real Estate

This graph shows the value to March 2017 of £100 invested in Land Securities Group PLC on 31 March 2009, compared with the value of £100 invested in the FTSE 100 and FTSE 350 Real Estate Indices on the same date. Source: Datastream (Thomson Reuters).

Chief Executive remuneration over eight years Table 63

Annual bonus Long-term Single figure award against incentive vesting of total maximum against amount remuneration opportunity1 awarded Year Chief Executive (£000) (%) (%) 2017 Robert Noel 2,721 58.8 50.0 2016 Robert Noel 2,014 67.5 13.1 2015 Robert Noel 4,776 94.5 84.7 2014 Robert Noel 2,274 71.0 62.5 2013 Robert Noel 2,678 86.0 76.1 2012 Francis Salway 2,769 24.0 85.9 2011 Francis Salway 1,798 39.0 27.5 2010 Francis Salway 1,694 34.0 50.0

1. Under the policy covering the years 2010–2012 shown in the table, bonus arrangements for Executive Directors comprised three elements: an annual bonus with a maximum potential of 100% of basic salary, a discretionary bonus with a maximum potential of 50% of basic salary and an additional bonus with a maximum potential of 200% of salary. The first two elements were subject to an overall aggregate cap of 130% of basic salary, with the overall amount of the three elements capped at 300% of basic salary. 2012: 73.4% of the maximum opportunity was awarded under annual bonus with no awards made under the discretionary bonus or additional bonus. 2011: 94.5% of the maximum opportunity was awarded under the annual bonus, discretionary bonus of 60% of the maximum opportunity with no awards made under the additional bonus. 2010: 77% of the maximum opportunity was awarded under the annual bonus, discretionary bonus of 50% of the maximum opportunity with no awards made under the additional bonus.

88 Landsec Annual Report 2017 Governance 89 % (9.1) 13.3 (5.7) Bonus (10.9)

133,717 withheld¹ Table 65 Table Table 64 Table Table 66 Table % change % Number of votes 55 255 (£m) 0.63 Against Benefits % of votes March 2016 No change No change Landsec Annual Landsec Report 2017 % 50 For 289 (£m) +2.4 +2.0 Salary 99.37 % of votes March 2017

2 1 Over the course of the year, the Committee received advice on remuneration and ancillary legal matters from Aon Hewitt. It has also made use Hewitt. Aon and ancillary legal matters from the Committee advice on remuneration received year, the of the course Over The exercise of share options under the Savings Related Share Option Scheme, which is open to all employees who have completed more than one more completed have who all employees which is open to Scheme, Option Share under the Savings Related options share of The exercise A vote withheld is not a vote at law. vote a withheld is not vote A Including base salaries for all employees, bonus payments. and share-based all employees, Including base salaries for 11 the financial statements. to See note

Chairman of Remuneration Committee Remuneration Chairman of Simon Palley Simon The Directors’ Remuneration Report was approved by the Board on 17 May 2017 and signed on its behalf by: and signed on its behalf by: 2017 17 May on the Board by Reportwas approved Remuneration The Directors’ 1. To approve the Annual Report on Remuneration for the year ended 31 March 2017 March endedyear 31 the Annual Report for the on Remuneration approve To Resolution 8. Results of the voting on the Directors’ Remuneration Report at the AGM in 2016 in AGM Report at the Remuneration Directors’ on the voting the of Results 8. as follows: were AGM 2016 Report at the Company’s the Directors’ Remuneration in respect of seeking approval cast on the resolutions votes The of various published surveys to help determine appropriate remuneration levels and relied on information and advice provided by the Group General the Group by and advice provided on information and relied levels remuneration appropriate help determine published surveys to various of Consultants the Remuneration signed up to HewittAon voluntarily has Director. Human Resources and the Group Secretary Counsel and Company some supportAside from in benchmarkingThe Committee receives is independent and objective. is satisfied that the advice it Conduct. Code of Group feesreceived it review, year under the financial For HewittAon connectionwith the Group. has no other purposes, review pay for the Board below roles the Committee. work for in connectionwith its £76,290 of 7. Remuneration Committee meetings Remuneration 7. and the Committee, chaired Simon Palley the members attended and all of all meetings. year, the of the course The Committee times over met four alsoThe Committeewere meetings Bonham Carter Hogg. and Cressida Edward Alison Carnwath, Dame were year membersthe other during the who acted as the Secretary Counsel and Company General and the Group Director, Human Resources the Group Executive, the Chief attended by Secretary. Committee’s month’s service with the Group, can be satisfied by the allotment of newly issued shares. At 31 March 2017, the total number of shares which could be shares numberof total the 2017, 31 March At issued shares. newly of the allotment be can satisfiedby servicewith the Group, month’s the Company. of capital the issued share of 1% less than significantly which represents shares, was 354,783 allotted under this Scheme 6. Dilution 6. Bonus Plan and Share Deferred MSP, under the LTIP, those made which cover arrangements, incentive long-term under the Company’s granted Awards which acquires trustee) by an external Trust (administered Benefit an Employee of the funding satisfied through Plan are Option Share the Executive 2017. 31 March at shares 792,556 held Trust Benefit The Employee in the market. shares PLC Securities Group Land existing 1. 2. % change Metric Spend on pay 13:1 (£768,668:£58,683). employee Average importance spend on pay of The relative 5.2 dividends: of in the form shareholders to with our returns compared employees, all Landsec spend for pay on The chart shows the total below Chief Executive Chief a. Senior Management a. ranged Directors) Executive the (excluding senior employees 16 most our bonuses) bonuses for (including discretionary review, under year During the Senior made to awards MSP and The LTIP 67.0%). salary (2016: of was 55.6% bonus average The 114.2%). to 40.1% salary (2016: of 74.5% to 37.6% from Directors. Executive made to basis on the same awards as the vested Management employees other All b. employees for Including salary adjustments and promotions 2.0%. was Directors, the Executive including all employees, for increase pay The average was Directors) (excluding the Group salary across the average to Executive the Chief salary the of of The ratio 2.4%. to this rose the Board, below 5. The context of pay in Landsec in pay of The context 5. Group the across Pay 5.1 Dividend paid AGM, and intended to remain in place for targets, with a significant proportion of Summary three years. The Policy set out in the Additional remuneration weighted towards performance- Information section of this Report therefore linked variable pay. remains in force until 2018, when any proposed The Committee operates within the Policy of Directors’ revisions will be discussed with shareholders, at all times. It also operates the various incentive and their views sought, well in advance of the plans and schemes according to their respective AGM. A summary statement on the planned rules and consistent with normal market Remuneration application of the Policy in 2017 is shown in practice, the UK Corporate Governance Code table 67 below. and, as applicable, the Listing Rules. Within the Policy The Remuneration Committee’s primary Policy, the Committee will retain the discretion objective when setting the Policy is to provide to look at performance “in the round”, including competitive pay arrangements which promote withholding or deferring payments in certain the long-term success of the Company. To circumstances where the outcomes for Directors 1. Approach to Policy achieve this, the Committee takes account of are clearly misaligned with the outcomes for As stated in last year’s report, some revisions the responsibilities, experience, performance and shareholders. Any specific circumstances which were made to the Company’s long-term contribution of the individual, as well as levels necessitate the use of discretion will always be incentive arrangements in 2015. The Directors’ of remuneration for individuals in comparable explained clearly in the following year’s Annual Remuneration Policy (Policy) for Executive and roles elsewhere. The Committee also takes into Report on Remuneration. No such discretion Non-executive Directors was then put to a account the views expressed by shareholders was exercised by the Committee during the year binding shareholder vote at the Annual General and institutional investors’ best practice under review. Meeting (AGM) on 23 July 2015, and received a expectations, and monitors developments The table on pages 175-179 provides 98.8% vote in favour. It therefore took formal in remuneration trends. The Policy places more detail on the discretion reserved to effect from that date, replacing the previous significant emphasis on the need to achieve the Committee for each element of the policy approved by shareholders at the 2014 stretching and rigorously applied performance remuneration package.

2. Application of the Policy in 2017/18

Table 67 Policy element Application in 2017/18 Base salary The increase in current salaries for the Executive Directors will be 2%, in line with the increase to overall Details on p175 employee pay across the Group in 2017. Therefore, the new annual gross salaries will be £784,041 for Robert Noel and £510,367 for Martin Greenslade. These will be effective from 1 June 2017. Benefits No changes to the current benefit arrangements (which mainly covers annual holiday entitlement, car Details on p175 allowance, life assurance, private medical cover and income protection insurance) are proposed during the year. Pension The 25% of base salary (gross) payment to each Executive Director by way of annual pension contribution Details on p175 will continue. Annual bonus The maximum bonus potential for the Executive Directors will remain at 150% of salary. No changes are Details on p176 proposed to the weighting of the elements of the plan which remain at: —— 26% based on the Company’s Total Property Return performance versus that of the market —— 26% based on the Company’s Revenue Profit performance —— 35% based on delivery of specific business objectives for the year —— 13% based on the delivery of individual targets. Long-Term Incentive Plan awards (and The value of this year’s Long-Term Incentive Plan (LTIP) award to the Executive Directors will not exceed Matching Share Plan awards for 2017 vesting) the current individual limit of 300% of salary. Details on p177 Outstanding LTIP and Matching Share Plan awards granted in 2014 will vest later in 2017 subject to the performance conditions set at the time and the plan rules under which they were granted. In September 2016, in common with many other companies and primarily to give the participants greater flexibility over the timing of exercise, the Committee approved the granting of LTIP awards, from 2017 onwards, as nil-cost share options with a seven year exercise period. It also agreed that outstanding awards should also vest as nil-cost options, and that dividends could be accrued on vested options where they are subject to a two year holding period, but not thereafter. Savings Related Share The Executive Directors, and all other eligible employees, will be entitled to participate in the Company’s Option Scheme Savings Related Share Option Scheme (which is operated in line with current UK HMRC guidelines). Details on p177 Share Ownership Guidelines The existing share ownership levels (i.e. 250% of salary for the Chief Executive and 200% of salary for the Details on p177 Chief Financial Officer) will continue to apply. Executive Director Recruitment and External recruitment and termination activity during the year is currently not envisaged; however should Termination Provisions this occur, the Policy will apply as stated. Details on p179 Service Agreements and Letters If new Service Agreements, or variations to existing ones, are required over the course of the year, the of Appointment Policy will apply as stated. Details on p179 Any new Non-executive Director joining the Board will be contracted under a Letter of Appointment as per the Policy. Non-executive Directors’ fees As the fees for Non-executive Directors were reviewed in late 2015, no further revisions will take place over Details on p178 the course of the year. The annual fee for Dame Alison Carnwath as Chairman remains at £375,000 and the annual base fee for all other Non-executive Directors remains at £70,000. These have been in effect since 1 April 2016. Additional fees also apply for Committee chairmen, and these remain unchanged.

90 Landsec Annual Report 2017 Governance

91 657 1,001 (£000) Table 70 Table Table 69 Table

Total fixed Chart 68

128 196 (£000) Pension Holding period on ends. awards LTIP — Base year +5 — £2,952 Maximum Landsec Annual Landsec Report 2017

21 19 (£000) Benefits £1,805 On-target

Chief Financial Ocer The final portion theof awards annual bonus (i.e. 100% of of in excess salary) vests butvest awards LTIP subject a tworemain to holding period.year — — Base year +3 — — 510 784

Base £657 (£000) Fixed pay

Long-term incentives nnual bonus A The first deferred portion deferred The first the annual bonusof between 50% and (i.e. salary)vests. 100% of — Base year +2 — £4,529 Maximum

Fixed pay £2,765 On-target Chief Executive The annual bonus targets The annual bonus targets and the measured are first portion annual the of 50% of up to bonus (i.e. salary) is paid in cash is deferred The remainder nil-cost options. into — — — — Base year +1 Annual bonus (cash and deferred shares) and vested and unvested LTIP awards are subject to withholding subject are to awards LTIP and unvested vested and shares) Annual bonus (cash and deferred provisions. and recovery £1,001 Maximum value does not include share price movement between the date of grant and any vesting of long-term incentives. long-term of vesting and any grant between of price movement the date does include share not value Maximum Fixed pay 22%; Annual bonus 26%; Long-term incentives 52% (Percentages are of the maximum). of are (Percentages 52% incentives Long-term 26%; Annual bonus 22%; pay Fixed Fixed pay Base salary Benefits Pension. — — — — — — Base year Consists of the latest base salary, benefits and base salary, the latest Consists of pension allowances base salary new 25% of at allowance calculated Pension Annual bonus pays out at 50% of the maximum Annual bonus pays out at 50% of award. the total of at 50% vest is assumed to LTIP Annual bonus pays out in full in full. vests LTIP — — — — — — — — Robert Noel, Chief Executive Chief Robert Noel, Martin Greenslade, Chief Financial Officer Chief Martin Greenslade, Based on what a Director would receive if performance was in line performance if would receive what a Director Based on with expectations: — — — — 0 Element of of Element remuneration received. 500 — ,500 ,000 1,500 1,000 2,500 3 2,000 4,500 5,000 4,000 Paymentschedule Financial year — 4. Payment schedule Payment 4. various payments in the charts made/releasedyears the actually are which financial Directors. to Executive in illustrates table The following Fixedand variable scenarios pay reward pay Fixed In developing the above scenarios, the following assumptions have been have assumptions made: the following the above scenarios, In developing For illustration purposes only, the table assumes that the annual bonus payment is equivalent to at least 100% of salary. salary. 100% of at least to bonus assumes that the annual payment is equivalent the table purposes only, illustration For 3 scenarios (£000) reward pay variable and Fixed 3. Fixed and variable pay reward scenarios reward pay variable and Fixed 3. levels opportunity and target at maximum Total year. coming for the performance of levels at different Director each Executive opportunity to provided the remuneration The charts illustrate that follow On-target award Maximum award Results and dividends Nicholas Cadbury was appointed an Directors’ The results for the year are set out in the independent Non-executive Director of the financial statements on pages 103-154. Board on 1 January 2017 and joined the Audit The Company has paid three quarterly Committee with effect from that same Report interim dividends to shareholders for the year date. He will become Chairman of the Audit under review, each of 8.95p per ordinary share. Committee in succession to Kevin O’Byrne These comprised two payments (totalling who is expected to step down from the The Directors present their report and audited 17.90p) as a Property Income Distribution (PID) Board at some point during 2017. accounts for the year ended 31 March 2017. and one payment (8.95p) as a normal dividend The Service Agreements of the Executive (i.e. non-PID). The Board has recommended Directors and the Letters of Appointment Additional disclosures a final dividend for the year of 11.7p per of the Non-executive Directors are available Other information that is relevant to this report, ordinary share, payable wholly as a PID (net of for inspection at the Company’s registered and which is also incorporated by reference, withholding tax, where appropriate), making a office. Brief details of these are also included including information required in accordance total dividend for the year of 38.55p per share, in the Directors’ Remuneration Report on with the UK Companies Act 2006 and Listing representing an increase of 10.1% compared pages 76-91. Rule 9.8.4R, can be located as follows: with the prior year. Subject to shareholders’ approval, the final dividend will be paid on Appointment and removal of Directors The appointment and replacement of Directors Table 71 27 July 2017 to shareholders on the register at the close of business on 23 June 2017. is governed by the Company’s Articles of Likely future developments in The Board has also declared a first quarterly Association (Articles), the UK Corporate the business Pages 16-17 dividend in respect of the 2017/18 financial year Governance Code (Code), the Companies Employee engagement Page 40 of 9.85p per ordinary share, payable wholly as a Act 2006 (Act) and related legislation. The Going Concern and PID (net of withholding tax, where appropriate), Board may appoint a Director either to fill a Viability Statement Page 54 to be paid on 6 October 2017 to shareholders casual vacancy or as an addition to the Board Governance Pages 55-94 on the register at the close of business on so long as the total number of Directors does 8 September 2017. not exceed the limit prescribed in the Articles. Capitalised interest Page 116 A Dividend Reinvestment Plan (DRIP) An appointed Director must retire and seek Financial instruments Page 138 election is currently available in respect of election to office at the next AGM of the Credit, market and liquidity risks Pages 139-142 all dividends paid by the Company. Company. In addition to any power of removal conferred by the Act, the Company may by Related party transactions Page 153 Events since the balance sheet date ordinary resolution remove any Director before Greenhouse gas emissions Page 166 Since 31 March 2017, the Group has redeemed the expiry of their period of office and may, the £273m Queen Anne’s Gate bond in its subject to the Articles, by ordinary resolution Company status entirety at a premium of £63m. The redemption appoint another person who is willing to act as Land Securities Group PLC is a public limited was financed through existing Group facilities. a Director in their place. In line with the Code liability company incorporated under the laws On 13 April 2017, the Group’s joint and the Board’s policy, all Directors are required of England and Wales. It has a premium listing arrangement, the Metro Shopping Fund Limited to stand for re-election at each AGM. on the main market Partnership (Metro), completed the sale of for listed securities (LON:LAND) and is a ShopStop (Clapham Junction) LLP to DV4 Directors’ powers constituent member of the FTSE 100 Index. (a fund owned by Delancey Real Estate Asset The Board manages the business of the The Company is a Real Estate Investment Management Limited (Delancey)). On the same Company under the powers set out in the Trust (REIT). It is expected that the Company, date, Delancey sold its stake in Metro to Invesco Articles. These powers include the Directors’ which has no branches, will continue to operate Real Estate European Fund. The partnership was ability to issue or buy back shares. Shareholders’ as the holding company of the Group. subsequently renamed The Southside Limited authority to empower the Directors to make Partnership and the £85m third-party debt in market purchases of up to 10% of its own Disclaimer the fund was repaid in full. ordinary shares is sought at the AGM each year The purpose of this Annual Report is to provide On 15 May 2017, the Group acquired three (see below). The Articles can only be amended, information to the members of the Company retail outlet centres from Britel Fund Trustees or new Articles adopted, by a resolution passed and it has been prepared for, and only for, the Limited (as trustee of the BT Pension Scheme). by shareholders in general meeting by at least members of the Company as a body, and no The three assets, Freeport, Braintree, Clarks three quarters of the votes cast. other persons. The Company, its Directors and Village, Street and Junction 32, were acquired Directors’ interests employees, agents and advisers do not accept for a total consideration of £333m. or assume responsibility to any other person to Save as disclosed in the Directors’ Remuneration whom this document is shown or into whose Directors Report, none of the Directors, nor any person hands it may come and any such responsibility The names and biographical details of the connected with them, has any interest in the or liability is expressly disclaimed. current Directors (all of whom held office share or loan capital of the Company or any of A cautionary statement in respect of throughout the year except for Nicholas Cadbury its subsidiaries. At no time during the year ended forward-looking statements contained in – see below), and the Board Committees of 31 March 2017 did any Director hold a material this Annual Report appears on the inside which they are members, are set out on pages interest, directly or indirectly, in any contract of back cover of this document. 58 and 59. Kevin O’Byrne ceased to act as significance with the Company or any subsidiary the Company’s Senior Independent Director undertaking other than the Executive Directors following the Company’s Annual General in relation to their Service Agreements. Meeting (AGM) on 21 July 2016. Edward Bonham Carter was appointed to that position as his immediate successor.

92 Landsec Annual Report 2017 Governance 93 Landsec Annual Landsec Report 2017

1

8.91

3.33 4.37 3.40 6.44

Table 72 Table voting rights voting share capital share Percentage of total total of Percentage attaching to issued to attaching

Number of 50,911,003 34,475,813 70,396,617 26,891,758 26,387,704 ordinary shares Save as disclosed above, the Company the as disclosedSave above, The Company is not aware of any any of aware is not The Company ACS HR Solutions Share Plan Services Plan Share Solutions HR ACS who acts as is a shareholder Limited (Guernsey) offshore the Company’s of (Trustee) the trustee It (EBT). Trust Benefit Employee discretionary PLC Securities Group Land purchase is used to time to from market in the shares ordinary including employees, of the benefit time for satisfying the under for awards outstanding The plans. share employee various Company’s in shares 500,000 of a total purchased EBT an aggregate for year during the the market (including all dealing £4.92m of consideration satisfy to shares 851,336 costs) and released the 2017, March 31 At plan awards. share vested PLC Securities Group Land held 792,556 EBT in place from is waiver dividend A trust. in shares by all dividends payable in respect of Trustee the which it holds in trust. on shares the Company shares and of the EBT, regarding Further details various the Company’s to issued pursuant set are year, plans during the share employee the financial statements. 35 to out in note during its own shares of any purchase did not shares and no treasury under review year the 10,495,131 the Accordingly, cancelled. were 2017 March at 31 Treasury held in shares ordinary those held at the unchanged from remained year. the beginning of shareholders Substantial had been the Company 2017, March at 31 As Transparency and notified under the Disclosure holdings of the following 5) of (DTR Rules voting rights in its issued share capital: capital: rights in its issued share voting theirto acquire to all shareholders is made offer bewill not Trustee the in the Company shares respect in or reject accept the offer obliged to at the time subjectwhich are to shares any of the to regard will have but subsisting awards, will have and holders the award of interests views their obtain to consult them power to Trustee the Subject to the above, on the offer. with respect such action the offer to take may fit. as it thinks rights between or control existing agreements in restrictions on result that may shareholders rights. voting securities or on of the transfer voting to relating including full details The rights, restrictions on transfer and any shareholders of are shares, ordinary the Company’s to relating Articles set out in the and in the explanatory 2017 the of the Notice accompany that notes on the available These documents are AGM. www.landsec.com. website at: Company’s

At the Company’s AGM held on 21 July July 21 held on AGM the Company’s At The total number of voting rights attaching to the issued share capital of the Company on 31 March 2017 is 790,749,497. 2017 March on 31 the Company of capital the issued rights attaching share voting to number of The total

Shareholder voting rights and restrictions and restrictions rights voting Shareholder The Company received no further received The Company DTR to the above change of way by notifications, the period during from or otherwise, information being the period from 2017, 17 May April to 1 which this on the date to end through year the to provided Information report has been signed. available is publicly under the DTR the Company service on information via the regulatory view to website. the Company’s shares of on transfer shares ordinary All the issued and outstanding with rights voting equal have the Company of no special are control There per share. vote one that the control rights attaching them save to can held in the EBT shares ordinary rights of satisfy the to the Company be by directed various under its awards outstanding of vesting the EBT, to In relation plans. share employee shares any vote to not has agreed Trustee the any If meeting. general at any held in the EBT State Street Global Street State Advisors Ltd Legal & General Investment Management Ltd Inc. Group, The Vanguard Norges Bank Investment Management Investment Bank Norges 1. BlackRock, Inc. Shareholder name Shareholder Shareholders holding 3% or more of the Company’s Issued Share Capital Share Issued Company’s the of more or 3% holding Shareholders 2016, shareholders authorised the Company shareholders 2016, shares ordinary of purchases market make to its issued share 10% of up to representing within shares allot at that time and to capital These shareholders. certain by limits approved (seeAGM 2017 at the will expire authorities will that authority of below) and a renewal be sought. Share capital Share capital share has a single class of The Company nominal of shares ordinary which is divided into No other pari each passu. 10p all ranking value At the Company. securities been have issued by ordinary 801,244,628 were there 2017, March 31 Further details paid. issue and fully in shares movements including capital, share to relating the 34 to set out in note are year, during the financial statements. Directors’ indemnities and insurance Directors’ indemnify each to has agreed The Company in relation incurred liability any against Director actsto in the ordinaryor omissions arising applies The indemnity their duties. of course of copy A permitted law. the extent to by only inspection for available is indemnity the deed of will and be office registered at the Company’s has in Company The AGM. 2017 at the available Officers Liability & Directors place appropriate legal potential in respect cover of insurance action its against Directors. Change of control are afforded equal opportunities to enter There are a number of agreements that take employment and progress. The Company has effect, alter or terminate upon a change of therefore established procedures designed control of the Company following a takeover. to provide fair consideration and selection of None of these are considered significant. The disabled applicants and to satisfy their training Company’s share plans contain provisions that and career development needs. If an employee take effect in such an event but do not entitle becomes disabled, wherever possible Landsec participants to a greater interest in the shares takes steps to accommodate the disability of the Company than created by the initial by making adjustments to their existing grant or award under the relevant plan. There employment arrangements, or by redeployment are no agreements between the Company and providing appropriate retraining to enable and its Directors or employees providing for continued employment in the Group. compensation for loss of office or employment Further information regarding the or otherwise that occurs specifically because of Company’s practical safeguarding of human a takeover. rights and promotion of equal opportunities is included as part of the Social review in the Human rights and equal opportunities Strategic Report on page 38. The Company operates a Human Rights Policy which aims to recognise and safeguard the Political donations human rights of all citizens in the business No political donations were made in the year areas in which we operate. We support the (2015/16: nil). principles set out within both the UN Universal Declaration of Human Rights (UDHR) and the Auditor and disclosure of information to International Labour Organization’s Declaration the auditor on Fundamental Principles and Rights at So far as the Directors are aware, there is no Work. Our Policy is built on these foundations relevant audit information that has not been including, without limitation, the principles brought to the attention of the Company’s of equal opportunities, collective bargaining, auditor. Each Director has taken all reasonable freedom of association and protection from steps to make himself or herself aware of any forced or child labour. The Policy has been relevant audit information and to establish that extended to take account of the new Modern such information was provided to the auditor. Slavery Act that came into force in October A resolution to confirm the reappointment 2015 and requires the Company to report of Ernst & Young LLP as auditor of the annually on its workforce and supply chain, Company will be proposed at the 2017 AGM. specifically to confirm that workers are not The confirmation has been recommended to enslaved or trafficked. The Company’s first the Board by the Audit Committee and EY has slavery and human trafficking statement, indicated its willingness to remain in office. relating to the financial year ended 31 March 2017 Annual General Meeting 2016, was approved by the Board on This year’s AGM will be held at the earlier 29 September 2016 and posted on the time of 10.00 am on Thursday, 13 July 2017, Company’s website on 30 September 2016. at 80 Victoria Street, London SW1E 5JL. A Landsec is an equal opportunities employer separate circular, comprising a letter from the and our range of employment policies and Chairman, Notice of Meeting and explanatory guidelines reflects legal and employment notes in respect of the resolutions proposed, requirements in the UK and safeguards the accompanies this Annual Report. interests of employees, potential employees and other workers. We do not condone The Directors’ Report was approved by the unfair treatment of any kind and offer equal Board on 17 May 2017. opportunities in all aspects of employment and advancement regardless of race, nationality, By Order of the Board gender, age, marital status, sexual orientation, disability, religious or political beliefs. The Tim Ashby Company recognises that it has clear obligations Group General Counsel and Company Secretary towards all its employees and the community at large to ensure that people with disabilities Land Securities Group PLC Company number 436904

94 Landsec Annual Report 2017

Governance 95

Landsec Annual Landsec Report 2017 Statement of Directors’ Responsibilities Directors’ of Statement ReportIndependent Auditor’s Income statement income comprehensive of Statement Balance sheets changes in equity of Statement cash flows of Statement statements the financial to Notes Contents 96 97 103 103 104 105 106 107 Financial statements Financial Statement of Directors’ Responsibilities

The Annual Report 2017 contains the following The Directors are responsible for keeping Directors’ statement under the UK statements regarding responsibility for the adequate accounting records that are sufficient Corporate Governance Code financial statements and business reviews to show and explain the Group’s and Company’s Each of the Directors confirm that to the best included therein. transactions and disclose with reasonable of their knowledge the Annual Report taken accuracy at any time the financial position of as a whole is fair, balanced and understandable The Directors are responsible for preparing the the Group and the Company, and to enable and provides the information necessary for Annual Report and the financial statements in them to ensure that the Annual Report complies shareholders to assess the Group’s and accordance with applicable law and regulations. with the Companies Act 2006 and, as regards Company’s position, performance, business the Group financial statements, Article 4 of the model and strategy. Company law requires the Directors to prepare IAS regulation. They are also responsible for financial statements for each financial year. safeguarding the assets of the Group and the A copy of the financial statements of the Under that law the Directors have prepared Company and hence for taking reasonable steps Group is placed on the Company’s website. the Group and parent company financial for the prevention and detection of fraud and The Directors are responsible for the statements in accordance with International other irregularities. maintenance and integrity of statutory and Financial Reporting Standards (IFRS) as adopted audited information on the Company’s website by the European Union. Directors must not Directors’ responsibility statement under the at www.landsec.com. Information published on approve the financial statements unless they Disclosure and Transparency Rules the internet is accessible in many countries with are satisfied that they give a true and fair view Each of the Directors, whose names and different legal requirements. Legislation in the of the state of affairs of the Group and the functions are listed below, confirm that to the governing the preparation Company and of the profit and loss of the best of their knowledge: and dissemination of financial statements may Group and the Company for that period. ——the Group financial statements, which have differ from legislation in other jurisdictions. been prepared in accordance with IFRS as In preparing these financial statements the The Directors of Land Securities Group PLC adopted by the EU, give a true and fair view Directors are required to: as at the date of this Annual Report are as of the assets, liabilities, financial position and ——select suitable accounting policies in set out below: profit of the Group; and accordance with IAS 8 ‘Accounting Policies, ——Dame Alison Carnwath, Chairman* Changes in Accounting Estimates and ——the Company financial statements, prepared ——Robert Noel, Chief Executive Errors’ and then apply them consistently; in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, ——Martin Greenslade, Chief Financial Officer ——make judgements and accounting liabilities, financial position, performance and estimates that are reasonable and prudent; ——Edward Bonham Carter, cash flows of the Company; and Senior Independent Director* ——present information, including accounting ——the Strategic Report contained in the Annual policies, in a manner that provides ——Kevin O’Byrne* Report includes a fair review of the relevant, reliable, comparable and ——Chris Bartram* development and performance of the understandable information; business and the position of the Group and ——Simon Palley* ——state that the Group and Company has the Company, together with a description of ——Stacey Rauch* complied with IFRS as adopted by the the principal risks and uncertainties faced by ——Cressida Hogg CBE* European Union, subject to any material the Group and Company. departures disclosed and explained in ——Nicholas Cadbury* the financial statements; * Non-executive Directors ——provide additional disclosures when The Statement of Directors’ Responsibilities compliance with the specific requirements was approved by the Board of Directors on of IFRS is insufficient to enable users to 17 May 2017 and is signed on its behalf by: understand the impact of particular transactions, other events and conditions on Robert Noel Martin Greenslade the Group’s and Company’s financial position Chief Executive Chief Financial Officer and performance; and ——prepare the Group’s and Company’s financial statements on a going concern basis, unless it is inappropriate to do so.

96 Landsec Annual Report 2017 Financial Statements 97 Landsec Annual Landsec Report 2017 Parent company Parent Balance sheet as at 31 March 2017 March Balance sheet at 31 as then ended year the for equity changes in of Statement year then ended for the cash flows of Statement financial statements the to 39 1 to notes Related The valuation of investment property (including properties within the development programme and investment investment and programme development the within properties property (including investment of valuation The ventures) joint in held properties Revenue recognition, including the timing of revenue recognition, the treatment of incentives rents, and property proceeds. trading of recognition The Group solely operates in the United Kingdom and operates through two segments, London and Retail, both both Retail, and London segments, two through operates and Kingdom United the in operates solely Group The of which subject were the same to audit scope. This included the Group audit team performing direct audit procedures on joint balances venture included within the Group financial statements. Overall Group materiality of £61m which represents 0.5% of theOverall carrying which Group materiality represents value 0.5% of investment of £61m properties line item in the Group balance sheet 2017 March at 31 Specific materiality whichrepresents 5% of of adjusted£21m profit tax is before applied toaccount balances not ventures). joint within held or owned wholly (either properties investment to related — — — — — — — — — — Land Securities Group PLC’s Group financial statements and Parent company financial statements (the ‘financial statements’) give a ‘financialgive true fair and Group financial (the company financial Parent statements’) statements statements and Land Securities Group PLC’s the for thenyear profit ended; the and of Group’s 2017 31 March affairs as at company’s and Parent of the view Group’s of the state of the The Group financial statements have been properly Europeanprepared as in the accordance adoptedUnion; IFRS withby company financial The Parent statements have been properly Europeanprepared as in theaccordance adoptedUnion IFRS withby as applied in accordance with Companies provisions of the the and Act 2006; The financial statements have been preparedrequirements in theaccordance with the theof regardsfinancial Companies as Group and, Act 2006, statements, Article IAS 4 of the Regulation. — — — — The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS)Reporting Financial Standards reporting and International The financial is applicable law that has been applied framework in their preparation theof with the provisions as applied in accordance financial statements company the Parent Union and as regards the European by as adopted Companies Act 2006. Risks of material misstatement material of Risks Overview of our audit approach Overview of Consolidated balance sheet as at 31 March 2017 March balance sheetConsolidated as at 31 Group then ended year the for income statement Consolidated then endedyear the income for comprehensive of statement Consolidated then endedyear the for changes in equity of statement Consolidated year then ended for the cash flows of statement Consolidated statements the financial to 39 1 to notes Related Our opinion on the financial statements financial on the Our opinion In our opinion: — audited have we What comprise: financial statements PLC’s Securities Group Land To the members of Land Securities Group PLC Group Land Securities members of the To — — — Independent Auditor’s Report Auditor’s Independent Audit scopeAudit Materiality Independent Auditor’s Report continued

Our assessment of risk of material misstatement We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas.

Key observations communicated to the Risk Our response to the risk Audit Committee The valuation of the investment Our audit procedures around the valuation of investment property included: We have audited the inputs, property portfolio, including We evaluated the Group’s controls over data used in the valuation of the assumptions and methodology properties within the investment property portfolio and management’s review of the valuations. used by the external valuer. We development programme and conclude that the methodology investment properties held in We evaluated the competence of the external valuer which included consideration applied is reasonable and that joint ventures of their qualifications and expertise. the external valuations are an 2017: £12,144m in investment We met with the Group’s external valuer to discuss their valuation approach and appropriate assessment of the properties and £1,763m (the the judgements they made in assessing the property valuation such as estimated market value of investment Group’s share) in investment rental value, yield profile and other assumptions that impact the value. properties at 31 March 2017. properties held in joint ventures For a sample of properties, we performed testing over source documentation Our Chartered Surveyors concluded (2016: £12,358m in investment provided by the Group to the external valuer. This included agreeing a sample of that the sample of valuations properties and £1,630m in this documentation back to underlying lease data and vouching costs incurred to they reviewed were within a investment properties held in date in respect of development properties. We also assessed the reasonableness reasonable range. joint ventures) of the costs to complete information in respect of properties in the course of We conclude that management Refer to the Accountability development by comparing the total forecast costs to contractual arrangements provided an appropriate level section of the Annual Report and approved budgets. of review and challenge over (pages 70-74); Accounting policies We included Chartered Surveyors on our audit team who reviewed and challenged the valuations but did not (page 119-120); Note 14 the valuation approach and assumptions for a sample of properties which identify evidence of undue of the Financial Statements comprised 69% of the market value of investment properties (including management influence. (pages 121-123) and Note 16 investment properties held in joint ventures). Our Chartered Surveyors compared of the Financial Statements the equivalent yields applied to each property to an expected range of yields (pages 124-129) taking into account market data and asset specific considerations. They also The valuation of investment considered whether the other assumptions applied by the external valuer, such property (including properties as the estimated rental values, voids, tenant incentives and development costs within the development to complete were supported by available data such as recent lettings and programme and investment occupancy levels. properties held in joint ventures) Together with our Chartered Surveyors, we met with the external valuer to requires significant judgement and discuss the findings from our audit work described above and to seek further estimates by management and explanations as required. We also discussed the impact of current market the external valuer. Any input conditions, including Brexit, on the property valuations. inaccuracies or unreasonable bases used in these judgements We conducted analytical procedures by comparing assumptions and the value (such as in respect of estimated of each property in the portfolio on a year-on-year basis, by reference to our rental value and yield profile understanding of the UK real estate market, external market data and asset applied) could result in a material specific considerations to evaluate the appropriateness of the valuations adopted misstatement of the income by the Group. We investigated further the valuations of some properties which statement and balance sheet. included further discussions with management and, where appropriate, obtaining evidence to support the movement in values and involvement of There is also a risk that our Chartered Surveyors. management may influence the significant judgements We attended meetings between management and the external valuer to assess and estimates in respect of for evidence of undue management influence and we obtained a confirmation property valuations in order to from the external valuer that they had not been subject to undue influence achieve property valuation and from management. other performance targets to We utilised our analytical procedures and work of the Chartered Surveyors meet market expectations or described above in order to assess for evidence of undue management influence. bonus targets. We performed site visits accompanied by our Chartered Surveyors for a sample of properties in the development programme, which enabled us to assess the stage of completion of, and gain specific insights into, these developments. We met with development directors and project managers for major properties in the development programme and assessed project costs, progress of development and leasing status and considered the reasonableness of the forecast costs to complete included in the valuations as well as identified contingencies, exposures and remaining risks. We corroborated the information provided by the development directors and the project managers through valuation review, site visits and cost analysis. We also reviewed development feasibilities and monthly development reporting against budget. Scope of our procedures We performed full scope audit procedures over valuation of the whole of investment property, including properties within the development programme and investment properties held in joint ventures.

98 Landsec Annual Report 2017 Financial Statements 99

Landsec Annual Landsec Report 2017 Key observations communicated to the the to communicated observations Key Audit Committee We audited the timing of revenue revenue the timing of audited We rents of treatment recognition, and incentives and recognitionand incentives year. basis in the of trading property proceedstrading and of management assessed the risk of Based upon the audit override. we procedures performed, has beenconcluded that revenue recognised appropriate on an

Our response to the risk Our audit procedures over revenue recognition included: recognition revenue over Our audit procedures and the recognition revenue over controls to relating carried out testing We and prevent to the Group beenwhich have designed by rents of treatment theThis included testing recognition. in revenue and errors detect fraud and the upload lease of terms and changes to approvals governing controls system. management property information the Group’s to this information on the billings process. testing also performed controls We andyear in the or amended lease agreements new selected a sample of We the property information management PIMS, input into the data agreed clauses. including lease incentive system, agreeing transactions by revenue a sample of for testing performed detailed We included uponThis included focusing incentives lease agreements. them back to whether the appropriate assessed we critically and within lease agreements been had followed. treatment accounting revenue, performed analytical of on the recognition were Detailed procedures whether assess to revenue property and other incentives related including rents, period. accounting had been recognised in the appropriate revenue calculate the schedules used to to lease agreements a sample of agreed We Incentives – Leases 15 Operating with SIC in accordance revenue of straight-lining these schedules and the resulting of the arithmetical accuracy and corroborated lease incentives. tenant of straight-lining for amounts in revenue lease incentives’ ‘tenant of recoverability of challenged the assessment We with tenants the major of viability the financial evaluating balance by receivable debtors. lease incentive related with IFRS complied policies recognition adopted whether the revenue assessed We Union. the European by as adopted of the risk to address designed specifically performed audit procedures We which included including journal entry testing, controls of override management particularwhich impact on journal entries revenue. focus propertyyear proceeds trading recognised during the a sample of tested We verify that revenue to bank in order contracts and cash to to agreement through have ownership beenof rewards and risks when the significant is recognised the buyer. to transferred Scope our procedures of revenue. was subject over full scope audit procedures to whole Group The

The scope of our auditThe scope of scope the Tailoring subject the samewere to which both of and Retail, London two segments, through Kingdom and operates in the United operates solely The Group including undertaking audit opinion, company and Parent issue the Group work necessary performed to audit team all the The Group audit scope. Compared to the prior year, there have been no changes to our assessment of the risks of material misstatement. material of the risks of been our assessment have no changes to there year, the prior Compared to Our application of materiality Our application of on the audit and identified misstatements of the effect in evaluating in planning and performing the audit, materiality of the concept apply We Materiality the economic be influence expected to could reasonably or in the aggregate, individually that, an omission or misstatement of The magnitude all of the audit work on the risks of material misstatement identified above. misstatement material of work on the risks audit the all of our audit opinion. in forming our audit procedures. of extent and the nature for determining a basis provides Materiality the financial statements. of the users decisions of (page 113) expectations and revenue Market place may targets based profit to on management pressure This recognition. distort revenue or in overstatement result may assist in to revenues of deferral targets future or meeting current or expectations. Revenue recognition, including recognition, Revenue revenue timing of the treatment the recognition, and incentives rents, of trading recognition of 6 and Note 113); (page the Financial Statements of Risk property proceeds and income rental £587m 2017: property sales trading £62m rental £603m proceeds (2016: trading income and £195m property sales proceeds) sectionAccountability the to Refer Annual Report (pagesthe of Accounting policies 70-74); Independent Auditor’s Report continued

The table below sets out the materiality, performance materiality and threshold for reporting audit differences applied on our audit:

Basis Materiality Performance materiality Audit differences Overall 0.5% of carrying value of £61m £46m £3m investment properties (2016: £62m) (2016: £46m) (2016: £3m)

Account balances not related to Profit before tax, excluding the impact £21m £16m £1m investment properties (either wholly of the net deficit on revaluation of (2016: £21m) (2016: £16m) (2016: £1m) owned or held within joint ventures) investment properties either wholly owned or held within joint ventures and the impact of the redemption of medium term notes (Adjusted PBT)

When establishing our overall audit strategy, we determined a magnitude of uncorrected misstatements that we judged would be material for the financial statements as a whole. We determined that the carrying value of investment property would be the most appropriate basis for determining overall materiality given that the Group’s investment property balance accounts for around 82% of the Group’s total assets (2016: 82%) and the fact that key users of the Group’s financial statements are primarily focused on the valuation of the investment property portfolio. This provided a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures.

We have determined that for other account balances not related to investment properties (either wholly owned or held within joint ventures) a misstatement of less than materiality for the financial statements as a whole could influence the economic decisions of users. We have determined that materiality for these areas should be based upon profit before tax of £112m, excluding the impact of the net deficit on revaluation of investment properties either wholly owned or held within joint ventures of £146m and the impact of the redemption of medium term notes of £170m (‘Adjusted PBT’) as overall materiality is applied to the net deficit on revaluation. We believe that it is appropriate to use a profit based measure as profit is also a focus of users of the financial statements. This year the calculation of Adjusted PBT excludes the impact of the redemption of medium term notes, given this is expected to be a non-recurring item.

During the course of our audit, we reassessed initial materiality and, as the actual carrying value of investment properties was in line with that which we had used as the initial basis for determining overall materiality, our final materiality was consistent with the materiality we calculated initially.

Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement is that overall performance materiality and specific performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Group should be 75% (2016: 75%) of the respective materiality. We have set performance materiality at this percentage due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected. Our objective in adopting this approach is to confirm that total detected and undetected audit differences do not exceed our materiality for the financial statements as a whole.

Reporting threshold An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to the Committee all uncorrected audit differences in excess of £3m (2016: £3m), as well as audit differences in excess of £1m (2016: £1m) that relate to our specific testing of the other account balances not related to investment properties which are set at 5% of their respective planning materiality. We also agreed to report differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

100 Landsec Annual Report 2017 Financial Statements 101

Landsec Annual Landsec Report 2017 We have no exceptions to report. to no exceptions have We We have no exceptions to report. to no exceptions have We We have no exceptions to report. to no exceptions have We Materially inconsistent with the information in the audited financial statements; or of knowledge our with, inconsistent materially or on, based incorrect materially Apparently the Group acquired in the course of performing ouraudit; or Otherwise misleading. Adequate accounting records have or returns not been company, the Parent by kept adequate for our audit have not been received from branches not or visited us; by companyThe financial Parent statements andthe partthe of Directors’Remuneration Report be audited to not are in agreement with the accounting or records and returns; Certain disclosures of Directors’ remuneration specifiedby law are not or made; have notWe received all the information and explanations require we for our audit. The Directors’ statement in relation going to concern viability, set out and longer-term on page and 54; The part of the Corporate Governance relating complianceStatement the company’s to with provisions the ten of the UK Corporate Governance Code specifiedfor review. our — — — — — — — — — We are required to report to you if, in our opinion, financial and non-financial information in the information financial and non-financial in our opinion, if, you report to to required are We annual report is: — — — between inconsistencies any identified we have reportwhether to required we are In particular, performing statement the audit and the Directors’ of in the course our knowledgeacquired balanced and whole is fair, as a consider the annual reportaccounts taken that they and assess the entity’s to shareholders necessary for the information and provides understandable whether the annual report and appropriately business model and strategy; performance, we consider CommitteeAudit that the to we communicated those matters that addresses beenshould have disclosed. In light of the knowledge and understanding of the Company and its environment obtained in obtained and its environment Company the of the knowledge and understanding of In light Report Strategic in the misstatements no material identified we have the audit, of the course Report. or the Directors’ in our opinion: if, you report to to required are We — — — — We are required to review: to required are We — — The Strategic ReportThe Strategic and Directors’ the Report have been prepared in accordance with applicable legal requirements. consistent with financial the statements; The Report information given Strategic in the and Directors’ the Report for financial the year for the financialwhich statementspreparedare is — — — — The part Directors’ of the Remuneration Report be audited to has been properly prepared in accordance with Companies the and Act 2006; Based on work the undertaken course in the audit: of the — — ISAs (UK and Ireland) Ireland) and ISAs (UK reporting Opinion on other matters prescribed by the Companies Act 2006 Act Companies the prescribed by matters Opinion on other In our opinion: — — This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work Our audit 2006. Act the Companies 16 of Part 3 of with Chapter in accordance as a body, members, the Company’s This report to is made solely report and for them in an auditor’s to state to required we are members those matters the Company’s to state we might has been so that undertaken and the than the Company other anyone to or assume responsibility accept we do not permitted law, extent the fullest by To purpose. no other formed. we have the opinions or for this report, for work, our audit for members as a body, Company’s Respective responsibilities of directors and auditor directors responsibilities of Respective financial the of preparation the for responsible are the Directors set out on page 96, Statement Responsibilities in the Directors’ fully more explained As in statements on the financial an opinion express to audit and is responsibility Our view. fair and a true give beingsatisfied that they and for statements Auditing with the comply us to require standards Those (ISAs). Ireland) and (UK Auditing on Standards and International law with applicable accordance Auditors. for Standards Ethical PracticesBoard’s Companies Act reporting2006 Matters on which we are required to report by exception report to by required are we which on Matters Listing Rules review review Rules Listing requirements Independent Auditor’s Report continued

Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity

ISAs (UK and We are required to give a statement as to whether we have anything material to add or to We have nothing material to Ireland) reporting draw attention to in relation to: add or to draw attention to. ——The Directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity; ——The disclosures in the annual report that describe those risks and explain how they are being managed or mitigated; ——The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and ——The Directors’ explanation in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Eamonn McGrath (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 17 May 2017

102 Landsec Annual Report 2017 Financial Statements – – 2 103 15 18 (3) 75 35 £m £m 199 532 2016 2016 739 942 Total Total (410) (244) 1,353 1,336 1,338 1,338 1,346 169.4p 168.8p – – – 2 2 75 47 £m £m (12) 113 179 (10) 861 198 974 (66) 103 976 739 2017 (151) Total other items other Capital andCapital – – – – – 32 35 20 £m 362 744 362 485 485 (178) profit (259) Notes Revenue Revenue Landsec Annual Landsec Report 2017 1 (2) 13 19 37 69 £m 112 113 521 787 2017 365 Total (186) (266) (359) 14.3p 14.3p – 1 (2) 13 19 42 66 48 £m (24) (114) (186) (270) (269) (204) other items other Capital and Capital

– – – – – 21 37 £m 721 382 382 479 479 (155) (242) profit Revenue 7 5 5 6 12 16 14 10 10

Notes Revenue Revenue Profit attributable to owners of the parent of owners to attributable Profit

Statement of comprehensive income comprehensive of Statement 2017 March ended 31 year the for Items that will not be subsequently reclassified to the income statement: the income to reclassified bewill not subsequently that Items on defined benefit (loss)/gain pension scheme Net re-measurement credit/(charge) tax above Deferred on re-measurement for the year ended 31 March 2017 March ended 31 year the for Income statement Income Costs Other comprehensive (loss)/income attributable to owners of the parent (loss)/income the of Other comprehensive owners to attributable parent the of owners to attributable income comprehensive Total Profit on disposal of investment properties investment on disposalof Profit Loss on disposal of investment in joint venture in joint investment on disposal of Loss Profit on disposal of other investment other on disposalof Profit Net (deficit)/surplus on revaluation of investment properties investment of Net (deficit)/surplusrevaluation on Operating profit Operating Share of post-tax profit from joint ventures joint from profit post-tax of Share Finance income Finance expense Profit before tax before Profit Taxation Diluted earnings perDiluted share Profit attributable to owners of the parent of owners to attributable Profit Earnings per share attributable to owners of the parent: of attributable owners per share to Earnings Basic earnings per share Balance sheets at 31 March 2017

Group Company 2017 2016 2017 2016 Notes £m £m £m £m Non-current assets Investment properties 14 12,144 12,358 – – Intangible assets 19 36 38 – – Net investment in finance leases 18 165 183 – – Investments in joint ventures 16 1,734 1,668 – – Investments in subsidiary undertakings 28 – – 6,205 6,200 Trade and other receivables 26 123 86 – – Other non-current assets 29 51 44 – – Total non-current assets 14,253 14,377 6,205 6,200

Current assets Trading properties 15 122 124 – – Trade and other receivables 26 418 445 17 17 Monies held in restricted accounts and deposits 22 21 19 4 4 Cash and cash equivalents 23 30 25 – – Total current assets 591 613 21 21

Total assets 14,844 14,990 6,226 6,221

Current liabilities Borrowings 21 (404) (19) – – Trade and other payables 27 (302) (289) (1,394) (1,037) Other current liabilities 30 (7) (19) – – Total current liabilities (713) (327) (1,394) (1,037)

Non-current liabilities Borrowings 21 (2,545) (2,854) – – Trade and other payables 27 (25) (28) – – Other non-current liabilities 31 (9) (47) – – Redemption liability (36) (35) – – Total non-current liabilities (2,615) (2,964) – –

Total liabilities (3,328) (3,291) (1,394) (1,037)

Net assets 11,516 11,699 4,832 5,184

Equity Capital and reserves attributable to owners of the parent Ordinary shares 34 80 80 80 80 Share premium 791 790 791 790 Capital redemption reserve 31 31 31 31 Own shares (9) (14) – – Share-based payments 8 11 8 11 Merger reserve – – 374 374 Retained earnings 10,615 10,801 3,548 3,898 Total equity 11,516 11,699 4,832 5,184

The loss for the year of the Company was £68m (2016: profit of £331m).

The financial statements on pages 103 to 154 were approved by the Board of Directors on 17 May 2017 and were signed on its behalf by:

R M Noel M F Greenslade Directors

104 Landsec Annual Report 2017 Financial Statements 5 9 9 105 13 (6) £m £m (18) 331 103 (68) Total Total (255) (255) (260) (289) (286) (289) 1,353 5,184 Group equity equity 5,099 4,832 11,516 11,699 10,606 Company 1 – – – 7 6 (6) £m £m 331 103 (68) (261) (255) (255) (289) (289) (289) 1,353 3,816 9,709 3,898 3,548 10,615 10,801 earnings earnings Retained Retained Retained – – – – – – – – – – – – 2 2 9 8 11 (3) (3) £m £m 374 374 374 based Share- Share- Merger Merger reserve payments

Landsec Annual Landsec Report 2017 – – – – – – – – 2 9 5 8 11 11 (2) 16 (3) (6) (9) £m £m (12) (18) (14) Own based shares Share- payments Attributable to owners of the parent the of owners to Attributable

– – – – – – – – – – – – – – – – 31 31 31 31 31 31 £m £m reserve reserve Capital Capital redemption redemption – – – – – 1 1 1 – – – – 1 – 1 1 £m £m 791 791 789 789 790 790 Share Share premium premium – – – – – – – – – – – – – – – – 80 80 80 £m 80 £m 80 80 shares shares Ordinary Ordinary Available for distribution. for Available

1. At 1 At April 2015 At 1 At April 2015 for the year ended 31 March 2017 March ended 31 year the for Statement of changes equity in of Statement Profit for the year ended 31 March 2016 31 March year ended for the Profit Total comprehensive income for the financial year the financial for income comprehensive Total Transactions with with owners: Transactions paymentsShare-based paymentsShare-based Dividends paid to owners of the parent of owners Dividends paid to At 31 March 2016 March 31 At Dividends paid to owners of the parent of owners Dividends paid to Loss for the year ended 31 March 2017 March endedyear 31 the for Loss Acquisition of own shares of Acquisition paymentsShare-based Dividends paid to owners of the parent of owners Dividends paid to At 31 March 2017 March 31 At Total transactions with owners of the parent the of owners with transactions Total At 31 March 2016 March 31 At year the financial income for comprehensive Total Transactions with with owners: Transactions paymentsShare-based the parent of owners Dividends paid to Acquisition of own shares of Acquisition Total transactions with owners of the parent the of owners with transactions Total At 31 March 2017 March 31 At Statement of cash flows for the year ended 31 March 2017

Group Company 2017 2016 2017 2016 Notes £m £m £m £m

Cash flows from operating activities Net cash generated from operations 13 464 451 – – Interest received 15 21 – – Interest paid (152) (197) – – Capital expenditure on trading properties (12) (32) – – Disposal of trading properties 69 190 – – Other operating cash flows 2 (1) – – Net cash inflow from operating activities 386 432 – –

Cash flows from investing activities Investment property development expenditure (46) (118) – – Acquisition of investment properties (16) (103) – – Other investment property related expenditure (80) (100) – – Disposal of investment properties 245 1,221 – – Disposal of other investment 13 – – – Cash contributed to joint ventures 16 (67) (62) – – Net loan advances to joint ventures 16 (45) (106) – – Loan repayments by joint ventures 16 54 14 – – Distributions from joint ventures 16 44 63 – – Other investing cash flows (19) 40 – – Net cash inflow from investing activities 83 849 – –

Cash flows from financing activities Proceeds from new borrowings (net of finance fees) 356 249 – – Repayment of borrowings 21 (391) (806) – – Issue of medium term notes (net of finance fees) 21 698 – – – Redemption of medium term notes 21 (690) (400) – – Premium payable on redemption of medium term notes 21 (137) (26) – – Refinancing of derivative financial instruments (4) – – – Dividends paid to owners of the parent 11 (289) (262) – – Other financing cash flows (7) (26) – – Net cash outflow from financing activities (464) (1,271) – –

Increase in cash and cash equivalents for the year 5 10 – – Cash and cash equivalents at the beginning of the year 25 15 – – Cash and cash equivalents at the end of the year 23 30 25 – –

106 Landsec Annual Report 2017 Financial Statements 107

Landsec Annual Landsec Report 2017 Basis consolidation of and all its subsidiaryof the Company statements the financial incorporate 2017 31 March year ended for the financial statements The consolidated returns variable is exposed to an entity where exists Control the Company. by controlled undertakingsSubsidiary those entities are undertakings. financial the consolidated in preparing eliminated transactions are intra-group gains and losses arising from unrealised balances and any Intra-group venture in the joint interest the Group’s of the extent to eliminated are ventures with joint transactions gains arising from Unrealised statements. impairment. of is no evidence that there the extent to but only way, in the same eliminated losses are Unrealised concerned. Land Securities Group PLC (the Company) has not presented its own statement of comprehensive income (and separate income statement), as income statement), income (and separate comprehensive of its own statement (the Company) presented has not PLC Securities Group Land the issued 100% of acquired when the Company 2002 on 6 September reserve arose The merger 2006. Act permitted Companies Section of 408 by issued by the shares of value the nominal over acquisition cost of the of the excess reserve represents The merger Securities PLC. Land of capital share reserveredemption The capital profit. or distributable a realised does reserve represent not The merger Securities PLC. Land acquire to the Company cancelled shares. of value nominal the represents in joint Interests agreement. contractual by established control, whose activities has joint the Group over those entities are arrangements Joint when the Group, venture as a joint for is accounted arrangement joint A operation. or a joint venture as either a joint for accounted are arrangements are ventures in joint Interests the arrangement. the net assets of rights to have arrangement, the parties other with the of along control joint that have in separately to yearbe presented for the or loss profit post-tax venture’s the joint of share the Group’s method requires The equity accounted. equity is arrangement joint A in the balance sheet. separately be presented net assets to venture’s the joint of share and the Group’s the income statement the assets and rights to have the arrangement, with the parties of along control joint that have when the Group, operation as a joint for accounted liabilities, the assets, of share including the Group’s by for accounted are operations Joint arrangement. the to the liabilities relating obligations for basis. on a line-by-line income and expenses The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires the use of estimates and estimates of the use principles (GAAP)requires accounting accepted with generally in conformity financial statements of The preparation revenues reported of and the statements amounts the financial of reported that affectassumptions assets the date and liabilities at the of amounts actions, or event the amount, best knowledge of based are on management’s Although these estimates during the reportingand expenses period. are included judgements and estimates accounting significant Further on the Group’s details those estimates. from differ may ultimately actual results in 2. note to acquisition or of the effective date included from are year during the or disposed acquired of ventures subsidiaries and joint of The results classified as a financial liability, are these interests holder, the parties third of at the option redeemable in a subsidiary instruments held by are Where recognised in are and movements at the balance is reassessed sheet date value the value; is carried at fair The liability liability. called the redemption the income statement. During the year, the Group has reviewed the presentation of the financial statements and has made some changes with the intention of simplifyingof the the intention with and has made some changes the financial statements of the presentation has reviewed the Group year, During the reporting the to to thousand pounds, reporting hundred the nearest the main changes is from to One of presented. are results which the Group’s in way have beenstatements the financial in separately presented previously were certain that line items insignificant Additionally, million pounds. nearest balances the aggregated of a breakdown providing notes explanatory in the primary been statements, have aggregated line items Where aggregated. the financial statements. to included in the notes are its the investee. over through power returns affect those to and has the ability are Group accountingadjusted policies from which differ ventures subsidiaries and joint of Accounting policies disposal. of the effective date on consolidation. Basis preparation of asReporting Financial Standards with International concern on a going have basis and in accordance been prepared These financial statements The financial statements companies reporting to applicable 2006 Act under IFRS. and the Companies IFRIC Interpretations the EU (IFRS), by adopted PLC Securities Group (Land the Group of currency which is the presentation one million), the nearest to (rounded Sterling in Pounds beenhave prepared available-for-sale property, investment of revaluation the as modifiedby cost convention historical and under the and all its subsidiary undertakings), and financial instruments assets.pension derivative investments, 1. Basis of preparation and consolidation Basis preparation of 1. This section also includes a summary of new European Union (EU) endorsed accounting standards, amendments and interpretations that have not yet not that have amendments and interpretations standards, accounting Union (EU) endorsed European This section new also includes a summary of and their expected impact the Group. the reported on been of results adopted, This section contains a description of the Group’s significant accounting policies that relate to the financial statements as a whole. A description of A description a whole. as statements to the financial relate accounting policies that significant Group’s the of This section a description contains statements. the financial to note relevant properties) within the investment is included (e.g. policiesaccounting individual areas to specific for the year ended 31 March 2017 March ended 31 year the for 1 – General Section Notes to the financial statements financial the to Notes Notes to the financial statements for the year ended 31 March 2017 continued

2. Significant accounting judgements and estimates

The preparation of financial statements in conformity with IFRS requires management to exercise judgement in applying the Group‘s accounting policies. The areas where the Group considers the judgements to be most significant involve assumptions or estimates in respect of future events, where actual results may differ from these estimates. These areas are as follows: ——Valuation of investment and trading properties (page 120) ——Accounting for property acquisitions and disposals (page 120) ——Compliance with the Real Estate Investment Trust (REIT) taxation regime and the recognition of deferred tax assets and liabilities (page 117)

3. Amendments to IFRS

The accounting policies used in these financial statements are consistent with those applied in the last annual financial statements, as amended where relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year. These amendments have not had an impact on the financial statements.

A number of new standards and amendments to standards have been issued but are not yet effective for the Group. The most significant of these, and their potential impact on the Group’s accounting, are set out below: ——IFRS 15 Revenue from Contracts with Customers (effective from 1 April 2018) – the standard will be applicable to service charge income, other property related income, trading property sales proceeds and proceeds from the sale of investment properties, but not rental income arising from the Group’s leases with tenants. Based on the transactions impacting the current financial year and future known transactions, the Group does not expect the adoption of IFRS 15 to have a material impact on the Group’s reported results. However, we will continue to assess new transactions as they arise to the date of adoption. ——IFRS 9 Financial Instruments (effective from 1 April 2018) – the standard applies to classification and measurement of financial assets and financial liabilities, impairment provisioning and hedge accounting. The Group is in the process of assessing the impact of IFRS 9, but adoption of the new standard may impact the measurement and presentation of the Group’s financial liabilities. ——IFRS 16 Leases (effective from 1 April 2019) – the adoption of this standard is not expected to significantly impact the recognition of rental income earned under the Group’s leases with tenants. The Group holds a small number of operating leases as a lessee which are affected by this standard, however, these are not material to the financial statements.

108 Landsec Annual Report 2017 Financial Statements

109

Landsec Annual Landsec Report 2017 All items in the segmental information note are presented on a proportionate basis. A reconciliation from the Group income statement to the to income statement the Group from reconciliation A on a proportionate basis. presented are note information in the segmental All items 78. is included in table note information in the segmental presented information The Group’s primary measure of underlying profit before tax is revenue profit. However, segment profit is the lowest level to which the profit arising profit arising from to which the level is the lowest profit segment However, profit. revenue is tax before underlying profit of primary measure The Group’s jointof exception with the manages its structure, financing The Group is analysed between the Group the two segments. of the ongoing operations specific to a not particular are ventures) to joint relating expenses than those (other and finance facilities debt as such, on a pooled basis and, ventures, attributable neither directly nor can be reasonably which are centrally incurred services) items (Group income and expenses Unallocated are segment. individual segments. allocated to Management has determined the Group’s operating segments based on the information reviewed by senior management to make strategic decisions. decisions. strategic make to senior management by reviewed segments operating based on the information the Group’s has determined Management the managing Directors, which comprised the Executive Committeewas the Executive (ExecCom), decision maker operating the chief year, During the and Affairs and the Corporate Director HR the Group Secretary, Counsel and Company General the Group portfolios, and London the Retail of directors financial planning, well as strategy, includes reports ExecCom all functions the business as to from of presented The information Director. Sustainability policies. and Group-wide development organisational succession planning, 4. Segmental Segmental information 4. includes all Portfolio The London Portfolio. and the Retail Portfolio being the London two segments, operating into organised are operations The Group’s London shops), central Portfolio(excluding and shops includes all our shopping centres Retail London shops and the and central offices our London in the UK. are operations the Group’s All of park properties. assets and retail and leisure hotels Our income statement has two key components: the income we generate from leasing our investment properties costs associated (including leasing our investment net of from we generate the income components: has two key Our income statement valuation changes, principally business, rental to the underlying related directly not and items profit, as revenue to we refer which expense), interest is presented Our income statement items. other and to as capital refer we which properties items, or losses on the disposalof exceptional and profits The same principle is applied to many of the other measures we discuss and accordingly, a number of our financial measures include the results of ourof results include the our financial measures a number of and accordingly, we discuss measures the other of many appliedThe same principle is to on a proportionate described basis as being that are include the Group’s presented Measures and subsidiaries on a proportionate basis. ventures joint the Group’s to This is in contrast our subsidiaries. the non-owned elements of exclude adjusted to are and basis, on a line-by-line ventures joint of share all and and balance sheet, statement as one line on the income is presented ventures in joint interest the Group’s where statements, financial statutory as appropriate. liability, or redemption interest non-owned being element as a non-controlling adjusted with any 100% at consolidated subsidiaries are on a proportionate basis in all financial measures. presented are operations Our joint a better explanation to stakeholders of the activities and performance of the Group, as it aggregates the results of all of the Group’s property interests the Group’s all of of the results it aggregates as the activities Group, the and performance of of stakeholders a better to explanation financial statements. in the statutory line items a number of across bepresented to required which under IFRS are results the Group’s represents column Total The other items. and and capital profit revenue to that relate those items split into in a columnar format, theof results the betterrepresents profit believe revenue We additional information. columns provide the other with IFRS; in accordance presented items and other capital the business and excludes income performance of on the rental as it focuses stakeholders performance to operational Group’s presented are profit revenue of The components given in the glossary. is profit revenue of A full definition year. to year from significantly vary which can on a proportionate 4. basis in note Our property portfolio is a combination of properties that are wholly owned by the Group, part and properties arrangements joint owned through the Group, Our property portfolio owned by wholly properties is a combination of that are on a basis that the Group of results the review management Internally, party interest. a third holds a non-controlling where but the Group owned by of example is an £14.4bn, totalling with assets Portfolio, The Combined a proportionate share. to present ownership of forms adjusts these different for provides We consider this presentation structure. our ownership of in our properties we have regardless reflecting the interest economic this approach, This section focuses on the performance of the Group for the year, including segmental information, earnings per share and net assets per share, net assets and earnings per per share, share information, including segmental year, the for This section the Group performance on the of focuses and dividends paid. with further on specific the income statement together of components details Section 2 – Performance Section Notes to the financial statements for the year ended 31 March 2017 continued

4. Segmental information continued

Revenue profit 2017 2016 Retail London Total Retail London Total £m £m £m £m £m £m Rental income 342 296 638 363 287 650 Finance lease interest 1 9 10 1 9 10 Gross rental income (before rents payable) 343 305 648 364 296 660 Rents payable1 (8) (3) (11) (9) (3) (12) Gross rental income (after rents payable) 335 302 637 355 293 648 Service charge income 56 45 101 56 46 102 Service charge expense (60) (46) (106) (58) (47) (105) Net service charge expense (4) (1) (5) (2) (1) (3) Other property related income 20 14 34 21 17 38 Direct property expenditure (36) (30) (66) (45) (34) (79) Net rental income 315 285 600 329 275 604 Indirect property expenditure (21) (16) (37) (25) (18) (43) Depreciation (1) (1) (2) – (1) (1) Segment profit before finance expense 293 268 561 304 256 560 Joint venture finance expense (4) (17) (21) (4) (17) (21) Segment profit 289 251 540 300 239 539 Group services – other income 2 4 – expense (42) (38) Finance income 37 35 Finance expense (155) (178) Revenue profit 382 362

1. Included within rents payable is finance lease interest payable of £1m (2016: £1m) and £1m (2016: £nil), for the Retail and London portfolios, respectively.

Reconciliation of revenue profit to profit before tax

2017 2016 Total Total £m £m

Revenue profit 382 362

Capital and other items Valuation and profits on disposals Profit on disposal of investment properties 20 79 Loss on disposal of investment in joint venture (2) – Profit on disposal of other investment 13 – Net (deficit)/surplus on revaluation of investment properties (147) 907 Movement in impairment of trading properties 12 16 Profit on disposal of trading properties 36 41 (68) 1,043 Net finance expense Fair value movement on interest-rate swaps (8) (11) Amortisation of bond-exchange de-recognition adjustment (24) (23) Other (2) (5) (34) (39) Exceptional items Head office relocation 1 (6) Premium payable on redemption of medium term notes (170) (27) (169) (33) Other 1 3

Profit before tax 112 1,336

110 Landsec Annual Report 2017 Financial Statements 111 2 5 (2) (3) (5) 32 33 39 £m £m 2016 2016 362 (368) 1,338 45.7p 45.9p 11,365 11,699 (1,043) 1,439p 1,434p Adjusted earnings Adjusted Adjusted Adjusted Adjusted Adjusted net assets net 1 – 2 5 (2) 16 (3) (5) 27 32 £m £m n/a 333 EPRA EPRA EPRA 1,338 assets 42.2p 42.0p 11,733 11,699 1,481p (1,043) earnings EPRA net

– – – – – – – – – – £m £m the IFRS IFRS year 1,338 1,338 11,699 11,699 1,476p 169.4p 1,482p 168.8p financial Profit for for Profit Landsec Annual Landsec Report 2017 Net assets Net 2 2 4 (1) (1) (4) 34 68 £m £m 113 169 2017 2017 382 (314) 11,516 48.3p 48.4p 1,417p 11,206 1,418p Adjusted earnings Adjusted Adjusted Adjusted net assets net 1 – 2 2 4 (1) (1) 10 (4) 68 £m 113 £m 170 359 n/a EPRA EPRA EPRA assets 11,516 45.4p 45.4p 11,520 1,456p earnings EPRA net EPRA – – – – – – – – – – £m £m the IFRS 113 113 IFRS year 14.3p 14.3p 11,516 11,516 1,456p 1,458p financial financial Profit forProfit Net assetsNet – Group – – Joint Joint ventures – 1 2 For EPRA triple net assets, see table 81. see table EPRA triple net assets, For The difference in the adjustment for EPRA earnings and adjusted earnings relates to the amortisation of the bond exchange de-recognition adjustment, which is included in EPRA earnings, but which is included in EPRA earnings, to the amortisation de-recognition adjustment, the exchange of bond relates for EPRA earnings and adjusted earnings in the adjustment The difference earnings. adjusted from excluded from earnings. adjusted excluded but are included in earnings, which EPRA relocation costs, office to the head relates for EPRA earnings and adjusted earnings in the adjustment The difference

1. 2. 1. Net assets per share assets Net Net assets attributable to owners of the parent Net assets of attributable owners to Earnings per share EPRA measures for both earnings per share and net assets per share have been both assist comparison have assets and net earnings per per between included for to share share propertyEPRA measures European companies. Total business return is calculated as the cash dividends paid in the year plus the change in adjusted diluted net assets per share, divided by the opening divided by net assets per in adjusted diluted plus the change share, year as the cash dividends paid in the is calculated business return Total on investment return the total an indication of as it gives shareholders for be measure a useful this to consider We net assets peradjusted diluted share. over the year. Adjusted net assets excludes the fair value of interest-rate swaps used for hedging purposes and the bond exchange de-recognition adjustment. We We hedging de-recognition adjustment. purposes swaps used for and the bond exchange interest-rate of value fair the net assetsexcludes Adjusted with our reflects flows associated cash the future believe this better accurately as it more reflectsnet assets the underlying to shareholders attributable instruments. debt Adjusted earnings, which is a tax adjusted measure of revenue profit, is the basis for the calculation of adjusted earnings per share. We adjustedbelieve adjusted earnings of per share. calculation for the is the basis profit, revenue of measure adjusted which is a tax earnings, Adjusted on the focus as they stakeholders performance to operational the Group’s of the results earnings better and adjusted earnings per share represent year. to year from significantly vary which can items and other capital exclude the business and income performance of rental 5. Performance measures Performance 5. total and net assets diluted adjusted per share earnings diluted adjusted per share, are financial measures performance key the Group’s of Three with our own together with IFRS, in accordance and net assets earnings calculated per per share share we present below In the tables business return. return. business total the calculation of also present We EPRA. by and certain required adjusted measures measures Net assets per share per assets Net Basic earnings per share Profit attributable to owners of the of parent to owners attributable Profit Diluted net assets per share assets net Diluted Fair value of interest-rate swaps interest-rate of value Fair Taxation earningsDiluted per share Profit used calculation in per share Profit Other Exceptional items Exceptional Valuation and profits on disposal and profits Valuation

Net finance expense Net finance Bond exchange de-recognition adjustment de-recognition Bond exchange Deferred tax liability arising on business combination liability tax Deferred Net assets used calculation in per assets share Net Goodwill on deferred tax liability tax Goodwill on deferred Notes to the financial statements for the year ended 31 March 2017 continued

5. Performance measures continued

Number of shares

2017 2016

Weighted Weighted average 31 March average 31 March million million million million Ordinary shares 801 801 801 801 Treasury shares (10) (10) (10) (10) Own shares (1) (1) (1) (1) Number of shares – basic 790 790 790 790 Dilutive effect of share options 1 1 3 3 Number of shares – diluted 791 791 793 793

Total business return

2017 2016 pence pence (Decrease)/increase in adjusted diluted net assets per share (17) 141 Dividend paid per share in the year (note 11) 37 32 Total return (a) 20 173 Adjusted diluted net assets per share at the beginning of the year (b) 1,434 1,293 Total business return (a/b) 1.4% 13.4%

112 Landsec Annual Report 2017 Financial Statements 113 4 4 £m 10 10 29 38 94 36 £m 2016 102 195 195 Total 574 2016 942 603 650 999 Total Group Group 1 – – – – – – – – – – 3 3 for (3) (3) £m £m 195 198 owned non-wholly subsidiaries Adjustment Adjustment other items other Capital andCapital – – – – 2 8 4 £m 10 29 94 36 50 £m 60 571 Joint 744 600 profit ventures Revenue Landsec Annual Landsec Report 2017 2 4 £m 10 10 32 62 94 36 94 £m 44 195 942 787 2017 587 603 543 Total Group

– – – – 2 2 2 2 £m 10 62 66 34 £m 101 2017 919 134 638 Total other items other Capital and Capital 1 – – – – – 2 (2) (2) for 10 £m (4) 32 92 £m 44 721 541 585 owned profit Revenue non-wholly subsidiaries Adjustment – – 2 9 £m 72 53 136 Joint ventures 2 £m 10 32 62 94 787 587 Group Accounting policy Accounting

This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers. in the Group which is consolidated but own, we do not which X-Leisure in the interest This represents

1. The following table reconciles revenue per the income statement to the individual components of revenue presented in note 4. in note presented revenue the individual components of to per the income statement revenue reconciles table The following All revenue is classified within the ‘Revenue profit’ column of the income statement, with the exception of proceeds on the sale of trading propertiestrading proceedsof of on the sale exception with the statement, of the income column profit’ within the ‘Revenue is classified All revenue the column is the non-owned of items’ element and other Also included in the ‘Capital column. items’ and other in the ‘Capital which is presented profit. revenue from which is excluded subsidiaries Group’s Proceeds received on the sale of trading properties are recognised when the significant risks and rewards of ownership transfer to the buyer. This to the buyer. transfer ownership of rewards and risks the significant when properties recognised trading are on the sale of Proceeds received the Group after particularly or if exchange occur completion is expected significantly if to or on completion, occurson unconditional exchange generally and completion. obligations exchange outstanding betweenhas significant When property is let under a finance lease, the Group recognises a receivable equal to the net investment in the lease at inception of the lease. Rentals Rentals the lease. of in the lease at inception to the net investment equal recognisesreceivable a the Group When property lease, is let under a finance to each periodFinance income is allocated during the lease principaland finance income as appropriate. of as repayments for accounted are received revenue. recognised within in the finance lease and is net investment on the remaining interest of periodic a constant rate produce as to so term Service charge income and management fees are recorded as income in the period in which they are earned. are income in the periodwhich they as in recorded are fees Service income and management charge Rental income, including fixed rental uplifts, is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives the lease. of term the over basis on a straight-line recognised is income statement in the uplifts, rental including fixed income, Rental partintegral are an of costs, to fit-out or similar period rent-free or a cash contribution such as an initial a lease, into to enter to occupiers being offered being lease payments rents, Contingent basis. recognised on the same straight-line therefore the property and are the use of for the net consideration earned. are which they as income in the recorded periods in are rents, turnover example for a lease, of at the inception fixed not that are The Group recognises revenue on an accruals basis, when the amount of revenue can be reliably measured and it is probable that future economic that future and it is probable measured can be reliably revenue of when the amount basis, on an accruals recognises revenue The Group Group. to the will flow benefits Rental income Rental Rental income (excluding adjustment for lease incentives) adjustment for income (excluding Rental 6. Revenue 6. Adjustment for lease incentives Adjustment for Service income charge Rental income Rental income Other property related Service income charge Other property related income Other property related property sales proceeds Trading Trading property sales proceeds Trading Finance lease interest Finance lease interest Other income Other income Revenue per the income statement per the Revenue Revenue in the segmental information note information segmental in the Revenue Notes to the financial statements for the year ended 31 March 2017 continued

7. Costs

Accounting policy The carrying amounts of the Group’s non-financial assets, other than investment properties, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount after the reversal does not exceed the amount that would have been determined, net of applicable depreciation, if no impairment loss had been recognised.

All costs are classified within the ‘Revenue profit’ column of the income statement, with the exception of the cost of sale of trading properties, amortisation of intangible assets and head office relocation costs which are presented in the ‘Capital and other items’ column. Also included in the ‘Capital and other items’ column is the non-owned element of the Group’s subsidiaries which is excluded from revenue profit.

Group

2017 2016

Revenue Capital and Revenue Capital and profit other items Total profit other items Total £m £m £m £m £m £m Rents payable 10 – 10 11 – 11 Service charge expense 95 1 96 96 – 96 Direct property expenditure 58 – 58 72 – 72 Indirect property expenditure 79 – 79 80 – 80 Cost of trading property disposals – 33 33 – 154 154 Movement in impairment of trading properties1 – (12) (12) – (11) (11) Head office relocation2 – (1) (1) – 6 6 Amortisation of intangible assets – 2 2 – 1 1 Impairment of goodwill – 1 1 – 1 1 Costs per the income statement 242 24 266 259 151 410

1. The movement in impairment of trading properties in the years ended 31 March 2017 and 2016 relates to the reversal of previous impairment charges related to residential land, where the valuer’s assessment of net realisable value increased over the year. 2. The net credit of £1m in respect of the head office relocation comprises the £2m release of an onerous lease provision following the assignment of the lease on the Group’s previous head office at lower net cost than originally anticipated, together with relocation costs of £1m. The cost of £6m in the prior year reflects the creation of the provision in respect of the onerous lease and relocation costs committed to at that time.

The following table reconciles costs per the income statement to the individual components of costs presented in note 4.

Group

2017 2016 Adjustment Adjustment for for non-wholly non-wholly Joint owned Joint owned Group ventures subsidiaries1 Total Group ventures subsidiaries1 Total £m £m £m £m £m £m £m £m Rents payable 10 1 – 11 11 1 – 12 Service charge expense 96 11 (1) 106 96 9 – 105 Direct property expenditure 58 8 – 66 72 7 – 79 Indirect property expenditure 79 2 – 81 80 2 – 82 Trading property disposals 33 65 – 98 154 – – 154 Movement in impairment of trading properties (12) – – (12) (11) (5) – (16) Head office relocation (1) – – (1) 6 – – 6 Amortisation of intangible asset 2 – – 2 1 – – 1 Impairment of goodwill 1 – – 1 1 – – 1 Costs in the segmental information note 266 87 (1) 352 410 14 – 424

1. This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers.

The Group’s costs include employee costs for the year of £60m (2016: £64m), of which £7m (2016: £7m) is within service charge expense and £53m (2016: £57m) is within indirect property expenditure, of which £22m relates to Group services (2016: £19m).

114 Landsec Annual Report 2017 Financial Statements – 115 3 8 8 6 47 64 £m £m 0.1 1.0 0.2 142 0.8 0.3 0.4 2016 2016 2016 459 609 Group Group Group Number 5 6 9 4 45 60 £m £m 1.0 0. 1 0. 1 0. 1 153 0.3 421 0.4 0.8 2017 2017 2017 583 Number Landsec Annual Landsec Report 2017

Audit related assurance services assurance related Audit Audit of parent company and consolidated financial statements and consolidated company parent of Audit Part-time subsidiary undertakings of Audit ventures joint of Audit servicesOther assurance Full-time Employer payroll taxes payroll Employer 32) Other pension costs (note 33) paymentsShare-based (note Non-audit fees: It is the Group’s policy to employ the Group’s auditor on assignments additional to their statutory duties where their expertise their with thewhere duties and experience their statutory on assignments additional to auditor the Group’s employ to policy It is the Group’s by pre-approved are they than £25,000 be expected greater to are fees If services. for tenders seeks the Group appropriate Where important. are Group the Audit Committee. Services provided by the Group’s auditor Group’s the Services by provided fees: Audit 8. Auditor remuneration Auditor 8. Details of the employee costs associated with the Group’s key management personnel are included in note 37. included in note personnel management are key with the Group’s costs associated the employee of Details During the year, no Executive Directors had retirement benefits under either the defined contribution accruing pension scheme or the defined benefit had retirement Directors no Executive year, During the in the Directors’ Remuneration is given shares in the Company’s and interests options share emoluments, on Directors’ Information nil). scheme (2016: 91. to Report on pages 76 With the exception of the Executive Directors, the Company Secretary and two employees of the Defined Benefit Pension Scheme, who are employed by are employed who Pension Scheme, the Defined Benefit of and two employees Secretary the Company Directors, the Executive of With the exception the Group. subsidiaries of by employed are all employees PLC, Securities Group Land Direct property services: or contract The average monthly number of employees during the year was: year employees the during of number monthly The average Indirect property or contract and administration Salaries and wages Employee costsEmployee Notes to the financial statements for the year ended 31 March 2017 continued

9. External valuer’s remuneration

Group 2017 2016 £m £m Services provided by the Group’s external valuer Year end and half year valuations – Group 0.7 0.7 – Joint ventures 0.2 0.1 Other consultancy and agency services 3.2 3.9 4.1 4.7

CBRE Limited (CBRE) is the Group’s valuer. CBRE undertakes other consultancy and agency work on behalf of the Group. CBRE has confirmed to us that the total fees paid by the Group represented less than 5% of its total revenues in the current year.

10. Net finance expense

Group

2017 2016 Capital Capital Revenue and other Revenue and other profit items Total profit items Total £m £m £m £m £m £m Finance income Other interest receivable 2 – 2 1 – 1 Interest receivable from joint ventures 35 – 35 34 – 34 37 – 37 35 – 35

Finance expense Bond and debenture debt (144) – (144) (169) – (169) Bank and other short-term borrowings (15) – (15) (20) – (20) Fair value movement on interest-rate swaps – (8) (8) – (11) (11) Amortisation of bond exchange de-recognition adjustment – (24) (24) – (23) (23) Redemption of medium term notes – (170) (170) – (27) (27) Revaluation of redemption liabilities – (3) (3) – (5) (5) Other interest payable (1) 1 - – – – (160) (204) (364) (189) (66) (255) Interest capitalised in relation to properties under development 5 – 5 11 – 11 (155) (204) (359) (178) (66) (244)

Net finance expense (118) (204) (322) (143) (66) (209) Joint venture net finance expense (21) (21) Net finance expense included in revenue profit (139) (164)

During the year, the Group purchased medium term notes (MTNs) with a nominal value of £690m (2016: £400m) for a premium of £137m (2016: £26m). The redemption premium and £30m (2016: £nil) of the bond exchange de-recognition adjustment associated with the purchased bonds have been expensed to the income statement in the year, as an exceptional item, along with £1m (2016: £nil) of bank tender fees and the £2m (2016: £1m) write-off of unamortised issue costs. Further details are given in note 21.

Finance lease interest payable of £2m (2016: £1m) is included within rents payable as detailed in note 4.

116 Landsec Annual Report 2017 Financial Statements 117 7 63 64 64 64 £m 262 2016 255 255

– 71 71 83 £m 64 2017 289 289 289 Group and Company and Group 7.9 8.15 8.15 8.15 8.15 Total 8.95 8.95 10.55 Landsec Annual Landsec Report 2017 – – – – – – 8.15 8.95 Non-PID Pence per share share per Pence – – 7.9 PID 8.15 8.15 8.15 8.95 10.55 Payment date Payment 10 April 2015 24 July July 2015 24 9 October 2015 7 January 2016 8 April 2016 28 July 2016 7 October 2016 6 January 2017

Third interim Third Final First interim First Second interim Third interim Third Final First interim First Second interim Accounting policy Accounting Significant accounting judgements and estimates and estimates judgements accounting Significant Accounting policy Accounting

at start the of each accounting period, assets; assets the exempt business tax of the value Group’s of the must be total of the at least 75% profits musttax exemptthe and arise business; total from Group’s of the at least 75% at least notional of the the of profit property taxable 90% businessrental must be distributed. — — — 12. Income tax 12. A Dividend Reinvestment Plan (DRIP) has been available in respect of all dividends paid during the year. year. Plan (DRIP) has been in respect all dividends paid available during the of Dividend Reinvestment A in total (2016: 8.15p or £64m in total), was paid on 7 April 2017 as a Property2017 April was paid on 7 or £64m in total), 8.15p (2016: or £71m in total per share, ordinary 8.95p dividend of quarterly interim third A to 10.55p) 11.7p (2016: of per share ordinary 2017 March 31 year ended for the a final dividend has recommended The Board Income Distribution (PID). Annual at the approval Subject shareholders’ to £83m). (2016: result in a further £92m will of distribution This final dividend estimated be paid as a PID. dividend paidtotal The 2017. June 23 business on of at the close registered to shareholders 2017 July 27 will be paid on the final dividend Meeting, General 35.0p). (2016: per share ordinary 38.55p is therefore 2017 March endedyear 31 the in respectand recommended of For the year ended 31 March 2015: March ended 31 year the For Ordinary dividends paid dividends Ordinary Interim dividend distributions to shareholders are recognised in the financial statements when paid. Final dividend distributions are recognised as distributions are Final dividend a when paid. recognised statements in the financial are shareholders to dividend distributions Interim shareholders. by approved are in the periodwhich they liability in 11. Dividends 11. The Group is a Real Estate Investment Trust (REIT). As a result, the Group does not pay UK corporation tax on its profits and gains from the qualifying and gains from on its profits tax corporation UK does pay not the Group a result, As (REIT). Trust Investment Estate is a Real The Group to maintain In order as normal. to tax be subject continue to corporation the Group of Non-qualifying and gains profits business in the UK. rental Income tax on the profit for the year comprises current and deferred tax. Current tax is the tax payable on the taxable income for the year and any year and any for the income taxable on the tax payable is the tax Current tax. and deferred year comprises current for the on the profit Income tax between differences method in full using the balance on temporary sheet is provided liability tax Deferred years. adjustment previous in respect of No provision is made for temporary differences (i) arising on the initial recognition of assets or liabilities, other than on a business combination, on a business combination, other than assets or liabilities, recognitionof (i) arising on the initial differences temporary is made for No provision the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is determined tax Deferred reporting financial purposes. the carrying assetstaxation liabilities for and purposesfor amounts of and the amounts used or the is realised when the asset apply expected the reporting to and are enacted by date been that have enacted or substantively rates using tax is settled.liability in thereverse not will that they to the extent in subsidiaries investments to relating and (ii) profit taxable that affect nor neither accounting future. foreseeable as follows: are The main criteria certain must be met. ongoing criteria status, REIT group — — — For the year ended 31 March 2016: March ended 31 year the For For the year ended 31 March 2017: March ended 31 year the For Gross dividends Gross changes in equity of Dividends in statement tax withholding of on payment Timing difference cash flows of statement Dividends in the Notes to the financial statements for the year ended 31 March 2017 continued

12. Income tax continued

The Directors intend that the Group should continue as a REIT for the foreseeable future, with the result that deferred tax is no longer recognised on temporary differences relating to the property rental business.

Deferred tax assets and liabilities require management judgement in determining the amounts, if any, to be recognised. In particular, judgement is required when assessing the extent to which deferred tax assets should be recognised, taking into account the expected timing and level of future taxable income. Deferred tax assets are only recognised when management believe they will be recovered against future taxable profits.

The income tax credit in the income statement comprises the movement in deferred tax on intangible assets of £1m (2016: £1m credit) and adjustments in respect of prior financial years of £nil (2016: £1m credit). The tax for the year is lower than the standard rate of corporation tax in the UK of 20% (2016: 20%). The differences are explained in the table below.

Group 2017 2016 £m £m Profit before tax 112 1,336

Profit before tax multiplied by the rate of corporation tax in the UK of 20% (2016: 20%) (22) (267) Exempt property rental profits and revaluations in the year 45 261 23 (6) Effects of: Interest rate fair value movements and other unrecognised temporary differences (31) (4) Adjustment in respect of prior years – 2 Non-allowable expenses and non-taxable items 6 4 Utilisation of brought forward losses 3 6 Total income tax credit in the income statement 1 2

Group 2017 2016 £m £m The Group’s deferred tax liability is analysed as follows: Arising on business combination 4 5 Arising on pension surplus (note 32) 3 5 Total deferred tax 7 10

Deferred tax is calculated at the rate substantially enacted at the balance sheet date 17% (2016: 18%) which comes into effect from 1 April 2020.

There are unrecognised deferred tax assets on the following items due to the high degree of uncertainty as to their future utilisation by non-REIT qualifying activities.

Group 2017 2016 £m £m Revenue losses 2 13 Capital losses 589 643 Other unrecognised temporary differences 140 – Total unrecognised deferred tax 731 656

The other unrecognised temporary differences relate to the premium paid on the redemption of the Group’s medium term notes. For further details see note 21.

118 Landsec Annual Report 2017 Financial Statements – – – – – – – – – – 119 22 £m (22) (22) 2016 Company – – – – – – – – – – 30 £m (30) (30) 2017 – – 8 6 £m (11) (41) (10) (75) 451 (33) 2016 494 (739) 1,346 Group Landsec Annual Landsec Report 2017 2 5 8 £m (17) (12) (12) (13) (19) (29) 186 2017 365 493 464 Accounting policy Accounting

The Group’s investment properties are carried at fair value and trading properties are carried at the lower of cost and net realisable value. Both of these of Both value. properties cost and net realisable and trading carried at the lower of value are properties carried at fair investment are The Group’s property portfolio investment total (including the Group’s the Group’s of value The combined valuers. external Group’s the by determined are values 14. note in is shown as a reconciliation ventures) properties joint investment held through of share Internally, management review the results of the Group on a basis that adjusts for these forms of ownership to present a proportionate share. The a proportionate share. present to ownership of on a basis that adjusts these forms the Group for of the results review management Internally, in our properties we have reflecting the economic interest this proportionate share, of example is an £14.4bn, with assets totalling Combined Portfolio, as it the activities the Group, and performance of better stakeholders to to explain consider this presentation We structure. our ownership of regardless in the line items a number of across be presented to required which under IFRS are property interests the Group’s all of of the results aggregates financial statements. statutory Our property portfolio is a combination of properties that are wholly owned by the Group, part and properties arrangements joint owned through Our property the Group, portfolio owned by wholly properties is a combination of that are owned properties presented wholly are IFRS balance sheet, In the Group’s party interest. a third a non-controlling holds where but the Group owned by the which requires ventures, in joint its investments to accounting applies equity The Group properties’ properties’. as either ‘Investment or ‘Trading ventures’. in joint within ‘Investments be presented to ventures properties joint of held by share Group’s This section focuses on the property assets which form the core of the Group’s business. It includes details of investment properties, investments in joint investments properties, investment of It includes details business. the Group’s of This section the core which form on the property focuses assets properties. and trading ventures Section 3 – Properties Section Operating profit/(loss)Operating 13. Net cash generated from operations from cash generated Net 13. to net cash generatedfrom operations Reconciliation of operating profit/(loss) Adjustments for: Adjustments Net deficit/(surplus) properties investment of revaluation on Some of the Group’s investment properties are owned through long-leasehold arrangements, as opposed to the Group owning the freehold. Where theWhere owning the freehold. as opposed the Group to properties long-leasehold arrangements, owned through investment are Group’s the Some of as a for the lease is accounted the Group, to the asset of ownership of and rewards all the risks substantially is a lessee and the lease transfers Group theof value fair the propertiesof the lease at the lower of within investment at the commencement capitalised Finance leases are finance lease. lease payment is Each within borrowings. is recorded liability and a corresponding the minimum lease payments, of value property and the present properties The investment liability. on the outstanding rate a constant to achieve and a finance charge the liability allocated between of repayment value. fair carried at their subsequently held under finance leases are Investment properties Investment or appreciation, capital income or for earn rental held either to that are the Group, either owned properties or leased by properties, Investment are is basedvalue on Fair value. at fair and subsequently transaction costs, at cost including related properties initially measured Investment are both. an investment of value fair between the The difference at each reportingvaluer independent date. a professional by as determined value, market surplus or deficit. valuation as a property is included the income statement at the reporting in and its carrying re-measurement date prior to amount assets. within non-current on the balance sheet properties presented Investment are Movement in impairment of trading properties trading in impairment of Movement properties trading on disposalof Profit properties investment disposalof on Profit other investment disposalof on Profit Loss on disposal of investment in joint venture in joint investment on disposal of Loss Share-based paymentShare-based charge Other Changes in working capital: working Changes in in receivables Increase (Decrease)/increase in payables and provisions (Decrease)/increase operations from cash generated Net Notes to the financial statements for the year ended 31 March 2017 continued

Trading properties Trading properties are those properties held for sale, or those being developed with a view to sell. Trading properties are recorded at the lower of cost and net realisable value. The net realisable value of a trading property is determined by a professional independent valuer at each reporting date. If the net realisable value of a trading property is lower than its carrying value, an impairment loss is recorded in the income statement. If, in subsequent periods, the net realisable value of a trading property that was previously impaired increases above its carrying value, the impairment is reversed to align the carrying value of the property with the net realisable value. Trading properties are presented on the balance sheet within current assets.

Acquisition of properties Properties are treated as acquired when the Group assumes the significant risks and returns of ownership.

Capital expenditure and capitalisation of borrowing costs Capital expenditure on properties consists of costs of a capital nature, including costs associated with developments and refurbishments. Where a property is being developed or undergoing major refurbishment, interest costs associated with direct expenditure on the property are capitalised. The interest capitalised is calculated using the Group’s weighted average cost of borrowings. Interest is capitalised as from the commencement of the development work until the date of practical completion. Certain internal staff and associated costs directly attributable to the management of major schemes during the construction phase are also capitalised.

Transfers between investment properties and trading properties When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property continues to be held as an investment property. When the Group begins to redevelop an existing investment property with a view to sell, the property is transferred to trading properties and held as a current asset. The property is re-measured to fair value as at the date of the transfer with any gain or loss being taken to the income statement. The re-measured amount becomes the deemed cost at which the property is then carried in trading properties.

Disposal of properties Properties are treated as disposed when the significant risks and rewards of ownership are transferred to the buyer. Typically, this will either occur on unconditional exchange or on completion. Where completion is expected to occur significantly after exchange, or where the Group continues to have significant outstanding obligations after exchange, the risks and rewards will not usually transfer to the buyer until completion.

The profit on disposal is determined as the difference between the sales proceeds and the carrying amount of the asset at the beginning of the accounting period plus capital expenditure to the date of disposal. The profit on disposal of investment properties is presented separately on the face of the income statement. Proceeds received on the sale of trading properties are recognised within Revenue, and the carrying value at the date of disposal is recognised within Costs.

Significant accounting judgements and estimates Valuation of the Group’s properties The valuation of the Group’s property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental revenues from that particular property. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the property market.

The investment property valuation contains a number of assumptions upon which the Group’s valuer has based its valuation of the Group’s properties as at 31 March 2017. The assumptions on which the property valuation reports have been based include, but are not limited to, matters such as the tenure and tenancy details for the properties, ground conditions at the properties, the structural condition of the properties, prevailing market yields and comparable market transactions. These assumptions are market standard and accord with the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards UK 2014 (revised April 2015).

The estimation of the net realisable value of the Group’s trading properties, in particular the development land and infrastructure programmes, is inherently subjective due to a number of factors, including their complexity, unusually large size, the substantial expenditure required and long timescales to completion. In addition, as a result of these timescales to completion, the plans associated with these programmes could be subject to significant variation. As a result, and similar to the valuation of investment properties, the net realisable values of the Group’s trading properties are subject to a degree of uncertainty and are determined on the basis of assumptions which may not prove to be accurate.

If the assumptions upon which the external valuer has based its valuations prove to be inaccurate, this may have an impact on the value of the Group’s investment and trading properties, which could in turn have an effect on the Group’s financial position and results.

Acquisition and disposal of properties Property transactions can be complex in nature and material to the financial statements. To determine when an acquisition or disposal should be recognised, management consider whether the Group holds the risks and rewards of ownership, and the point at which this is obtained or relinquished. Consideration is given to the terms of the acquisition or disposal contracts and any conditions that must be satisfied before the contract is fulfilled. In the case of an acquisition, management must also consider whether the transaction represents an asset acquisition or business combination.

120 Landsec Annual Report 2017 Financial Statements – 121 9 91 £m £m 311 (14) 157 2016 2016 104 739 220 907 (900) Group Group 12,158 14,471 12,358 13,954 Portfolio Combined (2016: 5.0%). 5.0%). (2016:

2 – – – 5 for (3) 14 £m £m 32 80 46 2017 (34) (34) (186) share (205) 12,144 12,358 Adjustment Adjustment proportionate – – 1 43 171 £m Landsec Annual Landsec Report 2017 1,673 Joint 1,630 ventures £m (14) 739 220 268 Group 12,832 12,358 ventures) (excl. joint (excl. £m 2017 (39) 367 238 (147) 13,873 14,439 Portfolio Combined 2 – – (1) (1) for £m (35) (34) share Adjustment proportionate proportionate 1 – (8) 57 40 £m Joint 1,812 1,763 ventures £m 311 (31) 238 (186) Group 12,144 12,662 ventures) (excl. joint (excl.

Investment portfolioInvestment

Refer to note 16 for a breakdown of this amount by entity. by this amount of a breakdown 16 for note to Refer numbers. in the Group which is consolidated but own, we do not which X-Leisure in the interest This represents 2. 2. 1. 1. Properties in the development programme are typically valued using a residual valuation method. Under this methodology, the valuer assesses the assesses valuer the Under this methodology, method. valuation using a residual valued typically are Properties programme in the development including finance and complete, costs to estimated Deductions then made for are yield assumptions. using income and value development completed approach consider the income capitalisation valuer may the completion, approaches As the development valuation. at the to arrive profit, developer’s appropriate. be more to The valuer’s opinion of fair value was primarily derived using comparable recent market transactions on arm’s length terms and using appropriate and using appropriate length terms transactions on arm’s market recent using comparable derived was primarily value fair opinion of valuer’s The net forecast Under this approach, properties approach. investment using the income capitalisation is determined of value The fair techniques. valuation derived at market discounted are costs, with estimated together rents) values (market rental estimated derived market based upon current cash flows, fair the would produce flows all cash applied to if which, rate, discount The average value. fair opinion of valuer’s the produce to rates capitalisation yield. is described as the equivalent value, Valuation process Valuation in accordance are valuations The CBRE. valuer, independent the Group’s by was determined 2017 properties March investment at 31 of value The fair the performed valuations by The similar properties. transactions for of evidence market to reference at by arrived were and with RICS standards includesThis process business units. and Retail within the London people and relevant senior management by internally reviewed are valuer independent and process valuation the Discussions of valuations. the resulting of well as a review as valuer, independent the used by the assumptions discussions of basis. on a half-yearly CommitteeAudit valuer and the independent the held between are senior management, results (2016: £6,720m). £6,720m). properties investment is £6,713m cost of (2016: The historical (2016: £201m). The average rate of interest capitalisation for the year is 4.7%year the for capitalisation interest of rate The average £201m). (2016: £206m of properties interest Investment include capitalised (2016: £968m). (2016: head leasehold leases been properties have is £1,169m where capitalised of The net bookvalue Net book value Disposals finance leases in Net movement properties investment of Net (deficit)/surplusrevaluation on March at 31 bookvalue Net Capitalised interest Capitalised Developments in the value presented the net book from differs valuer, external Group’s the by as determined properties, investment the Group’s of value The market reconciles the nettable following The finance leases and head leases separately. tenant lease incentives, presenting balance the Group sheet due to value. properties the market investment the to of bookvalue Net book value at the beginning of the year beginning the of at the bookvalue Net 14. Investment properties Investment 14. Acquisitions expenditure: Capital Plus: tenant lease incentives tenant Plus: Less: head leases capitalised Less: Plus: properties as finance leases treated Plus: Market value Market Net (deficit)/surplus on revaluation revaluation on (deficit)/surplus Net properties investment of Notes to the financial statements for the year ended 31 March 2017 continued

14. Investment properties continued

The Group considers all of its investment properties to fall within ‘Level 3’, as defined by IFRS 13 and as explained in note 25(iii). Accordingly, there have been no transfers of properties within the fair value hierarchy in the financial year. Costs include future estimated costs associated with refurbishment or development (excluding finance costs), together with an estimate of cash incentives to be paid to tenants.

The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2017:

2017 Market Estimated rental value Equivalent yield Costs value £ per sq ft % £ per sq ft

£m Low Average High Low Average High Low Average High Retail Portfolio Shopping centres and shops 3,134 4 34 51 4.1% 4.8% 7.7% – 5 14 Retail parks 855 11 21 28 3.5% 5.6% 10.0% – 2 16 Leisure and hotels 1,361 5 16 31 3.8% 5.3% 8.6% – 2 28 Other1 20 n/a n/a n/a n/a n/a n/a n/a n/a n/a Total Retail Portfolio (excluding developments) 5,370 4 27 51 3.5% 5.0% 10.0% – 4 28

London Portfolio West End 2,423 19 62 72 2.9% 4.6% 5.0% – 1 24 City 1,291 56 63 66 4.1% 4.6% 5.8% – 31 462 Mid-town 1,336 31 57 64 4.3% 4.5% 4.6% – 1 2 Inner London 323 27 35 50 4.7% 5.0% 5.5% – – – Total London offices 5,373 19 59 72 2.9% 4.6% 5.8% - 8 462 Central London shops 1,364 14 79 130 2.9% 3.9% 5.8% - - 1 Other1 41 n/a n/a n/a n/a n/a n/a n/a n/a n/a Total London Portfolio (excluding developments) 6,778 14 63 130 2.9% 4.4% 5.8% – 6 1

Developments: income capitalisation method 514 45 73 76 4.1% 4.2% 4.5% – – – Development programme 514 45 73 76 4.1% 4.2% 4.5% – – –

Market value at 31 March 2017 – Group 12,662

1. The ‘Other’ category contains a range of low value properties of a diverse nature. As a result it is not meaningful to present assumptions used in valuing these properties.

The sensitivities illustrate the impact of changes in key unobservable inputs (in isolation) on the fair value of the Group’s properties:

Sensitivities

2017 Impact on Impact on Impact on valuations of valuations of valuations of 5% change in 25 bps change in 5% change estimated rental value equivalent yield in costs Market value Increase Decrease Decrease Increase Decrease Increase £m £m £m £m £m £m £m Total Retail Portfolio (excluding developments) 5,370 229 (216) 288 (263) 2 (2) Total London Portfolio (excluding developments) 6,778 264 (256) 428 (381) 19 (20) Developments: income capitalisation method 514 16 (16) 33 (30) – (17) Market value at 31 March 2017 – Group 12,662

122 Landsec Annual Report 2017 Financial Statements 7 3 8 123 21 35 35 (2) (7) 20 30 £m 162 162 (21) 134 134 134 n/a n/a 2016 High 2016 Costs in costs Increase £ persq ft Impact on on Impact 5% change change 5% – valuations of valuations 1 2 2 2 9 6 2 6 12 18 10 10 37 37 21 £m n/a n/a Average Decrease – – – – – – – – – – – – – £m n/a n/a Low (81) (287) (349) Increase Impact on on Impact valuations of valuations % Landsec Annual Landsec Report 2017 95 equivalent yield equivalent n/a n/a £m 25 bps change in 292 397 High 5.1% 8.1% 7.7% 5.7% 5.5% 5.5% 5.2% 5.0% 4.4% 4.4% 4.4% 10.0% 10.0% Decrease Equivalent yield Equivalent n/a n/a £m 4.1% 4.1% 4.1% 4.1% 3.7% (41) 5.2% 5.4% 4.7% 4.5% 4.9% 4.9% 4.4% 4.0% (241) (236) Average Decrease Impact on on Impact valuations of valuations 5% change in in change 5% n/a n/a Low 41 3.5% 3.5% 2.9% 2.9% 3.8% 2.9% 2.9% 4.3% 4.3% 4.8% £m 4.0% 4.0% 4.0% 242 240 estimated rental value estimated rental Increase 61 28 79 79 33 49 63 49 49 68 68 140 140 n/a n/a High £m value value 1,293 5,979 5,560 12,832 Market Market £ per sq ft 21 51 16 72 67 67 26 33 55 35 59 49 56 n/a n/a Average Estimated rental value Estimated rental 4 4 4 11 17 17 31 14 16 16 27 23 47 n/a n/a Low 20 45 £m 797 887 320 value 3,133 1,520 1,293 1,293 1,258 1,053 5,979 4,676 2,506 5,560 12,832 Market Market

1 1 Shopping centres and shops Shopping centres Retail parks Retail Leisure and hotels Leisure Developments: income capitalisation method income capitalisation Developments: West End West Other City Mid-town Inner London Central London shops London Central Other The ‘Other’ category contains a range of low value properties of a diverse nature. As a result it is not meaningful to present assumptions used in valuing these properties.valuing used in assumptions present meaningful it is not to a result As nature. properties a diverse value of low of The ‘Other’ a range contains category

Market value at 31 March 2016 – Group – 2016 March at 31 value Market Developments: income capitalisation method income capitalisation Developments: Total London Portfolio (excluding developments) (excluding Portfolio London Total Total Retail Portfolio (excluding developments) (excluding Portfolio Retail Total Sensitivities 1. Retail Portfolio Retail The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 31 March 2016: properties March owned investment at 31 wholly Group’s the of valuation unobservable inputs used in the the key summarises below The table Total London Portfolio (excluding developments) Portfolio (excluding London Total Total Retail Portfolio (excluding developments) Portfolio (excluding Retail Total London Portfolio London Development programme Development Market value at 31 March 2016 – Group – 2016 March at 31 value Market Total London offices London Total Notes to the financial statements for the year ended 31 March 2017 continued

15. Trading properties

Development land and infrastructure Residential Total £m £m £m At 1 April 2015 85 137 222 Capital expenditure 10 17 27 Capitalised interest – 2 2 Disposals (19) (119) (138) Movement in impairment 12 (1) 11 At 31 March 2016 88 36 124 Capital expenditure 17 2 19 Disposals (9) (24) (33) Movement in impairment 12 – 12 At 31 March 2017 108 14 122

The cumulative impairment provision at 31 March 2017 in respect of Development land and infrastructure was £67m (31 March 2016: £79m); and in respect of Residential was £1m (31 March 2016: £1m).

16. Joint arrangements

Accounting policy Joint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement. Interests in joint arrangements are accounted for as either a joint venture or a joint operation. The treatment as either a joint venture or a joint operation will depend on whether the Group has rights to the net assets, or a direct interest in the assets and liabilities of the arrangement.

A joint arrangement is accounted for as a joint venture when the Group, along with the other parties that have joint control of the arrangement, has rights to the net assets of the arrangement. Interests in joint ventures are accounted for using the equity method of accounting. The equity method requires the Group’s share of the joint venture’s post-tax profit or loss for the year to be presented separately in the income statement and the Group’s share of the joint venture’s net assets to be presented separately in the balance sheet.

A joint arrangement is accounted for as a joint operation when the Group, along with the parties that have joint control of the arrangement, have rights to the assets and obligations for the liabilities relating to the arrangement. The Group’s share of jointly controlled assets, related liabilities, income and expenses are combined with the equivalent items in the financial statements on a line-by-line basis.

124 Landsec Annual Report 2017 Financial Statements 125 Landsec Annual Landsec Report 2017 Joint partner venture Joint operation partners Joint partner venture PLC M&G Real Estate and GIC Estate M&G Real Partnership Retail Lease Lend Hermes Assetand Aberdeen Management Group plc Wharf Group Canary Canada Pension Plan Investment Board Plan Investment Canada Pension Limited Partners Estate Real Delancey Limited Partners Estate Real Frogmore Partnership J Sainsbury plc Ebbsfleet Property Limited Limited PropertyEvans Group Trust Property Exempt Unit Schroder Intu PropertiesIntu plc The Crown Estate Commissioners Estate The Crown 1 Business segment Business segment London Retail Year endYear date 31 March 31 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 31 December 31 31 March 31 Business segment London London Retail London Retail London Retail Retail Retail Retail Ownership interest Ownership interest 50% 30% 50% Percentage owned owned Percentage & voting rights 50% 50% 50% 50% 50% 50% 50% 50% 50% 3 6 4 6, 7 6, 8 2 5, 6 The year-end date shown is the accounting reference date of the joint venture. In all cases the Group’s accounting is performed using financial information for the Group’s own reporting own period and for the Group’s is performed accounting using financial information the Group’s In all cases venture. the joint of date reference shown is the accounting date year-end The reporting date. Limited. Developer Victoria Circle and Partnership Limited Residential Nova Partnership, Limited Victoria Circle Victoria includes the Nova, (Delancey)). Limited Management Asset Estate Real Delancey (a fund owned by DV4 its assets to one of the sale of completed (Metro) Partnership Limited Shopping Fund Metro 2017, April 13 On Partnership. The Southside Limited renamed The partnershipwas subsequently Fund. European Estate Real Invesco to in Metro sold its stake Delancey On the same date Limited. and Harvest Limited GP GP 2 Harvest Oak Limited, Selly 2 Harvest Limited, Harvest Management Development Partnership, Limited Harvest2 includes Harvest being liquidated. of was in the process Limited Property Co. the Millshaw 2017, March 31 At share. holds a 95% which the Group in (X-Leisure) Trust Unit X-Leisure is held in the Trust Unit India Quay West  2. 2. 3. W1. Street, Oxford 26-32 in its interest disposed of Partnership The Oriana Limited 2016, September 23 On 4. 5. tables. within Other in subsequent Included 6. 7. 8. 1.  1. All joint ventures are registered in England and Wales with the exception of the Metro Shopping Fund Limited Partnership and Unit India Quay West and Partnership Limited Shopping Fund the Metro of with the exception Wales in England and registered are ventures All joint Jersey. in registered which are Trust 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 arrangements joint the Group’s All of Kingdom. in the United business their principal have place of arrangements joint the Group’s All of and Millshaw properties, land as trading Partnership development which holds The Ebbsfleet Limited of with the exception property investment operate Victoria and Nova, Partnership, Alliance Limited Oxford Westgate The year. in the prior property its interest which disposed only of Limited Property Co. joint The activities all the Group’s of properties. and trading investment of also engaged in the development are Partnership The Oriana Limited important the business activities the Group. to of strategically therefore are arrangements Countryside Securities (Springhead) Limited Land The following joint arrangement was sold in the year ended 31 March 2017: March endedyear 31 was sold in the arrangement joint The following Joint venture Joint operation Kent Bluewater, Held at 31 March 2017 March Held at 31 Partnership Limited Street Fenchurch 20 Joint ventures The Group’s joint arrangements are described below: are arrangements joint The Group’s Nova, Victoria Nova, Metro Shopping Fund Limited Partnership Limited Shopping Fund Metro Partnership Limited David’s St. Harvest Partnership The EbbsfleetLimited Limited Property Co. Millshaw Trust Unit India Quay West Westgate Oxford Alliance Limited Partnership Alliance Limited Oxford Westgate The Oriana Limited Partnership The Oriana Limited Notes to the financial statements for the year ended 31 March 2017 continued

16. Joint arrangements continued

Joint ventures

Group

2017 20 Fenchurch Metro Westgate Individually Street Shopping St. David’s Oxford The Oriana material Limited Nova, Fund Limited Limited Alliance Limited JVs (Group Other Total Partnership Victoria Partnership Partnership Partnership Partnership share) Group Group 100% 100% 100% 100% 100% 100% 50% share share Comprehensive income statement £m £m £m £m £m £m £m £m £m Revenue1 48 147 21 43 3 – 131 5 136

Gross rental income (after rents payable) 39 7 17 35 3 – 50 2 52

Net rental income 37 2 15 29 2 – 43 1 44

Segment profit before finance expense 36 1 15 27 2 – 41 1 42

Finance expense (22) (36) (8) – (11) – (39) – (39) Capitalised interest – 25 – – 10 – 18 – 18 Net finance expense (22) (11) (8) – (1) – (21) – (21)

Revenue profit 14 (10) 7 27 1 – 20 1 21

Capital and other items Net surplus/(deficit) on revaluation 43 41 – (22) 19 (1) 40 – 40 of investment properties Profit on disposal of investment properties – – 2 – – – 1 – 1 Profit on disposal of trading properties – 14 – – – – 7 – 7 Profit/(loss) before tax 57 45 9 5 20 (1) 68 1 69 Taxation – – – – – – – – – Post-tax profit/(loss) 57 45 9 5 20 (1) 68 1 69 Other comprehensive income – – – – – – – – – Total comprehensive income 57 45 9 5 20 (1) 68 1 69

50% 50% 50% 50% 50% 50% – – – Group share of total comprehensive income 28 23 5 3 10 (1) 68 1 69

1. Revenue includes gross rental income (before rents payable), service charge income, other property related income and trading properties disposal proceeds.

126 Landsec Annual Report 2017 Financial Statements –

5 127 4 (1) 17 41 43 20 49 £m 60 171 (21) (38) 199 199 199 2016 200 Total share Group Group

– – – – – 1 1 2 2 2

3 3 5 9 9 9 9 £m share Other Group – –

3 (1) 17 41 18 57 39 46 £m (21) 191 170 (38) 190 190 190 100% Individually Individually material JVs material JVs (Group share) Landsec Annual Landsec Report 2017 – – – – – – 1 1 1 1 1 4 12 19 24 24 24 £m 100% 50% Limited Limited The OrianaThe Partnership – – – – – 1 1 1 3 3 6 19 10 (6) 20 20 20 £m 100% 50% Oxford Alliance Westgate Westgate Partnership – – – – – – – 51 37 73 29 29 45 30 £m 102 102 102 100% 50% Limited Limited St. David’s David’s St. Partnership

– – – – 7 (1) 15 15 31 (7) (7) 14 19 62 62 63 56 £m 100% 50% Metro Shopping Partnership Fund Limited Fund – – – – – – (1) (1) (1) (2) 87 42 28 85 85 85 £m (29) 100% 50% Nova, Victoria

– – – – – 1 87 87 87 33 35 45 36 86 £m 44 (33) (33) 100% 50% Street Limited Limited Partnership 20 Fenchurch Fenchurch 20

1 Revenue includes gross rental income (before rents payable), service charge income, other property related income, trading properties trading long-term disposal proceeds and income from income, property other related service income, charge payable), rents income (before rental includes gross Revenue contracts. development

1. Revenue Comprehensive income statement Comprehensive Joint ventures Gross rental income (after rents payable) rents income (after rental Gross Net rental income/(expense) rental Net Segment profit/(loss) before finance expenseSegment profit/(loss) finance before Finance expense Capitalised interest Capitalised Net finance expense finance Net Revenue profit Revenue Capital and other items and other Capital Net surplus on revaluation of investment properties investment of Net surplus on revaluation Movement in impairment of trading properties trading in impairment of Movement Profit on disposal of investment properties investment disposalof on Profit Profit before tax before Profit Taxation Post-tax profit Post-tax Other comprehensive income Other comprehensive Total comprehensive income comprehensive Total Group share of total comprehensive income comprehensive total of share Group Notes to the financial statements for the year ended 31 March 2017 continued

16. Joint arrangements continued

Joint ventures

Group

2017 20 Fenchurch Metro Westgate Individually Street Shopping St. David’s Oxford The Oriana material Limited Nova, Fund Limited Limited Alliance Limited JVs (Group Other Total Partnership Victoria Partnership Partnership Partnership Partnership share) Group Group 100% 100% 100% 100% 100% 100% 50% share share Balance sheet £m £m £m £m £m £m £m £m £m Investment properties1 1,046 809 376 708 412 93 1,722 41 1,763 Non-current assets 1,046 809 376 708 412 93 1,722 41 1,763

Cash and cash equivalents 16 43 6 4 10 13 46 3 49 Other current assets 93 195 7 21 15 28 180 14 194 Current assets 109 238 13 25 25 41 226 17 243 Total assets 1,155 1,047 389 733 437 134 1,948 58 2,006

Trade and other payables and provisions (100) (173) (39) (12) (32) (2) (179) (5) (184) Current liabilities (100) (173) (39) (12) (32) (2) (179) (5) (184)

Non-current liabilities – – (142) (16) – (17) (88) – (88) Non-current liabilities – – (142) (16) – (17) (88) – (88) Total liabilities (100) (173) (181) (28) (32) (19) (267) (5) (272)

Net assets 1,055 874 208 705 405 115 1,681 53 1,734

Market value of investment properties1 1,135 815 379 707 411 93 1,770 42 1,812 Net (debt)/cash 16 43 (166) (12) 10 13 (48) 2 (46)

2016 Balance sheet Investment properties1 1,008 680 378 716 248 159 1,594 36 1,630 Non-current assets 1,008 680 378 716 248 159 1,594 36 1,630

Cash and cash equivalents 12 12 7 7 9 26 37 6 43 Other current assets 71 259 6 21 1 34 196 40 236 Current assets 83 271 13 28 10 60 233 46 279 Total assets 1,091 951 391 744 258 219 1,827 82 1,909

Trade and other payables and provisions (109) (122) (11) (13) (6) (29) (145) (9) (154) Current liabilities (109) (122) (11) (13) (6) (29) (145) (9) (154)

Non-current financial liabilities – – (174) – – – (87) – (87) Non-current liabilities – – (174) – – – (87) – (87) Total liabilities (109) (122) (185) (13) (6) (29) (232) (9) (241)

Net assets 982 829 206 731 252 190 1,595 73 1,668

Market value of investment properties1 1,075 680 381 732 247 159 1,637 36 1,673 Net (debt)/cash 12 12 (167) 7 9 26 (50) 6 (44)

1. The difference between the book value and the market value is the amount recognised in respect of lease incentives, head leases capitalised and properties treated as finance leases, where applicable.

128 Landsec Annual Report 2017 Financial Statements 2 129 (5) 62 67 £m 69 45 £m (14) 152 (12) 102 199 104 (63) (56) 106 2016 256 (54) (44) Total share 1,434 Group Group Group 1,668 1,734 – – – – – – 1 3 4 9 51 (5) 73 (4) 79 53 £m £m 48 101 (41) (12) 130 2017 share Other Group – – 62 67 45 68 £m (14) (22) 102 (56) 190 (54) (40) 50% 1,333 1,595 1,681 share) material material Landsec Annual Landsec Report 2017 JVs(Group Individually Individually – – – – – – – – 12 (1) (7) 57 95 £m 146 (56) (37) 50% Limited The Oriana The Partnership – – – – – – – – – 10 10 62 54 67 £m 126 50% 203 Oxford Alliance Alliance Westgate Partnership – – – – – – – – – 3 51 £m (14) (16) 329 50% 353 366 Limited St. David’s David’s St. Partnership

– – – 1 – – – – 5 (1) 31 (3) 86 £m (15) 103 104 50% Metro Shopping Shopping Partnership Fund Limited – – – – – – – – 42 37 23 £m 272 414 (37) 100 50% 437 Nova, Victoria

– – – – 1 – – – – – 8 44 28 £m 491 527 50% 446 Street Limited Partnership 20 Fenchurch 20

Trading properties Trading (our share) ventures Joint commitments capital Total Contracted capital commitments at the end of the year in respect of: the end of at the commitments capital Contracted propertiesInvestment 17. Capital commitments commitments Capital 17. Net investment Net 1 At April 2015 Joint ventures Total comprehensive income comprehensive Total Cash contributed Loan advances Loan Loan repayments Loan Property distributions and other Cash distributions At 31 March 2016 March 31 At Total comprehensive income comprehensive Total Cash contributed Loan advances Loan Other distributions Loan repayments Loan Cash distributions investment Disposal of At 31 March 2017 March 31 At Notes to the financial statements for the year ended 31 March 2017 continued

18. Net investment in finance leases

Accounting policy Where the Group’s leases transfer the significant risks and rewards of owning the asset to the tenant, the lease is accounted for as a finance lease. At the outset of the lease the fair value of the asset is de-recognised from investment property and recognised as a finance lease receivable. Lease income is recognised over the period of the lease, reflecting a constant rate of return. The difference between the gross receivable and the present value of the receivable is recognised as finance income within Revenue over the lease term.

Group 2017 2016 £m £m Non-current Finance leases – gross receivables 274 333 Unearned finance income (143) (184) Unguaranteed residual value 34 34 165 183

Current Finance leases – gross receivables 12 12 Unearned finance income (9) (10) 3 2 Net investment in finance leases 168 185

Gross receivables from finance leases due: Not later than one year 12 12 Later than one year but not more than five years 49 52 More than five years 225 281 286 345 Unearned finance income (152) (194) Unguaranteed residual value 34 34 Net investment in finance leases 168 185

The Group has leased out a number of investment properties under finance leases, which range from 30 to 99 years in duration from the inception of the lease. The fair value of the Group’s finance lease receivables, using a discount rate of 4.2% (2016: 4.9%), is £218m (2016: £226m).

130 Landsec Annual Report 2017 Financial Statements 2 131 2 5 (1) (1) (3) (3) 35 38 £m 36 Total assets Group intangible intangible – – – – – (1) (2) 28 29 26 £m asset Other intangible intangible – – – 2 2 5 5 6 (1) (2) £m Software Landsec Annual Landsec Report 2017 – – – – – 5 6 4 (1) (1) £m Goodwill Goodwill Accounting policy Accounting

The other intangible asset relates to the Group’s acquisition of its interest in Bluewater, Kent in 2014 and represents the estimated fair value of the of value fair the estimated and represents 2014 in Kent in Bluewater, its interest acquisition of the Group’s to asset relates intangible The other On years. was £30m and the asset is being amortised 20 acquisition period a of over at the date of value The fair the centre. rights for management The deferred the same amount. goodwill and corresponding of £6m, of liability tax recognised a deferred the Group asset, the intangible of recognition the goodwill is being of element and the corresponding asset is amortised, as the intangible the income statement is being to released liability tax impairment. for tested At 1 At April 2015 19. Intangible assets Intangible 19. Transfer from other property, plant and equipment plant property, other from Transfer Intangible assets comprise goodwill and other intangible assets arising on business combinations and software used internally within the business. within the business. assets assets and software arising on business combinations comprise goodwill intangible Intangible used other and internally for at least annually Goodwill but is tested amortised, is not value. recognised at fair initially assets are arising on business combinations Intangible Software expected their over lives. useful amortised assetsbusiness combinations are arising on the income statement Other intangible to impairment. normally amortisation cost less accumulated at amortised useful economic lives, and are stated basis their estimated assets over are on a straight-line years. five Capital expenditure Capital Amortisation Impairment of goodwill on unwind of deferred tax liability tax deferred goodwill of Impairment on unwind of At 31 March 2016 March 31 At Capital expenditure Capital 2017 March 31 At Impairment of goodwill on unwind of deferred tax liability tax deferred goodwill of Impairment on unwind of Amortisation Notes to the financial statements for the year ended 31 March 2017 continued

Section 4 – Capital structure and financing

This section focuses on the Group’s financing structure, including borrowings and financial risk management.

The total capital of the Group consists of shareholders’ equity and net debt. The Group’s strategy is to maintain an appropriate net debt to total equity ratio (gearing) and loan-to-value ratio (LTV) to ensure that asset level performance is translated into enhanced returns for shareholders whilst maintaining an appropriate risk reward balance to accommodate changing financial and operating market cycles. The table in note 20 details a number of the Group’s key metrics in relation to managing its capital structure.

A key element of the Group’s capital structure is that the majority of our borrowings are secured against a large pool of our assets (the Security Group). This enables us to raise long-term debt in the bond market, as well as shorter-term flexible bank facilities, both at competitive rates. In general, we follow a secured debt strategy as we believe this gives the Group better access to borrowings at a lower cost.

In addition, the Group holds a number of assets outside the Security Group structure (in the Non-restricted Group). These assets include a number of joint venture interests, our interests in X-Leisure and other properties where we have asset specific finance. By having both the Security Group and the Non-restricted Group, and considerable flexibility to move assets between the two, we are able to raise the most appropriate finance for each specific asset or joint venture.

Under IFRS, a large part of our net debt is carried at below its final redemption amount and is increased over its life to its nominal value. We view our capital structure as if the debt were carried at its full redemption amount (see note 21 for an explanation of the bond exchange de-recognition adjustment).

132 Landsec Annual Report 2017 Financial Statements – 133 34 34 £m (19) (34) (68) 2016 280 368 (368) 4.9% Group 3,239 2,958 2,905 14,751 14,471 11,365 11,699 28.5% 22.0% 24.8% Combined 1 – – – – – – – – – – – – – – for £m (34) (34) owned non-wholly subsidiaries Adjustment Adjustment – – – – – 2 2 2 (2) 42 85 44 £m 156 (43) Joint 1,673 1,829 ventures Landsec Annual Landsec Report 2017 – 32 32 £m (19) 124 (32) (25) 368 (368) Group 3,197 2,861 4.9% 2,873 28.1% 11,363 11,699 12,832 23.4% 24.7% 24.5% 12,956 5 4 4 (4) £m (21) (79) 314 2017 248 (314) 2,951 3,261 4.2% 3,042 11,516 29.1% 11,206 22.2% 25.6% 14,687 14,439 Combined 1 – – – – – – – – – – – – – – for £m (35) (35) owned non-wholly subsidiaries Adjustment – – – – – 2 2 2 (2) 93 £m 46 44 126 (49) Joint 1,812 1,938 ventures 2 2 5 (2) £m (21) 122 314 (30) (314) Group 3,217 4.2% 2,949 2,905 11,516 11,204 12,662 25.2% 25.2% 28.7% 12,784 28.3% This represents the interest in X-Leisure which we do not own, but which is consolidated in the Group numbers. in the Group which is consolidated but own, we do not which X-Leisure in the interest This represents

1. 20. Capital structure Capital 20. Property portfolio properties investment of value Market Trading properties Trading Total property portfolio (a) Total Net debt Net Borrowings Monies held in restricted accounts and deposits accounts Monies held in restricted Cash and cash equivalents Fair value of interest-rate swaps interest-rate of value Fair Fair value of foreign exchange swaps exchange foreign of value Fair Net debt (b) debt Net Less: Fair value of interest-rate swaps interest-rate of value Fair Less: 21) (note de-recognition bond exchange Reverse Adjusted net debt (c) debt net Adjusted Adjusted total equity total Adjusted (d) equity Total Fair value of interest-rate swaps interest-rate of value Fair Reverse bond exchange de-recognition (note 21) (note de-recognition bond exchange Reverse Adjusted total equity (e) total Adjusted Gearing (b/d) gearing (c/e) Adjusted (c/a) LTV Group Security LTV Group debt of cost average Weighted Notes to the financial statements for the year ended 31 March 2017 continued

21. Borrowings

Accounting policy Borrowings, other than bank overdrafts, are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the income statement over the period of the borrowings, using the effective interest method.

Where existing borrowings are exchanged for new borrowings and the terms of the existing and new borrowings are not substantially different, the new borrowings are recognised initially at the carrying amount of the existing borrowings. The difference between the amount initially recognised and the redemption value of the new borrowings is recognised in the income statement over the period of the new borrowings, using the effective interest method.

Group

31 March 2017 31 March 2016 Nominal/ Nominal/ Effective notional Fair Book notional Fair Book Secured/ Fixed/ interest rate value value value value value value unsecured floating % £m £m £m £m £m £m Current borrowings Sterling 5.253% QAG Bond Secured Fixed 5.3 18 22 18 17 20 17 Commercial paper Sterling Unsecured Floating LIBOR + margin 3 3 3 2 2 2 Euro Unsecured Floating LIBOR + margin 261 261 261 – – – Swiss Franc Unsecured Floating LIBOR + margin 28 28 28 – – – US Dollar Unsecured Floating LIBOR + margin 94 94 94 – – – Total current borrowings 404 408 404 19 22 19

Non-current borrowings Sterling A3 5.425% MTN due 2022 Secured Fixed 5.5 46 53 46 255 291 255 A10 4.875% MTN due 2025 Secured Fixed 5.0 28 34 28 300 351 298 A12 1.974% MTN due 2026 Secured Fixed 2.0 400 411 399 – – – A4 5.391% MTN due 2026 Secured Fixed 5.4 27 33 27 211 254 210 A5 5.391% MTN due 2027 Secured Fixed 5.4 585 749 583 608 749 606 A6 5.376% MTN due 2029 Secured Fixed 5.4 318 420 317 318 398 317 A13 2.399% MTN due 2031 Secured Fixed 2.4 300 314 299 – – – A7 5.396% MTN due 2032 Secured Fixed 5.4 321 441 320 323 410 321 A11 5.125% MTN due 2036 Secured Fixed 5.1 500 689 499 500 624 499 Bond exchange de-recognition adjustment (314) (368) 2,525 3,144 2,204 2,515 3,077 2,138

5.253% QAG Bond Secured Fixed 5.3 255 310 255 272 327 272 Syndicated bank debt Secured Floating LIBOR + margin 55 55 55 430 430 430 Amounts payable under finance leases Unsecured Fixed 5.7 31 42 31 14 18 14 Total non-current borrowings 2,866 3,551 2,545 3,231 3,852 2,854

Total borrowings 3,270 3,959 2,949 3,250 3,874 2,873

134 Landsec Annual Report 2017 Financial Statements

– – – – – – – – 135 23 23 26 26 £m £m £m

2016 2016 249 485 950

(806) (400) 1,435 Group Group Group 2,873 3,784 Premium Premium Undrawn 31 March31 2016 – – – – – 21 23 24 £m 30 £m £m 125 361 2017 2017 400 698 400 (391) (690) 1,760 1,885 2,873 2,949 Purchases – – 1 6 57 29 £m £m 44 137 2016 430 430 Drawn Premium Landsec Annual Landsec Report 2017 31 March31 2017 – – 2 23 55 55 £m £m 272 184 2017 209 690 Purchases £m 2016 485 1,865 1,380 Authorised £m 125 2017 1,815 1,940 2017 as at 2021 31March Maturity 2021-22 4.875% MTN due 2019 MTN due 4.875% 5.425% MTN due 2022 MTN due 5.425% 4.875% MTN due 2025 MTN due 4.875% 5.391% MTN due 2026 MTN due 5.391% 5.391% MTN due 2027 MTN due 5.391% 5.396% MTN due 2032 MTN due 5.396% Syndicated debt Syndicated Syndicated and bilateral bank debt A8 MTN purchasesMTN 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 Stock on the Irish listed The MTNs are is based on the couponrate amortisationpaid and includes the issue costs. of The effective interest Medium term notes (MTNs) notes Medium term investment of over a pool from security benefit investors Debt Group. of the and floatingSecurity on the fixed of assets secured The MTNs are pool Limited David’s the St. Victoria, Nova, Partnership, Alliance Limited Oxford Westgate in investment properties development and the Group’s properties, debtThe secured £12.6bn). 2016: March (31 2017 March at 31 at £12.9bn valued in total Partnership, Limited Street Fenchurch 20 and Partnership in the Security cover and interest the loan-to-value when flexibility substantial the Group which gives regime covenant operating has a tiered structure with becomes restrictive more environment operating the exceeded, these limits are If 1.45 times respectively. than than 65% and more less are Group for date the legal maturity years before being two expected the until is fixed maturity, rate The interest a reduction in gearing. encourage to provisions issue), that at the time of to either become (relative LIBOR may margin plus an increased years the last two for rate the interest whereupon each MTN, the specificnotes. of terms and conditions or subject coupon depending a fixed on the uplift, to of £265m 2022, A3 MTN due in its of £206m purchased The Group . £124m of a premium MTNs for of £635m purchased Group the 2017, On 8 February 2022, A3 MTN due in its £3m of purchased The Group £13m. of a premium a further MTNs for also purchased the Group of £55m year, in the Earlier Proceeds from new borrowings new Proceeds from prices. based on their respective are values market and their fair and a £300m 2026 MTN due in 1.974% issued £400m a the Group On the same date, 2026. A4 MTN due in its and £164m of 2025 A10 MTN due in its borrowings. within non-current been £2m have capitalised MTNs of the new with the issues of Costs associated 2031. MTN due in 2.399% below The table 2032. A7 MTN due in its and £2m of 2027 A5 MTN due in its of £23m 2026, A4 MTN due in its of £20m 2025, A10 MTN due in its £7m of paid. with the premiums together purchases, summarises the aggregate At the beginning of the year the the beginningAt of Reconciliation of the movement in borrowings Repayment of borrowings of Repayment Redemption of medium term notes medium term of Redemption fees) finance (net of notes medium term Issue of Amortisation de-recognition adjustment bond exchange of notes medium term of de-recognition adjustment on redemption Bond exchange borrowings non-GBP on movement exchange Foreign Other At 31 March 31 At Bilateral debt Bilateral A3 A10 A4 A5 A7 Notes to the financial statements for the year ended 31 March 2017 continued

21. Borrowings continued

At 31 March 2017, our committed revolving facilities totalled £1,940m (31 March 2016: £1,865m). The £75m increase in committed facilities is the result of a £435m syndicated debt facility being arranged on 14 June 2016, and a £125m bilateral debt facility being arranged on 31 January 2017, offset by the cancellation of £350m of bilateral facilities on 14 June 2016 and the cancellation of a £135m bilateral facility on 24 November 2016.

All syndicated and bilateral facilities are committed and secured on the assets of the Security Group. In the year ended 31 March 2017, the amounts drawn under the Group’s bilateral facilities and syndicated bank debt decreased by £375m.

The terms of the Security Group funding arrangements require undrawn facilities to be reserved where syndicated and bilateral facilities mature within one year, or where commercial paper has been issued. Accordingly, the Group’s available undrawn facilities at 31 March 2017 were £1,499m (31 March 2016: £1,433m), compared with undrawn facilities of £1,885m (31 March 2016: £1,435m).

Queen Anne’s Gate Bond On 29 July 2009, the Group issued a £360m bond secured on the rental cash flows from the commercial lease with the UK Government over Queen Anne’s Gate (QAG). The QAG Bond is a fully amortising bond with a final maturity in February 2027 and a fixed interest rate of 5.253% per annum. At 31 March 2017, the bond had an amortised book value of £273m (31 March 2016: £289m). Since 31 March 2017, the Group has redeemed the QAG bond in its entirety, for a premium to nominal value of £63m.

Fair values The fair values of any floating rate financial liabilities are assumed to be equal to their nominal value, but adjusted for the effect of exit fees payable on redemption. The fair values of the MTNs and the QAG Bond fall within Level 1, the syndicated, bilateral facilities, commercial paper, interest-rate swaps and foreign exchange swaps fall within Level 2, and the amounts payable under finance leases fall within Level 3, as defined by IFRS 13. The fair value of the amounts payable under finance leases is determined using a discount rate of 4.2% (31 March 2016: 4.9%).

Bond exchange de-recognition On 3 November 2004, a debt refinancing was completed resulting in the Group exchanging all of its outstanding bond and debenture debt for new MTNs with higher nominal values. The new MTNs did not meet the IAS 39 conditions to be considered substantially different from the debt that they replaced. Consequently, the book value of the new debt is reduced to the book value of the original debt by the ‘bond exchange de-recognition’ adjustment which is then amortised to zero over the life of the new MTNs. The amortisation is included in finance expense in the income statement.

136 Landsec Annual Report 2017 Financial Statements – – – – 1 8 4 4 137 11 19 £m 25 24 £m £m £m 2016 2016 2016 2016 Group Group Company Company – – – – 1 8 4 4 21 13 £m 29 30 £m £m £m 2017 2017 2017 2017 1 8 11 19 25 24 £m £m 2016 2016 Group Group Landsec Annual Landsec Report 2017 9 9 12 21 21 30 £m £m 2017 2017 Accounting policy Accounting Accounting policy Accounting

Counterparties with external credit ratings ratings Counterpartieswith external credit A BBB+ Short-term deposits or deposit the account where the counterparty of ratings external credit to reference can be assessed cash and cash equivalents by of quality The credit is placed. BBB+ Cash at bank and in hand 23. Cash and cash equivalents 23. Counterparties with external credit ratings Counterpartieswith external credit A The credit quality of monies held in restricted accounts and deposits can be assessed by reference to external credit ratings of the counterparty where where the counterparty of ratings external credit to accounts and deposits reference monies held in restricted can be assessed of by quality The credit or depositthe account is placed. Cash at bank and in hand 22. Monies held in restricted accounts and deposits accounts Monies held in restricted 22. Short-term deposits Short-term deposits Cash and cash equivalents comprises cash balances, deposits held at call with banks and other short-term highly liquid investments with original short-term liquid investments with banks and other deposits highly held at call comprises cash balances, Cash and cash equivalents are cash management part Group’s the an integral of on demand and form repayable Bank overdrafts that are or less. months three of maturities cash flows. of the statement the purpose of for deducted cash and cash equivalents from Monies held in restricted accounts and deposits represent cash held by the Group in accounts with conditions that restrict the use of these monies by these monies by with conditions that restrict the use of in accounts the Group cash held by accounts and depositsMonies held in restricted represent the Group restricted does accounts prevent cash in Holding not and cash equivalents. cash doesof meet not the definition as such, and, the Group putting by on short-term these monies deposit. returns optimising from Notes to the financial statements for the year ended 31 March 2017 continued

24. Derivative financial instruments

Accounting policy The Group uses interest-rate and foreign exchange swaps to manage its market risk. In accordance with its treasury policy, the Group does not hold or issue derivatives for trading purposes.

All derivatives are recognised on the balance sheet at fair value. The fair value of interest-rate and foreign exchange swaps is based on counterparty or market quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market rates for similar instruments at the measurement date. The gain or loss on derivatives are recognised immediately in the income statement, within net finance expense.

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, as defined by IFRS 13.

Fair value of derivative financial instruments

Group 2017 2016 £m £m Current liabilities 5 1 Non-current liabilities 2 31 7 32

Notional amount

Group 2017 2016 £m £m Interest-rate swaps 400 580 Foreign exchange swaps 389 – 789 580

138 Landsec Annual Report 2017 Financial Statements 139 14 25 £m (67) 2016 684 Group (2,391) (3,047) 13 30 £m 672 (43) 2017 (3,118) (2,446) Landsec Annual Landsec Report 2017 Finance lease receivables tenantscredit risk as the a significant considered This is not finance leases. tenant in respect tenants of from amounts receivable to This balance relates good of financial standing. generally are Trade receivables Trade is objective there evidence where Impairment is made doubtful allowances for receivables. in the balance sheet net of presented are receivables Trade the to relative The balance is low concerned. the receivables of the original terms collect be to will not able to all amounts due according that the Group is receivables trade risk of the credit arrangements, tenancy the Group’s of and diversity nature the long-term owing to balance the sheetand, scale of with a new a lease of the inception prior to agency report an independent rating a credit from is obtained Furthermore, be low. to considered these deposits In general represent at inception. the tenant from the deposit that is required This report the size of determine is used to counterparty. months’between rent. and six three Bank and financial institutions with In line and financial institutions. with and deposits instruments banks financial derivative arises from the Group of risks the principal credit One of with a banks and financial institutions rated independently manages the deposit only the Group where Directors, of the Board by approved the policy the minimum has a committedrelationship, which the Group lending with banks and financial institutions UK For accepted. are A- of minimum rating counterparties. all financial institution of ratings the credit of review weekly performs a function treasury currently The Group’s BBB+. to is lowered rating limits. policy Group’s within the remain financial institution with a single function the treasury that funds deposited ensures Furthermore, (i) Credit risk (i) Credit from joint and amounts due receivables finance lease receivables, other and trade cash and cash equivalents, principal financial assets are The Group’s to asset. each typeof relates that specifically counterparties in the note risk of is provided concerning the credit Further details ventures. Financial risk factors Loans and receivables and receivables Loans Cash and cash equivalents Other investments Financial liabilities at amortised cost and loss profit through value Financial liabilities at fair The following table summarises the Group’s financial assets and liabilities into the categories required by IFRS 7, ‘Financial Instruments: Disclosures’: Instruments: ‘Financial 7, IFRS by required the categories assets financial into and liabilities Group’s summarises the table The following Financial risk management is carried out by the Group’s treasury function under policies approved by the Board of Directors. of the Board function treasury by under policies approved the Group’s is carried out by Financial risk management The Group is exposed to a variety of financial risks: market risks (principally interest-rate risk), credit risk and liquidity risk. The Group’s overall risk overall The Group’s risk. risk and liquidity credit risk), interest-rate (principally risks market financial risks: of variety a is exposed to The Group of derivative financial and includes the use performance these on the Group’s effectsof adverse minimise the potential to seeks strategy management to hedge certainexposures. financial instruments risk 25. Financial risk management Financial 25. Introduction and uncertainties” principal risks risk” and “Our is set out in “Managing managing risk policies for processes and objectives, Group’s the of review A on specific financial risks. information further and includes quantitative risk management provides on financial detail This note 45). to (pages 42 Notes to the financial statements for the year ended 31 March 2017 continued

25. Financial risk management continued

(ii) Liquidity risk The Group actively maintains a mixture of notes with final maturities between 2022 and 2036, commercial paper and medium-term committed bank facilities that are designed to ensure that the Group has sufficient available funds for its operations and its committed capital expenditure programme.

Management monitors the Group’s available funds as follows:

Group 2017 2016 £m £m Cash and cash equivalents 30 25 Available facilities 1,499 1,433 Cash and available undrawn facilities 1,529 1,458 As a proportion of drawn debt 47.2% 45.0%

The Group’s core financing structure is in the Security Group, although the Non-restricted Group may also secure independent funding.

Security Group The Group’s principal financing arrangements utilise the credit support of a ring-fenced group of assets (the Security Group) that comprises the majority of the Group’s investment property portfolio and certain investments in joint ventures. These arrangements operate in ‘tiers’ determined by LTV and interest cover ratio (ICR). This structure is most flexible at lower tiers (with a lower LTV and a higher ICR) and allows property acquisitions, disposals and developments to occur with relative freedom. In higher tiers, the requirements become more prescriptive. No financial covenant default is triggered until the applicable LTV exceeds 100% or the ICR is less than 1.0x.

As at 31 March 2017, the reported LTV for the Security Group was 28.3% (2016: 23.4%), meaning that the Group was operating in Tier 1 and benefited from maximum operational flexibility.

Management monitors the key covenants attached to the Security Group on a monthly basis, including LTV, ICR, sector and regional concentration and disposals.

Non-restricted Group The Non-restricted Group obtains funding when required from a combination of inter-company loans from the Security Group, equity and external bank debt. Bespoke credit facilities are established with banks when required for the Non-restricted Group projects and joint ventures, usually on a limited- recourse basis.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the expected maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Group

2017 Between Between Less than 1 and 2 2 and 5 Over 1 year years years 5 years Total £m £m £m £m £m Borrowings (excluding finance lease liabilities) 531 145 537 3,374 4,587 Finance lease liabilities 2 2 5 205 214 Derivative financial instruments 1 2 1 (2) 2 Trade payables 11 – – – 11 Capital accruals 34 – – – 34 Accruals 80 – – – 80 Amounts owed to joint ventures 6 – – – 6 Other payables 39 – – – 39 Redemption liabilities – – 36 – 36 704 149 579 3,577 5,009

140 Landsec Annual Report 2017 Financial Statements – – – 141 3 6 32 25 28 79 35 35 84 £m £m 2016 2016 Total Total 5,142 4,815 Group Group 3,250 3,250 – – – – – – – – – – 10 79 £m £m rate 253 253 Over 3,377 3,288 5 years Floating Floating

– – – – – – – – – 3 35 20 £m £m rate Fixed years 1,186 1,244 2,997 2,997 2 and 5 Between Landsec Annual Landsec Report 2017

– – – – – – 1 4 28 28 £m 94 £m 170 261 203 2017 years Total 1 and 2 3,270 2,887 Between – – 1 1 3 6 32 25 79 28 £m 58 94 £m 171 318 261 rate 441 1 year Floating Less than than Less – – – £m rate Fixed 2,829 2,829 fixed (2016: 94.9%). Based on the Group’s debt balances at 31 March 2017, a 1% increase in interest rates would increase the annual would increase rates interest in 1% increase a 2017, 31 March debt at balances Based on the Group’s 94.9%). (2016: fixed 88.9% Sterling Financial maturity analysis are set out below: swaps, interest-rate of the the effect account aftertaking into borrowings, undiscounted the Group’s of profile rate The interest As it is solely UK based, the Group does not frequently enter into any foreign currency transactions other than in connection with its financing activities. transactions than in connectionwith its other financing activities. currency foreign any into enter does frequently not the Group based, UK it is solely As into entering by exposure of that 100% to hedge policy Group’s it is the is identified, currencies foreign in committed significant expenditure Where $118m commercial of and CHF35m had issued €307m, the Group 2017, 31 March At value. Sterling the fix to currency foreign of purchases forward or weakening 10% A exposure. exchange currency had no foreign the Group 2016, March 31 At swaps. exchange foreign hedged through fully paper, risk exchange foreign Group’s The and equity. statement income £nil) impact on the Group’s £nil (2016: have would therefore Sterling of strengthening low. is therefore Foreign exchange Foreign the that is not in a currency transactions denominated or recognised assets or liabilities are commercial when future risk arises exchange Foreign functional currency. Group’s (2016: £2m). The sensitivity has been calculated by applying the interest rate rate applying the interest has been by The sensitivity calculated £2m). £2m (2016: by reduce equity and expense net finance in the income statement swaps and cash and cash equivalents. interest-rate net of borrowings, rate variable the change to (2016: £0.7bn), and its £0.7bn), £0.5bn (2016: of value with a nominal swaps in place had pay-fixed interest-rate ventures) (including joint the Group 2017, March 31 At net was debt Interest rates its existing at least 80% of requires that generally and has a hedging policy exposure, rate products manage its interest uses derivative to The Group to Due a years. for the coming five rates be interest at fixed to with net committed expenditure capital associated in debt plus increases debt hedging Recognition and Measurement’, ‘Financial Instruments: IAS under 39 certainty required of the high level principally factors, combination of theto fix ventures within our joint also used hedges are Specific interest-rate hedge accounting. qualify do not used for in this context instruments on limited-recourse exposure interest the to fix ventures specific joint used in geared hedgesWhere are debt. on limited-recourse exposure rate interest hedge qualify accounting. for these may debt, (iii) Market risk (iii) Market movements. exchange and foreign credit of availability rates, interest risk through market is exposed to The Group Borrowings (excluding finance lease liabilities) (excluding Borrowings Euro Finance lease liabilities US Dollar US Derivative financial instruments Derivative Swiss Franc Swiss Trade payables Trade Capital accruals Capital Accruals Amounts owed to joint ventures joint Amounts owed to Other payables Non-current trade and other payables and other trade Non-current Redemption liabilities Redemption Notes to the financial statements for the year ended 31 March 2017 continued

25. Financial risk management continued

The expected maturity profiles of the Group’s borrowings are as follows:

Group

2017 2016 Fixed Floating Fixed Floating rate rate Total rate rate Total £m £m £m £m £m £m One year or less, or on demand 18 386 404 16 3 19 More than one year but not more than two years 20 – 20 18 – 18 More than two years but not more than five years 117 55 172 320 430 750 More than five years 2,674 – 2,674 2,463 – 2,463 Borrowings 2,829 441 3,270 2,817 433 3,250 Effect of hedging – – – 180 (180) – Borrowings net of interest-rate swaps 2,829 441 3,270 2,997 253 3,250

The expected maturity profiles of the Group’s derivative instruments are as follows (based on notional values):

Group

2017 2016 Foreign Foreign exchange Interest- exchange Interest- swaps rate swaps swaps rate swaps £m £m £m £m One year or less, or on demand 389 – – 180 More than five years1 – 400 – 400 389 400 – 580

1. Interest-rate swaps more than five years have a term commencing from October 2017.

Valuation hierarchy Interest-rate swaps, foreign exchange swaps, the redemption liability and other investments are the only financial instruments which are carried at fair value. For financial instruments other than borrowings disclosed in note 21, the carrying value in the balance sheet approximates their fair values. The table below shows the aggregate assets and liabilities carried at fair value by valuation method:

Group

2017 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Assets – – 13 13 – – 14 14 Liabilities – (7) (36) (43) – (32) (35) (67)

Note: Level 1: valued using unadjusted quoted prices in active markets for identical financial instruments. Level 2: valued using techniques based on information that can be obtained from observable market data. Level 3: valued using techniques incorporating information other than observable market data.

The fair value of the Group’s finance lease obligations, using a discount rate of 4.2% (2016: 4.9%), is £42m (2016: £18m).

The fair value of the redemption liability is determined as the present value of the amount the Group would be required to pay to settle the liability (an exit price). The fair value is calculated by reference to the net assets of the underlying subsidiary. The valuation is not based on observable market data and therefore the redemption liability is considered to fall within Level 3 of the fair value hierarchy.

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 of the fair value hierarchy.

142 Landsec Annual Report 2017 Financial Statements – – – – – – – 143 11 17 17 17 16 85 53 69 £m 64 £m 2016 Total Group Company – – – – – – – 2 2 9 11 12 17 17 10 17 £m £m 2017 past due 12 months12 More than than More – 1 1 2 7 2 4 6 6 25 70 69 86 £m £m 531 2016 268 445 Group months Up to 12 past due Landsec Annual Landsec Report 2017 1 2 2 3 4 6 9 4 16 18 25 53 £m £m 311 107 541 418 2017 Up to 6 months past due – – 32 32 30 30 £m Up to 30 days past due – – 17 17 29 29 £m Not past due

Accounting policy Accounting

The majority of the Group’s trade receivables are considered past due as they relate to rents receivable from tenants which are payable in advance. payable in advance. which are tenants from receivable rents to relate past due as they considered are receivables trade the Group’s of The majority £nil). past due (2016: are receivables other Group’s the None of As at 31 March 2017 March As at 31 impaired Not Ageing of trade receivables trade of Ageing The accounting for lease incentives is set out in note 6. The value of the tenant lease incentive, included in current trade and other receivables, is spread receivables, and other trade included in current lease incentive, the tenant of value The 6. is set out in note lease incentives for The accounting the lease. of the non-cancellable life over Net trade receivables receivables Net trade 26. Trade and other receivables and other Trade 26. This section focuses on our working capital balances, including trade and other receivables, trade and other payables, and provisions. and payables, and other trade receivables, other and including trade balances, capital working This section on our focuses Section 5 – Working capital 5 – Working Section Impaired Property sales receivables Trade and other receivables are recognised initially at fair value, subsequently at amortised cost and, where relevant, adjusted for the time value of of value the time adjusted for relevant, where at amortised subsequently cost and, value, at fair recognised initially are receivables and other Trade the collect be to will not able to all amounts due according is objective that the Group there evidence where impairment is made for provision A money. assets. within non-current the balance is presented collectionyear, If is expected than one in more concerned. receivables the of original terms Gross trade receivables trade Gross Tenant lease incentives (note 14) (note lease incentives Tenant As at 31 March 2016 March at 31 As impaired Not Prepayments and accrued income and accrued Prepayments Impaired Amounts due from joint ventures joint Amounts due from Gross trade receivables trade Gross Other receivables Total current trade and other receivables and other trade current Total Non-current amounts due from joint ventures ventures joint amounts due from Non-current Non-current property sales receivables Non-current Total trade and other receivables and other trade Total Notes to the financial statements for the year ended 31 March 2017 continued

26. Trade and other receivables continued

Movement in allowances for doubtful accounts

Group 2017 2016 £m £m At the beginning of the year 16 15 Increase to provision 6 10 Decrease to provision (5) (5) Utilised in the year (6) (4) At 31 March 11 16

Movement in tenant lease incentives

Group 2017 2016 £m £m At the beginning of the year 268 251 Revenue recognised 44 29 Capital incentives granted 1 7 Provision for doubtful receivables – (2) Disposal of properties (2) (17) At 31 March 311 268

27. Trade and other payables

Group Company 2017 2016 2017 2016 £m £m £m £m Trade payables 11 6 – – Capital accruals 34 32 – – Other payables 39 25 – – Accruals 80 79 14 6 Deferred income 132 126 – – Amounts owed to joint ventures 6 3 – – Trading property deposits – 18 – – Loans from Group undertakings – – 1,380 1,031 Total current trade and other payables 302 289 1,394 1,037 Non-current amounts owed to joint ventures – 12 – – Non-current other payables – 16 – – Non-current trading property deposits 25 – – – Total trade and other payables 327 317 1,394 1,037

Capital accruals represent amounts due under contracts to purchase properties, which were unconditionally exchanged at the year end, and for work completed on investment properties but not paid for at the year end. Deferred income principally relates to rents received in advance.

144 Landsec Annual Report 2017 Financial Statements 1 5 8 145 18 14 19 25 44 £m £m £m 2016 2016 2016 6,192 Group Group 6,200 Company 2 7 5 5 51 13 14 24 £m £m £m 2017 2017 2017 6,205 6,200 Landsec Annual Landsec Report 2017 Accounting policy Accounting

Derivative financial instruments financial Derivative liabilities current other Total Provisions 30. Other current liabilities Other current 30. Other property, plant and equipment plant Other property, 29. Other non-current assets Other non-current 29. A full list of subsidiary undertakings at 31 March 2017 is included on page 180. is included on page2017 subsidiary March undertakings full list of at 31 A At the beginning of the year the the beginningAt of Capital contributions relating to share-based payments (note 33) payments share-based (note to relating contributions Capital 28. Investments in subsidiary undertakings Investments 28. This section gives further disclosure in respect of other areas of the financial statements, together with mandatory disclosures required in accordance in accordance required disclosures with mandatory together This section statements, the financial further of gives areas in respect other disclosure of with IFRS. Section 6 – Other required disclosures required 6 – Other Section At 31 March 31 At Other investments 32) surplus (note Pension assets non-current other Total In accordance with ‘IFRS 2 – Share Based Payments’ the equity settled share-based payment charge for the employees of the Company’s subsidiaries is the Company’s of settled the employees the equity for payment share-based charge Based Payments’ Share – 2 ‘IFRSwith In accordance equity. in the Company’s increase with a corresponding subsidiaries, in the investment of in the cost as an increase treated Investments in subsidiary undertakings are stated at cost in the Company’s balance sheet, less any provision for impairment in value. impairment in for provision less any balance sheet, at cost in the Company’s in subsidiary undertakings stated Investments are Notes to the financial statements for the year ended 31 March 2017 continued

31. Other non-current liabilities

Group 2017 2016 £m £m Provisions – 6 Derivative financial instruments 2 31 Deferred tax liability 7 10 Total other non-current liabilities 9 47

32. Net pension surplus

Accounting policy Contributions to defined contribution schemes are charged to the income statement as incurred.

The pension obligations arising under the Group’s defined benefit pension scheme are measured at discounted present value. The scheme assets are measured at fair value, except annuities, which are valued to match the liability or benefit value. The operating and financing costs of the scheme are recognised separately in the income statement. Service costs are spread using the projected unit credit method. Net financing costs are recognised in the period in which they arise, calculated with reference to the discount rate, and are included in finance income or expense on a net basis. Re-measurement gains and losses arising from either experience differing from previous actuarial assumptions, or changes to those assumptions, are recognised immediately in other comprehensive income.

Defined contribution schemes The charge to operating profit for the year in respect of the defined contribution scheme was £3m (2016: £2m).

Defined benefit scheme The Pension & Assurance Scheme of the Land Securities Group of Companies (the Scheme) is a registered defined benefit final salary scheme subject to the UK regulatory framework for pensions, including the Scheme Specific Funding requirements. The Scheme is operated under trust and as such, the Trustees of the Scheme are responsible for operating the Scheme and they have a statutory responsibility to act in accordance with the Scheme’s Trust Deed and Rules, in the best interest of the beneficiaries of the Scheme, and UK legislation (including trust law). The Trustees and the Group have the joint power to set the contributions that are paid to the Scheme.

In setting contributions to the Scheme, the Trustees and the Group are guided by the advice of a qualified independent actuary on the basis of triennial valuations using the projected unit credit method. As the Scheme is closed to new members, the current service cost is expected to increase as a percentage of salary of the Scheme members, under the projected unit credit method, as members approach retirement. A full actuarial valuation of the Scheme was undertaken on 30 June 2015 by the independent actuaries, Hymans Robertson LLP. This valuation was updated to 31 March 2017 using, where required, assumptions prescribed by IAS 19, ‘Employee Benefits’. The next full actuarial valuation will be performed as at 30 June 2018.

As a result of the 30 June 2015 valuation, the employer contribution rate increased from 1 April 2016 to 43.1% (from 36.1%) of pensionable salary to cover the costs of accruing benefits. It was agreed that no further deficit contributions were required from the Group. Employee contributions are paid by salary sacrifice, and therefore appear as Group contributions. In the year ended 31 March 2017, employee contributions were 8.0% (2016: 8.0%) of monthly pensionable salary. The Group expects to make total employee and employer contributions of around £1m (2016: £1m) to the Scheme in the year to 31 March 2018.

All death-in-service and incapacity benefits arising during employment are wholly insured. No post-retirement benefits other than pensions are made available to employees of the Group.

146 Landsec Annual Report 2017 Financial Statements – 1 1 2 7 147 13 (7) 18 25 38 56 30 £m £m £m (12) (27) 215 106 2016 2016 2016

(190) Group Group Group 1 1 1 7 6 % (1) 18 (8) 26 49 29 £m £m (12) (41) 100 2016 (39) 2017 2017 1 17 14 59 49 £m 120 2017 246 (232) Landsec Annual Landsec Report 2017 – 7 % 20 24 49 100 2017 (2016: 27%) in respect of deferred scheme deferred in respect of 27%) (2016: (2016: 16.7 years). (2016: years

(2016: 12%) in respect active scheme participants, of 25% The definedare split 11% (2016: benefit scheme liabilities During the year, the Scheme sold some corporate bonds and gilts to purchase a buy-in policy with Just Retirement for £111m. This insurance contract is contract insurance This £111m. for Just Retirement with a buy-in policy bonds purchase and gilts to corporate the Scheme sold some year, During the Scheme assetsAll other have assets. unquoted which are annuities contracts are Insurance 19 assumptions. the same IAS as an asset using valued owned Indirectly the Group. owned issuedby financial instruments directly The Scheme assets include any do not prices in activequoted markets. £0.1m). (2016: £0.1m of value fair had a financial instruments (2016: 61%) in respect of retirees. The weighted average duration of the defined benefit scheme liabilities at 31 March 2017 is 31 March the defined benefit scheme liabilities at of duration average weighted The retirees. in respect of 61%) participants, and 64% (2016: 17.3 Equities Analysis of amount credited to net finance expense finance net to credited amount of Analysis income on plan assets Interest finance income to credit Net Charge to operating profit operating to Charge expense on defined benefit scheme liabilities Interest The net surplus recognised in respect the defined benefit scheme can follows: of be analysed as Analysis of gains and losses of Analysis gains/(losses)Net re-measurement on scheme assets Analysis of the amounts recognised in other comprehensive income on scheme liabilities (losses)/gains Net re-measurement (loss)/gain re-measurement Net income comprehensive recognised loss in other re-measurement net Cumulative Analysis of the amount charged to operating profit operating to charged amount the of Analysis serviceCurrent cost Analysis of the amounts charged the income to statement Bonds – Bonds – Government Bonds – Bonds – Corporate Insurance contracts Insurance Cash and cash equivalents Fair value of scheme assets of value Fair Fair value of scheme liabilities of value Fair Net pensionNet surplus Notes to the financial statements for the year ended 31 March 2017 continued

32. Net pension surplus continued

The assumptions agreed with the Trustees of the Scheme for the triennial valuation at 30 June 2015 have been restated to the assumptions described by IAS 19, ‘Employee Benefits’. The major assumptions used in the valuation were (in nominal terms):

Group 2017 2016 % % Rate of increase in pensionable salaries 3.40 3.15 Rate of increase in pensions with no cap 3.40 3.15 Rate of increase in pensions with 5% cap 3.30 3.05 Discount rate 2.55 3.50 Inflation – Retail Price Index 3.40 3.15 – Consumer Price Index 2.60 2.35

The mortality assumptions used in this valuation were:

Group 2017 2016 Years Years Life expectancy at age 60 for current pensioners – Men 30.8 29.6 – Women 31.2 31.0 Life expectancy at age 60 for future pensioners (current age 40) – Men 33.8 33.2 – Women 33.7 33.5

The sensitivities regarding the principal assumptions used to measure the Scheme liabilities are set out below. These were calculated using approximate methods taking into account the duration of the Scheme liabilities.

Assumption Change in assumption Impact on scheme liabilities Discount rate Increase/decrease by 0.5% Decrease/increase by £21m Rate of mortality Increase by 1 year Increase by £9m Rate of inflation Increase/decrease by 0.5% Increase/decrease by £18m

As the above table demonstrates, changes in assumptions can have a significant impact on the Scheme liabilities. The assumptions agreed with the Trustees of the Scheme for the triennial valuation and subsequent interim updates differ from those prescribed by IAS 19, ‘Employee Benefits’. Using the assumptions agreed with the Trustees would result in a balance sheet deficit for the Scheme of £8m at 31 March 2017, as opposed to a surplus of £14m.

In order to reduce risk within the Scheme, 48% (2016: 7%) of the Scheme assets are invested in annuities that match the liabilities of some pensioners. The assets that the Scheme holds are designed to match a significant proportion of the Scheme liabilities and the Scheme has hedged over 72% (2016: 75%) of the inflation and interest rate risks (when measured on a gilts flat discount rate) to which it is exposed.

The Company did not operate any defined contribution schemes or defined benefit schemes during the financial year ended 31 March 2017 or in the previous financial year.

148 Landsec Annual Report 2017 Financial Statements – – 2 3 5 149 2016

Number (millions) 1 1

2 4 8 £m Charge – – 2 2 4 2017 Number (millions) Landsec Annual Landsec Report 2017 1 1 1 2 5 £m Charge (2016: £1.5m). was (2016: £0.8m under the scheme year during the granted awards of value fair The estimated 1,227p). (2016: 887p £0.3m). was £0.2m under the scheme (2016: year during the granted awards of value fair The estimated 1,238p). 1,046p (2016: (2016: £4m). was £4m (2016: under the scheme year during the granted awards of value fair The estimated 1,262p). 1,006p (2016: Accounting policy Accounting

A summary of the main features of each type of plan is given below. The plans have been split into two categories: Executive plans and other plans. plans. plans and other Executive two categories: beenThe plans have split into below. plan is given each type of of the main features summary of A Savings related share option plan option share Savings related a into contributions monthly regular make to invited are eligible employees and other Directors Executive plan, option share Under the savings related at be purchased a may in the Company shares ordinary year contract period, or five the three On completion of Equiniti. by plan operated Sharesave exercised awards for exercise of price at the date share average weighted The discount. 20% less invitation of price at date price based upon the market during was the year Deferred bonus share plan bonus share Deferred annual bonus Directors’ and Managing Directors’ in two distinct is structured The Executive parts shares. an initial payment and deferred made up of existing of the transfer by satisfied are Awards subject not additional performance criteria. and are to years two one or for deferred are The shares vesting of price at the date share average weighted The nil cost options. by or at nil consideration, (EBT) Trust Benefit the Employee held by shares during was the year Other plans: scheme (ESOS) option share Executive the of shares ordinary over granted and are discretionary are Awards participate eligible to not ESOS managers 2005 is open in the LTIP. to The andyears aftervest three normally Awards grant. of the date preceding dealing days immediately the three price on at the middle market Company The grant. yearsof after the date 10 and lapse EBT the from shares of the transfer satisfiedby are Awards subject not performance conditions. are to awards of value fair The estimated 1,249p). (2016: was 1,053p year during the exercised awards for exercise of price at the date share average weighted £0.3m). was £0.3m under the scheme (2016: year during the granted Executive plans: Executive Plan (LTIP) Incentive Long-Term other In addition, Committee. the Remuneration of made at the discretion with awards and Senior Management, Directors Executive is open to The LTIP and pledges PLC Securities Group in Land shares the individual acquires where can be shares’ made ‘matching of an award Directors, Executive than for vest subject and normally same performance the are criteria to shares and matching shares LTIP of Awards years. a period three hold them for of to will be The awards or nil cost options. shares other shares, treasury of the transfer shares, new of the issue beby satisfied may Awards years. after three duringvesting of price at the date share average weighted The conditions beingvesting met. subject performance and to issued at nil consideration, was the year For further details on the Executive plans, see the Directors’ Remuneration Report on pages 76 to 91. to Report see on pages Remuneration the Directors’ 76 further plans, on the Executive For details Long-Term Incentive Plan Incentive Long-Term 33. Share-based Share-based payments 33. Deferred bonus share plan bonus share Deferred options outstanding. options The following table analyses the total cost recognised in the income statement for the year between each plan, together with numberwith of together betweenyear each the plan, for cost recognised in the income statement analyses the total table The following The cost of granting shares, options over shares and other share-based remuneration to employees and Executive Directors is recognised through the is recognised through Directors and Executive employees to share-based remuneration and other shares over options shares, granting The cost of related non-market have the awards Where date. at the grant is measured value the fair settled equity are and therefore All awards income statement. Total have the awards Where values. fair the relevant establish modelvaluation to option the Black-Scholes uses the Group performance criteria, the relevant establish modelvaluation to Carlo simulation has used the Monte the Group performance criteria, related market (TSR) Return Shareholder related with non-market awards For the awards. periodvesting of the over amortised are income statement values the through The resulting values. fair bewill not met. it appears that the performance or service probable if criteria is reversed the charge criteria, Share award plan award Share Executive share option scheme option share Executive Notes to the financial statements for the year ended 31 March 2017 continued

33. Share-based payments continued

The aggregate number of awards outstanding, and the weighted average exercise price, are shown below:

Executive plans1 Other plans Weighted average Number of awards Number of awards exercise price 2017 2016 2017 2016 Number Number Number Number 2017 2016 (millions) (millions) (millions) (millions) Pence Pence At the beginning of the year 3 3 2 2 983 860 Granted 1 1 1 – 993 1,229 Exercised (1) (1) (1) – 805 911 Lapsed (1) – – – – 900 At 31 March 2 3 2 2 1,068 983 Exercisable at the end of the year – – 1 1 929 913

Years Years Years Years Weighted average remaining contractual life 1 1 6 6

1. Executive plans are granted at nil consideration.

The number of share awards outstanding for the Group by range of exercise prices is shown below:

Outstanding at 31 March 2017 Outstanding at 31 March 2016 Weighted Weighted Weighted average Weighted average average remaining average remaining exercise Number of contractual exercise Number of contractual Exercise price – range price awards life price awards life Number Number Pence Pence (millions) Years Pence (millions) Years Nil2 – 2 1 – 3 1 400 – 599 535 – 2 536 – 3 600 – 799 775 – 5 761 – 5 800 – 999 886 1 4 761 1 5 1,000 – 1,199 1,044 1 7 1,058 1 6 1,200 – 1,399 1,328 – 8 1,328 – 9 1,400 – 1,565 – – – 1,563 – 1

2. Executive plans are granted at nil consideration.

150 Landsec Annual Report 2017 Financial Statements

151 2016 2016 16% 85% years 3 to 5 3 to 1.07% 1.07% 2.49% 1,024p 1,280p to 1.58% to option plan option Correlation – – Correlation Group index vs. 2017 2017 18% Savings related share share related Savings 85% 953p years 3 to 5 3 to 1,191p 2.94% 0.35% to 0.57% to 2016 2016 16% 20% 1.02% 1,328p 1,328p 2.40% 3 years Landsec Annual Landsec Report 2017 2005 ESOS 2017 2017 18% 20% 0.21% 3.48% 1,005p 1,005p 3 years of comparator companies comparator of Expected volatility – index nil 2016 2016 n/a 16% 20% 1 2 to years 0.52% 0.52% 1,245p to 0.67% to nil 2017 2017 n/a 18% 20% 1 2 to years 0.15% 0.15% 1,005p Deferred plan bonus share Expected volatility – Group to 0.21% to 2016 n/a 2016 n/a 16% 1.02% 1,325p 2.40% 3 years Exercise price Exercise 2017 2017 n/a n/a 18% 0.21% 3.48% 1,005p 3 years Long-Term Incentive Plan Incentive Long-Term 2016 1,325p 2017 1,005p Share price at date of grant Year ended 31 March 31 ended Year Long-Term Incentive Plan Incentive Long-Term Fair value inputs for awards with market performance conditions market with awards inputs for value Fair made under Awards performance conditions. with market awards pricing model Carlo simulation option for using the Monte calculated are values Fair the this model for The inputs into condition. which is a market-based condition, TSR include a 2009 after March 31 granted were which LTIP 2005 the as follows: scheme are Expected volatility is determined by calculating the historic volatility of the Group’s share price over the previous ten years. The expected used in the life years. ten the previous price over share the Group’s of volatility calculating the historic by is determined Expectedvolatility restrictionsvesting/exercise and non-transferability, effects the of for bestmodel estimate has been based determined upon management’s the equal to date with a redemption on a gilt-edged stock an award of the grant of yield at the date is the rate Risk-free considerations. behavioural award. that of vesting anticipated Share price at grant date price at grant Share Fair value inputs for awards with non-market performance conditions non-market with awards inputs for value Fair model this for Inputs into performance conditions. with non-market awards pricing modeloption for the Black-Scholes using calculated are values Fair follows: as year are under each plan in the financial the grants Year ended 31 March 31 ended Year Exercise price Exercise Expected volatility Expected life Risk-free rate Risk-free Expected yield dividend Notes to the financial statements for the year ended 31 March 2017 continued

34. Ordinary share capital

Accounting policy Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

The consideration paid by any Group entity to acquire the Company’s equity share capital, including any directly attributable incremental costs, is deducted from equity until the shares are cancelled, reissued or disposed. Where own shares are sold or reissued, the net consideration received is included in equity. Shares acquired by the Employee Benefit Trust (EBT) are presented on the Group balance sheet as ‘own shares’. Purchases of treasury shares are deducted from retained earnings.

Group and Company Allotted and fully paid 2017 2016 £m £m Ordinary shares of 10p each 80 80

Group and Company Number of shares

2017 2016 At the beginning of the year 801,164,497 801,032,763 Issued on the exercise of options 80,131 131,734 At 31 March 801,244,628 801,164,497

The number of options over ordinary shares from Executive Schemes that were outstanding at 31 March 2017 was 2,281,006 (2016: 2,580,225). If all the options were exercised at that date then 2,281,006 (2016: 2,580,225) shares would be required to be transferred from the EBT. The number of options over ordinary shares from Other plans that were outstanding at 31 March 2017 was 1,859,031 (2016: 2,071,452). If all the options were exercised at that date then 354,783 new ordinary shares (2016: 406,021) would be issued and 1,504,248 shares would be required to be transferred from the EBT (2016: 1,665,431).

Shareholders at the Annual General Meeting have previously authorised the acquisition of shares by the Company representing up to 10% of its share capital, to be held as treasury shares. During the year ended 31 March 2017, no ordinary shares (2016: nil) were acquired to be held as treasury shares. At 31 March 2017 the Group held 10,495,131 ordinary shares (2016: 10,495,131) with a market value of £111m (2016: £116m) in treasury.

35. Own shares

Group 2017 2016 £m £m At the beginning of the year 14 11 Acquisition of ordinary shares 6 19 Transfer of shares to employees on exercise of share options (11) (16) At 31 March 9 14

Own shares consist of shares in Land Securities Group PLC held by the EBT in respect of the Group’s commitment to a number of its employee share option schemes (note 33).

The number of shares held by the EBT at 31 March 2017 was 792,556 (2016: 1,143,892). The market value of these shares at 31 March 2017 was £8m (2016: £13m).

152 Landsec Annual Report 2017 Financial Statements – – – – – – – 3 6 9 153 (1) (2) £m £m £m (12) (15) (63) 2016 2016 joint 400 (272) Group owed to ventures Amounts Company – – – – – 1 1 – 5 5 3 8 93 46 40 £m £m £m (55) joint 2017 2017 (294) owed by ventures Amounts Year endedYear and as March at 31 2016 – 1 (2) (3) 62 35 £m (14) (14) Net (32) (63) 100 ventures into joint into Landsec Annual Landsec Report 2017 investments – – – – – 1 1 7 17 18 44 £m Income/ (expense) – – – – – – – (1) (2) (3) (6) £m joint joint owed to ventures Amounts – – – – – – – 10 56 43 £m 109 joint joint owed by ventures Amounts – 2 8 (1) (1) (2) Year endedYear and as March at 31 2017 (4) 67 £m (12) (16) Net (37) ventures into jointinto investments – – – 1 – – – 9 12 41 19 £m Income/ (expense) Dividend received paymentsShare-based Short-term benefits employee Remuneration of key management personnel management key of Remuneration for in aggregate is set out below the Group, personnel management of the key who are and Managing Directors, the Directors of The remuneration is individual Directors of Furtherremuneration about the information Party Disclosures’. specified24 ‘Related the applicable categories in IAS each of 91. to Report part in the audited Remuneration on pages the Directors’ provided 76 of 20 Fenchurch Street Limited Partnership Limited Street Fenchurch 20 Joint arrangements Joint transactions and balances between and its of the Group Details arrangements. joint in a number of has investments the Group 16, disclosedAs in note disclosed as follows: are arrangements joint Transactions with subsidiary undertakings: Transactions costs of Recharge paid Interest Subsidiaries parties related other with as follows: business, of course in the normal transactions, into entered the Company year, During the 37. Related party Related transactions 37. 36. Contingencies 36. anticipated It is not business. of course ordinary arising in the warranties and guarantees, legal liabilities in respect claims, has contingent of The Group liabilities. contingent the from will arise liabilities material that any Nova, Victoria Nova, Metro Shopping Fund Limited Partnership Limited Shopping Fund Metro St. David’s Limited Partnership Limited David’s St. Westgate Oxford Alliance Limited Partnership Alliance Limited Oxford Westgate The Oriana Limited Partnership The Oriana Limited Harvest The Ebbsfleet Limited Partnership The Ebbsfleet Limited Millshaw Property Co. Limited Property Co. Millshaw West India Quay Unit Trust Unit India Quay West Notes to the financial statements for the year ended 31 March 2017 continued

38. Operating lease arrangements

Accounting policy The Group earns rental income by leasing its properties to tenants under non-cancellable operating leases. Leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

At the balance sheet date, the Group had contracted with tenants to receive the following future minimum lease payments:

2017 2016 £m £m Not later than one year 496 464 Later than one year but not more than five years 1,962 1,913 More than five years 3,444 3,874 5,902 6,251

The total of contingent rents recognised as income during the year was £45m (2016: £43m).

39. Events after the reporting period

On 13 April 2017, the Group’s joint arrangement, The Metro Shopping Fund Limited Partnership (Metro), completed the sale of ShopStop, Clapham Junction to DV4 (a fund owned by Delancey Real Estate Asset Management Limited (Delancey)). On the same date Delancey sold its stake in Metro to Invesco Real Estate European Fund. The partnership was subsequently renamed The Southside Limited Partnership and the £85m third-party debt in the fund was repaid in full.

Since 31 March 2017, the Group has redeemed the £273m Queen Anne’s Gate bond in its entirety at a premium of £63m. The redemption was financed through existing Group facilities.

On 15 May 2017, the Group acquired three retail outlet centres from Britel Fund Trustees Limited (as trustee of the BT Pension Scheme). The three assets, Freeport, Braintree, Clarks Village, Street and Junction 32, Castleford, were acquired for a total consideration of £333m.

154 Landsec Annual Report 2017 Additional Contents Further analysis of our business and practical information information for shareholders. 156 Business analysis – Group 160 Business analysis – London 161 Business analysis – Retail 162 Sustainability reporting 168 Combined Portfolio analysis 170 Lease lengths 171 Development pipeline and trading property development schemes 172 Alternative performance measures 172 Five year summary 174 Acquisitions, disposals and capital expenditure 175 Remuneration policy 180 Subsidiaries, joint ventures and associates 183 Shareholder information 186 Key contacts and advisers 187 Glossary IBC Cautionary statement Business Analysis – Group

Combined Portfolio performance relative to IPD Table 73 Total property returns – year ended 31 March 2017 Landsec IPD1 % % Retail – Shopping centres 3.6 1.1 – Retail parks 1.3 1.32 Central London shops 9.8 8.6 Central London offices 2.0 2.6 Total 3.73 4.6

1. IPD Quarterly Universe 2. IPD Retail Warehouses Quarterly Universe 3. Includes leisure, hotel portfolio and other

Combined Portfolio value by location at 31 March 2017 Table 74

Hotels, Shopping leisure, centres Retail residential and shops parks Offices & other Total % % % % % Central, inner and outer London 14.6 0.2 46.7 3.4 64.9 South East and East 10.4 3.5 – 0.9 14.8 Midlands – 0.6 – 0.4 1.0 Wales and South West 2.5 0.5 – 4.5 7.5 North, North West, Yorkshire and Humberside 7.1 0.9 0.1 0.5 8.6 Scotland and Northern Ireland 2.7 0.3 – 0.2 3.2 Total 37.3 6.0 46.8 9.9 100.0

% figures calculated by reference to the Combined Portfolio value of £14.4bn.

Total shareholder returns1 Table 75

Period to 31 March 2017 5 years 3 years 1 year £ £ £ Land Securities Group PLC 172.2 109.2 101.9 FTSE 100 151.0 124.3 124.4 FTSE 350 Real Estate Index 175.2 112.2 101.1

1. Historical TSR performance for a hypothetical investment of £100 – source: Thomson Reuters.

Voids and units in administration Chart 76 Analysis of performance relative to IPD (%) Chart 77 – like-for-like (%) (0.6) (0.3) (0.1) – 0.1 (0.9) (2.1) 20 18.6

18

16

14

12

10

8

6 4.9 4.6 Total 3.6 3.9 4 2.9 2.3 2.4 2 0.7 0.5 0.5 0.7 0.5 0.5 growthCapital 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.2 0.3

0 Impact structure of All All Relative income return Relative parks parks Retail Retail Contribution of disposals of Contribution shops shops oces oces Contribution of purchases of Contribution Leisure Leisure centres centres Central Central London London London London property property Shopping Shopping and shops and shops and hotels and hotels Contribution of developments of Contribution

Voids In administration Attribution analysis, ungeared total return, 12 months to 31 March 2017, relative to IPD Quarterly Universe. 31 March 2017 31 March 2016 Source: IPD.

156 Landsec Annual Report 2017 Additional information – – – – – – – – – – – – – – – – 1 1 1 157 12 13 (2) £m 20 36 362 (66) (147) items (204) (270) (269) results 15,195 Capital Adjusted Adjusted Table 78 Table and other other and Table 79 Table – – – – – – – – – – 2 (5) 10 52 37 34 (11) £m 101 (81) 521 521 (66) 939 637 638 382 382 600 648 (176) (106) profit 6.2% 14.4% Residual Residual business Revenue Year endedYear March 31 2017 For the year ended March 31 2016 – 1 1 1 2 12 13 (2) (5) 10 37 20 34 36 (11) £m 101 (81) 112 113 310 521 (66) 637 638 455 600 648 (147) (106) Total (380) 93.8% 85.6% 14,256 business Landsec Annual Landsec Report 2017 Tax-exempt Tax-exempt 2 – – – – – – – – – – – – – – – – – 1 – –

4 (1) (1) (2) (2) (2) (2) £m (3) (3) 235 results share of share 15,079 earnings Adjusted Proportionate Proportionate

1 – – – – – – – – – 1 – – 2 7 9 (1) (2) (2) (8) 52 53 53 42 50 40 (11) 90 44 (21) £m (69) 991 Joint 6.6% 21.3% business Residual Residual ventures

For the year ended March 31 2017 1 1 2 12 (2) 13 (2) 19 10 (3) 32 37 94 29 69 £m (10) 112 113 (79) (58) (96) 185 587 597 587 559 482 365 (186) (359) Group income 78.7% 93.4% 14,088 business statement Tax-exempt Tax-exempt 1 1 Calculated according to REIT rules. REIT to according Calculated Reallocation of the share of post-tax profit from joint ventures reported in the Group income statement to the individual line items reported in the segmental information note. reported information to the individual line items in the segmental reported income statement in the Group ventures joint from profit post-tax of the share Reallocation of the Group’s but only income statement, in the Group’s 100% at consolidated owned subsidiaries are The non-wholly subsidiaries. the Group’s of results of owned share the non-wholly of Removal note. reported information in the segmental profit is included in revenue share 

1. Profit before tax (£m) tax before Profit REIT balanceREIT of business REIT balance of business balance of REIT income the Group’s of assets and 75% the Group’s of least 75% At legislation. the REIT meet it must conditions from status REIT the Group’s retain To below: at the balance are sheet these tests date of The results qualifying to activities. must relate 1. 2. Rental income Rental Reconciliation of segmental information note to statutory reporting statutory to note information segmental of Reconciliation income The Group’s statements). the financial 4 to (note note information the segmental to income statement Group’s the reconciles below The table owned non-wholly the Group’s of the results 100% of and includes ventures joint method accounting for using the equity is prepared statement owned the non-wholly basis and excludes consolidated on a proportionately is prepared note information segmental the contrast, In subsidiaries. management. by reviewed information with the financial This is consistent subsidiaries. the Group’s share of Finance lease interest Balance of business – 75% assets test 75% – business Balance of Balance of business – 75% profits test profits 75% – business Balance of Gross rental income (before rents payable) rents income (before rental Gross Rents payable Rents Adjusted total assets (£m) total Adjusted Net service expense charge Service expense charge Gross rental income (after rents payable) rents (after income rental Gross Service income charge Other property related income Other property related Direct property expenditure Net rental income rental Net Indirect property expenditure Other income Profit on disposal of investment properties investment disposalof on Profit Loss on disposal of investment in joint venture in joint investment on disposal of Loss Profit on disposal of other investment disposalof on Profit Net (deficit)/surplus on revaluation of investment properties investment of Net (deficit)/surplusrevaluation on Movement in impairment of trading properties trading in impairment of Movement Profit on disposal of trading properties trading disposalof on Profit Head office relocation Head office Other Finance income Operating profit Operating Finance expense Share of post-tax profit from joint ventures joint from profit post-tax of Share Profit before tax before Profit Taxation Profit attributable to owners of the parent of owners to attributable Profit Business Analysis – Group continued

Cost analysis Table 80

Year ended Year ended 31 March 2017 31 March 2016 Cost ratio Cost ratio £m Total £m %1 Total £m %1 Gross rental income (before rents payable) 648 Managed operations 8 1.2 8 1.2 Gross rental income (after rents payable) 637 Direct Tenant default 2 0.3 9 1.4 property Net service charge expense (5) Void related costs 13 2.0 15 2.3 costs Net direct property expenditure (32) £37m Other direct property costs 12 1.9 12 1.8 Net rental income 600 Indirect costs (39) Development expenditure 16 2.5 20 3.0 Segment profit before finance expense 561 Net unallocated expenses (40) Indirect expenses Net finance expense – Group (118) £79m Asset management, Net finance expense – joint ventures (21) administration and Revenue profit 382 compliance 65 10.0 59 9.0 Total (incl. direct Total £116m vacancy costs) 116 17.9 123 18.7 Total cost ratio1 17.9% Head office relocation (1) 6 EPRA costs (incl. direct vacancy costs) 115 18.1 129 19.9 Less: Direct vacancy costs (12) (15) EPRA (excl. direct vacancy costs) 103 16.2 114 17.5

1. Percentages represent costs divided by gross rental income including finance leases, before rents payable. This is with the exception of EPRA measures which represent costs divided by gross rental income including finance leases, after rents payable.

EPRA performance measures Table 81

31 March 2017 Landsec EPRA Definition for EPRA measure Notes measure measure Adjusted earnings Recurring earnings from core operational activity1 5 £382m £359m Adjusted earnings per share Adjusted earnings per weighted number of ordinary shares1 5 48.4p 45.4p Adjusted diluted earnings per share Adjusted diluted earnings per weighted number of ordinary shares1 5 48.3p 45.4p Adjusted net assets Net assets adjusted to exclude fair value movements on interest-rate swaps2 5 £11,206m £11,520m Adjusted diluted net assets per share Adjusted diluted net assets per share2 5 1,417p 1,456p Triple net assets Adjusted net assets amended to include the fair value of financial instruments and debt n/a £10,502m Diluted triple net assets per share Diluted triple net assets per share n/a 1,328p Net initial yield (NIY) Annualised rental income less non-recoverable costs as a % of market value plus assumed purchasers’ costs3 3.6% 4.2% Topped-up NIY NIY adjusted for rent free periods3 4.2% 4.4% Voids/vacancy rate ERV of vacant space as a % of ERV of Combined Portfolio excluding the development programme4 4.6% 4.0% Cost ratio Total costs as a percentage of gross rental income (including direct vacancy costs)5 17.9% 18.1% Total costs as a percentage of gross rental income (excluding direct vacancy costs)5 n/a 16.2%

1. EPRA adjusted earnings and EPRA adjusted earnings per share include the amortisation of bond exchange de-recognition of £24m and the net head office relocation credit of £1m. 2. EPRA adjusted net assets and adjusted diluted net assets per share include the bond exchange de-recognition adjustment of £314m. 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 all developments. 4. Our measure reflects voids in our like-for-like portfolio only. The EPRA measure reflects voids in the Combined Portfolio excluding only the development programme. 5. The EPRA cost ratio is calculated based on gross rental income after rents payable, whereas our measure is based on gross rental income before rents payable. We do not calculate a cost ratio excluding direct vacancy costs as we do not consider this to be helpful.

158 Landsec Annual Report 2017 Additional information 7 159 21 15 19 10 24 24 120 Table 86 Table Chart 87 Chart 85

Properties Chart 84 Number of Number 2021+ 6.1 2.8 2.6 9.6 6.5 16.7 16.3 23.2 26.7 33.3

% 3.8 2.8 8.5 0.5 8.4 11.4 64.6 Value 100.0 2020 Landsec Annual Landsec Report 2017 London Portfolio Portfolio London Retail Portfolio Portfolio Retail Total Total Transport, communications Transport, Wholesale trade 2.6 Other Manufacturing Manufacturing Retail trade trade Retail Public administration Financial services Services 5 2019 95 2018 Trading properties Trading Development programme Development 0 10 10 – 24.99 10 – 25 – 49.99 50 – 99.99 149.99 100 – space but residential spend includes the cost of future Estimated interest. excludes % portfolio value andnumber by of £m 0 – 9.99 199.99 150 – 200+ property holdings March 2017 at 31 Total Floor sq ft) space (million Annual net rent breakdown occupierby businesssector (%) 70 Committed development – estimated spend future (£m) 20 50 30 40 80 90 60 100 1

1 2 5 11 1.1 1.1 1.1 23 26 £m 5.1 5.1 1.2 1.2 1.2 1.7 1.5 1.3 211 191 (13) 5.2 (26) (53) (35) 326 234 rent 26.8 1,336

(1,043) Table 82 Table Table 83 Table Year ended Year % of Group 31 March31 2016

1 2 2 3 8 24 68 £m 112 351 (37) 170 218 (20) (56) 277 250 Year ended Year 31 March31 2017 On a proportionate basis.

The table provides a reconciliation of the Company’s profit before tax to tax before profit the Company’s of a reconciliation provides The table is required which the Company 90% of income, exempt tax its estimated The Company regulations. with REIT comply as a PID to distribute to Impairment of goodwillImpairment of asset Amortisation intangible of adjustments Tax allowances Capital interest Capitalised distribution. the minimum make after end to 12 months year the has the distribution to relate may year PID dividends paid in the Accordingly, periods. previous of requirements Profit before tax per accounts tax before Profit Table PID 1. Accor Government Central Bank Mizuho Boots Sainsbury’s Wessing Taylor H&M Gates K&L M&S Cineworld Group Telecity exclude to Adjustment on disposals and profits Valuation income Interest Amortisation de-recognition bond exchange of adjustment notes medium term of Redemption rate-swaps interest on movement value Fair liabilities redemption of Revaluation year income for exempt tax Estimated (90%) PID thereon year PID dividends paid in the Deloitte March occupiers 2017 12 at 31 Top Cumulative tax adjustments and removal of net of adjustments and removal tax Cumulative result tax residual Business Analysis – London

London Portfolio valuation (%) Chart 88 London Portfolio oor space (sq ft) Chart 90

West End 39 West End oces 2.3 Mid-town 16 City oces 1.7 City 22 Mid-town oces 1.2 Inner London 4 Inner London oces 0.5 Central London shops 18 Central London shops 0.7 Other 1 6.5m Other 0.1 £8.3bn sq ft Total 6.5

West End Top 10 office customers Table 91 Our £3.2bn West End office portfolio is dominated by our Victoria assets which include Cardinal Place, SW1, Queen Anne’s Gate, SW1, % of Group rent 62 Buckingham Gate, SW1, and developments including The Zig Zag Deloitte 5.2 Building, SW1 and Nova, Victoria, SW1. Central Government (including Queen Anne’s Gate, SW1) 5.1 Mid-town Mizuho Bank 1.7 Positioned between the City and West End, our cluster of buildings at Taylor Wessing 1.2 New Street Square, EC4, represent our major assets and developments K&L Gates 1.2 in Mid-town. Telecity Group 1.1 City Deutsche Bank 1.1 Our £1.9bn City office portfolio includes assets such as One New Change, Bain & Co 0.8 EC4 and the now completed schemes at 20 Fenchurch Street, EC3 and 1 & 2 New Ludgate, EC4. Schlumberger Oilfield UK 0.7 Wellington Management 0.7 Inner London 18.8 Includes our assets at Docklands, E14 and Southwark, SE1. Office other 20.0 Central London shops Total 38.8 This segment comprises the retail space in our London Portfolio assets. The largest elements are Piccadilly Lights, W1 and the retail space at One New Change, EC4, and Cardinal Place, SW1. London like-for-like — rental and capital value Table 92 trends % year ended 31 March 2017 Voids and units in administration Chart 89 Rental value Valuation change1 change – like-for-like London Portfolio (%) % % 20 19.1 West End 2.5 (4.3)

18 City 8.1 (3.1)

16 Mid-town (1.0) (5.1)

14 Inner London 0.6 (7.8) Central London shops 4.7 6.9 12 Total London like-for-like portfolio 3.0 (1.8) 10

8 7.1 1. Rental value change excludes units materially altered during the year and Queen Anne’s Gate, SW1. 6 4.9 4.6 3.6 3.6 3.9 4 3.0 2.4 2

0 Mar Sep Mar Mar Sep Mar Mar Sep Mar 16 16 17 16 16 17 16 16 17 London Central London London oces shops Portfolio

In administration Voids

160 Landsec Annual Report 2017 Additional information

161 % 1.1 1.1 1.2 1.5 1.3 1.0 2.3 0.9 0.8 0.8 0.6 (1.3) 37.5 (4.2) 10.3 (0.9) 47.8 change Table 97 Table Valuation Table 96 Table Chart 95 % of Group rent 2.7 8.2 5.6 0.2 16.7 1 % 1.1 1.6 0.2 0.6 change Rental value Rental

Landsec Annual Landsec Report 2017 Shopping centres Shopping centres Retail parks parks Retail Leisure and hotels and hotels Leisure Other Total sq ft sq 16.7m Rental value change excludes units materially altered during the year. during the altered units materially change excludes value Rental

Top 10 retail customers 10 Top Boots Sainsbury’s H&M Cineworld Currys & PC World Total Next Group Arcadia M&S Vue Accor) (excluding other Retail Total Retail like-for-like portfolio like-for-like Retail Total Leisure and hotels Leisure Retail like-for-like — rental and value capital rental — like-for-like Retail trends % year ended March 2017 31 and shops Shopping centres parks Retail 1. Retail PortfolioRetail ft) oor space (sq .2 17 3 Mar Chart 93 Chart 94 .0 16 3 Sep 0.3 14.1 22.6 .5 16 2 Mar Retail Portfolio Retail .8 17 0 Mar .6 16 0 Sep .0 16 1 Mar Leisure and hotels Leisure Shopping centres and shops and shops Shopping centres parks Retail 63.0 Leisure and hotels and hotels Leisure Other 17 Mar .2 16 0 Sep Retail parks Retail 16 Mar Voids .4 17 4 Mar .5 16 4 Sep and shops .6 16 3 Mar £6.1bn Shopping centres In administration 1 2 5 3 4 0 We also own 25 Accor Group hotels in the UK. Three hotels were soldwere hotels Three in the UK. hotels Group Accor 25 also own We years 75 for Accor leased to are 22 The remaining 2017. after 31 March thereafter. yearly 12 and 2031 clause in with a break Leisure and hotels Leisure X-Leisure the of 95% share assets and a leisure stand-alone own five We space. and entertainment prime leisure 15 schemes of which comprises Fund Retail parks Retail and offer centres town from located away typically are parks 13 retail Our shopping. convenient with parking providing and leisure retail of a range and Bexhill Park Retail Lakeside Thanet, Cross Westwood Assets include Park. Retail Shopping centres and shops centres Shopping locations in major retail centres 13 shopping Comprises our portfolio of Quays, Gunwharf Leeds, Trinity Kent, Bluewater, including UK the across and Buchanan Galleries in Glasgow. Portsmouth Business Analysis – Business Retail – Analysis Retail PortfolioRetail valuation (%) Voids and units in administrationVoids PortfolioRetail (%) – like-for-like Sustainability reporting

We see sustainability as a business advantage and are seeking to embed Commitment sustainable practices into everything we do. We have a vision to lead Diversity: Make measurable improvements to the profile – in terms of the UK listed real estate sector and demonstrate best practice. This gender, ethnicity and disability – of our employee mix. section includes a summary of our performance against our corporate commitments and our key disclosures. For more information please visit Performance www.landsec.com/sustainability With 36% of our management being female, we already exceed the recent Hampton-Alexander recommendations for females at our Executive Committee and senior leader level (combined percentage of 33%) and Creating jobs and opportunities female representation has increased by 1% overall. We’ve also seen an increase of 3% in employees identified as black, asian or mixed ethnicity. Commitment Employment: Help a total of 1,200 disadvantaged people to secure jobs Ethnicity (%) Chart 99 by 2020.

White 80 Performance Other 6 Since 2011 we have secured employment for 962 people from Mixed 5 Black 5 disadvantaged backgrounds. In 2016/17, 183 jobs have been secured Not Stated 2 (134 in London and 49 in Retail). Asian 2

Cumulative total number of jobs secured Table 98

1,200

1,000 962 779 800 Commitment 583 600 Health, safety and security: Maintain an exceptional standard of health, 426 safety and security in all the working environments we control. 400 206 Performance 200 105 26 This year we continued sharing best practice through our ‘One Best Way’ 0 guidelines and our Health and Safety pledge, which new starters and 2011201222013 014 2015 2016 2017 external customers signed up to. We also maintained our OHSAS 18001 Jobs Target certification, the benchmark for health and safety management systems.

Commitment Fairness: Ensure the working environments we control are fair and ensure that everyone who is working on our behalf – within an environment we control – is paid at least the Foundation Living Wage by 2020.

Performance Landsec received accreditation from the Living Wage Foundation in March 2017. We have a milestone programme now in place so that we can meet our 2020 commitment.

162 Landsec Annual Report 2017

Additional information 163

2050

7 /1 2 11 Table 101 Table

Table 102 Table 2016 c 2045 77 andse L 14 3/ 129 01 Baseline 2040 72 /1 62 2035 2016 ) by 40% by 2030 compared 2030 by 40% ) by 2 il Landsec Annual Landsec Report 2017 ta Re 14 3/ 64 2030 01 Baseline

72 Sector Pathway Landsec Pathway – projected 2025 /1 213 2016 ondon L 2020 4 7 /1 24 2013 Baseline 2015 0 0 0 10 50 70 20 50 30 40 80 90 60

2030 target 150 100

250

20 300

Landsec Pathway – target Landsec Pathway – actual

m h/ KW

2 m e/ CO Kg 2 2 to a 2013/14 at least propertyto a for for under our management baseline, two years. Performance our to 13% compared by portfolio reduced have intensity energy We our from 2013/14 savings realised This has been by achieved baseline. programme. management active energy Our Retail Portfolio intensity has reduced by 3%. Overall we have Overall 3%. by has reduced intensity Portfolio Our Retail meet to on track 13% and are by intensity Combinedreduced Portfolio commitment. our 2030 The above chart shows the energy intensity improvements we have madewe have improvements chart intensity The above shows the energy Office buildings portfolioswhole. and Retail as and Landsec in our London assets than Retail intensity a much higher energy have naturally in London 2013/14.14% since by intensity Portfolio London reduced we have and Landsec energy intensity energy Landsec Landsec carbon emissions intensity pathway required our against the performance indicates figure The above are We our portfoliodecarbonisation pathways of wider sector. and the our for on track and are pathway outperforming our target currently 2030 commitment. Commitment (kWh/m intensity energy Reduce Energy: Table 100 Table 16 Sept 16 Mar ) by 40% by 2030 compared 2030 by 40% ) by 2 /m 15 2 Sept Commitment 15 Mar Landsec 14 Sept Retail Send zero waste to landfill with at least 75% recycled across all across recycled 75% with at least landfill to waste Send zero 14 Mar London % % 70 50% 30% 40 80% 60% 90% Performance to compared 18.5% portfolio reduced have by carbonWe intensity 2013/14via reductionsThis has been in energy our achieved baseline. energy changes in the UK’s favourable by and assisted consumption mix. generation to a 2013/14 a at least propertyto for under our management for baseline, two years. Commitment (kgCO Carbon: carbon Reduce intensity Landsec monthly portfolio recycling 2014-16 rates In construction activities for 2016/17, a total of 7,571 tonnes of construction of tonnes 7,571 of a total In construction2016/17, activities for 2% being less than with was recycled, 98% Over was generated. waste landfill. to sent Performance 70.8%. recycled landfill and from waste 2016/17 In of we diverted 99.9% and 70.3%. was 99.3% which before year the from This is an improvement with of 77% landfill 100% from divert to continues Portfolio Our London landfill from divertingwe are 99.9% Portfolio, Retail In our recycled. waste 68.4%. and recycling Commitment Waste: 2020. and constructionour operational activities by We have set a new metric to achieve 3 MW of renewable electricity renewable of 3 MW achieve metric to set a new have We the completion following MW, is 0.6 capacity Our current 2030. by capacity 1.4 MW. will rise to this Rose White and Leeds Trinity at our installations of Performance 2016; April 1 has been in place since with SmartestEnergy Our contract our new agreed have We sources. 100% renewable all electricityfrom is 2017. April 1 effect from which has taken Energy with Corona gas contract gas derived from as green volume our total 15% of procuring now are We 100% waste streams. Efficient use of natural resources natural of use Efficient Commitment our electricity across 100% renewable procure to Continue Renewables: 2030. electricity by capacity renewable portfolio of 3 MW and achieve Sustainability reporting continued

Commitment Sustainable design and innovation Biodiversity: Maximise the biodiversity potential of all our development and operational sites and achieve a 25% biodiversity net gain across our Commitment five sites currently offering the greatest potential, by 2030. Resilience: Assess and mitigate site-specific climate change adaptation risks that are material across our portfolio. Performance We are focussing our work on the five sites that offer the greatest Performance biodiversity potential. These are: Bluewater, Kent; Gunwharf Quays, This is a new commitment for 2017 and work is in progress to assess our Portsmouth; St David’s, Cardiff; The Galleria, Hatfield and White Rose, climate risks and determine opportunities for mitigation. This work will be Leeds. We have identified opportunities to enhance biodiversity at each of undertaken in collaboration with our Group Research and Insurance teams. these sites and expect to begin implementation next year.

Commitment The table below lists the five sites and rating classifications Embodied carbon: Carry out embodied carbon analysis to inform the selection and procurement of building materials to reduce environmental Table 103 impacts. Achieve at least a 15% reduction in embodied carbon. Current Targeted Sites rating rating Performance Bluewater, Kent A A+ Our Westgate Oxford development set an ultra-low carbon target Gunwharf Quays, Portsmouth B B+ requiring the reduction of embodied carbon by 25,777 tonnes. We’re delighted to report that we’ve met this target, avoiding over 30,000 St David’s, Cardiff C B+ tonnes of embodied carbon emissions. This equates to an 18% saving, The Galleria, Hatfield C B+ exceeding our corporate commitment. These are the emissions that would White Rose, Leeds B+ A have been created if we’d used the initial design, which we’ve avoided through design development. This means the building has avoided as Commitment many emissions as it will generate over the next 30 years. Wellbeing: Ensure our buildings are designed and managed to maximise wellbeing and productivity.

Progress We have conducted a trial of WELL certification on the fit out of our new headquarters at 80-100 Victoria Street, SW1 to learn more about the process. The design incorporated many wellbeing features, and was recognised by staff in the Leesman® Workplace Survey, which ranked Landsec in the top 3% of companies surveyed. This performance will enable us to help our customers deliver WELL projects for their employees in the future.

164 Landsec Annual Report 2017 Additional information 165 Table 105 Table Table 104 Table hours spent by spent hours by 1 May 2016 May 2016 July October 2016 October 2016 November 2016 November 2016 January 2017 2017 March 2017 March 2017 March 2017 March 2017 March April 2017 Date Landsec Annual Landsec Report 2017 Clean and Green Award Clean and Green with a National Charity Partnership Award Leadership Environmental National Commitment to the Community Award the Community to National Commitment EC4 Ludgate, New 1&2 Award, Year the Building of EC4 Ludgate, New 1&2 Building, Best Commercial Year, the Project of and Development Developer 2016: 4th out of 13 in performance out 4th of 13 league2016: table in performance out 10th of 13 league2015: table for Facilities Premier Award EC4, Square, New Street Cup Management and Chairman’s Platinum Award EC3, Street, Fenchurch 20 2016: 13th out in of performance 22 13th league2016: table out in performance 22nd of 23 league2015: table — — — — — — employees volunteering employees partner for raised partnership £360,000 Over Mencap in our three-year Retail — — 2,678 cash investment. and promotion time, of £2m equivalent Over Winner: Winner: Winner: Winner: EC4 Ludgate, 1&2 New – Reduction2016 Project Most Inspiring Energy Winner: EMA with Landsec in Collaboration NG Bailey SW1 Zag Building, The Zig Best Office, World’s Winner: Winner: — — & Fit-Out award Winner: BREEAM Refurbishment Offices Award of the Year Team Shortlisted: Shortlisted: Shortlisted: construction & property – partnership Charity Shortlisted: Shortlisted: Inclusion Award Work Reaccreditation: 2016: A- A- (Leadership) 2016: B 99/score disclosure 2015: A- score 96/ disclosure 2014: 88/score disclosure B 2013: 92/score disclosure B 2012: 77% score 2016: 77% score 2015: 78% score 2014: 67% score 2013: 68% score 2012: 92 ranking 76/percentile score 2016: 89 72/percentile ranking score 2015: 87 70/percentile ranking score 2014: 87 72/percentile ranking score 2013: 85 70/percentile ranking score 2012: position in the FTSE4Good our established Index retain to continue We Reporting Sustainability for 2016 Awards EPRA Sustainability at Award a Gold Received Offices — — Award category Award Performance This year we launched a new community investment activity tool. We anticipate that with continued employee engagement on how to use the new tool we will see increased investment statistics will see investment increased we tool use the new to on how engagement employee with continued that anticipate We activity tool. investment community we launched a new year This for the 2017/18 year. financial

National Charity Partnership National Charity Award name Award Better 2016 Awards Society 2016 Awards Year the Building of London of City 2016 RICS Awards 2016 Awards (LEAF) Forum Architects European Leading 2016 Awards Management Energy EMA Festival Architectural World 2017 Scheme Awards Clean City London of The City 2017 BREEAM Awards 2017 National Awards Recycling National 2017 CSR Awards Better 2017 Awards Society 2017 Business Awards Charity 2017 Awards Business Responsible BITC Awards and membership Awards 1. Community investment data investment Community given resources of Value Global Real Estate Sustainability Benchmark (GRESB) Benchmark Sustainability Global Estate Real (DJSI) Index Jones Sustainability Dow FTSE4Good EPRA REEB Activity ProjectCarbon (CDP) Disclosure Benchmarking scores Benchmarking and awards with stakeholders It also provides our progress. and assess part track our performanceto helps us benchmarking external of in rigorous Taking leader in our industry. to sustainability be a our ambition And it underlines action. into targets our commitmentsturning and we’re that confidence benchmarking schemes: key our from scores high we received This year Sustainability reporting continued

Green building certifications Landsec – Scope 1 and 2 emissions 2015-17 Table 108 Scope 1 and 2 Location-based emission Market-based emission factors Our BREEAM rated space Table 106 mandatory factors reporting Feb 16 Feb 17 Emissions 2015 2016 2017 2016 2017 Total common and tenanted space (m²) 2,681,066 3,021,432 Scope 1 tCO2e 13,711 13,648 16,477 Scope 1 13,648 16,477 Total space with BREEAM rating (m²) 583,919 996,585 tCO2e

Percentage of total which is BREEAM rated 22% 33% Scope 2 tCO2e 64,114 55,688 47,066 Scope 2 34,259 3,862 tCO2e Scope 1 and 2 77,825 69,336 63,543 Scope 1 47,907 20,338 BREEAM rating Table 107 and 2 tCO2e % of our tCO2e Area m2 total space

Outstanding 4,864 0.2% Intensity Excellent 534,490 17.7% Scope 1 and 2 0.041 0.038 0.038 Scope 1 0.026 0.012 2 Very Good 218,959 7. 2% tCO2e/m and 2 2 tCO2e/m Good/Pass 238,272 7.9%

The tables above outline the percentage of our portfolio rated by BREEAM 1 CO2e Conversion Factors – Location-based Table 109 and the breakdown of these ratings. BREEAM is a well-established 2015/16 2016/17 % Change assessment method and ratings system for buildings and continues to Electricity 0.57492 0.51680 -10.1% be a valuable indicator of quality and sustainability. It looks at a building’s performance and rates it on a scale which includes Pass, Good, Very Good, Natural gas 0.20928 0.20899 -0.1% Excellent or Outstanding. 1. Combined conversion factor including well-to-tank and transmission and distribution factors.

Greenhouse gas reporting The table below outlines the location-based emission factors used for the 2016/17 year and how they compare to the previous year. We report our full greenhouse gas (GHG) emissions annually in accordance to the World Resources Institute’s Greenhouse Gas Protocol. Landsec is also committed to EPRA Best Practice Recommendations for Landsec – Scope 1 and 2 emissions 2015-17 Table 110 Sustainability reporting, for which we have won a Gold award for three 90,000 years running. We believe that such reporting improves transparency and performance. We report our data using an operational control approach 80,000 64,114 to define our organisational boundary. A detailed description of our reporting methodology and data, including our EPRA figures, can be 70,000 55,688 found at www.landsec.com/sustainability 47,006 GHG emissions are broken down into three scopes, Scope 1,2 and 3. 60,000 Scope 1 emissions are direct emissions from activities controlled by e 50,000

2 34,259 us that release emissions into the atmosphere, whereas Scope 2 emissions tCO are indirect emissions associated with our consumption of purchased 40,000 energy. Scope 2 emissions are reported using both the ‘location-based’ and ‘market-based’ accounting methods. Location-based emissions are 30,000 reported using UK Government Greenhouse gas reporting – Conversion 3,862 20,000 factors 2016. Market-based emissions are reported using the conversion 16,477 16,447 factor associated with each individual electricity supply as per the 10,000 13,711 13,648 13,648 supplier’s guidance. Scope 1 emissions are currently reported using only the location-based method. Scope 3 emissions are those that are a consequence of our actions, 2015 2016 2017 2016 2017 but which occur at sources we do not own or control and which are not Location-based emission factors Market-based emission factors classed as Scope 2 emissions. The GHG Protocol identifies 15 categories Scope 1 tCO2e Scope 2 tCO2e of which eight are directly relevant for Landsec. Total GHG emissions using location-based emission factors have dropped by 8% since the previous year. This has been driven by a reduction in electricity consumption and the drop in national emission factors due to a cleaner energy mix. In terms of market-based emissions we have seen a significant reduction of 58%. This has been due to our move to 100% renewable electricity via our contract with SmartestEnergy. This is the first year where we have fully reported our Scope 3 emissions having worked with the Carbon Trust to establish an accurate and repeatable methodology. We believe it was important to do so to fully understand and disclose the total emissions associated with our business. The table below provides a breakdown of our entire emission inventory including Scope 3.

166 Landsec Annual Report 2017 Additional information 167 2% 7% 2% 9% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 42% 38% emissions Table 111 Table % of total e) 2 182 n/a n/a n/a n/a n/a n/a n/a 703 360 (tCO 13,982 16,477 61,647 47,066 283,570 258,428 Emissions Grouped under PG&S Landsec Annual Landsec Report 2017

Table 112 Table

(%) 14. Franchises 14. 7. Employee commuting Employee 7. leased assets Upstream 8. transportation Downstream and distribution 9. sold products of Processing 10. sold products Use of 11. sold products of treatment End-of-life 12. leased assets Downstream 13. Investments 15. 5. Waste generated in operations generated Waste 5. Business travel 6. Scope 1 Scope 2 goods Purchased and services (PG&S) 1. goods Capital 2. transportation Upstream distribution and 4. 3. Fuel- and energy-related activities and energy-related Fuel- 3. Category Capital goods 45.82% Downstream leased assets 41.76% Purchased goods and services (PG&S) 9.96% Fuel- and energy-related activities 2.26% Others 0.20% Scope 1, 2 and 3 emissions 2016/17 Scope 2 and 3 emissions 1, 2016/17 – Scope 2 Scope 3 GHG ScopeGHG Scope 1 The two largest contributing categories are Capital goods Capital and are categories contributing The two largest emissions. our entire of making up 80% leased assets, Downstream with the manufacture Capital goods include the emissions associated within our construction used activity andand transport materials of with our customers those associated leased assetsDownstream are our impacts reduce working to in these are We within our assets. chain partnerswith our supply working closer and by categories reduction strategies. customers on Landsec – Scope 3 GHG emissions 2016/17Scope 3 GHG emissions – Landsec The GHG Protocol splits Scope 3 emissions into 15 categories. We assessed We 15 categories. splits Scope 3 emissions into The GHG Protocol our applicable to were which ones and decided each one individually spots hot obvious we have applicable that are the categories For business. below: highlighted which are Landsec Combined Portfolio analysis

Like-for-like segmental analysis Table 113 Annualised rental Net estimated Market value1 Valuation movement2 Rental income3 income4 Annualised net rent5 rental value6 31 March 31 March Surplus/ Surplus/ 31 March 31 March 31 March 31 March 31 March 31 March 31 March 2017 2016 (deficit) (deficit) 2017 2016 2017 2017 2016 2017 2016 £m £m £m % £m £m £m £m £m £m £m Retail Portfolio Shopping centres and shops 3,663 3,677 (47) (1.3%) 194 195 184 179 180 195 190 Retail parks 855 886 (37) (4.2%) 52 52 52 51 50 51 51 Leisure and hotels 1,361 1,323 30 2.3% 82 84 81 79 78 82 81 Other 20 20 - (2.0%) 2 2 1 2 2 2 2 Total Retail Portfolio 5,899 5,906 (54) (0.9%) 330 333 318 311 310 330 324 London Portfolio West End 2,020 2,084 (87) (4.3%) 89 88 91 89 84 98 96 City 797 797 (25) (3.1%) 29 28 29 32 32 40 37 Mid-town 1,013 1,053 (50) (5.1%) 40 39 40 43 42 49 49 Inner London 323 320 (13) (7.8%) 14 13 14 15 9 17 17 Total London offices 4,153 4,254 (175) (4.4%) 172 168 174 179 167 204 199 Central London shops 1,267 1,181 82 6.9% 45 44 34 34 45 58 55 Other 41 45 (4) (7.8%) 2 2 1 1 1 1 1 Total London Portfolio 5,461 5,480 (97) (1.8%) 219 214 209 214 213 263 255 Like-for-like portfolio10 11,360 11,386 (151) (1.4%) 549 547 527 525 523 593 579 Proposed developments3 6 4 (3) (33.2%) – – – – – – – Development programme11 1,138 1,013 14 1.3% 21 8 25 1 – 60 63 Completed developments3 1,841 1,771 (7) (0.4%) 63 47 70 40 16 86 85 Acquisitions12 94 90 – 0.4% 4 2 4 4 4 4 3 Sales13 – 207 – – 11 56 – – 13 – 12 Combined Portfolio 14,439 14,471 (147) (1.0%) 648 660 626 570 556 743 742 Properties treated as finance leases (10) (10) Combined Portfolio 14,439 14,471 (147) (1.0%) 638 650

Total portfolio analysis Total portfolio analysis continued Annualised rental Net estimated Gross estimated Market value1 Valuation movement2 Rental income3 income4 Annualised net rent5 rental value6 rental value7 Net initial yield8 31 March 31 March Surplus/ Surplus/ 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 2017 2016 (deficit) (deficit) 2017 2016 2017 2017 2016 2017 2016 2017 2016 2017 2016 £m £m £m % £m £m £m £m £m £m £m £m £m % % Retail Portfolio Retail Portfolio Shopping centres and shops 3,860 3,790 (37) (0.9%) 195 196 185 179 180 210 205 Shopping centres and shops 219 213 4.1% 4.2% Retail parks 861 890 (40) (4.5%) 52 68 52 51 50 51 51 Retail parks 52 52 5.4% 5.1% Leisure and hotels 1,384 1,542 30 2.2% 94 98 82 80 91 83 93 Leisure and hotels 83 93 5.2% 5.3% Other 20 20 - (1.9%) 2 2 1 2 2 2 2 Other 2 2 3.8% 6.3% Total Retail Portfolio 6,125 6,242 (47) (0.8%) 343 364 320 312 323 346 351 Total Retail Portfolio 356 360 4.5% 4.6% London Portfolio London Portfolio West End 3,247 3,262 (103) (3.2%) 123 109 127 107 97 156 156 West End 156 156 3.0% 2.8% City 1,853 1,814 (14) (0.8%) 66 65 67 53 36 88 83 City 89 84 2.7% 1.7% Mid-town 1,336 1,325 (48) (3.7%) 48 41 55 42 41 67 67 Mid-town 68 69 3.0% 3.0% Inner London 323 320 (13) (7.8%) 14 28 14 15 9 17 17 Inner London 17 17 4.2% 2.6% Total London offices 6,759 6,721 (178) (2.8%) 251 243 263 217 183 328 323 Total London offices 330 326 3.0% 2.5% Central London shops 1,514 1,462 82 5.7% 52 51 42 40 49 68 67 Central London shops 69 68 2.4% 3.1% Other 41 46 (4) (7.9%) 2 2 1 1 1 1 1 Other 1 1 0.9% 1.1% Total London Portfolio 8,314 8,229 (100) (1.3%) 305 296 306 258 233 397 391 Total London Portfolio 400 395 2.9% 2.6% Combined Portfolio 14,439 14,471 (147) (1.0%) 648 660 626 570 556 743 742 Combined Portfolio 756 755 3.6% 3.5% Properties treated as finance leases (10) (10) Combined Portfolio 14,439 14,471 (147) (1.0%) 638 650

Represented by: Represented by: Investment portfolio 12,628 12,800 (187) (1.5%) 585 600 571 523 527 650 650 Investment portfolio 661 661 3.7% 3.7% Share of joint ventures 1,811 1,671 40 2.3% 53 50 55 47 29 93 92 Share of joint ventures 95 94 2.4% 1.7% Combined Portfolio 14,439 14,471 (147) (1.0%) 638 650 626 570 556 743 742 Combined Portfolio 756 755 3.6% 3.5%

168 Landsec Annual Report 2017 Additional information 3 – – – % 169 2016 n/a n/a n/a n/a n/a n/a 4.9% 0.4% 2.3% 2.9% 0.5% 4.7% 2.9% 2.0% 2.4% 16.7% 21.7% 31 March Table 114 Table Voids (by ERV) Voids(by – – – – % 2017 n/a n/a n/a n/a n/a n/a 3.6% 7.0% 0.7% 7.6% 3.9% 2.8% 4.6% 18.6% 33.3% 33.3% 31 March 9 % 2016 n/a n/a n/a n/a 4.9% 4.0% 1.5% 4.5% 4.4% 4.5% 4.4% 5.4% 5.5% 8.2% 4.5% 4.7% 5.0% 4.7% 4.0% 4.1% 31 March Landsec Annual Landsec Report 2017 Equivalent yield Equivalent % 2017 n/a n/a 1.3% 5.0% 4.1% 4.7% 4.5% 4.8% 4.5% 8.3% 5.6% 5.4% 4.6% 4.8% 5.0% 4.8% 4.2% 4.2% 3.8% 4.7% Includes all properties sold since 1 April 2015. April 1 Includes all properties sold since Includes all properties acquired since 1 April 2015. April 1 Includes all properties since acquired Net initial yield – refer to glossary for definition. This definition. glossary for to refer – yield Net initial withcalculation includes all properties including those sites no income. Proposed definition. glossary for to refer – yield Equivalent the calculation of from excluded are developments yield on the Combined Portfolio. equivalent definition. glossary for to refer – portfolio The like-for-like head acquisitions of on refurbishments, expenditure Capital has been to allocated expenditure leases and similar capital portfolio this table. in preparing the like-for-like glossary for to refer – programme The development for calculated are only yield figures Net initial definition. have that properties programme in the development practicalreached completion. The market value figures are determined by the Group’s the Group’s by determined are figures value The market valuer. external after the adjusting is stated for movement valuation The SIC15 under IFRS. of effect definition. glossary for to Refer (as income’ income is annual ‘rental Annualised rental except defined in the glossary) at the balance sheet date, included income are that car park and commercialisation on a net basis (after deduction outgoings). operational for lettings. income includes temporary Annualised rental after the deduction cash rent, is annual Annualised net rent It is as at the balance sheet date. rents, ground of as annualisedwith the same methodology rental calculated SIC15 and before rent ground net of income but is stated adjustments. value, rental estimated is gross value rental Net estimated after deductingexpected as defined ground in the glossary, rents. glossary for to refer – (ERV) value rental estimated Gross to relates proposeddevelopments for The figure definition. the schemes proposed. buildings and not the existing 31 March   

13. 9. 10. 11. 12. Notes: 1. 2. 3. 4. 5. 6. 7. 8. 8 8 – – % % 2016 2016 1.0% 2.6% 3.5% 3.7% 3.6% 3.7% 3.8% 6.3% 4.2% 6.3% 4.6% 2.8% 1.7% 3.0% 2.6% 2.5% 3.1% 1.1% 2.6% 3.5% 3.7% 1.7% 3.5% 5.1% 5.3% 3.8% 5.1% 5.3% 4.4% 4.7% 4.2% 5.5% 0.8% 3.6% 3.5% 31 March 31 March Net initial yield Net initial yield – – % % 2017 2017 0.9% 4.2% 2.5% 4.0% 3.6% 3.8% 4.0% 3.8% 4.1% 3.8% 4.5% 3.0% 2.7% 3.0% 4.2% 3.0% 2.4% 0.9% 2.9% 3.6% 3.7% 2.4% 3.6% 5.5% 5.2% 4.0% 5.4% 5.2% 4.3% 4.7% 4.2% 0.1% 2.0% 3.7% 3.6% 31 March 31 March 7 7 – 1 2 2 1 3 £m £m 17 56 38 51 84 69 17 68 94 52 81 96 52 93 12 64 85 2016 2016 202 259 755 661 755 213 360 156 326 395 197 332 591 755 31 March 31 March rental value rental rental value rental Gross estimated estimated Gross Gross estimated estimated Gross – – 1 2 2 1 4 £m £m 17 58 41 50 89 68 17 69 95 52 82 98 52 83 61 87 2017 2017 206 265 756 661 756 219 356 156 330 400 203 339 604 756 31 March 31 March 11 3 3 10 12 13 Other Inner London offices London Total shops London Central Portfolio London Total portfolio Like-for-like Other City Mid-town Combined Portfolio Represented by: Represented portfolioInvestment ventures joint of Share Combined Portfolio Central London shops London Central Other Portfolio London Total Mid-town Inner London offices London Total London Portfolio London End West City Leisure and hotels Leisure Other Portfolio Retail Total Retail Portfolio Retail and shops Shopping centres parks Retail Total portfolio analysis continuedTotal Retail parks Retail and hotels Leisure Portfolio Retail Total Portfolio London End West Retail Portfolio Retail and shops Shopping centres Like-for-like segmental analysis continued Like-for-like Proposed developments Proposed Development programme Development Sales Combined Portfolio Completed developments Completed Acquisitions 6 2 1 £m 93 67 92 83 17 51 67 2016 391 156 205 351 742 650 742 323 31 March rental value rental Net estimated estimated Net 2 1 83 68 93 88 17 51 67 £m 2017 397 156 210 346 743 650 743 328 31 March 5 2 9 1 41 91 49 29 97 36 50 £m 2016 183 233 180 323 556 527 556 31 March 2 1 42 80 40 47 53 15 51 £m 2017 217 107 258 179 312 570 523 570 Annualised net rent net Annualised 31 March 4 1 1 £m 55 82 42 55 67 14 52 2017 263 127 306 185 320 626 571 626 rental income 31 March Annualised 3 2 2 68 41 98 51 50 65 28 £m (10) 2016 243 109 296 196 364 660 600 650 650 31 March Rental income Rental 2 2 52 48 94 52 53 66 14 £m (10) 2017 251 123 305 195 343 648 585 638 638 31 March 2

% 2.2% 5.7% 2.3% Surplus/ Surplus/ (deficit) (3.2%) (1.3%) (0.9%) (1.9%) (0.8%) (0.8%) (7.8%) (7.9%) (1.0%) (1.5%) (1.0%) (1.0%) (4.5%) (3.7%) (2.8%) -

£m (4) 30 82 40 (37) (47) (14) (13) (40) (48) (103) (100) (147) (187) (147) (147) (178) Surplus/ (deficit) Valuation movement 1

20 46 £m 2016 890 320 6,721 1,325 3,790 1,542 6,242 3,262 1,814 1,462 8,229 1,671 31 March 14,471 12,800 14,471 14,471 Market value Market 20 41 £m 2017 861 323 6,759 1,336 3,860 1,384 6,125 3,247 1,853 1,514 8,314 1,811 14,439 12,628 14,439 14,439 31 March Shopping centres and shops Shopping centres parks Retail and hotels Leisure Other Portfolio Retail Total Portfolio London End West City Mid-town Inner London offices London Total shops London Central Other Portfolio London Total Combined Portfolio Properties as finance leases treated portfolioInvestment ventures joint of Share Combined Portfolio Total portfolio analysis Total Portfolio Retail Represented by: Represented Combined Portfolio Lease lengths

Lease lengths Table 115 Weighted average unexpired lease term at 31 March 2017 Like-for-like portfolio, completed developments Like-for-like portfolio and acquisitions Mean1 Mean1 Years Years Retail Portfolio Shopping centres and shops 6.5 6.5 Retail parks 7.6 7.6 Leisure and hotels 12.4 12.5 Other 1.9 1.9 Total Retail Portfolio 8.2 8.2

London Portfolio West End 8.0 8.0 City 6.1 10.9 Mid-town 9.5 12.2 Inner London 15.8 15.8 Total London offices 8.6 10.3 Central London shops 6.8 7. 2 Other 6.7 6.7 Total London Portfolio 8.3 9.9

Combined Portfolio 8.2 9.1

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. Development pipeline

Development pipeline financial summary Table 116 Cumulative movements on the development programme to 31 March 2017 Total scheme details1 Valuation (deficit)/ Capital Disposals, surplus Market expendi- Valuation SIC15 rent Market Estimated Estimated for the value at ture Capitalised surplus/ and other value at Estimated total total Net year ended start of incurred interest (deficit) adjust- 31 March total capital capitalised develop- income/ 31 March scheme to date to date to date2 ments 2017 expenditure3 interest ment cost4 ERV5 20172 £m £m £m £m £m £m £m £m £m £m £m Developments let and transferred or sold Shopping centres and shops – – – – – – – – – – – Retail parks – – – – – – – – – – – London Portfolio 137 283 16 405 4 845 277 15 416 40 (9) 137 283 16 405 4 845 277 15 416 40 (9) Developments after practical completion, approved or in progress Shopping centres and shops 30 115 8 32 (2) 183 171 10 211 14 10 Retail parks – – – – – – – – – – – London Portfolio 212 385 44 401 (87) 955 272 44 528 46 4 242 500 52 433 (89) 1,138 443 54 739 60 14

Movement on proposed developments for the year ended 31 March 2017 Proposed developments Shopping centres and shops – – – – – – – – – – – Retail parks 4 2 – (3) 3 6 44 1 51 3 (3) London Portfolio – – – – – – – – – – – 4 2 – (3) 3 6 44 1 51 3 (3)

1. Total scheme details exclude properties sold in the year. 2. Includes profit realised on the disposal of investment properties and any surplus or deficit on investment properties transferred to trading. 3. For proposed development properties, the estimated total capital expenditure represents the outstanding costs required to complete the scheme as at 31 March 2017. 4. Includes the property at its market value at the start of the financial year in which the property was added to the development programme together with estimated capitalised interest. For proposed development properties, the market value of the property at 31 March 2017 is included in the estimated total cost. Estimated costs for proposed schemes could still be subject to material change prior to final approval. 5. Net headline annual rent on let units plus net ERV at 31 March 2017 on unlet units.

170 Landsec Annual Report 2017 Additional information 171 15 10 67 20 211 £m £m 182 163 168 146 n/a n/a n/a 259 cost cost 248 Table 117 Table Table 118 Table development development development development Forecast total total Forecast Forecast total total Forecast 7 14 19 67 £m £m 182 163 148 168 146 n/a n/a n/a 259 248 Total Total development development development development costs to date costs to date n/a date date 2019 2019 Actual/ Actual/ Jul 2017 Jul 2017 Jul 2017 Landsec Annual Landsec Report 2017 Apr 2017 Apr 2017 Apr 2015 estimated estimated estimated estimated Oct 2017 Oct 2015 Oct 2016 Nov 2015 Nov May 2016 May completion completion completion completion – 2 6 % 17 21 14 16 22 87 24 95 £m Net ERV n/a n/a n/a Sales by unit unit by income/ exchanged exchanged 3 3 3 18 47 59 £m 170 183 130 100 n/a n/a 382 396 n/a n/a n/a value Market Market of units of Number % 42 93 89 89 68 90 Size 100 100 100 100 100 n/a n/a sq ft status Letting 36,700 20,200 166,800 108,600 % 50 50 50 Size 100 sq ft 41,800 interest 79,200 26,700 38,700 30,700 92,800 89,000 192,700 481,400 274,800 793,000 355,300 200,000 Ownership % 50 50 50 50 50 100 100 100 100 of use interest Ownership Description Description Residential Residential Residential Residential of use

Retail Retail Retail Retail Retail Retail Retail Office Office Office Office Office Description Description Residential

1

2 Once properties are transferred from the development pipeline, we do not reportwe do not value. on their individual pipeline, the development from Once properties transferred are Includes retail within Kings Gate, SW1. within Kings Gate, Includes retail W1. Street, Oxford 28-32 the disposal of This represents

1 & 2 New Ludgate, EC4 Ludgate, New 2 & 1 Nova, Victoria, SW1 Victoria, Nova, Phase II – W1 Oriana, Oxford Westgate Kings Gate, SW1 Kings Gate, Property Trading property development schemes property development Trading Net income/ERVNet both after payable. rents on unlet units, 2017 March at 31 Net income/ERV on let units plus ERV headline annual rent represents Total development cost development Total on was capitalised properties which interest the only on 2017, the properties31 March Of pipeline at in the development definition. glossary for to Refer SW1. Victoria, and Nova, Oxford Westgate were the land cost Where the property is not 100% owned, floor areas and letting status shown above represent the full scheme whereas all other figures represent our represent other figures all whereas the full scheme represent floor and letting shown above areas status 100% owned, the property is not Where excluded property schemes are development Trading 2017. March and shows letting at 31 status ERV Letting by % is measured proportionate share. pipeline. the development from 1. 2. 3. practical completion practical SW1 Building, The Zig Zag Developments after Developments Property at 31 March 2017 March at 31 pipeline Development Development pipeline and trading property development schemes property pipeline trading and development Development Oriana, W1 – Phase II – W1 Oriana, or in progress SW1 Victoria, Nova, Developments approved approved Developments 20 Eastbourne Terrace, W2 20 Terrace, Eastbourne Oriana, W1 – Phase II Phase – W1 Oriana, Westgate Oxford Westgate Proposed developments Birmingham Oak, Selly Developments let and let Developments or sold transferred EC4 Square, Street 1 New Alternative performance measures

The Group has applied the European Securities and Markets Authority (ESMA) ‘Guidelines on Alternative Performance Measures’ in these annual 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 annual results, where the definitions and reconciliations of these measures can be found, as well where further discussion is included. The definitions of all APMs are included in the Glossary and further discussion of these measures can be found in the financial review.

Table 119

Nearest IFRS measure Reconciliation Revenue profit Profit before tax Note 4 Adjusted earnings Profit attributable to owners of the parent Note 5 Adjusted earnings per share Basic earnings per share Note 5 Adjusted diluted earnings per share Diluted earnings per share Note 5 Adjusted net assets Net assets attributable to owners of the parent Note 5 Adjusted net assets per share Net assets attributable to owners of the parent Note 5 Adjusted diluted net assets per share Net assets attributable to owners of the parent Note 5 Total business return n/a Note 5 Combined Portfolio Investment properties Note 14 Valuation surplus/deficit Net surplus/deficit on revaluation of investment properties Note 14 Adjusted net debt Borrowings Note 20 Group LTV n/a Note 20

Five year summary

Income statement Table 120

2017 2016 2015 2014 2013 £m £m £m £m £m Revenue 787 942 770 717 737 Costs (266) (410) (334) (249) (284) 521 532 436 468 453 Profit/(loss) on disposal of investment properties 19 75 107 16 (3) (Loss)/profit on disposal of investments in joint ventures (2) – 3 2 – Profit on disposal of other investment 13 – – – 1 Net (deficit)/surplus on revaluation of investment properties (186) 739 1,771 607 197 Operating profit 365 1,346 2,317 1,093 648 Net finance expense (322) (209) (228) (185) (175) Net gain on business combination – – 2 5 1 Share of post-tax profit from joint ventures 69 199 326 196 59 Profit before tax 112 1,336 2,417 1,109 533 Taxation 1 2 – 8 – Profit for the financial year 113 1,338 2,417 1,117 533

Net (deficit)/surplus on revaluation of investment properties: Group1 (187) 736 1,768 609 197 Joint ventures1 40 171 269 155 21 Total1 (147) 907 2,037 764 218

Revenue profit 382 362 329 320 291

1. Includes our non-wholly owned subsidiaries on a proportionate basis.

172 Landsec Annual Report 2017 Additional information – – 173 11 31 14 42 50 £m (11) (18) 152 (37) 188 2013 570 345 (118) (837) (436) (364) 1,301 907p 955p 959p 903p 7,487 68.1p 9,652 37.0p 29.8p 11,216 36.8p 68.4p (3,315) 11,446 (3,462) (3,699) (4,290) Table 121 Table – – 15 21 14 (4) 35 50 £m (12) 187 193 (23) (33) 2014 595 366 (513) (320) (845) 1,443 8,418 9,848 30.7p 40.7p 40.5p 11,577 (3,331) 1,017p 11,859 141.8p 1,013p 142.3p (3,948) (2,849) (2,909) 1,069p 1,065p 10 14 53 35 29 50 £m (10) 185 (35) 222 (45) (30) 2015 283 650 404 (191) (367) (568) 1,434 41.7p 41.5p 12,158 (4,172) 14,031 (3,801) (3,593) 1,337p (3,703) 13,944 31.85p 1,293p 1,343p 306.1p 1,299p 10,606 304.7p Landsec Annual Landsec Report 2017 – – 19 25 38 44 86 £m (19) (19) 124 183 613 (47) (28) (35) 2016 445 (327) (289) 1,668 45.7p 35.0p 45.9p 14,471 (2,861) 11,699 14,377 12,358 1,476p (3,239) 169.4p (2,854) 1,482p 1,439p (2,964) 1,434p 168.8p – – 21 51 (7) (9) 36 30 £m 122 123 165 (25) 591 418 (36) 2017 (713) (302) (404) 1,734 14.3p 14.3p 11,516 48.3p 48.4p (2,615) (3,261) 1,417p 12,144 1,418p 14,253 (2,905) (2,545) 14,439 1,456p 1,458p 38.55p Investment propertiesInvestment Balance sheet Five year Five summary Intangible assets Intangible Net investment in finance leases Net investment Loan investments Loan Investment in joint ventures in joint Investment Trade and other receivables and other Trade Other non-current assets Other non-current Total non-current assets non-current Total Trading properties and long-term development contracts properties development long-term and Trading Trade and other receivables and other Trade Monies held in restricted accounts and deposits accounts Monies held in restricted Cash and cash equivalents Total current assets current Total Non-current assets held for sale for held assets Non-current Borrowings payables and other Trade liabilities Other current liabilities current Total assets Net Borrowings payables and other Trade liabilities Other non-current liabilities non-current Total Redemption liability Redemption Net debt Net Market value of the Combined Portfolio the of value Market Results per share Results year the financial in respect dividend payable of Total Adjusted net debt net Adjusted Basic earnings per share Diluted earnings perDiluted share Adjusted earnings perAdjusted share Adjusted diluted earnings per diluted share Adjusted Net assets per share Diluted net assets perDiluted share Adjusted net assets perAdjusted share Adjusted diluted net assets net per diluted share Adjusted Acquisitions, disposals and capital expenditure

Table 122 Year ended 31 March Year ended 31 March 2017 2016 Adjustment Group for (excl. joint Joint proportionate Combined Combined ventures) ventures share Portfolio Portfolio £m £m £m £m £m Investment properties Net book value at the beginning of the year 12,358 1,630 (34) 13,954 13,529 Acquisitions 14 1 – 15 123 Capital expenditure 126 114 – 240 312 Capitalised interest 5 13 – 18 23 Disposals (205) (39) – (244) (940) Net movement in finance leases 32 9 1 42 – Transfer to trading properties – (5) – (5) – Net (deficit)/surplus on revaluation of investment properties (186) 40 (1) (147) 907 Net book value at the end of the year 12,144 1,763 (34) 13,873 13,954

Profit on disposal of investment properties 19 1 – 20 79

Trading properties Net book value at the beginning of the year 124 157 – 281 337 Capital expenditure 19 27 – 46 61 Capitalised interest – 5 – 5 6 Disposals (33) (68) – (101) (140) Transfer from investment properties – 5 – 5 – Movement in impairment 12 – – 12 16 Net book value at the end of the year 122 126 – 248 280

Profit on disposal of trading properties 29 7 – 36 41

Investment in joint ventures Loss on disposal of investment in joint venture (2) – – (2) –

Other investments Profit on disposal of other investment 13 – – 13 –

Acquisitions, development and refurbishment expenditure £m £m Acquisitions of investment property 15 123 Capital expenditure – investment property 81 160 Development capital expenditure – investment properties 159 152 Capital expenditure – trading properties 19 51 Development capital expenditure – trading property 27 10 Acquisitions, development and refurbishment expenditure 301 496

Disposals £m £m Net book value – investment property disposals 244 940 Net book value – trading property disposals 101 140 Profit on disposal – investment property 20 79 Profit on disposal – trading property 36 41 Loss on disposal – investment in joint venture (2) – Profit on disposal – other investment 13 – Disposal of asset held for sale – 283 Other 1 10 Total disposal proceeds 413 1,493

174 Landsec Annual Report 2017 Additional information

175

Table 123 Table Landsec Annual Landsec Report 2017 The Policy will apply as stated. The Policy will always apply as stated, unless specific are there individual it why circumstances not. should The Committee has the discretion determine precise amount the to of base salary within the Policy, salary for the approving including a newly-appointed It will Director. also determine whether are there specificreasons to salaryaward increases greater than those for workforce. wider the — — — Discretion — — —

Increase in responsibilities responsibilities in Increase or scope of the role salary progression apply To for a newly appointed Director salary Director’s the Where has fallen below the positioning. market — — — For 2017/18, the annual base 2017/18, For salaries of the Executive Directors are (Chief £784,041 (Chief and £510,367 Executive), representing Financial Officer), increasea 2% The maximum annual salary increase will not normally increase average the exceed across the rest of the workforce Higher increases 2%). (2017/18: will be exceptional, and made specificin circumstances, including: — — — — — Directors receive a pension contribution or cash allowance of salary. of 25% The value of benefits may vary from year year depending to on the cost the Company. to — — — — Opportunity

— —

Car allowance medical insurance Private Life assurance Ill health income protection Holiday and sick pay with connection in advice Professional directorshiptheir subsistence and accommodationTravel, necessaryas appropriate example gifts, for Occasional gifts. leaving service or long salaries set are at around the median of the marketcompetitive Increases throughout the rest of rest the throughout Increases business the benchmarkingMarket exercise undertaken periodically ensure to roles comparable people in for level with similar levels of experience, performance and contribution Changes in the scope of a Director’s role may also require a further salary. to adjustment — — — — — — — — — — — Directors receive a combination of: — — — — — — — — defined a Participationcontribution into pension scheme or cash equivalent. Reviewed annually, withReviewed effect annually, from 1 June, and1 June, reflects: — — — — — — Operation — — — To help recruit andTo retain high performing executives continued reward To business the to contribution by enabling Executive Directors to build retirement benefits. To provide protection and protection provide To benefits competitive market aid recruitmentto and retention of high performing executives. To aid the recruitment, To retention andmotivation of high performing executives reflectthevalue To of experience,their skills and importance and knowledge, business. the to — — — — — Pension — — Benefits — Purpose and link to strategy Purposeto and link — — 1. Executive Directors Executive 1. Remuneration policy Remuneration Base salary Remuneration policy continued

Purpose and link to strategy Operation Opportunity Discretion Annual bonus —— To incentivise the delivery —— All measures and targets are reviewed and —— Minimum bonus payable is —— The Committee has the discretion of stretching, near-term set by the Board at the beginning of the 0% of salary to set targets and measures business targets and year and payments are determined by the —— Maximum bonus potential is each year personal performance Committee after the year end, based on 150% of salary. —— The outturns for the Group element objectives performance against the targets set of the bonus plan are calculated —— To reward near-term —— Specific measures and targets will be set formulaically and therefore the outperformance relative to each year, but will always include a measure Committee has no discretion to industry benchmarks of Total Property Return versus that of adjust these, unless it feels it is —— Specific measures and the market necessary to adjust them down targets, for example —— Other measures and targets will reflect —— The Committee does have the successful planning the most critical business performance discretion to award appropriate applications and asset indicators for the year ahead, and will be bonus payments under the management initiatives, will both specific and measurable. Revenue individual element (maximum provide future opportunity Profit performance will always feature as 20% of base salary) to reflect the for the business and will a key measure performance and contribution of increase the value of our —— The achievement of on-target performance an individual Director properties in the short term should result in a payment of 50% of the —— Within the Policy, the Committee —— Other KPIs, such as maximum opportunity (i.e. 75% of salary) will retain flexibility including: development lettings targets, —— A small proportion (no more than 20% —— When to make awards are likely to have a significant of base salary) of a Director’s bonus is and payments impact on capital growth based on the Committee’s assessment —— How to determine the size of and long-term revenue of the achievement of pre-set personal profit performance an award, a payment, or when performance objectives and how much of an award —— The ability to recognise —— The structure of the plan incentivises should be payable performance through outperformance by ensuring that the —— Who receives an award variable remuneration threshold targets are stretching enables the Group to control or payment its cost base flexibly and —— Bonuses up to 50% of salary are paid —— Whether a departing Director react to events and in cash should receive a bonus and market circumstances —— Any amounts in excess of 50% of salary are whether and what proportion —— Deferral of a portion of deferred into shares for one year of awards should be paid at annual bonuses into shares —— Any amounts in excess of 100% of salary are the time of leaving or at a encourages a longer- deferred into shares for two years subsequent date term focus aligned to —— Deferred shares are potentially forfeitable —— Whether a departing Director shareholders’ interests if the executive leaves prior to the share should be treated as a “good and discourages excessive release date leaver” in respect of deferred risk taking. bonus shares —— Bonus payments are not pensionable —— How to deal with a change of —— Withholding and recovery provisions control or any other corporate (malus and clawback) apply where any event which may require overpayment was made as a result of a adjustments to awards material misstatement of the Company’s results or a performance condition, or —— To determine that no bonus or a where there has been fraud or gross reduced bonus is payable where misconduct, whether or not this caused the performance of the business the overpayment. has been poor, notwithstanding the achievement of objectives.

176 Landsec Annual Report 2017 Additional information 177

When awards make to payments and determineHow to the size a payment,of an award, or when and how much of an vest should award Who receives an award payment or Director departing a Whether leaver” “good a as treated is andfor the purposes of the LTIP of proportion what and whether awards vest at the time of leaving or at a subsequent vesting date dealHow to with a change of corporate other any or control may which require event adjustments awards. to — — — — — Landsec Annual Landsec Report 2017 In exceptional circumstances, the Committee may extend the period ownership which share are levels by required be achieved to up to by two years. The Policy will apply as stated. the CommitteeWithin the Policy, will the flexibility retain determine to whether a departing Executive Director should be treated as a leaver”. “good — — — The are outturns of the LTIP calculated formulaically and therefore the Committee has no discretion adjust to these, should they determines it unless down adjusted be the CommitteeWithin the Policy, flexibilityincluding: retain will — — — — — — — Discretion — — — — —

The maximum participation levels may vary in line with HMRC participants 2017/18, For limits. may per save £500 up to month for either three or five accumulated using their years, savings at the end of the period purchaseto shares at a 20% discount the market price to at the date of grant. Normal award and current limit of salary. – 300% — — Opportunity — —

Chief Executive of salary – 250% Other Executive Directors of salary – 200% — — All employees, including Executive Directors, entitledare participate Scheme to in the SAYE operatedthe Company by in line with UK guidelinesHMRC prevailing. currently Executive Directors expected are build to up and maintain shareholdings with a value set at a percentage of base salary: — — The Committee may an annual make award of shares under the LTIP is determinedVesting on the basis of the achievements against stretching Group’s performance targets over a fixedthreeyear financial periodand continued employment. There is no re-testing The Committee reviews themeasures, their to prior targets and weightings relative each award The measures selected relative are and directly aligned the interests to of shareholders. of a measure is an weighted award to 50% Propertyof Total Return versus the industry benchmark over a three year period and 50% Shareholder Return versus Total ourto listed comparator group over a three year period eachFor measure, no awards vest for performance belowthat of the benchmark. will vestOnly for matching a proportion (20%) the performance of the benchmark and significant outperformance is required for the maximum vest to award will beAwards satisfied either by newly issued and purchased or market shares shares the in useany of newly issued shares will be subject the dilutionto limits contained in the scheme shareholders by approved or rules Executive Directors required hold are to vested shares for a further two years (including post- employment) following the three year vesting period expiry Withholding and recovery provisions (malus and clawback) apply where overpayment any was made as a result ofmaterial a misstatement of the Company’s results or a performance condition or where has there been fraud or gross misconduct, whether or not caused this the overpayment. — — — — — — — — — — Operation — — be achieved to required normally are These levels to appointment in order of years within five awards. incentive long-term future qualify for subject not awards share or unvested Deferred to performance conditions may count towards towards count performance conditions may to basis. tax on a net of levels the ownership — — — — — — — —

To provide close alignment close provide To longer-term between the interests of Directors and shareholders in terms of the Company’s growth and performance. To encourage all employees employees all encourage To a long-term make to investment in the Company’s savings- a through shares, related arrangement. our competitors our interests long-term the Aligns Directorsof and shareholders retention. Promotes Incentivises value creation creation value Incentivises in excessover the long-term general by created that of increasesmarket executionRewards of our strategy and the long- outperformanceterm of — — — — — — Share ownership guidelines ownership Share — Savings Related Share Option Scheme (SAYE Scheme) SchemeSavings Option Share (SAYE Related — — — — Purpose and link to strategy Purposeto and link — Long-Term Incentive Plan (LTIP) Plan Incentive Long-Term Remuneration policy continued

2. Non-executive Directors

Table 124

Purpose and link to strategy Operation Opportunity Base fee —— To aid the recruitment, retention and motivation —— The Chairman is paid a single fee for all Board —— The current fees for Non-executive Directors are of high performing Non-executive Directors duties and the other Non-executive Directors shown in the Annual Report on Remuneration in —— To reflect the time commitment given by receive a basic Board fee, with supplementary section 3.2 Non-executive Directors to the business. fees payable for additional responsibilities —— Non-executive Director fees are typically —— Reviewed (but not necessarily changed) reviewed annually but increased every two to annually by the Board, having regard to three years independent advice and published surveys —— Any increases reflect relevant benchmark data —— The Chairman’s fee is also reviewed for Non-executive Directors in companies of by the Board rather than the a similar size and complexity, and the time Remuneration Committee. commitment required.

Additional fees —— To reflect the additional time commitment —— Reviewed (but not necessarily changed) —— The opportunity depends on which, if any, required from Non-executive Directors in chairing annually by the Board, having regard to additional roles are assumed by an individual various Board sub-committees or becoming the independent advice and published surveys. Director over the course of their tenure Board’s Senior Independent Director. —— Any increases reflect relevant benchmark data for Non-executive Directors in companies of a similar size and complexity, and the time commitment required.

Other incentives and benefits —— Non-executive Directors do not receive any n/a other remuneration or benefits beyond the fees noted above. Expenses in relation to Company business will be reimbursed —— If deemed necessary, and in the performance of their duties, Non-executive Directors may take independent professional advice at the Company’s expense.

Share ownership —— To provide close alignment between the —— The current share ownership guidelines require longer-term interests of Directors and Non-executive Directors to own shares with a shareholders in terms of the Company’s value of 100% of annual fees within three years growth and performance. of appointment.

178 Landsec Annual Report 2017 Additional information 179

Landsec Annual Landsec Report 2017 In the case of an internally appointed an internally In the case of appointments, internal and external For the of will be informed Shareholders Directors’ Chairman and Non-executive for arrangements the fee On appointment, basis or ongoing) when it considers thesewhen it considers basisor ongoing) the Company. of be in the bestto interests bewould on based such payments solely Any when leaving the former lost remuneration the account into would take and employer shares, cash, delivery mechanism (i.e. existing performance time horizons and options), conditions. element pay variable any Director, Executive would be role the prior in respectawarded of adjusted as its terms, to paid out according the appointment. account into take to relevant ongoing remuneration other any In addition, appointment prior to obligations existing are that they provided would continue, at the approval for shareholders put to earliest opportunity. that the Company the Committee agree may on a one will meet certain expenses, relocation is a Director Where as appropriate. time basis, retained is flexibility overseas, from recruited of account take benefits that provide to residence. practice in their country of market a cash amount offer may The Company be may which payment of on recruitment, to years, two a period up to over of staggered may recruit of benefits a new value reflect the employer. a former from received have and all additional package remuneration Executive appointed newly payments to their appointment. at the time of Directors 3.4 Appointment of Letters Directors The Chairman and the Non-executive with the Agreements Service have do not of them has a Letter each of Instead, Company. their of which sets out the terms Appointment months’ prior including the three appointment, which their appointment canwritten on notice The either party time. by at any be terminated are Appointment of Letters the current of dates Annual Report shown in the on Remuneration Directors’with the Executive together and these, inspection for available are Agreements, Service office. registered at the Company’s would be set in Director Non-executive a new remuneration with the approved accordance at that time. in force policy Remuneration of newly appointed appointed newly of Remuneration in would operate The annual bonus the the elements of In addition to leaver” provisions. However, if an executive an executive if However, leaver” provisions. a competitor in role a similar for has resigned extremely are such provisions then organisation leaver” “good Where provisions apply. to unlikely be deemed to are awards share in respect of should a participant’s awards appropriate, basis and subject to on a time pro-rata vest performance the relevant the satisfaction of lapsing. the awards balancewith the of criteria decide to discretion The Committee retains do so in to it is inappropriate if pro-rate to not avoidance the For particular circumstances. is employment of the termination if doubt, of and the the specifiedreasons, one of for not to its discretion Committee does exercise not awards all outstanding vest, to an award allow lapse. automatically 3.3 Directors Executive externally a new for package The remuneration would be set in Director Executive appointed Company’s the of with the terms accordance at the in force policy remuneration approved on the Policy present, At appointment. time of but the Committee has will apply, base salary at hire a new of to set the salary the flexibility with initially, level the market to a discount implemented planned increases a series of (subjectyears to few the following over bring the salary to to performancerole) in the very exceptional in Only positioning. the desired a newly will the salary of circumstances median the market exceed Director appointed the role. benchmark for approved the of with the terms accordance with the opportunity albeit pro-rated policy, year. in the first the period employment for of Depending on the timing and responsibilities be necessary it may the appointment, of and measures performance set different to in would also operate The LTIP initially. targets The maximum level with the Policy. accordance to a new be offered that may pay variable of an aggregate at is therefore Director Executive This limit does not salary. 450% of maximum of buy-out arrangements any of value include the (see below). deemed appropriate the Policy, by covered package remuneration out” the Committee “buy certain may existing Director an incoming Executive of remuneration additional cash either of the offer through and/or share-based elements (on a one-time

Termination Provisions – Termination – Provisions The Company allows Executive Directors allows Executive The Company granted share-based entitlements Any Service Agreements – Executive Directors Executive – ServiceAgreements

3.2 to hold external non-executive directorships, directorships, external non-executive hold to and the Board, of subject approval the prior to these roles. from fees retain to Directors Executive may Agreement Service Director’s An Executive without and without notice be terminated for further except payment or compensation, termination, of the date sums earned up to certain such as of events on the occurrence the of The circumstances misconduct. gross the individual’s account into (taking termination opportunity performance) individual’s and an by account into taken are losses mitigate to amounts the Committeewhen determining in lieu including pay payable on termination, is to normal approach The Group’s notice. of payments compensatory to or reduce stop receive when they Directors Executive former during employment other from remuneration doesThe Company the compensation period. that guarantee arrangements any make not on or no abatement with limited pensions no are There retirement. or early severance with Directors Executive for special provisions of compensation in the event to regard will be plans share under the Company’s the relevant on the basisdetermined of position is that any The default plan rules. automatically awards unvested outstanding However, employment. lapse on cessation of in certain prescribed the LTIP, of under the rules disability, such as redundancy, circumstances, at the circumstances or other retirement the Committee into of (taking discretion performance and the the individual’s account leaver” “good their departure), for reasons an if example, For can be applied. status been made has effectively role executive’s no significant are and there redundant, to the Committee is likely performance issues, some “good of on the granting look favourably 3.1 Agreements Service have Directors The Executive continue which normally with the Company or date retirement agreed the Director’s until In line as the parties date such other agree. Directors’ the Executive policy, with Group time at any can be terminated employment months’ prior12 either partyby on giving written notice. office. loss of 3. Directors’ Service Agreements and Letters of Appointment of Letters and Service Agreements Directors’ 3. Subsidiaries, joint ventures and associates

As at 31 March 2017, the Company had a 100% Name Name interest, direct or indirect, in the ordinary share 59-60 Grosvenor Street (No. 1) Limited Land Securities Management Limited capital of the following subsidiaries, all of which are registered in the UK at 100 Victoria Street, 59-60 Grosvenor Street (No. 2) Limited Land Securities Management Services Limited London, SW1E 5JL. Alan House (Nottingham) (No. 1) Limited Land Securities MPPS Trustee Company Limited Alan House (Nottingham) (No. 2) Limited Land Securities Partnerships Limited Albany Park (Frimley) (No. 1) Limited Land Securities PLC Arundel Great Court Development Management Land Securities Portfolio Management Limited Limited Land Securities Properties Limited Blueco Limited Land Securities Property Holdings Limited Bluewater Ground Lease Limited Land Securities Reserve A Limited Bluewater Outer Area Limited Land Securities Reserve B Limited Brand Empire SPV 4 Limited Land Securities SPV’S Limited Cedric (New Fetter Lane) (No. 1) Limited Land Securities Trading Limited Cedric (New Fetter Lane) (No. 2) Limited Land Securities Trinity Limited City & Central Shops Limited LC25 Limited City Centre Properties Limited LS (Bracknell) Limited Clock Tower () (No. 1) Limited LS (Bridgewater Management) Limited Clock Tower (Canterbury) (No. 2) Limited LS (Finchley Road) Limited Crossways 2000 Limited LS (Jaguar) GP Investments Limited Crossways 3065 Limited LS (Milford Haven) Limited Crossways 7055 Limited LS (Victoria) Nominee No.1 Limited Dashwood House Limited LS (Victoria) Nominee No.2 Limited DVD Box Limited LS (Winchester) Limited Ebbsfleet Valley Estate Company Limited LS (Workington) Nominee 1 Limited Ebbsfleet Valley Property Services Limited LS (Workington) Nominee 2 Limited Eron Investments Limited LS 1 New Street Square Developer Limited GEP16 Limited LS 1 New Street Square Limited Gunwharf Quays Limited LS 1 Sherwood Street Limited Knollys House (No.1) Limited LS 120 Cheapside Limited Knollys House Limited LS 130 Wood ST Limited L & P Estates Limited LS 20 Fenchurch Street (GP) Investments Land Securities (BH) Limited Limited Land Securities (Finance) Limited LS 20 Fenchurch Street Limited Land Securities (Hotels) Limited LS 21 Moorfields Development Management Land Securities (Insurance Services) Limited Limited Land Securities (Media Services) BH Limited LS 21 Moorfields Limited Land Securities (Media Services) PQ Limited LS Aldersgate Limited Land Securities Buchanan Street Developments LS Arundel Nominee Limited Limited LS Arundel Nominee No. 1 Limited Land Securities Business Services Limited LS Ashdown Limited Land Securities Capital Markets PLC LS Banbridge Limited Land Securities Consulting Limited LS Banbridge Management Limited Land Securities Corporate Services Limited LS Banbridge Phase Two Limited Land Securities Development Limited LS Bankside Development Limited Land Securities Ebbsfleet (No.2) Limited LS Bankside Limited Land Securities Ebbsfleet (No.3) Limited LS Bexhill Limited Land Securities Ebbsfleet Limited LS Birmingham Limited Land Securities Intermediate Limited LS Bon Accord Limited Land Securities Investment Trust Limited LS Buchanan (GP) Investments Limited Land Securities Lakeside Limited LS Buchanan Limited

180 Landsec Annual Report 2017 Additional information 181 Landsec Annual Landsec Report 2017 LSIT (Management) Limited (Management) LSIT Nominees (Notting Limited Metro Hill No.1) Nominees (NottingMetro Hill No.2) Limited Nominees (Victoria Place) Limited Metro Limited (2001) Micadant LLP No.1 Partnership UK Leisure & Retail O2 Limited Oriana LP Apartments Castle Limited Oxford Limited (2026) QAM (GP) Limited QAM (Holdings) Limited QAM (LP) Limited QAM Partnership Limited Funding QAM 1 Limited Nominee No QAM Limited 2 Nominee No QAM 1 Limited No Trustee PropertyQAM Limited 2 No Trustee PropertyQAM Limited Ravenseft Industrial Estates Ravenseft Properties Limited Limited Investments Ravenside Limited Trust Property Holdings Retail House (GP) Limited Roebuck House (Nominee)Roebuck Limited Limited Leisure Rosefarm PropertiesSevington Limited Limited Shirec Limited Partner Southside General Place (GP) Limited Stag Place (LP) Limited Stag Partnership Place Limited Stag Property Real Company London of The City Limited Hull Limited The Imperial Hotel Limited Trust The Westminster Limited Estates Tops Limited Shop Centres Tops Limited Shop Estates Tops Quarter Limited Developments Trinity Limited City Wallace Finance Limited Watchmaker Limited Developments Whitecliff Willett Limited Developments 1 Limited Nominee No. Lane Wood Limited 2 Nominee No. Lane Wood Cinema) Limited (Brighton X-Leisure Cinema II) Limited (Brighton X-Leisure Limited (Edinburgh) X-Leisure Limited X-Leisure Name LS Maidstone Limited LS Maidstone Limited LS Lane Mark Limited LS Millshaw Limited LS Mirage Limited LS Moorgate Limited Investments Square Street LS New LS Nominees Holdings Limited LS Occupier Limited LS Limited ONC Holdings Limited Change Developments LS One New Change Limited LS One New LS Limited Oxygen Management House Development LS Park Limited Limited Retail LS Poole Limited Investments LS Portfolio House Developer Limited LS Portland LS Limited Property Company Finance LS Property Limited Solutions Lion CourtLS Red Limited Limited Warehouses LS Retail LS (LP) Limited House Roebuck Limited Lane LS Rose LS Selborne House Limited Limited LS Soho Square Limited LS Taplow No.2 Limited Taplow LS LS Thanet Limited Limited GP Times Square LS Limited Times Square LS 1 Limited Nominee TMS LS Limited 2 Nominee TMS LS Court Limited Road Tottenham LS Management Development Victoria Circle LS Limited Limited Investments GP Victoria Circle LS LP1 Limited Victoria Circle LS Limited LP2 Victoria Circle LS Victoria PropertiesLS Limited Limited LS Voyager Limited LS Wellington Limited LS Westminster No.2 Limited Westminster LS Limited Rose White LS LS Whitefriars Limited Plaza Limited Wilton LS Limited Lane Wood LS Limited LS Zig Zag Name LS Canterbury Limited LS Canterbury Limited (GP) Investments LS Cardiff Limited (Holdings) LS Cardiff Limited LS Cardiff Limited LS Cardinal PropertiesLS Centre Limited Limited LS Chattenden Marketing LS Limited Chesterfield Limited End West & LS City House Limited Gate LS City LS Clayton Limited Square Limited Secretaries LS Company LS Cornerhouse Limited LS Limited Director Limited Terrace LS Eastbourne Quarry Limited LS Eastern Limited Investments Park LS Easton Limited State LS Empress Management Development LS Fenchurch Limited LS Galleria Limited Limited Investments LS Greenwich Limited LS Greenwich Limited LS Greyhound LS Limited Gunwharf LS Limited Option Harbour Exchange Limited (Leasehold) LS Harrogate Limited LS Harrogate PropertiesLS Limited Harrow LS Limited Harvest (GP) Investments Limited LS2 Harvest LS Harvest Limited LS Hill House Limited LS Limited Holborn Gate Limited Welwyn Centre LS Howard Limited LS Hungate LS Juliet Limited Limited Residential LS Kings Gate No.2 Limited Residential LS Kings Gate LS Kingsmead Limited Limited LS Leisure Limited LS Lewisham Holdings One Limited LS London Limited Three Holdings LS London Limited (No.1) LS Ludgate (No.2)LS Limited Ludgate (No.3) Limited LS Ludgate Limited Development LS Ludgate Name Subsidiaries, joint ventures and associates continued

As at 31 March 2017, the Company had an interest (as shown), direct or indirect, in the ordinary share capital of the following subsidiaries, joint ventures and associates, each of which is registered in the country indicated. The registered address of all the entities is 100 Victoria Street, London, SW1E 5JL, except where indicated by a footnote.

Group Country of Group Country of Name share % registration Name share % registration 20 Fenchurch Street (GP) Limited 50.00% UK Oriana Residential Nominee No.3 Limited 50.00% UK 20 Fenchurch Street Developer Limited 50.00% UK Oriana Residential Nominee No.4 Limited 50.00% UK 20 Fenchurch Street Limited Partnership 50.00% UK Queens Links Unit Trust 95.04% Jersey4 20 Fenchurch Street Nominee No.1 Limited 50.00% UK St David’s (Cardiff Residential) Limited 50.00% UK 20 Fenchurch Street Nominee No.2 Limited 50.00% UK St David’s (General Partner) Limited 50.00% UK Castleford (UK) Limited 95.04% UK St David’s Dewi Sant Merchant’s Association Limited Limited by Ebbsfleet Investment (GP) Limited 50.00% UK guarantee UK Ebbsfleet Nominee No.1 Limited 50.00% UK St. David’s (No.1) Limited 50.00% UK Five Fields Limited 50.00% UK St. David’s (No.2) Limited 50.00% UK Greenhithe Holding Limited 100.00% Jersey1 St. David’s Unit Trust 100.00% Jersey5 Greenhithe Investments Limited 100.00% Jersey1 The Ebbsfleet Limited Partnership 50.00% UK Harbour Exchange Management Company Limited 25.70% UK The Oriana Limited Partnership 50.00% UK Harvest 2 GP Limited 50.00% UK The St. David’s Limited Partnership 50.00% UK Harvest 2 Limited Partnership 50.00% UK The X-Leisure (General Partner) Limited 95.04% UK Harvest 2 Selly Oak Limited 50.00% UK The X-Leisure Limited Partnership 95.04% UK Harvest Development Management Limited 50.00% UK The X-Leisure Unit Trust 95.04% Jersey2 Harvest GP Limited 50.00% UK Victoria Circle Business Manager Limited 50.00% UK Harvest Nominee No. 1 Limited 50.00% UK Victoria Circle Developer Limited 50.00% UK Harvest Nominee No. 2 Limited 50.00% UK Victoria Circle GP Limited 50.00% UK Kent Retail Investments Limited 100.00% Jersey2 Victoria Circle Limited Partnership 50.00% UK Land Securities Insurance Limited 100.00% Guernsey3 Victoria Circle Nominee 1 Limited 50.00% UK Leisure II (North Finchley Two) Limited 95.04% Jersey2 Victoria Circle Nominee 2 Limited 50.00% UK Leisure II (North Finchley) Limited 95.04% Jersey2 West India Quay Limited 47.52% UK Leisure II (O2 LP) Shareholder Limited 95.04% UK West India Quay Management Company Limited 29.93% UK Leisure II (O2 Manager) Shareholder Limited 95.04% UK West India Quay Unit Trust 47.52% Jersey2 Leisure II (West India Quay LP) Shareholder Limited 95.04% UK Westgate Oxford Alliance GP Limited 50.00% UK Leisure II (West India Quay Two) Limited 95.04% Jersey2 Westgate Oxford Alliance Limited Partnership 50.00% UK Leisure II (West India Quay) Limited 95.04% Jersey2 Westgate Oxford Alliance Nominee No.1 Limited 50.00% UK Leisure Parks I Limited 95.04% UK Westgate Oxford Alliance Nominee No.2 Limited 50.00% UK Leisure Parks II Limited 95.04% UK X-Leisure () Limited 95.04% UK LS (Eureka Two) Limited 95.04% UK X-Leisure (Boldon) Limited 95.04% UK LS (Eureka) Limited 95.04% UK X-Leisure (Brighton I) Limited 95.04% UK LS (Fountain Park Two) Limited 95.04% UK X-Leisure (Brighton II) Limited 95.04% UK LS (Fountain Park) Limited 95.04% UK X-Leisure (Cambridge I) Limited 95.04% UK LS (Parrswood Two) Limited 95.04% UK X-Leisure (Cambridge II) Limited 95.04% UK LS (Parrswood) Limited 95.04% UK X-Leisure (Leeds I) Limited 95.04% UK LS ( Two) Limited 95.04% UK X-Leisure (Leeds II) Limited 95.04% UK LS (Riverside) Limited 95.04% UK X-Leisure (Maidstone II) Limited 95.04% UK LS Fort Limited Limited by X-Leisure (Maidstone) Limited 95.04% UK guarantee UK X-Leisure (Poole) Limited 95.04% UK Metro Nominees (Clapham) Limited 50.00% UK X-Leisure Management Limited 95.04% UK Metro Nominees (Wandsworth) (No.1) Limited 50.00% UK Castleford Limited 95.04% Jersey2 Metro Nominees (Wandsworth) (No.2) Limited 50.00% UK Xscape Castleford Limited Liability Partnership 95.04% UK Metro Shopping Fund GP Limited 50.00% Jersey4 Xscape Castleford No.2 Limited 95.04% Jersey2 Metro Shopping Fund LP 50.00% Jersey4 Xscape Castleford Partnership 95.04% UK Metro Shopping Fund Management Limited 50.00% UK Xscape Castleford Property Unit Trust 95.04% Jersey2 NOVA Residential (GP) Limited 50.00% UK Xscape Milton Keynes (Jersey) No.2 Limited 95.04% Jersey2 NOVA Residential Intermediate Limited 50.00% UK Xscape Milton Keynes Limited 95.04% Jersey2 NOVA Residential Limited Partnership 50.00% UK Xscape Milton Keynes Limited Liability Partnership 95.04% UK O2 (General Partner) Limited 95.04% UK Xscape Milton Keynes Partnership 95.04% UK Oriana (Hanway St) Limited 50.00% UK Xscape Milton Keynes Property Unit Trust 95.04% Jersey2 Oriana GP Limited 50.00% UK Oriana Nominee No.1 Limited 50.00% UK 1. 44 Esplanade, St Helier, Jersey, JE4 9WG 2. 13 Castle Street, St Helier, Jersey, JE4 5UT Oriana Nominee No.2 Limited 50.00% UK 3. PO Box 155, Mill Court, La Charroterie, St Peter Port, Guernsey, GY1 4ET Oriana Residential Nominee No.1 Limited 50.00% UK 4. 13-14 Esplanade, St Helier, Jersey, JE1 1EE 5. 47 Esplanade, St Helier, Jersey, JE1 0BD Oriana Residential Nominee No.2 Limited 50.00% UK

182 Landsec Annual Report 2017 Additional information % % 183 1.2 1.3 1.6 6.5 0.3 0.8 0.4 2017 2018 89.5 e 127 98.4 100.0 100.0 6 July 13 July 27 July 27 15 May 6 April June 22 June 23 Tabl Table 125 Table Table 126 Table 9 March 31 March March 31

5 January 6 October 1 December 8 September 14 November

Number of Number of Number 6,519,740 2,749,364 3,496,457 10,227,100 51,641,904 9,898,684 13,025,459 716,711,379 788,219,169 ordinary shares ordinary shares 801,244,628 801,244,628 % % 3.1 1.7 1.4 1.0 2.9 Landsec Annual Landsec Report 2017 77.4 23.4 22.6 66.5 100.0 100.0 136 184 224 420 389 3,175 3,057 9,004 holders holders 10,475 13,532 13,532 Number of Number of Number 4 4 3 4 1 2 1 1 The Board has declared a first quarterly dividend of 9.85p pence per ordinary share payable wholly as a Property Income Distribution. wholly 9.85p payable share pence per ordinary of dividend quarterly a first has declared The Board General Meeting. General comprising a letter the Chairman, from circular, separate A 5JL. SW1E London Victoria Street, at 80 2017 July 13 Thursday, am on 10.00 will be held at Meeting Annual General The website Company’s this document on the can also be found Copies of Annual Report. accompanies this proposed, the resolutions in respect of notes Meeting and explanatory of Notice www.landsec.com/investors at: The Board has recommended a final dividend of 11.7p per ordinary share, payable wholly as a Property Income Distribution, subject to shareholders’ approval at the forthcoming Annual at the approval subjectto shareholders’ as a Property Income Distribution, wholly payable 11.7p share, per ordinary of a final dividend has recommended The Board Including 10,495,131 shares held in Treasury by the Company. by Treasury held in shares 10,495,131 Including Provisional.

500,001–highest 100,001–500,000 50,001–100,000 10,001–50,000 5,001–10,000 Total Total 1,001–5,000 investors Nominee and institutional 2017/18 First quarterly interim dividend 2017/18 interim quarterly First Record date Record Payment date Payment Record date Record 2017/18 Third quarterly interim dividend 2017/18 interim quarterly Third date Payment 2017/18 Financial year end 2017/18 Annual results announcement Held by: shareholders Private 4. 2. 3. Holding range: 1–1,000 Share register March 2017 analysis as at 31 1. Record date Record elections/receipt DRIP for application day Last DRIP of date Payment Meeting General Annual date Payment 2017/18 announcement results Half-yearly 2017/18 dividend Second interim quarterly Record date Record Ex-dividend date Ex-dividend 2016/17 Final dividend Financial calendar Shareholder information Shareholder 1. Share register March 2017 analysis as at 31 Shareholder information continued

Ordinary shares Payment of dividends to UK resident shareholders The Company’s ordinary shares, each of nominal value 10p each, are Shareholders whose dividends are currently sent to their registered traded on the main market for listed securities on the London Stock address may wish to consider having their dividends paid directly into Exchange (LON:LAND). their personal bank or building society account. This has a number The Company’s American Depositary Receipt Programme was of advantages, including the crediting of cleared funds on the actual terminated on 1 September 2016. dividend payment date. If you would like your future dividends paid in this way, you should contact the Registrar or complete a mandate instruction Company website: www.landsec.com available from www.landsec.com/ investors and return it to the Registrar. The Company’s Annual Report, results announcements and presentations Under this arrangement, dividend confirmations are still sent to your are available to view and download from its website. registered address. Information can also be found there about the latest Land Securities share price and dividend information, news about the Company, its Payment of dividends to non-UK resident shareholders properties and operations, and how to obtain further information. Instead of waiting for a sterling cheque to arrive by post, shareholders can request that their dividends be paid directly to a personal bank account Registrar: Equiniti overseas. This is a service which the Registrar can arrange in over 30 For assistance with queries about administration of shareholdings, different countries worldwide, and in local currencies, and it normally costs such as lost share certificates, change of address or personal details, less than paying in a sterling cheque. For more information, you should amalgamation of accounts and dividend payments, please contact the contact the Registrar on +44 (0)121 415 7049 or download an application Company’s Registrar: form online at www.shareview.co.uk. Alternatively, you can contact the Registrar at the address given above. Equiniti Group PLC Aspect House Dividend Reinvestment Plan (DRIP) Spencer Road The DRIP gives shareholders the opportunity to use cash dividends to Lancing increase their shareholding in Land Securities Group PLC. It is a convenient West Sussex BN99 6DA and cost-effective facility provided by Equiniti Financial Services Limited. Telephone: 0371 384 21281 Under the DRIP, cash dividends are used to buy shares in the market as International dialing: +44 (0) 121 415 70491 soon as possible after the dividend payment, with any residual cash being www.shareview.co.uk carried forward to the next dividend payment. Details of the DRIP, including terms and conditions and participation An online share management service is available which enables election forms, are available at www.landsec.com/investors. shareholders to access details of their Land Securities Group PLC shareholdings electronically. This is available at www.landsec.com/ They are also available from: investors or www.shareview.co.uk Dividend Reinvestment Plans Equiniti Group PLC e-Communication Aspect House We encourage shareholders to consider receiving their communications Spencer Road from the Company electronically as this will enable you to receive it Lancing more quickly and securely. It also allows Landsec to communicate in West Sussex a more environmentally friendly and cost-effective manner. To register BN99 6DA for this service, you should go to www.landsec.com/ investors or Telephone: 0371 384 22681 www.shareview.co.uk International dialling: +44 (0) 121 415 71731 UK Real Estate Investment Trust (REIT) taxation and status Share dealing facilities on payment of dividends Equiniti provides both existing and prospective UK shareholders with an As a UK REIT, Landsec does not pay corporation tax on rental profit and easy to access and simple-to-use share dealing facility for buying and chargeable gains relating to property rental business. selling shares in Land Securities Group PLC by telephone, online or post. However, it is required to distribute at least 90% of its qualifying The telephone and online dealing service allows shareholders to trade income as Property Income Distributions (PIDs). A REIT may in addition ‘real-time’ at a known price that will be given to them at the time they pay ordinary dividends and this will be treated in the same way as give their instruction. dividends from non-REIT companies. For telephone dealing, call 0345 603 7037 between 8.00am and UK shareholders will be taxed on PIDs received at their full marginal 4.30pm, Monday to Friday (excluding public holidays in England and tax rates and on ordinary dividends received in line with the dividend Wales). Calls are charged at the standard geographic rate and will tax regime introduced by the Government on 6 April 2016 – for more vary by provider. Calls outside the UK will be charged at the applicable information see www.gov.uk/tax-on-dividends. international rate. For online dealing, log on to www.shareview.co.uk/ For most shareholders, PIDs will be paid after deducting withholding dealing. For postal dealing, call 0371 384 22481 for full details and a dealing tax at the basic rate. instruction form. Existing shareholders will need to provide the account/ However, certain categories of shareholder may be able to receive shareholder reference number shown on their share certificate. Other PIDs gross (i.e. without deduction of withholding tax). These categories brokers, banks and building societies also offer similar share dealing are principally UK companies, charities, local authorities, UK pension facilities. schemes and managers of ISAs, PEPs and Child Trust Funds. Further information on UK REITs and the forms required to be completed to apply for PIDs to be paid gross are available on the Company’s website or from the Registrar.

184 Landsec Annual Report 2017 Additional information 185

Landsec Annual Landsec Report 2017 Shareholders are advised to be very wary of any offers of unsolicited of offers any wary of very be advised to are Shareholders ensure you getensure correct the name person of the and firm; checkthe thatis firm on the Financial Conduct Authority (FCA) authorised are they ensure Register at to www.register.fsa.org.uk; contactuse on details Register the FCA the to firm; the no contact are if there 6768) Consumer FCA the call 111 Helpline (0800 and out are they of date; Register in the details told or you are feel you if uncomfortable with the call or the calls persist, simply hang up. Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays. public holidays. excluding Friday, to Monday time), 5.30pm (UK open to 8.30am Lines are outside Calls from provider. by vary will and rate geographic at the standard charged Calls are rate. at the applicable international will be charged the UK — — — — —

Unsolicited mailUnsolicited available register its share make to law is obliged by The Company in shareholders result and this may organisations other to on request mail, unsolicited of the receipt limit To mail. unsolicited receiving an Service, the Mailing Preference with register may shareholders visiting by whose services free, are independent organisation www.mpsonline.org.uk. securityShareholder received have our shareholders some of months, the pastOver few concerning investment calls or correspondence telephone unsolicited have personsor implying that they claiming or organisations matters from purported from typically These are some connectionwith the Company. theirof oftenexcess at a price far in shares to buy offer who ‘brokers’ known as ‘boiler rooms’. commonly are These operations value. market own or free they shares prices for premium shares, discounted advice, calls, such unsolicited any receive you If reports the Company. into advice: or investment correspondence — — — — — report to free and/or feel shareholder discuss any Additionally, security matters with the Company. To do this, please call do this, To with the Company. matters security +44 (0)20 7413 9000 and ask to be put through to a member of to be put through 9000 and ask to 7413 +44 (0)20 department. Secretarial the Company 1.

1

email: uarenquiries@uk..com email: www.uar.co.uk Capital Capital Gains Tax Securities a Land the price of Tax, Gains Capital the purpose of For Register Assets The Unclaimed 000 0182 +44 (0)333 Telephone: Unclaimed Assets Unclaimed Assets Register which participatesAssets Register, The Company in the Unclaimed have been which may financial assets for facility a search provides contact: further For information, forgotten. share at 31 March 1982, adjusted for the capitalisation issue in the capitalisation for adjusted 1982, March at 31 share 2002, September in Arrangement and the Scheme of 1983 November 2009 Issue in March 8 Rights that the 5 for On the assumption 203p. was purposes Tax Gains Capital price for the adjusted up in full, was taken 229p per share. would be ShareGift of value the shares, a small number of with only Shareholders The Orr Mackintosh Foundation Limited Foundation The Orr Mackintosh Financial ServicesEquiniti Limited ShareGift SavingsIndividual Corporate (ISA) Account which is managed by: ISA has in place a Corporate The Company which makes it uneconomic to sell them, may wish to consider to wish may sell them, it uneconomic to which makes charity a registered ShareGift, through the charity to donating them charitable which specialises such holdings for in using 1052686) (No. theA ShareGift from form can be obtained donation benefit. further and about ShareGiftRegistrar at information is available writing to: www.sharegift.org.uk or by Terrace House 17 Carlton 5AH SW1Y London 3737 7930 +44 (0)20 Telephone: Aspect House Spencer Road BN99 6DA Sussex West 2244 384 0371 Telephone: Lancing Key contacts and advisers

Registered office and principal UK address Land Securities Group PLC 100 Victoria Street, London SW1E 5JL Registered in England and Wales No. 4369054

Company Secretary Tim Ashby Group General Counsel and Company Secretary

Investor relations Edward Thacker Head of Investor Relations

Telephone: +44 (0)20 7413 9000 Email: [email protected] www.landsec.com

Registrar Equiniti Group PLC Aspect House Spencer Road Lancing West Sussex BN99 6DA

Telephone: 0371 384 2128 Textel: 0371 384 2255 International dialing: +44 (0) 121 415 7049 www.shareview.co.uk

Auditor Ernst & Young LLP 1 More London Place London SE1 2AF

Telephone: +44 (0)20 7951 2000 www.ey.com

External advisers Valuer: CBRE Financial adviser: Citigroup Solicitors: Slaughter and May Joint brokers: JP Morgan Cazenove and UBS

186 Landsec Annual Report 2017 Additional information 187 Landsec Annual Landsec Report 2017 Net Net initial yield valuer external the Group’s is a calculation by yield Net initial based on a purchaser, by would be received yield that the of as a percentage Income expressed Rental Net the Estimated plus assumedvalue being market the cost, the acquisition of calculationThe costs at the reportingusual purchasers’ date. Income Rental Net Estimated guidance. EPRA is in line with and is basedvaluer on the passing cash the by is determined non- estimated at the balance sheet date, rent ground rent less costs servicevoid including and charges, outgoings recoverable rates. void costs and insurance income rental Net income arising fromnet operational income is the Net rental income, including rental basis, on an accruals properties, service income charge rents payable, finance lease interest, direct property income, property other related and expense, on income is presented Net rental and bad debts. expenditure a proportionate basis. Over-rented the ERV. is above the passing rent where Space cash rent Passing as at the reporting receivable date annual rent The estimated of and estimates rent turnover of which includes estimates or review rent be outstanding in respect agreed to of rent be more may cash rent Passing negotiations. lease renewal and ERV). reversionary (see over-rented, or less than the ERV units in from receivable annual rent excludes cash rent Passing be expected to are that rents the extent to save administration period at in a rent-free units and units that are Void received. no passing have cash rent. deemedthe reporting to are date treated are months 12 less than lets of Although temporary lets is included in passing temporary income from as void, cash rents. Planning permission full planning permission: two common types are of There full A planning permission and outline planning permission. in a decisionplanning permission on the detailed results a of The grant can be developed. the site on how proposals any subject satisfaction of to will, full planning permission mean no furtherlocalwith the engagement conditions, build the consented to will be required planning authority An outline planning permission approves development. Outline can be developed. a site how principles of general subject conditions knownplanning permission to is granted must be and achieved Consent sought matters’. as ‘reserved within a specified all reserved matters time- of discharge for outline planning the date from years three normally limit, In both the building can begin. before was granted, permission the local planning permission, full and outline planning case of the this stage, At permission’. grant to will ‘resolve authority legal of subject agreement planning permission to is granted On execution documents, in particular the s106 agreement. will be issued. the planning permission s106 agreement, of the ‘pre-commencement’ any can begin on satisfaction of Work planning conditions. Pre-let completion of with an occupier prior to lease signed A a development. properties Pre-development properties those propertieswithin are Pre-development portfolio align being managed which are to the like-for-like to view with a horizon year a three within possession vacant redevelopment. Property (PID) Income Distribution paid out of its shareholders to a REIT PID is a distribution by A at least 90%to distribute required is A REIT qualifying profits. to its shareholders. qualifyingof its as a PID profits Proposed developments yet properties not which have are Proposed developments still subjectto main or are approval final Board received likely more which are but planning conditions being satisfied, than not. to proceed Qualifying assets Qualifying activities/ (activity)which is held to propertyThe ownership (assets) of treatment tax-exempt for income and qualifies earn rental legislation. REIT gains) under UK (income and capital (REIT) Trust Investment Estate Real with at least three- company quoted must be a publicly REIT A a qualifying and assets from derived its profits quarters of gains from Income and capital business. property rental but the tax from exempt business are the property rental to those profits at least 90% of distribute to is required REIT is payable on non-qualifying tax Corporation shareholders. way. activitiesnormal in the Gearing less short-term including bank overdrafts, borrowings, Total plus value, at book bonds and cash, corporate deposits, as on financial derivatives movements value fair cumulative 20. see note gearing, adjusted For equity. total of a percentage value Gross market costs at the plus assumed usual purchaser’s value Market reporting date. Head lease property. holds an investment which the Group lease under A (ICR) Ratio Cover Interest meet its interest to ability a company’s calculation of A using revenue It is calculated debt. payments on outstanding the (excluding net interest dividedby interest, before profit foreign swaps, on interest-rate movement mark-to-market capitalised de-recognition, bond exchange swaps, exchange on the pension scheme assets and and interest interest ventures. joint The calculation excludes liabilities). IPD which measure IPD Direct the MSCI Property to indexes Refers in the UK. returns the property investment level swap Interest-rate two partiesexchange where to financial instrument agree A time. of amount a predetermined for obligation rate an interest convert to floating-rate the Group used by generally These are rates. fixed to or investments debt portfolio Investment portfolioThe investment properties comprises the investment consolidated on a proportionately subsidiaries, the Group’s of basis wholly owned. where not venture Joint and holds an interest which the Group in An arrangement and one or more the Group by controlled which is jointly Decisions on the partners arrangement. under a contractual affect the joint that significantly venture the joint activities of including decisions on financial and operating returns, venture’s policies the and the performance and financial of position the partners of the unanimous consent require operation, sharing control. Lease incentives Typically, a lease. into to enter to occupiers offered incentive Any or a cash period, bewill rent-free an initial the incentive purposesFor accounting costs. fit-out or similar to contribution life the non-cancellable over is spread the incentive of value the the lease. of LIBOR charged rate the interest Rate, Offered Interbank The London often used as a lending money, for another one bank to by in bank facilities. rate reference portfolio Like-for-like portfolio includes all properties beenwhich have The like-for-like which are those but excluding 2015, April 1 in the portfolio since pipeline at any sold or included in the development acquired, time since that date. (LTV) Loan-to-value including adjusted net debt, of is the ratio LTV Group the market the sum of to ventures, subsidiaries and joint trading properties of investment and the bookvalue value of all ventures, its subsidiaries and joint properties the Group, of the For as a percentage. expressed on a proportionate basis, the Security to lent net debt of is the ratio LTV Group, Security assets. secured of value the divided by Group value Market in valuer, external the Group’s by is determined value Market as an opinion Standards, Valuation with the RICS accordance which a property should exchange for amount the estimated of willing and a willing buyer betweenvaluation a of on the date transaction after marketing. proper seller in an arm’s-length adjustment Mark-to-market an asset of change the bookvalue adjustment to An accounting movement). value (see also fair value its market to or liability per share assets Net the divided by the parent of attributable owners to Equity assets Net end. year in issue at the shares ordinary number of pervalue share known as net asset is also commonly per share per share). (NAV

of an asset or liability to its market value (see alsovalue its market to an asset or liability of adjustment). mark-to-market Finance lease rewards and all the risks substantially lease that transfers A the lessee. the lessor to from of ownership Adjusted earnings per share (Adjusted EPS) earnings (Adjusted per share Adjusted tax. afterrelated profit based per on revenue share Earnings pershare assets net Adjusted ofthe effect remove adjusted to Net assets per share and bond exchange 2004 the of the de-recognition and swaps on interest-rate movements fair value cumulative similar instruments. debt net Adjusted on movements value fair cumulative excluding Net debt the de- the adjustment arising from swaps, interest-rate payable under and amounts the bond exchange recognition of subsidiariesof includes the net debt It generally finance leases. on a proportionate basis. ventures and joint Book value reportedwhich assets and liabilities are in the at The amount financial statements. BREEAM Environmental Establishment’s Building Research Assessment Method. Combined Portfolio properties comprises the investment The Combined of Portfolio basis consolidated on a proportionately subsidiaries, the Group’s investment of with our share together owned, wholly when not propertiesventures. held in our joint developments Completed those properties of consist previously developments Completed beenwhich have programme, included in the development 2015. April 1 since programme the development from transferred pipeline Development with together programme The development proposed developments. programme Development committed consists of programme The development with the building projects approved (Board developments approved), (Board authorised developments let), contract which haveprojects under construction and developments but are years within the last two practical reached completion let. 95% yet not figures Diluted include the effectsof potentially Reported to adjusted results schemes. share employee issuable under shares dilutive Plan (DRIP) Dividend Reinvestment with the opportunity use cash to shareholders provides The DRIP in the shares additional ordinary purchase to dividends received dividend payment after the relevant immediately Company website. appear details on the Company’s Full date. per shareEarnings the of parent to owners after attributabletaxation Profit in shares ordinary number of average weighted the divided by year. issue during the EPRA Association. Estate Public Real European yield EPRA initial net Best Practice within EPRA’s yield is defined net initial EPRA income based as the annualised rental Recommendations less non- passing at the balanceon the cash rents sheet date, the gross divided by property expenses, operating recoverable with the net initial It is consistent the property. of value market valuer. external the Group’s by yield calculated yield Equivalent yield is equivalent valuer, external the Group’s by Calculated based property, an investment from return of rate the internal a property (including of the purchase outlays for on the gross rent market to current reversions reflecting costs), purchase expenditure and non-recoverable voids as and such items The calculation value. changes in capital but ignoring future in arrears. annually is received assumes rent value rental estimated Gross – ERV lettable space of asvalue rental market The estimated For valuer. external the Group’s by biannually determined which properties programme, investment in the development represents the ERV practical completion, reached yet not have rents. market of view management’s value movement Fair change the bookvalue adjustment to An accounting Glossary Glossary continued

Rental value change Total development cost (TDC) Increase or decrease in the current rental value, as determined Total development cost refers to the book value of the site by the Group’s external valuer, over the reporting period on a at the commencement of the project, the estimated capital like-for-like basis. expenditure required to develop the scheme from the start Rental income of the financial year in which the property is added to our Rental income is as reported in the income statement, on development programme, together with capitalised interest, an accruals basis, and adjusted for the spreading of lease being the Group’s borrowing costs associated with direct incentives over the term certain of the lease in accordance with expenditure on the property under development. Interest is SIC 15. It is stated gross, prior to the deduction of ground rents also capitalised on the purchase cost of land or property where and without deduction for operational outgoings on car park it is acquired specifically for redevelopment. The TDC for trading and commercialisation activities. property development schemes excludes any estimated tax on disposal. Return on average capital employed Group profit before net finance expense, plus joint venture Total property return profit before net finance expense, divided by the average Valuation movement, profit/loss on property sales and net capital employed (defined as shareholders’ funds plus adjusted rental income in respect of investment properties expressed as net debt). a percentage of opening book value, together with the time weighted value for capital expenditure incurred during the Return on average equity current period, on the combined property portfolio. Group profit before tax plus joint venture tax divided by the average equity shareholders’ funds. Total Shareholder Return (TSR) The growth in value of a shareholding over a specified period, Revenue profit assuming that dividends are reinvested to purchase additional Profit before tax, excluding profits on the sale of non-current units of the stock. assets and trading properties, profits on long-term development contracts, valuation movements, fair value movements on Trading properties interest-rate swaps and similar instruments used for hedging Properties held for trading purposes and shown as current purposes, the adjustment to finance expense resulting from assets in the balance sheet. the amortisation of the bond exchange de-recognition Turnover rent adjustment, debt restructuring charges, and any other items of Rental income which is related to an occupier’s turnover. an exceptional nature. Valuation surplus/deficit Reversionary or under-rented The valuation surplus/deficit represents the increase or decrease Space where the passing rent is below the ERV. in the market value of the Combined Portfolio, adjusted for Reversionary yield net investment. The market value of the Combined Portfolio is The anticipated yield to which the initial yield will rise (or fall) determined by the Group’s external valuer. once the rent reaches the ERV. Voids Scrip dividend Voids are expressed as a percentage of ERV and represent all A scrip dividend is when shareholders are offered the unlet space, including voids where refurbishment work is being opportunity to receive dividends in the form of shares instead carried out and voids in respect of pre-development properties. of cash. Temporary lettings for a period of one year or less are also treated as voids. Security Group Security Group is the principal funding vehicle for the Group Weighted average cost of capital (WACC) and properties held in the Security Group are mortgaged for Weighted average cost of debt and notional cost of equity, the benefit of lenders. It has the flexibility to raise a variety of used as a benchmark to assess investment returns. different forms of finance. Weighted average unexpired lease term Temporary lettings The weighted average of the unexpired term of all leases other Lettings for a period of one year or less. These are included than short-term lettings such as car parks and advertising within voids. hoardings, temporary lettings of less than one year, residential leases and long ground leases. Topped-up net initial yield Topped-up net initial yield is a calculation by the Group’s Yield shift external valuer. It is calculated by making an adjustment to A movement (negative or positive) in the equivalent yield of net initial yield in respect of the annualised cash rent foregone a property asset. through unexpired rent-free periods and other lease incentives. Zone A The calculation is consistent with EPRA guidance. A means of analysing and comparing the rental value of retail Total business return space by dividing it into zones parallel with the main frontage. Dividend paid per share in the year plus the change in adjusted The most valuable zone, Zone A, is at the front of the unit. diluted net assets per share, divided by adjusted diluted net Each successive zone is valued at half the rate of the zone assets per share at the beginning of the year. in front of it. Total cost ratio Total cost ratio represents all costs included within revenue profit, other than rents payable and financing costs, expressed as a percentage of gross rental income before rents payable.

188 Landsec Annual Report 2017 Land Securities Group PLC Cautionary statement Copyright and trade mark notices. All rights reserved. © Copyright 2017 Land Securities Group PLC This Annual Report and Landsec’s website may contain Landsec, Land Securities, the Cornerstone certain ‘forward-looking statements’ with respect to Land logo, the “L” Logo and ‘Everything is Securities Group PLC (“Company”) and the Group’s financial experience’ are trade marks of the Land condition, results of its operations and business, and certain Securities Group of companies. plans, strategy, objectives, goals and expectations with Landsec is the trading name of Land respect to these items and the economies and markets in Securities Group PLC. which the Group operates. All other trade marks and registered trade Forward-looking statements are sometimes, but not marks are the property of their respective always, identified by their use of a date in the future or such owners. words as ‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘should’, Produced by Brightsource Limited, ‘will’, ‘would’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘targets’, a Cello Signal company. ‘goal’ or ‘estimates’ or, in each case, their negative or other Printed by CPI Colour. variations or comparable terminology. Forward-looking Cover and text printed on Munken Design statements are not guarantees of future performance. By Kristall Smooth which is produced from their very nature, forward-looking statements are inherently FSC and PEFC certified wood pulps and unpredictable, speculative and involve risk and uncertainty manufactured at a paper mill which has because they relate to events and depend on circumstances ISO 14001, EU Ecolabel and EMAS certification for environmental standards. that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Independently certified on behalf of the ® Group’s ability to control or estimate precisely. There are a Forest Stewardship Council (FSC ). 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 (including the outcome of the negotiations to leave the EU); 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. Design: Any forward-looking statements made in this Annual mslgroup.co.uk Report or Landsec’s website, or made subsequently, which Words: are attributable to the Company or any other member of Tim Rich and Landsec the Group, or persons acting on their behalf, are expressly Photography: qualified in their entirety by the factors referred to above. Philippa Langley Each forward-looking statement speaks only as of the Luke Hayes date it is made. Except as required by its legal or statutory David Hares Joseph Fox obligations, the Company does not intend to update any forward-looking statements. Nothing in this Annual Report or Landsec’s website should be construed as a profit forecast or an invitation to deal in the securities of the Company.

Land Securities Group PLC 100 Victoria Street London SW1E 5JL +44 (0)20 7413 9000 www.landsec.com www.landsec.com