The Annual Report and Accounts 2015/16 Conscious commercialism in action Our year, our business Our risks and opportunities Financial statements and strategy Our approach to risk management 42 The Certificate and Report of the 87 The Crown Estate at a glance 2 Our principal risks and opportunities 44 Comptroller and Auditor General to the Houses of Parliament Chairman’s statement 4 Our viability statement 47 Consolidated statements of 91 Chief Executive’s review 6 comprehensive income Conscious commercialism Our performance Consolidated balance sheet 92 in action Interim Chief Financial Officer’s review 48 Consolidated cash flow statement 93 St. James’s Market 12 Resources and relationships review 50 Consolidated statement of changes 94 in capital and reserves Banbury Gateway 14 Governance Notes to the consolidated 95 Westermost Rough 16 Chairman’s review 58 financial statements Windsor Great Park 18 The members of our Board 60 Ten-year record (unaudited) 119 Glossary 120 Creating value, in context The members of our 62 Management Board Our business model 20 Board evaluation exercise 64 Our investment strategy 23 Board activities 66 Material issues 24 Committee reports 69 Our markets 26 Complying with the 1961 Act, 2011 77 Our review of activities 30 Code of Good Practice, and the 2014 Governance Code Statement of The Crown Estate Commissioners and Accounting Officers’ responsibilities 80 Remuneration Report 81

Continuing to integrate What’s next The Crown Estate is an independent In this, our fourth integrated annual Even though we have come a long business, created by Act of report, we have continued to build on the way, we know that there is still more to Parliament. Our role is to make progress made so far. We have refined do on our integrated reporting journey sure that the land and property we several elements to improve clarity and to demonstrate clearly how we create invest in and manage are sustainably connectivity, for example our business and maintain value. In order to provide worked, developed and enjoyed to model, our strategic objectives and additional credibility to what we say, deliver the best value over the long connectivity between material issues and we are working to add rigour to our KPI term. At the heart of how we work is risk. In the case of our strategic objectives and Total Contribution data collection an astute, considered, collaborative we have reduced these from six to four, processes and to ensure that the data approach that helps us create better to reflect our business. is robust. To this end we are gradually transferring the responsibility for all data success for our business and for We have given a few examples of Total (not just the pure financial) to our finance those with whom we work. We call Contribution indicators in the report which function and increasingly receiving this conscious commercialism. helps us to appreciate the value of some of independent assurance from PwC for those activities not normally accounted for Our vision is to be a progressive limited assurance or ‘Insight’ on that data in economic terms. Values for many more commercial business creating and on our Total Contribution approach. significant value beyond financial indicators will feature in a Total Contribution return. We work with partners and report to be published later this year. An integrated report is aligned with The Companies Act 2006 (Strategic Report stakeholders to grow our business, The approach helps to highlight the and Directors’ Report) Regulations 2013. outperforming the market whilst positive and negative impacts of what we delivering sustainable long-term do directly, commission or enable on the In the opinion of the Audit Committee, returns. In everything we do, land we manage. This has great potential our 2015/16 Integrated Annual Report is in we are guided by our values – to influence decision-making and further to alignment with the International Integrated commercialism, integrity integrate our thinking. For further detail see Reporting Council (IIRC) Framework. and stewardship. www.thecrownestate.co.uk/our-business/ how-we-measure-value.

To The Queen’s Most Excellent Majesty A May it please Your Majesty, The Crown Estate Commissioners take leave to submit this their sixtieth PwC has provided limited assurance against ISAE 3000 and ISAE 3410 standards for selected key data in 2015/16. Report and Accounts, in obedience to sections 2(1) Where you see the ‘Assurance Symbol’ in this report it indicates data has been externally assured. For the full and 2(5) of the Crown Estate Act 1961. limited assurance opinion and our reporting criteria see www.thecrownestate.co.uk/pwc-statement.

1 The Crown Estate Integrated Annual Report 2015/16

01_TCE_contents_page_design_review_LE.indd 1 28/06/2016 10:34 From the backbone of the West End Our year, our business and strategy to the UK’s seabed and from regional retail to rural land – our approach combines smart business thinking with a long-term approach. We call this conscious commercialism. It’s about being astute and enterprising in how we create value today while considering the long-term effects of what we do and how we do it. Across Regent Street, St James’s and our assets throughout the country, our approach helps us to outperform the market, generate growing returns for HM Treasury and make a greater Total Contribution – economically, socially and environmentally.

Key numbers Net revenue profit

Financial resources Our people £2.4bn 83% £304.1m Generated for HM Treasury Great Place to Work employee +6.7% over last ten years engagement score

Capital value Physical resources Our know-how £12bn 19.3% £12.9bn Property value Total Return. Outperforming our three-year annualised IPD +12.2% bespoke benchmark of 16.2%

Property value* Natural resources Our networks 5% 77% £12bn Improvement in Suppliers paid +9.7% emissions intensity within 30 days * Including share of joint venture properties and other property investments.

The Crown Estate Integrated Annual Report 2015/16 1

CrownEstates_AR2016.indb 1 22/06/2016 11:15 The Crown Estate at a glance It has been a fast-paced and productive year across our diverse portfolio

The structure in this section reflects the way has been divided into Central London and we were organised over the last financial year. Retail, with Windsor incorporated into Rural & During the year we announced a restructure Coastal. We have also established a separate designed to make us more agile as a progressive Scotland Portfolio ahead of its devolution to business. From 1 April 2016 the Urban Portfolio the Scottish Government.

Urban • We manage, invest in and develop property assets in central London and prime retail and leisure locations across the UK. • Our Central London Portfolio includes the whole of Regent Street and much of St James’s, and we are delivering a £1.5 billion investment and redevelopment plan. • We are one of the largest owners of major retail schemes outside the capital with 14 retail parks, three shopping centres and two leisure destinations. • We are active asset managers and manage strategic joint ventures containing around £1.9 billion of our partners’ funds. • Placemaking is at the heart of our development activity as we see enhancing the streets and public realm around our buildings as an important factor in the long-term out-performance of our properties.

Revenue (£m) Property valuation (£m)* Revenue by activity (£m)

Other 4.1 Retail – West End 2016 277.7 2016 9,119 Industrial 6.0 92.6 2015 263.7 2015 8,196 Residential 10.8 Retail – 2014 248.9 2014 6,867 Offices – Rest of UK Rest of UK 24.7 2013 239.5 2013 5,928 7.0

2012 225.3 2012 5,480 Retail and Offices – West End leisure parks * Including share of joint property and other property investments. 75.4 57.1

2 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 2 22/06/2016 11:16 Our year, our business and strategy The Crown Estate at a glance Rural & Coastal • We are one of the country’s largest rural It has been a fast-paced and productive landowners with around 336,000 acres of agricultural land and forests, with our major interests focussing on prime rural year across our diverse portfolio and strategic land. • We also manage mineral rights, renewable energy, aquaculture, marinas, ports and harbours, and around half of the UK’s shoreline. • Through our in-house expertise we identify and acquire strategic land sites which are promoted through the planning process and sold to developers.

Revenue (£m) Property valuation (£m) Revenue by activity (£m)

Cables and pipelines 0.5 Agriculture 2016 49.5 2016 1,621 21.6 Aquaculture 2015 50.5 2015 1,653 3.7

2014 48.5 2014 1,559 Residential Coastal 3.7 2013 46.5 2013 1,437 17.1

2012 43.3 2012 1,393 Forestry Minerals 0.5 2.4

Energy, Minerals & Infrastructure Windsor • We are responsible for managing the whole of the Windsor Estate, encompassing some 6,400 hectares (15,800 acres), where our role is to manage and maintain this historic estate, combining progressive commercial management with careful stewardship.

Revenue by activity (£m)

Other Residential 1.1 3.9

Commercial Visitors property 3.0 1.6

• We are managers of the UK’s seabed. Revenue by activity (£m)

• Our business includes wind, wave and Renewables Aggregates Revenue (£m) tidal power, marine aggregates and 22.9 20.3 minerals, cables and pipelines. 2016 9.6 • We play a unique role in developing and 2015 8.4

helping sustain UK energy supply and Cables and 2014 7.9 infrastructure by working in collaboration pipelines 2013 7.1 with a wide range of organisations. 15.1 2012 7.4

Revenue (£m) Property valuation (£m) Property valuation (£m)

2016 58.3 2016 1,037 2016 271

2015 50.5 2015 868 2015 261

2014 45.5 2014 759 2014 225

2013 39.1 2013 564 2013 204

2012 38.2 2012 521 2012 196

The Crown Estate Integrated Annual Report 2015/16 3

CrownEstates_AR2016.indb 3 22/06/2016 11:16 Chairman’s statement We are setting ambitious targets and achieving them

In making my seventh and final annual statement on The Crown Estate’s performance, I’m delighted to describe an organisation setting and achieving ambitious targets, and breaking through a new barrier to deliver over £300 million for the benefit of the nation’s finances. To my successor as Chairman I confidently hand over a business in full vigour, consistently proving its commercial capability whilst also demonstrating the durability which comes from strong values and a focus on long-term success. Looking back to when I joined The Crown Estate at the beginning of 2010, market conditions couldn’t have been much worse, but we’ve been able to hold our nerve and steer a path through the tough Sir Stuart Hampson times and to reap the benefits of the high Chairman points. Alongside meeting the targets agreed with HM Treasury, we’ve built confidence in The Crown Estate’s capability from the international funds which have now placed significant sums under our “ We have a huge advantage in our management. As future market conditions are again shrouded in uncertainties, this heritage, but we’re an unequivocally resolve and tenacity will again be tested, but we have in place a solid foundation modern business.” and clear sense of direction. The driving force behind our performance continues to be our assets in central London. Undeniably, we have a huge advantage in our heritage, but we’re an unequivocally modern business. The responsibility for prize assets is a challenge rather than a guarantee of enduring good fortune. Over the last seven years I’ve seen huge change in Regent Street and St James’s. Behind the retained splendour of the Nash facades, modern, energy-efficient office floorplates have been created to meet the requirements of British and international clients, whilst at street level we’ve established retail and restaurant units which appeal to aspirational brands and to

4 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 4 22/06/2016 11:16 Our year, our business and strategy

Marking the occasion We marked the Queen’s 90th birthday celebrations with a special beacon lighting ceremony at Windsor and with a display of Union Flags across Regent Street.

customers looking for the best. The place, with our Scottish Commissioner, to run with and support their appetite for process of transformation which was Gareth Baird, continuing to provide modernisation and their confidence in already under way when I joined The Crown leadership support. We will be ready for achieving transformation. It’s also been a Estate has marched on apace, and Alison an orderly hand over of management to privilege to work with an amazing group Nimmo and her management team have the Scottish Government at the target of Board Members and Counsellors. rightly picked up plaudits and prizes for the date of April 2017. They’ve shared with the executive team the ambition of their vision and for the quality of At the time of writing the UK is gearing challenges of reading and reacting to the the schemes they’ve delivered. The results up to vote on whether to remain within the gyrations in market conditions and have show through in the increase in revenue European Union. Our ongoing membership been unwavering in their support of the and in capital values, but they deserve also of the EU is a matter for the people to business and unstinting in the time and to be measured in the contribution made decide, but the impact of an exit on our experience they have brought. At the end to the appeal of London as our capital city business has been carefully assessed of 2015 we said farewell to Chris Bartram, and an international destination. and discussed at Board level. As an who brought great wisdom and experience London isn’t the whole story, however. independent business with a £12 billion to the Board’s deliberations over a ten year Our focus on core sectors has seen property portfolio, open markets with period of service. We’ve welcomed James continuing investment in our Retail Portfolio, strong links to Europe are important Darkins who joined the Board at the making The Crown Estate one of the largest to us. Our London holdings are highly beginning of the year, and we look forward managers of regional shopping centres, internationalised, both in capital terms and to his fresh perspectives and engagement. and our investment in the development of tenant profile, but also in the context of our Throughout my business career the Westgate Centre in central Oxford and joint venture partnerships, for which we I’ve observed that successful businesses Lakes in is an currently manage £1.9 billion of funds for are staffed by people who enjoy what indication of our confidence in the a number of international investors. they’re doing and who take pride in saying sustainability of well-located, well-designed We have not attempted to assess the they work in an organisation with strong and well-managed space. When I took on long-term consequences of an exit from the values. My time at The Crown Estate has this Chairmanship there was a vision of how EU as there are too many unpredictable reinforced this conviction. Everything we important the seabed could be. Its value in factors. However, our assessment is that do here is founded on our core values of our accounts this year is over £1 billion, with if the UK were to leave there would be an commercialism, integrity and stewardship. income of £58 million. Offshore wind now extended period of uncertainty for investors That’s the driver for outperforming the has 5.1 GW of installed capacity, meeting in the property market, negatively affecting market, and that’s at the heart of our ability our target for 2015/16. As we’ve said many confidence, which may lead to reduced to attract and retain talented people. It’s times – this isn’t alchemy. It’s the product investment volumes and liquidity. This is been my privilege to share some exciting of a talented and energetic team who likely to have an impact on the valuation of times with those people. Undoubtedly, have engaged with policy-makers and the portfolio; however, this impact is not uncertainty and challenge lie ahead, but international energy companies to deliver quantifiable in the short term. We expect I’m confident their ability to go on taking on a clear purpose. Our Rural & Coastal these influences to be removed if there bold decisions and to settle only for the holdings represent a significant part of the is a decision to remain within the EU. best will serve the nation well as The Crown portfolio, with a clear focus on maximising All of the achievements I’ve described Estate continues to show its paces as a performance. And a special mention are the product of a strategic focus on thriving business. is warranted this year for the splendid long-term success. It’s easy to say that achievement of our team at Windsor, who The Crown Estate enjoys a unique privilege for the first time ever have delivered a in not being subject to the pressures of positive financial return without sacrificing financial markets to produce short-term their emphasis on maintaining high results. But we face the same conditions, standards and on welcoming some five the same uncertainties as our million visitors to this unique Royal Park. commercially-owned competitors. Here I Sir Stuart Hampson On a less visible front, we’ve continued give credit to the inspirational leadership Chairman to prepare for the implementation of the and sheer stamina of the two Chief Scottish devolution settlement. We now Executives I’ve worked with – Roger Bright have a stand-alone Scotland Portfolio in and Alison Nimmo. It has been a pleasure

The Crown Estate Integrated Annual Report 2015/16 5

CrownEstates_AR2016.indb 5 22/06/2016 11:16 Chief Executive’s review We have a compelling vision and a clear strategy

Alison Nimmo CEO, The Crown Estate

It has been another year of The momentum we have built within the transformation and success for business has delivered another year of market The Crown Estate. My hugely outperformance, enabling us to contribute capable team has worked really a record £304.1 million to HM Treasury. We have outperformed our IPD bespoke hard and delivered exceptional benchmark by a significant margin this year, performance again this year. with a total return of 17.2% compared to the I hope you enjoy reading benchmark’s 13.1%. On a three year rolling about the many and varied basis the figure is 19.3% compared to things we’ve achieved in the 16.2% for our bespoke benchmark. past 12 months. The value of our property portfolio grew to a record £12 billion and we have a strong balance sheet. “ The momentum We are firmly on track with our transformation from a traditional landed we have built within estate to a progressive, modern and high-performing business. The final stage is the business has the relocation of my HQ team to a single floor at our landmark St James’s Market project delivered another – a joint venture with our partners Oxford Properties. The regeneration of this historic year of market quarter is our most ambitious project to date and a stunning example of what we do well outperformance.”

6 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 6 22/06/2016 11:17 Our year, our business and strategy

Recruit Regional – connecting people and opportunities In the run up to Christmas we hosted a Jobs & Skills Fair at our Fosse Park shopping centre, bringing together local employers and potential employees. Part of our new Recruit Regional scheme and delivered in partnership with County Council, Council and Jobcentre Plus; the event attracted 560 visitors. Employers received over 3,000 job “ We have continued to reinforce our enquiries, around 100 people found work, some 50 gained training places and more reputation for placemaking in the than 20 started apprenticeships. capital, delivering great new buildings in the context of great public realm.”

– world-class, mixed-use development bigger space for existing tenants such as which blends the best of our heritage Hugo Boss and Coach, and we’ve attracted Net revenue profit assets with truly excellent contemporary leading new names such as Kate Spade design, art and a new public square. NY, Stefanel and Jo Malone. We launched our ambitious vision and Central London £304.1m £500 million investment programme for We have continued to reinforce our St James’s almost five years ago. Today that reputation for placemaking in the capital, vision is a reality, with the area now home to Capital value delivering great new buildings in the context many restored listed buildings, landmark of great public realm, in the best locations. new developments and a transformed public You just need to stroll down Regent Street, realm from the sweep of Piccadilly Circus day or night, to see what I mean. Our southwards to Waterloo Place. Testament £12.9bn long-term perspective and the scale of our to the quality of what we are delivering in holdings have enabled us to restore almost St James’s was private equity firm Carlyle the full length of this historic street – the Property value Group’s decision to relocate from Mayfair backbone of the West End and a world- to St James’s Market. Our investment has class retail destination. The joint venture also attracted some very special retail and with our strategic partner NBIM goes from restaurant brands, including new retail £12.0bn strength to strength. Over the past ten years concepts for Jigsaw, Smeg and ASSOS our £1 billion investment programme has and leading restaurants Salt Yard, Anzu and delivered world-class new buildings, wider the double Michelin-starred Aquavit. On the IPD benchmark pavements, new public realm, beautiful strength of this, we have extended our joint lighting, great restaurants and a fabulous venture with Oxford Properties. mix of retail brands from Apple to Zara. These days, Regent Street is also Retail 19.3% gaining a well-deserved reputation as one We’re coming to the end of delivering the total return compared to the of London’s best office locations. Behind most significant West End development the street’s listed facades we’ve been busy programme in our history. Our focus now bespoke IPD benchmark delivering a series of major new office shifts to active asset management and on a three-year rolling basis projects like One New Burlington Place. It’s securing planning for future projects in of 16.2% been fascinating to watch this new building London, with development activity take shape every day from our offices. We’re concentrated in our Retail Portfolio. We’re delighted that it’s been so warmly received also taking our award-winning Recruit by the market, securing its first major office London programme and launching Recruit letting well before completion and also now Regional to connect local unemployed home to new flagship stores for Polo Ralph people with employers at our major regional Lauren and Michael Kors. Elsewhere on retail parks. We are now successfully applying Regent Street we have created new and our focussed placemaking and customer-led

The Crown Estate Integrated Annual Report 2015/16 7

CrownEstates_AR2016.indb 7 22/06/2016 11:17 Chief Executive’s review continued Active asset management is enabling record results

“ We have challenged ourselves, we’ve stretched people and upped levels of expectation and ambition.”

management expertise to our £2.3 billion asset management has meant a significant Restructuring Retail Portfolio. This year we continued to focus on non-core sales including the In autumn last year I announced a major invest and reshape this portfolio, securing Bryanston Estate. In our strategic land restructure of the business. In part, this major planning consents for extensions at portfolio we received planning consent for change was precipitated by devolution Princesshay and Silverlink, and strengthening over 7,000 new homes and made local plan and the UK Government’s decision to the leisure and food offer across many of progress for sites accommodating a further transfer the management of our business our assets. 4,000 new homes. in Scotland to Scottish Ministers. This, In parallel, we took advantage of The performance of Windsor was a real together with the need to realign our favourable market conditions to sell highlight. In the year of Her Majesty’s 90th offshore energy to reflect prevailing market £613 million of assets this year to reinvest birthday celebrations, the Windsor Estate has conditions, meant that the time was also in the next generation of best-in-class never looked so good and, for the first time in right to move to a smaller and more retail parks such as Banbury Gateway its history, it has returned a revenue surplus. strategic leadership team. All of our Shopping Park and in All credit to Deputy Ranger Paul Sedgwick portfolios have now been brought together (Northamptonshire), both with our and his dedicated team. The management under the leadership of Paul Clark as he is partner LXB. of the estate has been transformed with a promoted to be our new Chief Investment Our most ambitious retail scheme – more enterprising approach, cutting costs Officer (CIO). Judith Everett has been the Westgate Shopping Centre, a joint and driving performance while preserving promoted to be our new Chief Operating venture with Land Securities – is now the very special character of this historic Officer (COO). A new Chief Financial Officer under construction. This Oxford city centre and beautiful Royal Park. These changes at (CFO) is currently being recruited to replace project is anchored by a new John Lewis Windsor are a great example of conscious John Lelliott, who is retiring after a long and department store and is set to transform commercialism in action. distinguished career of 31 years with us at the city’s retail offer with 100 new shops, The Crown Estate. It is intended that the Energy, Minerals & Infrastructure leisure space, and 25 new restaurants and new CFO will sit on the Board. It’s amazing to think that the UK’s first cafes set amongst covered streets, Vivienne King (Director of Business commercial offshore wind farm, North arcades, lanes and squares. The joint Operations) left the business in December Hoyle, started operation just 13 years ago. venture has also acquired the adjacent 2015 and Rob Booth has stepped up as The UK is now the world leader, with 29 Castle Quarter, further extending our role our new General Counsel and Company offshore wind farms generating over 5.1 GW in Oxford’s retail renaissance. Secretary. Rob Hastings left in March 2016, of operational capacity and a further 4.5 GW We were delighted to win the Estates with Huub den Rooijen being promoted under construction. This maturing industry Gazette Retail and Leisure Developer as our new Director of Energy, Minerals is now delivering a strong income stream of the Year award – great recognition for & Infrastructure. Vivienne and Rob for us while creating thousands of jobs and everything my team’s achieved. contributed hugely to the transformation supply chain opportunities, from ports and and success of The Crown Estate and both Rural & Coastal shipping to technology and construction. leave with our thanks and appreciation. We have had a busy year and continued to This, plus strong demand for our marine In other moves, we have brought our grow our profits, albeit against a backdrop minerals from the UK construction London holdings together under the of ever tightening agricultural margins and industry, has underpinned a really strong leadership of James Cooksey as our new subdued capital growth. Our very active performance, with the capital value of the portfolio powering above £1 billion.

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CrownEstates_AR2016.indb 8 22/06/2016 11:17 Our year, our business and strategy

7 Air Street Completed in 2015 and part of our long-term Regent Street regeneration programme, this 46,000 sq ft office building has set a new gold standard for sustainability. It’s the first listed building in the UK to receive a BREEAM outstanding rating – the highest award possible from the organisation that judges best practice for sustainability in the built environment. Chairing a panel debate on Building Sustainable Cities, broadcaster Jon Snow joined us to mark the opening of the building’s green roof, which is designed to support birdlife, insects and wild flowers.

Director of Central London, and Hannah Winning the Property Week Sustainability I’m confident that, as a team and as Milne has been promoted to Director of Achievement Award was great recognition, a business, we are ready to take on Regional. Full details of our new structure described by the judges as “an inspiration the many challenges and opportunities and governance arrangements are set out to other developers”. We know that we presented by an ever volatile, always on page 59 of this report. must continue to innovate, making exciting, and fast-changing world. sustainability a real competitive advantage Outlook for us and for our customers. This year, more than most, we are feeling I am now well into my second term as the challenges of running a business in Chief Executive of this unique business. an increasingly unpredictable world. We I continue to be impressed with my team expect total returns in our core sectors to and their skill and passion for what they do. Alison Nimmo reduce during the course of next year as a I encourage you to delve into this report to CEO, The Crown Estate consequence of prevailing global economic read all about the launch of Wild West End, trends and the fully priced nature of some our UK-wide stewardship work and our staff of our core markets, in particular central volunteering programme and partnership London and rural land. We have prepared with West End homeless charity The and positioned the business for the Connection. Our latest employee survey challenges and uncertainty ahead. shows a real confidence in the changes Nevertheless, producing the level of we’ve been making and an extraordinary outperformance that we have delivered in commitment to our customers and this and recent years is likely to become achieving even more success. I am inspired much more challenging. As a business by my colleagues and feel incredibly proud we continue to be committed to achieving to lead this amazing business. a strong and sustainable performance, And last, but by no means least, we looking beyond normal market cycles all bid a very fond farewell to our Chairman, and always considering the long term. Sir Stuart Hampson. The business has The international agreement reached thrived under his exceptional leadership. at the United Nations Climate Conference He will be missed greatly, not only by me in Paris – COP21 – was a major milestone and the Board but also the wider team – in the world’s response to climate change a team he has led with such skill and and a further call to action for government passion. Sir Stuart’s legacy is to leave the and business. We continue to make good business in great shape. We were all progress on embedding sustainability absolutely delighted to see Sir Stuart’s across the business, our 7 Air Street service recognised in this year’s Birthday project is a powerful example of what can Honours list, when he was appointed a be achieved, taking an innovative approach Commander of the Royal Victorian Order to the refurbishment of a listed building. by Her Majesty The Queen.

The Crown Estate Integrated Annual Report 2015/16 9

CrownEstates_AR2016.indb 9 22/06/2016 11:17 Chief Executive’s review continued Our business strategy

OurWe havefour a pointclear vision strategy for our business...explained

In 2012, we set out our vision for 1 The Crown Estate: to become2 a truly To activelymodern, manage commercial assets in business, To encourage by a high our coregrowing sectors our to coredrive markets, total contributingperformance culture and be return toand a smalla strong number income of joint partnershipsknown as a great place to work, streamand to Treasury embedding sustainabilityso withinthe best people want to join, the business. stay and thrive.

and we’ll reach it by following our four-part strategy...

1 Actively manage 2 Encourage a high- our core assets performance culture

2012 Ensure high levels of Measure, report and improve 2012 3 4 customer satisfaction our Total Contribution 2012

2012

2012

which is informed by the material issues that affect us... Read more on page 44

3 4 • Reputation and trust • Customer expectations • Government policy, • Technological advances To ensure high levels To measure, report constitutional change • Health of the economy • Attraction,and improve development our Total • Climate change of customer satsifaction and retention of the and governance through• theInfluence value of westrategic Contribution to ensure • Availability of counterparties best talent • Urbanisation natural resources deliver and a commitment that we create value to excellence in how we beyond our financial return, do business acting responsibly, with measured via our key performancesustainability indicators... built into Read more on page 11 Target everything we do Lorem ipsum quide ma a iore et sapic tet alique dus que venimodis Lorem ipsum Year-on-year increase in Employee survey ratings Customer satisfaction Carbon emissions dolor sit amet, consectetur adipiscing elit, Year-on-year increase net revenue profit and and number of health surveys and renewable energy sed do eiusmod tempor incididunt ut labore in net revenue profit three-year rolling total return and safety incidents operational capacity et dolore magna aliqua. Ut enim ad minim Target veniam, quis nostrud exercitation ullamco Lorem ipsum quide ma a iore et sapic laboris nisi ut aliquip ex ea commodo tet ali que dus que venimodis. consequatand supported lorem ipsum bydolor key resources and relationships Read more on page 50 Performance over five years (%) Performance this year £285.1 million up 6.7% Lorem ipsum quide ma a iore et sapic tet alique dus que venimodis Lorem ipsum dolor sit amet, consectetur adipiscing elit, 2012

sed do eiusmod tempor incididunt ut labore 2012 et dolore magna aliqua. Ut enim ad minim 2012 veniam, Financialquis nostrud exercitationPhysical ullamco Natural Our Our Our laboris nisiresources ut aliquip ex ea. resources 2012 resources people know-how networks 2012

10 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 10 22/06/2016 11:17 Our year, our business and strategy

1 2

To actively manage assets in our core sectors to drive To encourage a high performance culture and be known total return and a strong income stream to HM Treasury as a great place to work, so the best people want to join, stay and thrive Vision 2022 Year-on-year increase Three-yearIn rolling2012, we set out our Employeevision for The survey Crown ratingEstate: to becomeHealth a trulyand modern, safety commercial business, by growing our core markets, contributing to a small in net revenue profit total return Target incidents number of joint partnerships and embedding sustainability within the business. Target Target To consistently outperform Target To increase our net revenue Outperform our total return the benchmark for being a 10% improvement in relation profit year-on-year. bespoke IPD benchmark on a Great Place to Work. to incident performance. three-year rolling basis. Performance this year Performance this year Performance this year 2015/16 £304.1 million net Three year performance Great Place to Work employee The hours worked without a engagement score of 83% revenue profit up 6.7% on 19.3% compared1 to three-year 3 RIDDOR increased by 29% 2014/15. annualised bespoke IPD compared to the UK National to 632,920 . benchmark of 16.2%. normal rating of 78%*.

IPD Benchmark2 The Crown Estate * Source: Willis4 Towers Watson £m Hours worked without a RIDDOR (’000 hrs) 350 30% 700 300 600 250 20% 500 200 Engagement score 400 150 300 200 10% 200 50 100 0 0 0 11/12 12/13 13/14 14/1515/16 11/12 12/13 13/14 14/15 15/16 83% 13/14 14/1515/16 which is informed • Reputation and trust • Government policy • Attraction, development by the material issues • Sustainable and • Health of the economy and retention of the best profitable growth • Customer focus talent 3 that affect us... 4 in response to our • Technological change • Natural resources To ensure high levels of customer satisfaction markets through the To measure,• Power report of strategic and improve our• Successful Total Contribution placemaking to value we deliver and a commitment to excellence in how ensure thatcounter-parties we create value beyond our financial return, we do business acting responsibly, with sustainability built into everything we do In the Rural survey 67% of Target Total Contribution is being developed to influence internal respondents rated their overall Increase in customer decision-making, as well as being an indicator of positive impact. satisfaction with The Crown satisfaction levels during Most of the indicators on this page, and throughout the report, measured via Estate ‘good’Year or ‘excellent’. on year increase in net Third party funds are Staff survey ratings & the first year of the annual are included in the methodology. our key performance And on our Strevenue James’s profit portfolio & three-year available when required number of health and customer satisfaction survey 77% of occupiersrolling return rated from appropriate partners safety incidents programme.indicators... their overall satisfaction highly Carbon emissions Renewable energy PerformanceRead more about this ouryear and 84% of occupiersCustomer wouldsatisfaction Target Carbon emissions operationalIndependent capacity media strategy on page 00 surveys & renewable energy analysis & staff survey Having appointed a dedicated recommend The Crown Estate. Improve carbon emissions Target operational capacity on delivery of conscious Customer Engagement These surveys are developed intensity performance by 50% Facilitate installation of 5-8 commercialism Manager, this year we have with our wider network of against the 2012/13 baseline GW of offshore operational started the progression towards managing agents for for property under our direct renewable energy generation establishing an organisation- consistency of approach, and control by 2022. on our portfolio by 2015/16. wide baseline for customer five more portfolio surveys are service which will help us in planned for the year ahead. Performance this year Performance this year setting...and consistently supported high 5% improvement in emissions 5.1 GW operational and 0.5 standardsby key under resources our new intensity this year. 11% GW new operational in 2015/16 customerand relationships.service ‘Promises’. reduction since the baseline GW Two portfolio surveys were Financial Resources was established.Natural Resources 6.0 5.0 carried out during the year as 4.0 part of our customer focus St James’s occupiers who Improvement 3.0 work, with both indicating very would recommend us in emissions 2.0 positive results. 1.0 Our people 0

84% 5% 08/0 9 09/1 0 10/1 1 11/1 2 12/1 3 13/1 4 14/1 5 15/1 6

The Crown Estate Integrated Annual Report 2015/16 11

CrownEstates_AR2016.indb 11 22/06/2016 11:17 Conscious commercialism in action We’re creating a new destination for London

Our most ambitious project to date. at St James’s Market A bold but sensitive enhancement of a truly historic quarter that will create 21st century business space and In partnership with Oxford Properties, we’re developing further enhance our commercial St James’s Market, a major new project that will introduce performance in central London. more than 260,000 sq ft of contemporary offices, shops and restaurants centred around a new public square. This landmark £400 million redevelopment combines the very best of old and new, right in the heart of the West End.

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CrownEstates_AR2016.indb 12 22/06/2016 11:17 Five flagship stores offering best-in-class lifestyle and fashion will open as part of the development. In 2017 the first and seventh Brands include Smeg, floors will become our new ASSOS and Jigsaw. London headquarters – a place that expresses who we are and what we stand for.

Seven new restaurants will open here, creating a destination for international dining including exciting offerings from Salt Yard Group and Aquavit.

Our business includes around half of St James’s and we are undergoing a £500 million investment programme which looks to enhance and refine the area sensitively, carefully and for the long term, including major improvements to the public realm.

Over the entire development period (demolition and construction) there were 80,329 tonnes of waste generated and 79,743 tonnes (99.3%) of this diverted from landfill.

CrownEstates_AR2016.indb 13 22/06/2016 11:18 Conscious commercialism in action We’ve introduced best-in-class retail to Banbury Banbury Gateway Shopping Park was completed in October 2015, delivering over 280,000 sq ft of best-in-class retail and leisure space. The popular new park is an addition to our growing portfolio of high-profile retail and leisure assets.

We launched Banbury Gateway with a local wildlife awareness event for stakeholders in partnership with Berks, Bucks & Oxon Wildlife Trust. For the year ahead we’re planning to launch a community design-led public art piece.

Banbury Gateway adds to the value of our Retail Portfolio, which has now grown to £2.3 billion and includes 14 regional retail parks.

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CrownEstates_AR2016.indb 14 22/06/2016 11:18 The park has attracted major retail and leisure brands including Marks & Spencer, River Island, Next and Starbucks, We forward funded the development providing shoppers with a in a partnership with LXB, a model great selection. we’re now using at Rushden Lakes. Other key retail development projects for the year ahead include Oxford Westgate, Exeter Princesshay and extensions to Fosse Park in and Silverlink in Newcastle.

The development of Banbury Gateway Shopping Park has provided nearly 800 employment opportunities in The Crown Estate Integrated Annualretail Report and hospitality. 2015/16 15

CrownEstates_AR2016.indb 15 22/06/2016 11:18 Conscious commercialism in action We’ve helped offshore wind take a big step forward at Westermost Rough

As manager of the seabed we take an active asset management role, applying our expertise to lease and manage sites for offshore wind. Westermost Rough – a joint venture between DONG Energy and partners – is a new offshore wind farm some five miles from the Yorkshire Coast. Its 35 turbines cover 13.5 square miles and provide enough electricity to power around 150,000 UK homes.

Westermost Rough became operational this year along with Humber Gateway, Kentish Flats extension and Gwynt y Môr, helping increase the proportion of UK electricity generated by offshore wind to 5%.

In addition to offshore wind we also have significant interests in the development and commercial leasing of marine aggregates, wave and tidal energy, and cables and pipelines (including the cables taking the electricity from offshore wind farms back to shore).

16 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 16 22/06/2016 11:18 Westermost Rough is the first commercial wind farm to employ Siemens 6 MW turbines. We supported the development of this technology through leasing Gunfleet Sands as a test and demonstration We have unlocked the value of site. The turbines will now increase the UK offshore wind sector output on our portfolio as they are and it now stands as a global installed across future sites. leader, with around the same number of offshore wind turbines in UK waters as across the rest of the world combined.

Four further offshore wind developments are projected to generate first power over the next 12 months, growing our revenue stream and contributing towards the UK generating 10% of electricity from offshore wind by 2020.

The total amount of UK electricity generated by offshore wind in 2015 was around 5%. This equates to avoided carbon emissions of 7,482,000 tonnes. The Crown Estate Integrated Annual Report 2015/16 17

CrownEstates_AR2016.indb 17 22/06/2016 11:18 Conscious commercialism in action We’re combining performance and stewardship at Windsor Great Park

Under the terms of the Crown Estate Act 1961 we’re tasked with managing Windsor Great Park. In recent years we’ve brought a more commercial focus to our activities, at the same time maintaining the heritage of the park,

its conservation and our role as trusted stewards. Our team has achieved an impressive turnaround at Windsor, delivering a step change in productivity and embracing a new culture of active asset management to deliver a profit for the first time.

The park is a major attraction with five million visitors coming through the gates each year. People come to enjoy the historical monuments, unique biodiversity, ancient forests, stunning flora and fauna, and world class gardens.

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CrownEstates_AR2016.indb 18 22/06/2016 11:18 Windsor has a close and historic connection with the Royal As well as being a fantastic Family. In April 2016 we hosted visitor attraction, Windsor Great the 90th birthday of Her Majesty Park is also a working estate The Queen as she lit the first of a with business areas including network of beacons across the commercial forestry and UK in celebration. property lettings.

The economic value of ecosystem services produced at Windsor Great Park has been estimated to be £4.5 million per annum. These ecosystem services comprise recreation, amenity, agricultural production and greenhouse gas sequestration. (Data based on Bateman, Ian et al (2013) – Bringing Ecosystem Services into Economic Decision Making: Land Use in the United Kingdom – Science 341 (6141), 45-50). The Crown Estate Integrated Annual Report 2015/16 19

CrownEstates_AR2016.indb 19 22/06/2016 11:18 Our business model We have a resilient business model powered by conscious commercialism

Our approach What we do

Read more on page 22 We have a distinctive approach that combines 1. Investment management smart, progressive We buy and sell business thinking with a long-term approach. 2. Development management We call this conscious We plan, construct and refurbish commercialism. It’s about being astute 3. Asset management and enterprising in how We manage our assets to increase their value we create value today, while also taking a 4. Property management considered, long-term We add value for customers, vistors and communities view of the assets we manage.

Investment into the business

We access capital to invest in our portfolios via strategic partnerships and sale of non-core ex-growth assets. £354.8m Inflow of funds from capital activity £1bn Capital activity

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CrownEstates_AR2016.indb 20 22/06/2016 11:18 What we rely on The value we created Creating value, in context in value, Creating

Read more on page 50 Read more on page 50 We draw upon our resources and We consistently create significant relationships as inputs to our business financial value for the UK taxpayer, 1. Investment management model and are constantly transforming and tangible, long-term value, measured them through our activities. via our resources and relationships, We buy and sell for all of our stakeholders. In 2015/16: 6.7% 5% 2. Development management Increase in annual Improvement We plan, construct and refurbish revenue profit in emissions intensity Financial resources Our people 9.7% 77% 3. Asset management Increase in total Suppliers paid We manage our assets to increase their value property value within 30 days IPD+ 83% 4. Property management Physical resources Our know-how We consistently Great Place to Work outperform our IPD employee engagement We add value for customers, vistors and communities bespoke benchmark score

£12.9bn 5.1 GW +12.2% capital value Operational capacity Natural resources Our networks

Our contribution to HM Treasury

We access capital to invest in our Our annual net revenue profit is paid portfolios via strategic partnerships to HM Treasury. and sale of non-core ex-growth assets. £354.8m £304.1m Inflow of funds from capital activity +6.7% net revenue profit paid to HM Treasury £1bn £2.4bn Capital activity Generated for HM Treasury in last 10 years

The Crown Estate Integrated Annual Report 2015/16 21

CrownEstates_AR2016.indb 21 22/06/2016 11:18 Our business model continued Four core activities underpin our model

What we do

1. Investment management We buy and sell assets in line with our investment strategy, with a focus on our core sectors where we can outperform the market through our expertise and critical mass.

2. Development management We plan, construct, develop and refurbish to create successful places where our customers and communities can thrive.

3. Asset management We actively manage our assets, working closely with our customers to help achieve their business objectives while, at the same time, increasing the value of our portfolio.

4. Property management We add value for our customers, visitors and communities through activities such as placemaking, public realm improvements, and health and wellbeing initiatives.

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CrownEstates_AR2016.indb 22 22/06/2016 11:19 Our investment strategy We focus where we have expertise and critical mass

We concentrate investment We’re unable to take on debt, and asset management activity so it’s vital that we find effective Our investment on our core sectors of central ways to access working capital

strategy sets the London, dominant regional retail to fund our development context in value, Creating and leisure schemes, rural and pipeline and operational activity. direction of travel strategic land and offshore Capital market trading and wind. Combining our expertise strategic partnerships in for our business and critical mass within these commercial property provide and puts in place a sectors enables us to gain us with liquidity, allowing us competitive advantage and to respond to the market and structure that helps achieve outperformance. deliver our strategic objectives. us meet stretching financial targets.

Central London Offshore wind and Retail Rural and strategic land We hold almost the entire marine minerals Our prime retail portfolio Progressing strategic land freehold to Regent Street As manager of the UK’s seabed includes 14 retail parks, three opportunities on our rural estate and since 2002 have been out to the 12 nautical mile limit, shopping centres and two is a key focus for our business implementing the £1 billion we play a major role in the leisure destinations. As the and each year we are bringing Regent Street Vision investment development of the offshore third largest direct owner forward sites that deliver programme. In St James’s our wind energy industry. We of retail parks in the UK, thousands of new homes, which business covers 50 per cent of award and manage commercial and as a specialist property provides important capital the buildings and the portfolio agreements for companies manager of retail and leisure, receipts for our business. is currently the focus of a £500 to extract sand and gravel we leverage our expertise million investment plan. resources off the coast of to deliver sustainable asset the UK. management strategies.

The Crown Estate Integrated Annual Report 2015/16 23

CrownEstates_AR2016.indb 23 22/06/2016 11:20 Material issues We understand and address our most important issues

We need to understand and manage issues that have Reputation and trust Health of the economy the potential to influence significantly our ability to deliver our vision. These Resources and relationships affected Resources and relationships affected by the issue by the issue material issues are reviewed on an annual basis through a cross-business workshop facilitated by our advisors EY, Maintaining the trust of our customers, business Sustainable and profitable long-term growth in partners, suppliers, political stakeholders and local response to market cycles enables us to meet our who provide challenge and communities enables us to operate successfully business targets while maintaining the resilience add rigour to the process. and meet our responsibilities. of our business. Our commercial targets are to increase our net revenue surplus at an agreed rate Our approach Key risks most relevant to the issue with the Treasury and outperform our Total Return 1. Investment performance. IPD benchmark on a three-year rolling basis. In identifying material issues we 2. People. considered internal factors as well as 3. A bility to manage a major incident Key risks most relevant to the issue global megatrends such as rapid (including cyber security breach). 1. Investment performance. urbanisation, technological advances, 5. Health and safety. 6. Inability to deliver against our changes in demographics, consumer 6. Inability to deliver against our development pipeline. development pipeline. behaviour and business models, climate Our ability to control or influence change and resource scarcity, and the Our ability to control or influence our response to the issue our response to the issue Some influence. shift in global economics. Strong influence. What is material is defined as an issue that would impact our Board and Committee decisions. Each issue was scored on a scale 1-5 across three areas, namely: Government policy, constitutional Urbanisation • its economic impact on the business; change and governance • the degree to which our principal external stakeholders are concerned with it; and Resources and relationships affected Resources and relationships affected by the issue by the issue • the extent to which it is likely to grow in significance and impact in the future. From an initial list of 15, the scoring identified the following As an independent commercial business, created Changes and trends in urban environments can by Act of Parliament, The Crown Estate can be have an impact on our portfolio, such as increased ten material issues. affected by changes to Government policy and demand for high quality commercial properties in regulations that can influence our markets and central urban locations and the opportunities this how we operate and invest. creates for placemaking. Key risks most relevant to the issue Key risks most relevant to the issue 6. Inability to deliver against our 4. London’s attractiveness/competitiveness. development pipeline. 6. Inability to deliver against our development 8. Government policy. pipeline. 9. Adverse effect of climate change. Our ability to control or influence Our ability to control or influence our response to the issue our response to the issue Some influence. See page 44 for our principal risks and Some influence. opportunities. See our website for a further explanation of the materiality process.

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CrownEstates_AR2016.indb 24 22/06/2016 11:20 Our ability to control or influence our response to the issue: Financial resources Our people Direct control – Our response to the issue Strong influence – We have the ability to is entirely within our control influence our response to the issue within Physical resources Our know-how Shared control – Control in how we our own business and value chain respond to the issue is shared with, Some influence – We have the ability to Natural resources Our networks or exercised through, another organisation influence our response to the issue within or third party our own business

Influence of strategic Customer expectations Attraction, development and context in value, Creating counterparties retention of best talent

Resources and relationships affected Resources and relationships affected Resources and relationships affected by the issue by the issue by the issue

Creating strategic partnerships and attracting The provision of excellent customer service to To succeed in being a progressive commercial investors are one way that we can access capital meet customer expectations is essential in the business creating significant value beyond financial that we can reinvest in our business. We always maintenance of our position as landlord of return we need to attract and retain employees with aim to partner with organisations who share in choice which, in turn, has a direct impact on the right skills, experience and values. our values and long-term outlook. our financial performance. Key risks most relevant to the issue Key risks most relevant to the issue Key risks most relevant to the issue 2. People. 1. Investment performance. 1. Investment performance. 6. Inability to deliver against our 4. London’s attractiveness/competitiveness. Our ability to control or influence development pipeline. our response to the issue Our ability to control or influence Strong influence. Our ability to control or influence our response to the issue our response to the issue Strong influence. Shared control.

Technological advances Climate change Availability of natural resources

Resources and relationships affected Resources and relationships affected Resources and relationships affected by the issue by the issue by the issue

Technological innovation is changing the way Recent changes in the global climate are Our business depends on natural resources, information is shared and how communications unprecedented and are expected to continue. from resources that provide us with energy, to the are managed by organisations. Data security is Climate change is increasingly expected to threaten materials we build buildings with, to soil on our becoming an increasingly high risk area. Hyper- natural ecosystems and their biodiversity, erode farms. Some natural resources are finite and need connectivity is having a transformative impact on global food security, threaten human health and to be managed responsibly if supply chains are to how office space is used and the nature of retailing. increase inequality. The effects of climate change be secured and costs controlled. also present opportunities for our business, such as Key risks most relevant to the issue the impact of Government policy on de-carbonising Key risks most relevant to the issue 3. A bility to manage a major incident (including the UK’s energy supply and the subsequent growth 9. Adverse effect of climate change. cyber security breach). of the UK’s offshore energy industry. 7. Information systems. Our ability to control or influence Key risks most relevant to the issue our response to the issue Our ability to control or influence 9. Adverse effect of climate change. Some influence. our response to the issue Strong influence. Our ability to control or influence our response to the issue Some influence.

The Crown Estate Integrated Annual Report 2015/16 25

CrownEstates_AR2016.indb 25 22/06/2016 11:20 Our markets Staying ahead of changing conditions is vital

In this section we look at the major trends influencing our occupational and investment markets. These can be highly diverse, ranging from the transformative effect of technology on retailing to the impact that milk prices have on our tenant farmers. The most significant of these factors are called our material issues and are reflected within our outlook across this section.

Our priority remains to create world-class shopping and leisure destinations that people want to visit – achieving this through continued occupier management, right-sizing units, compelling marketing activities and crucial investment into the public realm.

across the UK. CoStar data indicates it Investment was the second strongest on record with £67.5 billion invested in commercial real The UK’s prominent role in international estate in the UK, over 46% above the capital markets continues to have a ten-year average. However with heightened significant impact on our business, pricing and market uncertainty, investment particularly in central London. UK property activity is more subdued as we move is seen globally as a transparent, stable and into 2016. liquid market and we’ve benefited from International capital has been key these characteristics in recent years. Whilst in driving demand in our core markets, we don’t envisage any material changes in making up 45% of this total. Whilst property this regard in the near-term, the beneficial allocations are increasing for many impact of low yields driving strong capital investors and others look to crystallise growth will inevitably slow. returns, we are mindful of the impact of Recent weaknesses in the global wider geopolitical issues – such as the economy and a lack of domestic inflationary volatility in the oil price, fluctuating equity pressures have pushed out expectations markets, the threat of an exit from the EU for a rise in the UK base rate, and yields Our prime retail destinations and instability in the Middle East – will have across world assets remain subdued. have benefitted from London’s on investor intentions and market pricing. increasingly prominent role as a Nevertheless, 2015 was a solid year for global shopping destination. investment in both London and regionally

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CrownEstates_AR2016.indb 26 22/06/2016 11:20 The West End prepares for the delivery of Crossrail in 2018 which will bring a significant increase in visitors to our area.

Market, we have limited opportunities work to complete the office leasing of our context in value, Creating Central London to deliver significantly more retail and major new developments, where we have restaurant space in the near term. Our already set new rental benchmarks in deals Our commercial markets in central London priority remains to create world-class with world-class businesses. Combined continue to be characterised by a lack of shopping and leisure destinations that with the potential for increased supply supply and reasonable occupier demand, people want to visit – achieving this through in response to current record-high rents, although the balance is certainly much continued occupier management, right- we anticipate the office market in more finely poised than in recent years. sizing units, compelling marketing activities the West End is fairly fully priced with After some very strong years where a and crucial investment into the public realm. opportunities for further growth firmly significant mismatch in dynamics has seen This is particularly important as the West geared towards the lower range of rental values rise strongly, we now expect End prepares for the delivery of Crossrail in rental values. markets to pause and rental growth to be 2018, which will bring a significant increase In central London, residential continues more subdued. in visitors to our area. to be an attractive sector from which to Our prime retail destinations have Meanwhile, an incredibly strong extract capital to reinvest in our core benefited from London’s increasingly business environment in London has driven commercial portfolio. After a number of prominent role as a global shopping robust rental growth across our large office years of consistently strong growth, prime destination and a choice location for portfolio in recent years; we have benefited residential values have slowed, or even international retailers seeking to expand from our diversity in this regard where plateaued, against a range of economic, internationally. Whilst this continues to be we can cater to start-ups with just a few political, regulatory and financial headwinds. the case, such expansionary brands are employees looking for flexible and However, given the unique and historic fewer and increasingly high occupational accessible business space, through to nature of many of our assets, demand is costs are seeing them become more international corporates seeking a global still there, albeit thinner and more selective selective and consider a broader range of HQ. The strength of these sectors is likely than in the recent past. In particular, we locations. However, our prime locations and to wane amidst continued global economic anticipated the current weakness in the historically low levels of vacancy should headwinds, in particular any shift in high-end new build residential sector and ensure we continue to drive premium value demand by banking & finance occupiers over the last year sought to de-risk our from these assets going forward. Following will have an impact on our high-value exposure to some projects through our retail and restaurant successes at One space. This is an area to which we are significant sales prior to completion. New Burlington Place and St James’s particularly attuned at the moment as we

An incredibly strong business environment in London has driven robust rental growth across our large office portfolio in recent years; we have benefited from our diversity in this regard.

The Crown Estate Integrated Annual Report 2015/16 27

CrownEstates_AR2016.indb 27 22/06/2016 11:20 Our markets continued

Agriculture For the first time in over a decade land values fell in agricultural markets throughout the UK, as investors and occupiers responded to uncertainty caused by continued pressure on commodity prices. Research suggests farming profitability was down by as much as 20% in 2015 which prompted many farmers to capitalise on high land prices and dispose of their assets. Unsurprisingly, farmers also made up the smallest proportion of buyers in over a decade. While average values for all land types throughout the UK were down in 2015, the regional dynamics show a more divergent picture. Prime arable in the east of , a high value area with historically strong growth, has decreased in value in 2015 by over 10%, which primarily reflects an increased volume of transactions. Conversely, grassland in the west of Retail outside London is increasingly polarised, with strong schemes or locations England which has historically been a low retaining their appeal to a range of domestic (and increasingly international) occupiers. growth area, has increased in value this year by around 2%. We still feel, however, that the underlying long-term characteristics of the agricultural capital markets remain strong, seen continued retailer failure, although particularly as the sector continues to be there have been fewer major casualties in Retail attractive to non-farming or lifestyle buyers the last year than previously. The recent who remain motivated by a favourable tax Retail outside London is increasingly high profile administration of BHS shows regime, and pricing continues to be polarised, with strong schemes or locations the challenge posed by retailers with very constrained by an imbalance between retaining their appeal to a range of low margins. The margin challenge will be supply and demand. domestic (and increasingly international) further exacerbated following the occupiers, whilst certain formats and introduction of the National Living Wage, markets find themselves in structural apprenticeship levy and the forthcoming decline. The pace of change in retailing ratings revaluation. over recent years has been unrelenting as All of these factors result in a retail technological advances have facilitated market where aggregate rental growth is significant and sustained growth in online very weak, and growth prospects looking shopping. We anticipate this shift will forward are improving only marginally. continue and it will be the retailers most However, there are pockets of growth on able to complement and capitalise on the dynamic and actively managed schemes multi-channel world that will succeed. where vacancy remains very restricted; We’re seeing this in our retail parks where new development also remains very limited click and collect facilities can be integrated across both our key markets of retail parks to deliver in-store sales. and major shopping centres. As such we Creating a diverse and appealing see our stock selection, active management occupier mix and actively managing this and major development activity as key to create dynamic destinations is more drivers of rental outperformance in a fairly important than ever. The last year has low-growth retail environment.

Technological advances have facilitated significant and sustained growth in online shopping.

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CrownEstates_AR2016.indb 28 22/06/2016 11:21 The underlying long-term characteristics of the agricultural capital markets remain strong. Creating value, in context in value, Creating

Urban development land values increased by more than 5% and greenfield land values by nearly 3%.

Strategic land Energy policy Infrastructure Over the course of the last year urban Following the 2015 General Election, the Part of the Government’s strategy for development land values increased by new Government outlined a clear energy energy security is to interconnect further more than 5% and greenfield land values security agenda which included support for the UK with neighbouring countries, and by nearly 3%. While the market responded the deployment of up to a further 10 GW of revised regulatory conditions have positively overall to the continuity afforded offshore wind in the 2020s, subject to precipitated a strong market uptake in new by the outcome of the 2015 General continued efforts on cost reduction within interconnector projects coming forward. Election, with an increase in planning the sector. The second round of auctions Separately, the Government is permissions granted and an overall upturn for Contracts for Difference (CfD) is reviewing prospects for tidal range. in demand, there remains some uncertainty expected in 2016, and this will signal the Given the predictable nature of tides, around local affordable housing provisions. start of investment for the post-2020 projects that can harness this energy This is likely to continue to have a delivery period. source have strong potential to contribute dampening effect on values until greater towards the UK’s future energy needs clarity is provided by the Government. as well as contributing towards decarbonisation targets.

The Crown Estate Integrated Annual Report 2015/16 29

CrownEstates_AR2016.indb 29 22/06/2016 11:21 Our review of activities Our team has delivered another exceptional performance

Across the business our employees have again 1 Investment management managed our assets with skill and agility, delivering a net Investment management includes at their strongest for a number of years. revenue profit of £304.1 million activities associated with buying and On the rural portfolio, where land values appear to have reached a peak in some to HM Treasury, excellent service selling assets in order to support activity in our core sectors and parts of the UK, we have continued to focus to our customers, and total enhance our financial returns. We on moving out of non-core assets and into return outperformance. also use our investment management strategic land opportunities. We have enjoyed another 12 months skills to de-risk the UK’s offshore Our investment management was of outstanding achievement and Total low-carbon sector and facilitate recognised this year at the IP Real Estate Return outperformance. 2015 was a year the development of the energy and global conference where we won Best when the property sector continued to infrastructure industries in order Investor from UK & Ireland, and at the UK perform well, our expertise in active asset to support our assets and Property Investment Awards where we won management came to the fore and the improve returns. the 10 Year Return Award for our activity in St James’s. largest development pipeline in our history Our activity during 2015/16 was biased continued to deliver outstanding new towards sales rather than purchases. Disposals assets into our portfolio. We invested £326.7 million in property We’ve made selective disposals across the Our capital market activity was (acquisitions, capital expenditure and business, principally from non-core assets muted, with an emphasis on sales, as we indirect investment), whilst realising £633.2 in line with our strategy. disposed of a number of non-core assets million through disposals and other capital We disposed of two retail parks for and focussed on fulfilling the potential of receipts. Our strategy remains to focus on a combined price of £177 million, selling the acquisitions made in previous years. sectors where we can outperform the Bath Road Shopping Park in Slough to Our business model on (page 20) market – central London, retail, rural and Royal London Asset Management for explains how we bring together our natural, strategic land, and offshore energy. As we £93.6 million and Morfa Shopping Park in physical and financial capital, our people, are unable to borrow, we recycle capital to Ashby Capital for £83.5 million. our know-how and our networks. These through the sales of non-core or ex-growth Both these schemes have played important resources and relationships are central to assets and use strategic partnerships to roles for us in building presence in the our business. They provide the foundations leverage our capital resources. sector, helping us achieve critical mass and for our teams to demonstrate their Although we have made no significant providing attractive returns. As we continue capabilities in four core areas: standing asset purchases since that of to focus on larger, more dominant schemes, 1 Investment management Fosse Park in the summer of 2014, reflecting we felt it was the right time to sell and take our view that markets are – or are close to advantage of strong capital markets, 2 Development management being – fully priced, we continue to regard following successful delivery of our asset 3 Asset management the UK as a good destination for long-term management strategies for these parks. 4 Property management investment. The depth, transparency and We also sold two office buildings in the efficiency of the market, combined with form of 43 Temple Row in Birmingham and our legal system and language advantage, St James’ House in Manchester. As with combine to ensure that the UK is enduringly the sales of Bath Road and Morfa, these popular for investors. disposals supported our wider investment In the West End, occupier demand strategy. In central London, we sold several for larger office floorplates is thinner than non-core residential properties including at generally perceived but more than good Kensington Palace Gardens and a block of enough for the relatively limited supply. 59 flats on Stamford Street near Waterloo. Outside London, the regional retail sector In total, sales from the Central London and is at an earlier stage of the cycle, capital Retail portfolios amounted to more than market pricing looks full, but occupier £463 million, which was £64 million above markets are improving and are currently book value.

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CrownEstates_AR2016.indb 30 22/06/2016 11:21 Creating value, in context in value, Creating Our investment activity on the Retail portfolio this year was principally focussed Oxford on funding development activities. Among the most significant of these was the landmark Westgate Shopping Westgate Centre in the heart of Oxford.

In line with our investment strategy the rural Heritage, allowing us to fulfiil our scheme in Northamptonshire. The scheme team disposed of around 8,500 acres of commercial mandate whilst transferring promises to be a unique new concept in non-core land and property this year for ownership of sites of national importance out-of-town retail and leisure, delivering £126.9 million at nearly 12% in excess of to a custodian of suitable expertise. 400,000 sq ft of new retail and restaurant book value. Sales included the entire 4,700 accommodation, together with leisure Acquisitions acre Bryanston estate at Blandform Forum facilities for activities such as canoeing In central London, we made a number of in Dorset in addition to other significant and wakeboarding, and a visitor centre. small strategic purchases to complement non-core farm sales at our Boroughbridge The scheme includes two areas which existing holdings, including buildings on estate in Yorkshire, our Ashby St. Ledger could represent future phases of Maddox Street and Princes Street, close to estate in Daventry, Northamptonshire and development and we’re considering our our Regent Street properties. Within strategic the Ewerby estate in Lincolnshire. We also options for these, alongside our partner land we purchased sites at Desborough completed a sale of 50 rural residential LXB. Development work has now and Kemprow Farm in Gorhambury for a units to Dorrington Residential Limited in commenced on site, with phase 1 combined sum of £3.3 million. September. In addition, we disposed of a anticipated to complete in March 2017. Investment activity on the Retail tranche of historic properties to English Rushden Lakes is the second project portfolio was principally focussed on where we have successfully worked with funding development activities, including LXB, following our agreement to bring that of the Westgate Shopping Centre in forward Banbury Gateway together in 2013. the heart of Oxford city centre. Through the In Worcester we acquired the long Westgate Oxford Alliance, our joint venture leasehold interest to 35-40 Friary Walk, with Land Securities on the project, we also “T he Crown Estate has currently occupied by New Look. The acquired Castle Quarter in Oxford for purchase will complement our holdings in a commercial mandate £47.2 million. The scheme lies adjacent to the city and help us continue to enhance the Westgate Centre and is made up of to optimise returns and the retail offering. a Malmaison hotel, restaurants and bars, Leisure is an important aspect of our an overriding vision and 40 modern apartments. It will allow retail schemes, as consumers demand the partnership to increase its strategic to be a progressive more from their shopping experience. position in the delivery of retail and leisure We are investing in more leisure facilities, commercial business.” within the city. incorporating cinemas and restaurants into In addition, we have committed to Judge’s comment at the IP Real Estate Global projects such as the MK1 Shopping Park in funding the development of the £140 million Awards where we were named ‘Best Investor Milton Keynes. from UK & Ireland’. Rushden Lakes shopping and leisure

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Working in partnership In central London we continue to fund 2 Development management key developments, building out what has been the largest development pipeline in This includes activities related to Landmark scheme our history. During 2015 we agreed a the planning, construction and This year, as part of our ten-year £145 million extension to the St James’s refurbishment of our assets. Within investment programme within St James’s, Market Partnership with Oxford Properties, offshore energy, development we saw our landmark scheme to redevelop the property investment arm of the Ontario management primarily covers St James’s Market near completion. Municipal Employee Retirement Scheme. activities carried out by third party Our approach across St James’s has As we are precluded from borrowing developers with our active support. been guided by a clear strategy, which under the terms of the Crown Estate Act aims to enhance and refine the area Some of our major development 1961, joint ventures such as the one with sensitively, carefully and for the long term. commitments in the West End are nearing Oxford Properties enable us to fund larger Our investments have not only improved their end. For us, this is a time to reassess projects or access bigger assets than the cohesion of our holdings but also the strength of our core markets, and shift would otherwise be practical. We currently protected St James’s future as a distinct emphasis towards our next generation of manage joint ventures containing over niche in the West End office market, and schemes in the light of our views on our £1.9 billion of our partners’ funds, through a world-renowned destination for shops core occupier markets. In particular, we schemes including Fosse Park (with Gingko and restaurants. We have also built on the are focussing on dominant retail schemes Tree Investment Ltd) and Regent Street (with area’s residential character and improved including those at Rushden, Exeter and Norges Bank Investment Management). the public realm. Oxford. We have tremendous in-house Within offshore energy we make The St James’s Market development experience in this area, with our increasing relatively small scale, strategic investments is our most ambitious scheme to date. It scale enabling us to build strong and to de-risk the sector in order to support our provides 260,000 sq ft of flagship retail, advantageous relationships with partners, encourage development and office and restaurant accommodation set unlock the long-term value of our primary major retailers. asset, the seabed. For example, in 2011 we provided £17 million to enable the Ministry of Defence to build a state-of-the-art air defence radar in Norfolk that protects signals from interference by the rotating blades of offshore wind turbines. When a wind farm progresses to the construction stage, we recover from the developer an agreed share of that investment. During 2015, a payment to us of £11.7 million was triggered by the lease agreement for the Race Bank wind farm in The Wash. On top of other projects, this brought our total capital receipts associated with the radar project to £23.4 million, a profit of £6.4 million on our original investment. Our phased investment in MeyGen, the world’s largest tidal stream project currently under construction, has also continued as planned under the terms we committed to in the previous year. The redevelopment of St James’s Market, a joint venture with Oxford Properties, St is our most ambitious scheme to date. It provides flagship retail, office and restaurant accommodation set amongst James’s half an acre of revitalised public space. Market

32 The Crown Estate Integrated Annual Report 2015/16 amongst almost half an acre of revitalised building envelope. We are also continuing public space. St James’s Market has to develop Quadrant 4, a residential been developed with high regard for scheme comprising 48 units. Preparations sustainability. We work to our own exacting have also started for the redevelopment standards which exceed legislative of the Quadrant Arcade and we expect One New Burlington Place requirements, and our sustainability to make headway with this scheme over Our scheme at One New Burlington Place principles inform the design, construction the year ahead. has regenerated an historic block to meet and operation of all projects. Also on the Regent Street portfolio, the needs of modern occupiers. As part of In addition, we completed our block the quality of our 10 New Burlington Street our commitment to public realm, it features W5 South scheme on Regent Street as development, which was completed the a public art work by Turner Prize winner planned, with the retail spaces taken previous year, was recognised in winning Keith Tyson. by Michael Kors and Polo Ralph Lauren. Best Mixed-Use Development award at Creating value, in context in value, Creating The scheme delivers 80,000 sq ft of high- the 2015 UK Property Awards. In addition, quality, modern office accommodation our commitment to sustainability across expected to generate up to 1,000 jobs behind a Grade II listed facade. all of our developments was underlined in during construction. In June, we announced that the Duke’s picking up the Sustainability Achievement In Newcastle we are on site with the Court scheme would be the next stage in award at the 2016 Property Week Awards. £30 million redevelopment to transform the St James’s redevelopment and have On site and on track the former Travelodge site opposite our since received planning consent to develop Looking forward, the weight of our Silverlink Park into a 106,000 sq ft scheme this block, which is on the corner of Duke development ambitions will transfer to for four new retail units. In addition, the Street St James’s and Jermyn Street. Our the regions where we have a number of project will provide extra car parking, plans include creating 36,000 sq ft of new projects in progress. enhanced landscaping, improved access modern office accommodation on six floors For example, at Westgate in Oxford routes and wider footpaths around the site. above flagship retail and restaurant space we are on site and on track in partnership With completion of the additional site at ground and basement levels. The project with Land Securities to deliver our single scheduled for autumn 2016, Next has also includes six new apartments at biggest retail scheme to date following already confirmed that it will relocate from 33 Bury Street, restoring the upper floors more than four years of preparation, its current Silverlink store to open a 52,000 to their original residential use. extensive public consultation and the sq ft flagship Next Home and Garden store. On Regent Street, we completed approval of a reserved matters application We have made good progress on plans to 21 Glasshouse Street and 7 Air Street, by Oxford City Council. Westgate will invest in extensions to two of our existing both major refurbishments within totally transform the retail and leisure regional retail sites. At Fosse Park in Quadrant 2. As part of the development, experience in Oxford – providing over 100 Leicester we reached conditional 7 Air Street became the first listed building new stores, 25 restaurants and cafes, a agreement to buy the 12.5 acre Castle to receive a BREEAM 2011 ‘Outstanding’ boutique cinema, roof-top terrace dining Acres site and transform it into a 150,000 rating. It incorporates a wide range and a wealth of new public spaces – and sq ft retail and leisure development, which of sustainability features including an stand out as one of the best schemes of could incorporate accommodation for ecological roof, solar panels, LED lighting, its kind in the UK. It will provide a rare around 26 new shops, restaurants and a central energy centre which saves opportunity for retailers and leisure cafés with accessible links so shoppers around 350 tonnes of carbon dioxide operators to reach a broad audience in a can travel between the new facilities and emissions each year and a highly efficient truly historic setting. The development is Fosse Park.

Our approach across St James’s has been guided by a clear strategy, which aims to enhance and refine the areas sensitively, carefully and for the long term.

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Our role in strategic land is to identify and acquire sites suitable for development and then promote the land through the planning process before releasing it to developers.

Whilst the project to extend Fosse Park accommodating 4,000 new homes and is currently in the planning process, the over 2 million sq ft of business space, ambitions of the Princesshay Partnership, and make planning applications for which comprises The Crown Estate and 200 homes. Applications for a further TH Real Estate, to add leisure facilities to 1,250 homes will be made in the early the Princesshay shopping centre in Exeter months of the new financial year. We also received outline consent in January. got consent for over 7,000 homes focused This £75 million redevelopment of Exeter’s on two new urban extensions, and sold five bus and coach station will include over sites to developers for a total of £25 million 180,000 sq ft of new restaurants, cafes a with these sales leading to the construction nd shops as well as a new cinema and an of 900 new homes. amphitheatre. The scheme is designed to Among the many significant highlights complement the existing successful retail of the year, we secured planning permission and leisure offer at Princesshay, which for 2,000 homes in August 2015, on part- includes leading brands such as Topshop, owned land close to Northampton that we River Island, Apple and Joules, as well as had acquired in 2014. We also secured a restaurants including Carluccios, Byron draft allocation in the emerging St Albans and Jamie’s Italian. We have now entered Local Plan for 2,500 homes. discussions with Exeter City Council Another highlight was securing regarding the delivery of community planning consent on our part-owned benefits alongside the development. land north of Thetford. The ‘Kings Fleet’ development will provide 5,000 homes, 48 Bringing more homes to the market acres of employment land, improvements Our strategic land holdings continued to to local roads and new community facilities. play an important part in the business Whilst in the South West, we finalised a during the year, supported by an deal with David Wilson Homes for the encouraging planning environment. sale of two separate sites at Taunton and Our role in strategic land is to identify and Devizes, having successfully promoted the acquire sites suitable for development and sites through the planning process. They then promote the land through the planning will deliver almost 500 new homes in the process before releasing it to developers. next few years with more to come at the In total, 2015/16 saw our strategic land Taunton site in the longer term. team make local plan progress for sites

New homes for Devizes Having successfully promoted a strategic land site at Lay Wood in Devizes through the local planning process, we agreed a deal to sell it to a developer this year. The scheme will now go on to provide 230 new homes and eight hectares of newly created public open space for the local community.

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CrownEstates_AR2016.indb 34 22/06/2016 11:21 The quality of our developments continued to drive healthy demand from prospective tenants during the year. Creating value, in context in value, Creating

Global brands on Regent Street We continued to attract and retain significant global brands on Regent Street this year. Kate Spade New York took the ground and first floor of 182 Regent Street. Next door, Hugo Boss opened its largest UK retail offering, having made the decision to move from smaller premises further down the street.

3 Asset management

We strive to be best-in-class asset Mayfair’s Berkeley Square to our landmark managers across our business. This destination scheme, St James’s Market. includes a range of activities where On the Regent Street portfolio, we we work closely with our customers achieved the first lettings for office space to help them achieve their business at One New Burlington Place, including objectives whilst, at the same time, international venture capital firm, Accel, increasing the value of our portfolio. who selected the project to become the Such activities include tenant firm’s new European headquarters. selection, building relationships with Three-quarters of the space on our stakeholders, marketing, letting, lease new Quadrant 2 schemes at 7 Air Street re-gears and renewals, rent reviews and 21 Glasshouse Street were let within and small scale refurbishments. eight weeks of completion. Tenants include internet content firm Akamai Technologies, With a reduced focus on acquisitions, our specialist lender Amicus, and Eden teams across the business worked hard McCallum LLP which has taken the fifth throughout 2015 to actively manage our floor for its UK headquarters. existing stock of assets. In central London, we let 438,654 sq ft for a total rent of £39.1 Endorsing global destinations million per annum, which is 12.2% above Both St James’s and Regent Street have Estimated Rental Value (ERV). On the distinctive characters as destinations, regional retail portfolio, we let 578,902sq ft and our teams again worked to retain and for a total rent of £16.4 million per annum, enhance these by ensuring an appropriate 9.3% above ERV. occupier mix. In addition to providing world-class

Strong tenant demand for offices office space, St James’s has a retail The quality of our developments continued reputation as London’s showcase of to drive healthy demand from prospective the best in heritage and lifestyle. Our tenants during the year. Voids in central team’s strategy for St James’s includes London remained low and we concluded maintaining the area’s standing as a global a large number of lease agreements, destination, with a sharp focus on modern including a significant number of pre- heritage and luxury craftsmanship. In lets. In December, we exchanged on an As part of our asset management January 2016, leading Italian design and agreement with the Carlyle Group that will approach we create a retail and lifestyle brand Smeg and iconic Swiss see the private equity firm relocate from leisure occupier mix that retains and cycling brand ASSOS became the first enhances the unique qualities of our Central London portfolio.

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retail tenants to sign up to St James’s Top flight retailers Asset management Market. The Smeg store will be a new retail Our asset management teams were also concept and one of the brand’s major busy across the Retail portfolio. Banbury on our rural portfolio global flagship outlets, whilst the ASSOS Gateway Shopping Park opened in is focussed on the unit will be the company’s first flagship October, quickly establishing itself as a store outside Switzerland. new fashion and shopping destination in reorganisation of holdings We were also pleased to announce the region. Located close to the M40 and to create opportunities for that Aquascutum will launch a new, within easy reach of Banbury, Daventry expanded menswear flagship store on and Oxford, this new 280,000 sq ft retail both us and our tenants. Jermyn Street in St James’s, retaining park includes 600 free car parking spaces. its strong links with the street where it A wide range of top flight brands are successfully re-launched its menswear in place at the park, including Primark, brand in 2013. Jermyn Street has a proud Next, Marks & Spencer and River Island, reputation as a premier destination for together with food and drink outlets men’s fashion and our work is ensuring such as Starbucks, M&S Café and Ed’s that this tradition continues. Earlier in the Easy Diner. year, we agreed a lease with outerwear Westgate, our new 800,000 sq ft retail brand Arc’teryx Equipment for its first and leisure scheme in Oxford city centre owned and operated European flagship is due for completion in autumn 2017. As store. Arc’teryx has taken the final two our financial year ended, around half of the retail units at our Eagle Place development space had already been pre-let, including between Piccadilly and Jermyn Street. a 140,000 sq ft John Lewis department Our retail strategy for Regent Street store, along with Next, H&M, Superdry and is guided by the street’s values of quality, Schuh, alongside boutique cinema chain heritage, style and success. We continued Curzon Cinemas. to enhance its reputation as a world- Elsewhere on our regional assets, we leading shopping and leisure destination signed up Smiggle, Tiger and Fat Face during 2015, agreeing leases with several to Princesshay in Exeter, Primark came significant global brands. These included to Fosse Park in Leicester, Phase Eight fashion icon Stefanel, which opened a took space at CrownGate in Worcester, 2,600 sq ft flagship store on two floors, and River Island was among the brands to and Coach, which emphasised the agree a lease at the Coliseum Shopping advantages of a Regent Street presence Park in Ellesmere Port as part of the park’s by agreeing a deal to relocate from its £3 million investment programme. existing store to a new, larger location. During the summer, Jo Malone opened its first global boutique on Regent Street whilst multichannel brand Kate Spade moved onto Regent Street early in 2016. The addition of Kate Spade to the street’s impressive line-up was made possible by our team’s successful negotiation of the surrender of the Esprit lease. Hugo Boss has now opened its largest UK store in the same block, having signed a lease totalling over 15,000 sq ft and, like Coach, moving from a smaller store elsewhere on Regent Street. We saw significant further retail activity around Regent Street including Moleskine taking space in the north end of Regent Street and grooming brand Murdock opening a classic British Exeter Princesshay barbershop on Brewer Street. Our team At the Princesshay shopping centre in also negotiated a new lease for existing Exeter this year we have attracted a series tenant Apple, which enabled a major of new retail brands and achieved outline refurbishment to their iconic Regent planning permission for a new £75 million Street store. leisure scheme.

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CrownEstates_AR2016.indb 36 22/06/2016 11:21 By working with the best partners, we ensure that our occupiers and visitors benefit from leading expertise and experience, and in 2015 we appointed new managing agents on both the Regent Street and Retail portfolios: Jones Lang LaSalle and respectively. As one of our four strategic objectives, customer service is a key focus for us and the ability of our wider network to deliver first class property and facilities management services in line with our Creating value, in context in value, Creating customer strategy is important to our asset management approach. Supporting tenants A lot of our asset management activity Humber Gateway becomes fully operational on our rural portfolio is focused on the The 219 MW Humber Gateway project completed construction in April 2015 reorganisation of holdings to create and became fully operational in June. Located 8km off the Holderness coast, opportunities for both us and our tenants. the wind farm can provide enough electricity for around 170,000 homes. This can mean amalgamating units to create larger, more efficient and productive holdings, or working alongside tenants on the surrender of their agreements where it can align with their objectives and can create opportunities for us to re-let at Royal Southern Yacht Club on the River to ensure favourable conditions for market rents or sell with the benefit of Hamble to complete its redevelopment development across the offshore vacant possession. during 2015, and continued to play sea space. In common with the National Farmers a role as one of the three landowners We grant rights to organisations that Union, we support the principle of Farm involved in progressing the proposed operate or wish to construct a wind farm, Business Tenancies (FBTs) because redevelopment of the Royal Pier dredge sand and gravel, lay cable or they foster good practice and ultimately Waterfront in Southampton. pipeline, or access the seabed for create more profitable and sustainable other technologies such as tidal range Using our expertise offshore businesses. In the spirit that the legislation energy schemes. 2015 was the year offshore wind secured was intended, we also believe in varying During 2015 we drew on our its place as a material contributor to the the length of our tenancies to suit both the experience in the management of high UK’s energy mix, with around the same particular circumstances of our occupiers value, large infrastructure agreements to number of offshore wind turbines now as well as ourselves. In 2015, we worked grant, extend or vary a large number of installed off the UK coastline as there are in with a tenant at Sunk Island to rationalise leases, licences and agreements for lease the whole of the rest of the world. This is two leases – an existing ten-year FBT and on the seabed. In total, for offshore significant for our business as our revenue a lease based on succession – into a new windfarms, we signed over 1,500 MW of increases in line with offshore energy long-term FBT, in order to provide a bank leases in 2015 and supported developer production and the growth of the sector. To with sufficient security to grant a loan. transactions that could deliver more than underline this, in June our annual ‘Offshore The farmer has since been able to invest 7,500 MW of capacity. We also awarded wind: Operational report’ for 2015 detailed in improvements that will increase the over 5,000 MW of rights through a how, from meeting zero of the UK’s efficiency of his operations, and we have programme that has consolidated the electricity demand a decade ago, offshore also provided funds to improve the asset Round 3 zones, facilitating new projects wind now meets around 5% today and is which is reflected in uplifts in its capital that will drive growth in the operating on course to deliver 10% by 2020. and rental value. portfolio through the 2020s. Offshore, asset management means We are also responsible for coastal Among the asset management activity using our know-how and expertise to assets and during the year we continued carried out by our team this year were the unlock the value of the natural resources of to support customers by providing leasing negotiations of leases for four new offshore the seabed through our understanding of solutions that create value. For example, wind farm projects which will each start the marine resource and markets, and we negotiated a new lease that allowed the generating electricity in the year ahead and working with customers and government

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Our leasing programme for the marine aggregates sector includes the delivery of high quality aggregate to the construction industry.

combined deliver a projected £6.8 million Our offshore team is also the UK’s principal per annum in revenue once they are at full mineral owner, actively asset managing capacity. Those projects were the extension sand, potash, polyhalite and gravel of a lease with DONG Energy for the resources, including the world’s largest 258 MW Burbo Bank Extension wind farm marine aggregates industry. Our leasing in Liverpool Bay and finalising rights to the programme for this sector includes the same company to build the 546 MW Race delivery of high quality aggregates to Bank wind farm. The team also concluded the construction industry, realising over leases with a consortium led by RWE £15 million income. In addition, we have Innogy for the construction of the 336 MW commercially benefited from the use of Galloper wind farm off the coast of East marine sands in many key projects across Anglia and a consortium led by E.ON for the the UK in the last 12 months, including 400 MW Rampion wind farm off the Sussex dredging and reclamation initiatives at the coast. Once completed, the projected Liverpool 2 container terminal, Portsmouth annual output for these four projects will harbour and beach recharge schemes, and provide electricity for 1.5 million homes a regeneration scheme at Clacton. (based on the 2014 UK average annual In our marine cables and pipelines household electricity usage of 4.115 MWh). business this year we reached a significant A notable project resulting from our agreement with National Grid for the “ The Crown Estate active management approach that installation of a 1 GW electricity completed and began generating electricity interconnector between UK and Belgium, should be praised for its this year was Westermost Rough. Another known as NEMO, which will commence initiative to encourage development by DONG Energy, Westermost in 2017/18 and will be commissioned Rough utilises the Siemens 6 MW turbine. in 2020/21. schemes like Kentish Flats We supported the development of this As part of our asset management role Extension. The extensions technology in the leasing of part of Gunfleet we continue to respond to market interest Sands as a test and demonstration site. to support the development of new leasing round plugged The widespread adoption of these turbines opportunities which offer the prospect of a pipeline gap in the UK will not only provide a step change in future portfolio growth areas. For example, performance within the sector through the in September 2015 we launched a new but crucially it allowed power they are able to generate, but part of leasing opportunity for wave or tidal developers to improve their manufacture will come through Green projects of up to 3 MW across the UK, as Port Hull, which will generate highly skilled part of promoting a step up to future larger on existing assets.” local jobs and help secure the UK’s position commercial-scale array deployment. Gunnar Groebler as a global leader in the sector. Vattenfall Vice President of Business Area Wind

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Property management embraces and have also created taxi drop-off points and other light works. Meanwhile, we built placemaking, public realm and provided cycle parking facilities. on the reputation of St James’s for fine food enhancements and other activities The result is a distinctive new place for by working with Heart of London to support that add value to our portfolio living, working and visiting, alongside tours of a selection of the finest restaurant strategies, customer focus and the world-class architecture. and food providers. Our own plans for St visitor experience, as well as to the James’s Market will further underpin this Enhancing the visitor experience communities in which we operate. reputation, with eight new restaurants Regent Street and St James’s are well This includes activities that support spaces planned over the coming months. established as destinations in their own the broader objectives of customers, 2015 saw the launch of the Wild West context in value, Creating right, not only for the quality of the retail such as research. End, an ecology initiative we are supporting and office environment but also for the together with other property owners, the Creating a sense of place public events which we support every Mayor of London and the London Wildlife In central London, for example, our year. Once again our RIBA Regent Street Trust. In the first phase of the project, we placemaking activities not only enhance the Windows campaign brought shop windows are creating a green corridor linking Regent area but also increase footfall, which drives to life along the length of Regent Street. Street and St James’s. Ultimately, the Wild economic activity and ultimately leads to The project dovetailed with our first West End will include a network of green increased rent for our business. We have ever Fashion and Design Month, which pockets connecting the large areas of invested over £25 million in improving the featured some of the fashion world’s most parkland which are already natural features public realm in the last decade, creating influential events, including Vogue Loves of the West End. The introduction of these spaces of the very highest quality, including Regent Street. pockets amongst our historic buildings will two pedestrianised food quarters, and Early in the new year, we were enliven the surrounding public spaces for transforming Oxford Circus and Piccadilly delighted to support Lumiere London, visitors, boost the range of habitats Circus, the gateways to Regent Street. a major international light festival, through available and enhance future air quality During the last 12 months we continued to which we were able to use our assets to across our Central London Portfolio. improve the public realm, with key projects drive increased footfall for retailers across We completed the first of our green pockets completed on Regent Street, St James’s the Central London Portfolio at a in October, when broadcaster Jon Snow and Haymarket. Building on our success traditionally quiet time of year. Our buildings put the finishing touches to a green roof with delivery traffic management in Regent in Regent Street and St James’s played a on our new office scheme at 7 Air Street. Street, we are establishing a freight central role in Lumiere, which saw iconic consolidation scheme to reduce the architecture across London transformed Sustainable living and working number of deliveries made to St James’s with 3D projections, interactive installations Sustainability was again a key theme for property management activities across the regional retail portfolio. We believe that our regional parks should play their full part as hubs for local community activities and throughout 2015 we continued to support initiatives that brought people together, thereby increasing footfall and adding value for our customers. During the summer we launched our Thrive campaign to emphasise the fun side of fitness and health. Thrive events took place at ten of our retail parks during the summer, offering visitors a wide range of free character-themed activities to promote an active lifestyle, health and wellbeing. Thrive built on the success of the previous year’s Underneath the Big Green Leaf community campaign, which was rewarded with a 2015 National Green Apple Award for Environmental Best Practice in Estate Management.

Year-round events Our portfolio played host to a series of spectacular events throughout the year, including the 2015 Tour of Britain, NFL and Summer Streets on Regent Street, and London Collections Men on Jermyn Street.

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Employment is another focus for our efforts to add value to our tenants’ businesses and the community at large. Since 2009, we have joined with tenants and other stakeholders in London to help local people find full-time work through our workplace coordinator scheme, Recruit London. During 2015/16, we helped a further 109 people to access work in West End retailers, whilst the scheme was also rolled-out across our Retail portfolio for the first time as Recruit Regional. Our Rural team has also focused on supporting tenants and ensuring the long-term sustainability of our portfolio with their focus on soil quality. We insist that all prospective tenants have soil management policies in place in order to ensure the commercial viability of our land. During 2015 we agreed five new farm tenancies and in each case the successful applicant was the one with the most appropriate soil management policy. We see healthy soil as Our stewardship programme continues to fundamental to the health of our natural play a key role in supporting our portfolios. resources, and that effective soil Stewardship We invest in partnerships that deliver management practices on our land can lasting benefits to the communities and help improve the soil for farmers, environments in which we operate as well safeguarding quality and yield whilst as our business and stakeholders. A good enhancing the asset’s capital and rental example of this is the Coast Explorer project value. This year, with the support of which we deliver with P1 Marine Foundation organisations such as the Tenant Farmers and Canterbury City Council alongside our Association and the National Farmers’ offshore wind customer, Vattenfall. Union, we aim to ensure that all our existing tenants sign up to soil management good practice, not just those new to visibility of the long-term potential of sites and-infrastructure/offshore-wind-energy/ The Crown Estate. around the UK. Building on our previous offshore-wind-electricity-map). The map Climate change adaptation actions wind atlas and following a tender process, shows the total electricity being generated such as new drainage schemes and repairs we awarded a contract to the Met Office from offshore wind farms on a near to existing systems are important aspects to provide wind profile data going back real-time basis, as well as the individual of ensuring that our rural land is fit to farm 30 years. This information is freely contribution from each wind farm. and an attractive financial proposition for available via our Marine Data Exchange our tenants as well as for ourselves. At (www.marinedataexchange.co.uk). Ellington in Northumberland, for example, As the number of operational offshore we are now entering the third year of a wind farms has increased in recent years, programme to improve drainage on land so too has the need to understand better that has experienced degradation due to the drivers of operational performance. mining activities. As well as enhancing our This helps the sector drive down costs, thus asset, this project helped the tenant at making it more competitive and attractive Ellington achieve record yields during to investors. To this end we initiated the 2015 and we anticipate further good SPARTA (System Performance, Availability performance in the years ahead. and Reliability Trend Analysis) which was fully implemented in 2015 with all offshore Sector knowledge wind operators in UK waters now signed Knowledge of our seabed resource is key up to SPARTA. By improving the cost- to unlocking its value, and as managers effectiveness of wind farms, it will help of the seabed we seek to ensure that secure our long-term growth in this sector. information is collected, shared, and made The spirit of open data was also behind available. For example, during 2015 we our creation of a new map that is proving to launched a new offshore wind database be the most popular section of our website that gives developers and investors greater (see www.thecrownestate.co.uk/energy-

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CrownEstates_AR2016.indb 40 22/06/2016 11:22 Windsor

This has been a significant year has also led to greater control and for the Windsor estate, which has accountability, and given our people a reported a surplus for the first time new sense of pride in their work. in the history of The Crown Estate. That work included the refurbishment of 25 residential properties during the year, The Windsor estate is an historic and meeting the target set in 2014 of adding 40 immensely varied estate, one that Country additional properties to our rental portfolio. Life magazine hailed in March 2016 as We also undertook numerous other “a business, an environmental haven, projects including: building a woodchip and a pleasure ground and a Royal retreat”. Filming remains a source of valuable firewood plant to fuel our biomass boiler; Under the terms of the Crown Estate Act income for the estate and in 2015/16 we improving car parking facilities at Virginia 1961, we are tasked with managing this one again welcomed a range of film and Water; constructing a Christmas tree depot unique resource. In recent years, we began television productions. that will also serve as a wet weather the journey towards doing so in a more classroom for our Forest School; finishing commercial manner, without in any way the new messroom for staff and machinery compromising the areas that Windsor holds sheds on one of our let farms; and turning a

so dear: conservation and stewardship. context in value, Creating failed pub and restaurant into a new school. Small steps create major impact Filming remains a source of valuable Our aspiration is to make Windsor income for the estate and in 2015/16 financially self-sustaining, whilst preserving we again welcomed crews and stars and improving its status, quality and involved in productions including ‘The standards. We have re-evaluated all our Huntsman: Winter’s War’ and Channel 4 assets and operations to ensure they are drama ‘Flowers’. We have ambitious plans in place for the performing at optimum levels of efficiency year ahead, including taking three strategic Renewed visitor focus and profitability. The result has been land sites through the local planning The estate is visited by five million people extraordinary. We have fulfilled the ambition process in order to provide much needed every year, firmly placing it among the top set out in our 2015 annual report and housing land for the local community, UK attractions. Savill Garden membership transformed an annual gross deficit of principally on brownfield sites. We will also numbers rose by 30% during the year, £1.4 million into a surplus of £0.3 million. be launching the UK’s largest and most reflecting our focus on the visitor This bottom line swing is a tribute to prestigious carp fishing syndicate, restoring experience. We launched a new website in the hard work of our team. They have the Totem Pole and continuing with our 2015 (www.windsorgreatpark.co.uk) and embraced cultural change with a real successful programme of apprenticeships, held several popular events such as positivity and, supported by a new reward among many other initiatives. Shakespeare in the Savill Garden and the package and working practices, have 2016 marked the 90th birthday of Her award-winning Lapland UK Christmas delivered a step change in productivity. Majesty The Queen and the estate played event. We were also pleased to host At the same time, we have brought asset its part in the celebrations, beginning with BBC’s Countryfile’s first ever ‘Rambles management in-house. This has not the lighting of a beacon and continuing with for Children in Need’. only saved a significant annual sum but the Royal Windsor Horse Show.

“ A business, an environmental haven, a pleasure ground and a Royal retreat.”

Country Life profile of Windsor Great Park Five million visitors The estate is visited by five million people every year, firmly placing it among the top UK attractions. Savill Garden membership numbers rose 30% during the year, reflecting our focus on the visitor experience.

The Crown Estate Integrated Annual Report 2015/16 41

CrownEstates_AR2016.indb 41 22/06/2016 11:22 Our risks and opportunities We have a robust approach to risk management

We define risk as anything that can threaten This involves the Board discussing the Our approach to the achievement of our objectives and our factors which affect the level of risk we are ability to manage our reputation. It is willing to take in delivering our objectives risk management important to recognise that as a business and our vision to be a progressive we are not averse to taking risk and commercial business creating significant We believe effective risk seeking out opportunities; they are an value beyond financial return. management is more than just inherent part of delivering our strategy and Overall, our risk appetite is complying with good practice creating long-term sustainable value. It is appropriately cautious and largely governed and regulation. It is about good important that we are aware of the risks by the requirement of the Crown Estate Act management, ownership and facing the business to enable informed 1961 and the targets agreed with HM ensuring that we take informed decisions to be made about how best to Treasury. As a result, we do not take risks decisions both at a strategic manage and take appropriate risks in a that threaten our ability to create value and controlled and measured manner. To assist achieve long-term sustainable growth. level and in our day-to-day this we set out the parameters for an To assist with visualising our risk appetite activities. Understanding the acceptable level of risk taking. This is and how our key risks compare to this, we risks and opportunities we known as our ‘risk appetite’. have plotted our key risks on the heat map face, particularly in relation Our Board formally sets and agrees below, based on the potential impact of the to our strategy, is key to the our risk appetite as part of its discussion on risk or opportunity and the likelihood of it delivery of our objectives and strategy, the business model, our material materialising. This further highlights the protecting our reputation. issues and risk; this typically takes place impact of our control environment in at the Board Strategy Day in October. mitigating the risks to within an acceptable tolerance level.

Risks and opportunities heat map

Our top risks and opportunities 04 05 01 02 Risk appetite 01 Investment performance 04 08 08 02 People risks 02 03 Ability to manage a major incident (incl. cyber 04 07 07 01 security breach) 06 05 06 05 04 London’s attractiveness/competitiveness 05 Health and safety 06 Development performance 07 Information systems 03 03 03 08 Government policy 09 Adverse effect of climate change Risk appetite 09 Gross risk (before mitigating controls) Impact (01–05 low to high) 02 Net risk (after mitigating controls) 09

By regularly reviewing our key risks and opportunities, the Board ensures that our risk 01 exposure remains appropriate and in line with the boundaries of our risk appetite. 01 02 03 04 05

Likelihood (01–05 low to high)

42 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 42 22/06/2016 11:22 Our integrated approach ensures risk is embedded throughout our business and forms an integral part of our decision-making.

Independent Risk Management The ‘Risk Management Framework’ diagram management and supported by the Audit below sets out our overall approach in operation and Risk Team. In performing its Effectiveness Review during 2015/16. Our framework has been assessment, the Risk Committee uses The independent evaluation of risk independently reviewed in 2015/16. detailed criteria to assess the impact and management assessed whether our risk likelihood of the risk, including consideration management framework is fit for purpose, of the aggregation of related risks and their supports the delivery of our objectives Board Audit Committee effect on the business. and is embedded appropriately across Risk management is ultimately the business. Overall the review provided Bi-annual embedded within our management a high level of assurance, and concluded processes, with managers being that the management of risk is an Management Board accountable for risk management within accepted and well understood business their operational areas. Ongoing processes practice which forms part of the core Quarterly for identifying, evaluating and managing nature of our business. It found there was risks that threaten the achievement of a clear understanding of the direction of Our risks and opportunities Risk Committee corporate, departmental and project travel for the business and the key risks objectives are in place and operational we face over the short and medium term. throughout the year to mitigate Our risk appetite is inherently understood Quarterly risks continuously. and there has been good engagement from the Board in defining this. Business Units (Risk Owners, Heads of Departments, In completing the review, the external Programme Managers etc) How we monitor evaluation team found no significant improvements, however observations were and review our made to strengthen further our approach. These were predominantly focused on Our risk management risk management clarifying responsibility for reporting and ownership of risk, and further progressing framework and internal the discussion on risk appetite. Ownership of risk management is the control systems responsibility of the Board. The Board continuously reviews the effectiveness of The Audit Committee monitors and reviews our risk management and control systems the effectiveness of the risk management through a system of regular formal reporting and internal control systems through from the Management Board and wider regular updates from management on business on delivery of our strategy and the principal risks and opportunities, and objectives. The Board delegates some of the effectiveness of the internal controls the responsibility for review of risk to the that mitigate these. The internal control Audit Committee. The Audit Committee framework is monitored via reports from receives regular updates on risks and a number of assurance providers, but controls from management and internal principally from internal audit which audit, flagging changes to existing risks undertakes a comprehensive programme of and new or emerging issues. reviews on behalf of the Audit Committee. The Risk Committee plays a pivotal Where weaknesses in internal controls are role in embedding our risk management identified a thorough follow-up and framework throughout the organisation. rectification process is in place. Assurance It fulfils its responsibilities through is also provided by management through identification and management of the internal control statements, which are principal risks and uncertainties that have designed to assess continuing effectiveness the potential to affect significantly current of internal controls. and/or future operations and escalates During 2015/16, the Audit Committee these up through the business. The Risk commissioned an independent review Committee is chaired by the Interim Chief of the effectiveness of our risk Financial Officer, is attended by senior management system.

The Crown Estate Integrated Annual Report 2015/16 43

CrownEstates_AR2016.indb 43 22/06/2016 11:22 Our risks and opportunities continued Our principal risks and opportunities

Risk, opportunity and impact Principal mitigations Material issues Change in Change in relating to the risk impact likelihood compared compared to previous to previous year year

1. Investment performance risk • Financial modelling and • Reputation forecasting along with regular and trust. Our investment performance and hence our investment strategy is economic and market analysis. • Health of the key to driving total return and a strong income stream to HM Treasury. • Continuous monitoring and economy. There are a number of related risks that could threaten delivery of review including covenant • Influence of strong investment performance: checks on our major tenants. strategic (a) The state of the economy and how it affects our business, particularly • Board oversight and approval counterparties. in London, or as a result of the EU referendum, is a key focus for of investment strategy, with • Customer management. It impacts our tenants, and during a downturn can formal review of implementation expectations. result in voids and defaults that have the potential to threaten and performance monitoring, achievement of our objectives such as our total return and income including retrospective targets. Similarly, a significant asset price correction in our core appraisals of key investment markets could also impact achievement against our benchmarks. decisions and lessons learned. • Formal Investment Committee (b) Ineffective investment strategy or constraints to delivery (i.e. through in place, with responsibility for sub-optimal decision-making, limited availability/timing of access scrutiny over proposed to funds, lack of sustainability or over exposure to developments) investment decisions (subject results in a failure to deliver against our performance targets. to delegated authorities) and investment appraisal process. (c) Inability to retain commercial partners and investors, should there • Focused asset management be seen to be a decline in the attractiveness of our core portfolio. with appropriate due diligence. The inability to retain commercial partners with which we have • Portfolio diversification joint ventures or strategic partnerships also poses a potential risk and monitoring. to our viability. • Exploration of joint venture Potential impact investments and oversight of These risks could impact on our ability to meet our financial targets existing joint ventures through (growing our Net Revenue Surplus and outperforming IPD total return), Joint Venture Monitoring Group. over single or multiple years, and have a potential impact on our viability.

2. People risk • Remuneration Committee • Reputation oversight and appointment of and trust. Our staff are one of our key assets. There is a risk we are unable to reward consultants to advise • Attraction, reward, retain or recruit key talent or respond to significant changes in the Remuneration Committee. development remuneration across key sectors, particularly when compared to our • Remuneration benchmarking and retention listed peer group, and during periods of market buoyancy. and industry comparison. of best talent. Potential impact • Strong recruitment processes. Loss of this key talent or an inability to undertake effective succession • Formal succession planning planning or recruitment could adversely impact on our ability to arrangements. achieve our objectives and hinder future performance. • Effective learning and development plans in place across organisation. • Staff surveys and engagement activity.

3. Ability to manage a major incident • Information Security Monitoring • Reputation (including cyber security breach) Committee is in place with and trust. responsibility for liaising with • Technological The Crown Estate portfolio in London is concentrated within appropriate authorities. advances. Regent Street St James’s, and could be at risk from a major incident, • The corporate IT infrastructure such as terrorism. and systems are protected by a Comprehensive Information Additionally, the corporate IT systems at the core of our operations, Security Framework accredited although secure, remain exposed (as for most businesses) to criminal under IS0 27001, including cyber attacks, despite our attempts to secure them fully. firewall threat and detection Potential impact monitoring systems. The impact of a major incident, apart from the direct impact • Crisis Management Framework to our portfolio or our data, is directly linked to our ability to and preparedness testing. undertake effective crisis management. Lack of effective crisis • Appropriate insurance management could result in damage to our reputation and harm arrangements in place. investor confidence.

44 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 44 22/06/2016 11:22 We have set out below the principal risks and opportunities we face in managing the business and delivering our objectives. Although our risks are not limited to this list, it reflects the balance of our portfolio of assets and is typical of a real estate organisation.

Risk, opportunity and impact Principal mitigations Material issues Change in Change in relating to the risk impact likelihood compared compared to previous to previous year year

4. London’s attractiveness/competitiveness • Working group in place to • Urbanisation. New New perform oversight and • Customer principal risk/ principal risk/ There is a risk London becomes negatively impacted as a result of monitoring role. expectations. opportunity opportunity the physical environment (transport, congestion and pollution), and • Close working and liaison with becomes less attractive for our customers and tenants. An exit from Westminster City Council as the EU could also have an adverse effect. Given significant elements part of our regular programme of our portfolio and hence our revenue stream are linked to the of investment in Regent Street ongoing success of central London, in the medium to long term this and St James’s. could have an impact on the achievement of our objectives and those • Delivery of our of our strategic partners. Investment Strategy. Potential impact • Long-term development There would be a potential impact on our Regent Street and St programme in place to invest in James’s assets as they are reliant on appropriate public realm Regent Street and St James’s. investment, although we recognise improvements such as Crossrail • Focus on successful provide an opportunity for strengthening the attraction of these to place-making and public Our risks and opportunities our customers/tenants. realm improvements.

5. Health and safety • Development and roll-out of • Reputation management systems and trust. We own a diverse range of properties (forests, parks, farms, shoreline, accredited to OHSAS 18001. rivers and seabed, retail parks offices, residences etc.) and our aim is • Comprehensive regular to ensure that these are safely worked, developed and enjoyed by reporting to the Management staff, tenants, contractors, customers and members of the public. Board and Board. There is a risk that a significant health and safety incident occurs, • Health and safety training, resulting in serious harm to members of staff, suppliers, tenants or programme of compliance other persons. reviews, and Incident Reporting Hotline. Potential impact • Incident reporting hotline This could lead to penalties, fines and potential litigation, and seriously and promotion of health damage our reputation with our stakeholders. and safety culture.

6. Inability to deliver against our • Development and Project • Reputation development pipeline Management Governance and trust. Framework. • Health of the Our core West End portfolio in Regent Street and St James’s are in • Regular development economy. the middle of a £1.5 billion investment programme. As a result we have monitoring through Project • Urbanisation. a major development pipeline, the majority of which is undertaken Control Groups for our major • Influence of with funds from co-investment partners. It is essential that these developments. strategic developments are completed to time, cost and quality to maximise • Third party due diligence and counterparties. the returns and retain the interests of our investors. continuous monitoring of • Government developer financial health. policy As a result we face risks relating to development performance, • Robust evaluation and constitutional including development overruns, development letting exposure, appraisal of major development change and and/or supplier/sub-contractor failure. business cases. governance. Potential impact • Engagement with statutory A major delay in our development pipeline and/or an inability to fund planning authorities. committed developments could result in not achieving our targets, adversely affect our reputation with our partners and pose a potential threat on our ongoing viability to our reputation and harm investor confidence.

7. Information systems risks • Investment in our IS capability. • Technological New New • Executive level oversight in advances. principal risk/ principal risk/ Our Information Systems (IS) play a key role in how we manage our creation of our IS strategy. opportunity opportunity business and ensure resilience to cyber threats. There is a risk that • Recruitment and retention of investment we make in our IS capability does not deliver the level of the right skills and capability. management information we require to manage our diverse portfolio of assets and meet our objectives in the future. Potential impact If we fail to update our IS capability as we develop and grow our business, the effectiveness of our decision-making could be compromised.

The Crown Estate Integrated Annual Report 2015/16 45

CrownEstates_AR2016.indb 45 22/06/2016 11:22 Our risks and opportunities continued

Risk, opportunity and impact Principal mitigations Material issues Change in Change in relating to the risk impact likelihood compared compared to previous to previous year year

8. Government policy • Regular liaison with • Government HM Treasury. policy, The Crown Estate is an independent commercial business, created by • Ongoing review of upcoming constitutional Act of Parliament. Government policy can have an impact on areas of legislative/policy changes on change and activity such as our offshore wind leasing programme and our assets our business. governance. affected by devolution. • Strong working relationships In relation to Scotland, The Smith Commission report recommended with stakeholders across that Scottish economic assets within The Crown Estate portfolio be Government. transferred to Scottish authorities. The Crown Estate is committed to • Active participation in key policy supporting this transfer. reviews, openly communicated through corporate channels. Potential impact • Close liaison with the Scottish If we fail to anticipate and be responsive to changes in Government authorities to ensure all aspects policy this could impact our underlying business and our ability to of the handover (including staff deliver our primary objectives. affected) are addressed.

9. Adverse effect of climate change • Integrated approach • Government to sustainability. policy, The Crown Estate has a diverse portfolio that could be adversely • Monitoring of new legislation. constitutional affected by climate change. There is a risk we could fail to adapt our • Sustainability considered in all change and portfolio to the threat from climate change. Conversely, by acting decisions. governance. effectively now to manage climate change we have an opportunity to • Sustainability workstream focus • Climate change build resilience, identify efficiency and to capitalise on the change. group and Management Board • Availability of Potential impact oversight. natural If we fail to act in a sustainable way in how we operate and manage • Developments/refurbishments resources. our portfolio for the long term, there is a potential for obsolescence of built to a high sustainability some of our assets and erosion of value. standard (e.g. BREEAM) to meet or exceed EPC standards. • Offshore wind programme with defined objectives.

46 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 46 22/06/2016 11:22 Our risks and opportunities Our viability statement

In accordance with the 2014 revision of the UK Corporate Governance Code, the Board confirm that they have a reasonable expectation that The Crown Estate will continue in operation and meet its liabilities as they fall due over the five years to 31 March 2021. The Board’s assessment of viability was carried out in the context that Parliamentary legislation, in the form of the Crown Estate Act 1961, underpins our existence, and it is reasonable to assume that this will continue to do so indefinitely. Set against this, the Board focused closely on the demands

on our cash reserves over the chosen Our risks and opportunities period, given The Crown Estate is prohibited from borrowing. The Board’s judgement was based on a process which included assessment of our principal risks, risk appetite, corporate strategy, and the strength of our balance sheet and our financial forecasts. The Board were supported by the Audit Committee’s review of underlying information which included input from our Risk Committee. The five-year period was considered to The latest rolling assessment of capital investment objectives and delivery of our be the most appropriate timeframe by requirements includes contracted and major developments. This testing involved weighing up the following indicators: planned expenditure on major flexing a number of assumptions in the • Our Investment Strategy considers the developments, as well as assumptions capital requirement forecasts to a significant market, our targets and overall strategy arising from our Strategic Investment Review. degree through the development of severe for deriving long-term sustainable Our principal risks have been outlined but plausible scenarios, to assess the value from our assets, over five years in greater detail on pages 44-46. Stress impact of the relevant risks in isolation and and beyond. testing was performed on our resilience to in realistic combinations on our net revenue the impact of those principal risks that were and our balance sheet position, particularly • Five years is a reasonable estimate of considered by the Board to affect most our cash reserves. the lifecycle of our major development directly the viability assessment – in And hence we are of the view that schemes from planning approval to letting. particular the risks relating to adverse we are a viable business. • Our capital forecasting cycle is based economic climate, delivery of our on a five-year rolling assessment of capital requirements.

The Crown Estate Integrated Annual Report 2015/16 47

CrownEstates_AR2016.indb 47 22/06/2016 11:22 Interim Chief Financial Officer’s review Our consistent outperformance is driven by long-term thinking

strategy underpinned by rigorous management, good governance and integrated thinking across the organisation. This framework has taken time to build and I believe its value will become even more evident in the coming years, providing resilience in good times and bad. In her message this year, Alison, our Chief Executive, talks about the momentum building within the business. That’s the result of the framework I’ve described and the long-term perspective that informs it. In my experience, it’s relatively straightforward to make short-term financial decisions that produce short-term financial gains; it’s harder to keep addressing the many other considerations that will determine your success over time. Looking beyond the next 12 months is how you build momentum. That’s why conscious commercialism is so important to us. It reminds us to keep making the right choices for the business, not the easiest. Our emphasis on the long-term is matched by increasing external scrutiny of the ongoing viability of a business. Many John Lelliott Interim Chief Financial Officer stakeholders want to understand more about future prospects, not just historical accounts. This ‘going concern’ focus After more than 30 years with Once again I can report that this has is welcome. The Crown Estate, including been a great 12 months for the business. This is our fourth year of integrated 15 years as Finance Director, It’s the sixth consecutive year of record reporting, a more structured approach John Lelliott discusses this financial results and we’ve taken big that shows how financial, social and steps forward in terms of social and environmental value creation is woven into year’s results, the challenges environmental measures. Net revenue the fabric of the organisation. It has been and benefits of integrated profit of £304.1 million for the year is an quite a journey. We started with some reporting, and the changing impressive headline figure and it means a relatively simple but valuable improvements character of the business, great deal to the whole team here. We’ve to how we report, like integrating in this, his final report. generated a total of £2.4 billion for HM sustainability into the body of the report, Treasury over the last ten years and we discussing material issues and presenting are consistently outperforming our IPD the business model in a clear way. Since bespoke benchmark. then we’ve continued to extend the range It might be tempting to attribute these and depth of information, including setting results to the business having a purple out our strategic priorities, discussing our patch in a strong market. Not so. They are markets and clearly defining our resources the product of a considered, proactive and relationships (otherwise known as

48 The Crown Estate Integrated Annual Report 2015/16 Our performance 49 22/06/2016 11:23

John Lelliott John Officer Financial Chief Interim Throughout time my here one thing has stayed the same: the spirit camaraderie. of The people inside this organisation have always been proud what of the business does and thoughtful about how they can achieve I thank more the together. many during supported me have colleagues who been timemy here. It’s a privilege be part to suchof a special and high-performing team.

Something struck that’s me during our Looking back over 30 years at The Since then the business has really ohn has been an inspiration to to beeninspiration an has ohn TheCrown Estate Integrated Annual Report 2015/16 Paul Druckman, CEO Reporting Council International Integrated They assess the maturity the of data underpinning our metrics and will be addressing the basis calcuation of of value. economic reporting journey is the difficultyof and ‘sustainability’ like Words terminology. people. confuse can reporting’ ‘integrated need define to yourYou terms and be absolutely clear that these things are at the heart everything of not the you do – they’re believe I fact, In fashion. corporate latest integrated reportingwill become routinely accepted as best practice in the medium must we make sureterm. However, we complicated. reporting overly make don’t a businessUltimately, is aiming tell a to clear story how of it performed last year and what you can expect from it next year and well beyond. Crown the Estate, changes within the I When been remarkable. have business started work here, there was one computer and transactions wrote we in manual ledgers. The culture then was rather bureacratic; vibrant now it’s and professional. years until It wasn’t some 15 ago that started we develop to our own assets at scale, beginning with the Apple Store on Regent Street and followed by the complete modernisation the of area. moved the onto front Ground-breaking foot. strategic partnerships have enabled us to transform the portfolios and the balance becomesheet. We’ve proactive and expert asset managers helped and we’ve establish offshore energy in the UK, transforming it a world-classinto business that attracts international constantly investors. We’ve helped We’ve model. business our evolved reporting. integrated promote pioneer and sureAnd this business I’m will go do on to a great deal more over the coming years. with innovation.” me in the creation, awareness-raising awareness-raising creation, me in the reporting. integrated of adoption and but hurdles by constrained not is He them over leap to motivated seems “ J “

A profit and loss statement cantell you Total ContributionTotal is method a of Internally, we’ve beenInternally, we’ve embedding a lot but no by means everything – especially thinking if you’re long-term and in progressive modern, A way. connected a need we complex; is business sophisticated and credible to ways understand these interwoven elements and their long-term effects. PwC provide assurance on a number our of Total Contribution metrics and ‘insight’ on others. measuring the value create we beyond financial return.We have been developing Contributionour Total metrics and aim to decision-making our into these embed processes and, over time, integrated into reporting. As reflected in our business model, our activity has impacts on our resources and relationships, either We enhancing value. diminishing their or are in the process applying of an economic value each to metric which helps us to show if are we making a positive contribution and to year-on-year, understand the magnitude and relativity of our different impacts. This has the potential provideto us with much richer information when making strategic decisions –at Board level and across the business. It also gives people outside the organisation a better understanding the of value create. we integrated reporting ourinto business empowering processes and planning employees add value to through integrating decision-making. sustainable thinking into In doing this have we started break to down some the of silos that can By occur. thinking about business in an integrated have we begunway involve to a more each individuals, of range diverse contributing their particular skills knowledge. and capitals – those things draw we on and depend upon). CrownEstates_AR2016.indb 49 Resources and relationships review What we draw on to create value

Our revenue profit Financial resources

The financial resources that Net assets £304.1m are available to us to grow The capital value of The Crown Estate our business. at 31 March 2016 was £12.9 billion, an increase of 12.2% over the previous year’s Annual revenue profit Property value value. The majority of this increase is as a Our revenue profit for the year was result of property valuation gains of over £304.1 million, up £19 million (6.7%) on £1.3 billion, together with the higher level of last year’s record profit. cash reserves. The review of the property £12bn The main driver of performance was valuation under ‘Physical resources’ higher income from newly developed and provides further details. End of year cash balance refurbished properties, in particular in the West End and Banbury Gateway Shopping Cash flow Park, together with the benefit of a full At the end of the year our cash balance year’s worth of income from our investment stood at £907.3 million, an increase of £ 9 07. 3 m in Fosse Shopping Park. The Energy, £354.8 million on last year’s closing Minerals & Infrastructure Portfolio increased balance. Total capital activity in the year its income following higher turnover rents amounted to nearly £1 billion, a similar Increase in cash reserves from wind farms (a consequence of figure to the previous year. exceptional wind speeds). Marine minerals Our capital spend (including amounts income was up due to a general increase in invested through joint ventures and £354.8m market demand for construction other property investments) totalled aggregates and additional one-off projects £326.7 million. This principally related to including the Liverpool 2 port development funding of developments in joint ventures programme and reclamation projects as well as developments in Regent Street, resourced from southern ports, principally particularly the completion of One New Southampton. The Rural & Coastal Portfolio Burlington Place. contribution increased as a result of savings Disposals realised £612.7 million, on direct expenditure, despite a reduction including Bath Road Shopping Park in in turnover as a consequence of our Slough, Morfa Shopping Park, Stamford continuing programme of selling non-core Street, the Bryanston estate and Temple assets. Windsor achieved an operating Road, Birmingham. Long leases were surplus for the first time through a granted for Kensington Palace Gardens successful programme aimed at increasing and Cleveland Row. visitor income and saving costs. The impact Overall our capital activity led to an of holding higher cash reserves has had the inflow of funds of £303.2 million compared effect of increasing our investment income, with an outflow of £63.3 million in 2014/15. albeit at a time of record low interest rates.

50 The Crown Estate Integrated Annual Report 2015/16 Our performance

51

22/06/2016 11:23

Our principal valuers are Cushman & Particularly strong came contributions our development from programme. The Crown Estate’s whollyThe Crown owned Estate’s property). to £155 million in recognition £155 to increased of security income. of holdings End West core our on Wakefield and JLL on our regional and residential properties. Strutt & Parker have joined Savills on the valuation the of rural portfolio. JLL value the offshore wind portfolio. ventures Strategic joint now manageWe strategic joint ventures £1.5 containing billion nearly (2014/15: £1.9 billion) our of partners’ funds. Valuation gains account for the majority the of increase with no new joint ventures entered duringinto the year. Scottish devoution the ScotlandOn March 23 Act 2016 2016 made legal provision for the devolution of Crown Estate management in Scotland to the Scottish Government. That devolution is subject agreement to between HM Treasury and Scottish Government on the finalterms and theof transfer, of the date transfer is not certain. No adjustment for the devolution Scottish of assets has been made in these financial statements. progress and an inward movement yields of as the industry matures. There is now 5.1 thatGW is operational, under GW 4.5 construction with GW Government and 1.2 offshore the Elsewhere, support place. in aggregates valuation increased 13% by the value our of March assets 31 2016 At in Scotland was £271.8 million (2.5% of million (2.5% in Scotland was £271.8

driven progress by on our strategic Outside London, of capital growthwas Nevertheless, the combined Urban The Rural & Coastal Portfolio was The Energy, Minerals & Infrastructure Infrastructure & Minerals Energy, The land sites. land In general, prime central Londonresidential capital value growth was limited. The value fell £382 million, to but million after £104 of capitalof receipts the underlying capital growth was closer to 10%. more Asset muted values at 3.6%. were stable billion at £2.2 but generated net capital receipts £93 of million. However, concentratedwith 85% on the prime from the continued investment appetite compression yield associated and experienced in the south east office sectors. industrial and an delivered commercial holdings beating exceptional return total 17.9%, of the IPD Quarterly Universe Of that 5.9%. by came fromoutperformance, held 3.1% investments from development and 2.8% activity – a strong vindication our of approach active to asset management. after billion. taking However, stable at £1.62 account net million, of receipts £108 of Rural capital growth and Coastal was4.6% The mainwas 5.5%. increases in value were end the of retail sector it did not benefit by 26% due a combination to 26% by physical of Portfolio to has grown in value 19.6% by billion, although£1.04 after net capital million thereceipts underlying £17 of capital Thegrowth principal was 22.5%. growth area was offshore wind, which increased TheCrown Estate Integrated Annual Report 2015/16

that we own and utilise. The land and property and land The indsor has grown by 4% to £271 million. indsor £271 to has grown 4% by he Rural & Coastal Portfolio remains he Energy, Minerals & Infrastructure Infrastructure & Minerals Energy, he he Urban Portfolio has grown over by valued at £1.62 billion after billion realising £1.62 at valued capital of £127 million receipts. a 20% increasea 20% on last year driven an by increase in the value of offshore renewables. Portfolio billion, is now valued at £1.04 11% and is now valued at £9.1 billion, and is now valued at £9.1 11% property commercial strong by driven values in central London. Physical resources Physical Performance this year has been driven by our West End holdings. Capital growth from drivenstanding in investments was 14.5%, equal part yield by compression and rental value after growth. transactions However, and development activity are taken into account, the underlying capital growth Particularlyincreased strong 18.4%. to contributions came from our development ahead lettings associated and programme of forecast. • • W • • T Property valuation The property total value the of estate, including the share joint of venture and other property investments, increased to an billion March at 31 2016, £12.05 over the figureincreaseof 9.7% of £10.98 billion at 31 March 2015. billion March at 31 2015. £10.98 • T The highlights key include: • T CrownEstates_AR2016.indb 51 Resources and relationships review continued

Operational waste diverted from landfill Natural resources The natural resources that we of our natural capital. The first assessed nurture, harness and harvest the value of the recreational, amenity, 99% to sustain our business. agricultural and carbon services of our rural habitats, following the approach used in the Accounting for natural resources UK’s National Ecosystem Assessment We are responsible for a number of natural Number of Sites of Special (NEA). The second assessed the value of resources on our land, which we use or are Scientific Interest (SSSIs) in protection afforded to inland holdings by enjoyed by our stakeholders. We are also favourable or recovering condition our healthy coastal and marine habitats, reliant upon these resources in our supply including climate change hazards such as chain, particularly for development activity. rising sea levels. The findings from these Over the year we investigated the risks studies feed into our Total Contribution, 94% and opportunities presented by the use adding a value of £30.3 million to natural of natural materials in the development resources and providing new insight to supply chain. We looked at our exposure support our decision-making. Number of Sites of Special to resource scarcity, the social and At a local level, as part of our Scientific Interest (SSSIs) environmental impacts of resource use stewardship programme we have worked in favourable condition and the stability of the supply chain. with our business partners, customers and The intention is to develop action strategies other stakeholders to enhance our natural for key risks, working with development resources and achieve greater impact. Wild partners, the wider supply chain and 41% West End and soil quality enhancement industrial sectors. We have used this initiatives are discussed in “Our review project as a pilot to help inform the of activities”. We have carried out other development of the Natural Capital projects in partnership with The Wildlife Protocol, a harmonised framework for Trusts and Natural England. For example, natural capital accounting overseen by the through project B2020 we are preparing an Natural Capital Coalition. inventory of priority habitats and species We have carried out two ecosystem across our Rural & Coastal Portfolio in services-related studies to help us England. Informed by the data this understand the economic value of some

52 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 52 22/06/2016 11:23 Our performance 53 22/06/2016 11:23 ) than 2 e per m 2 data from Scopes 1 from data As active developers and asset Legislative and regulatory compliance regulatory and Legislative Most the of emissionsfrom our As active developers developers active As we managers asset and our evolve constantly portfolio properties of and 2 and report it against Scope 3 2 Scope why explains which instead, figures are decreasing. managers constantly we evolve our portfolio properties, of which means that carbon emission intensity is a better efficiency energy our of measure performance (tonnes CO of absolute emissions. Our target halve is to emissions our reducing impact, our intensity 50 index by points from 2022 by a baseline. Our intensity now stands2012/13 at 89 index points. Our current carbon trajectory forecasts reduction a total in intensity between of index 35 and 41 points, but are we working actively to achieve our target. continue require to reductions in carbon emissions and improvements in energy efficiency.We have programmes that are in accordance with the Energy Savings ensure and Opportunities (ESOS) Scheme forthcoming the with compliance our Standards Efficiency Energy Minimum (MEES) around minimum EPC levels. portfolio are created others by working on our land and therefore are not included in the table. are measuring We the extent of these emissions through our Total Contribution methodology and will seek to influence behaviour wherewe can. exclusive tenant use since 2014/15. We have We exclusive tenant use since 2014/15. tenant disaggregated decreased for the first time sincewe started gradually have figures 3 Scope reporting. increased, reflecting our better understanding the of emissions arising from

1 2 3 ) 2 n/a n/a n/a n/a 2,773 2,773 based based 7,3 42 (tCO 2015/16 Market- method

e) 2 89 927 265 5,868 (tCO 15,840 17,089 7,342 34,121 10,115 11,221 2015/16 17,032

emission reduction reduction emission 2 e) 2 94 311 1,185 6,443 e since 2012, which have e since 2012, 14,499 (tCO 13,548 19,991 15,995 35,986 2 2014/15 on our direct absolute

e) 2 98 387 Location-based method Location-based 1,568 6,111 3,768 21,201 27,312 (tCO 31,080 2013/14 -equivalent due to the availability of emission factors. emission of availability the to due -equivalent 2 The carbon emissions table shows our our shows table emissions carbon The

e) 2 361 100 TheCrown Estate Integrated Annual Report 2015/16 and the enabling and use renewable of and low-carbon energy are now standard in our operational and fit-out development, activities. have also We played role a key in the facilitation the of offshore wind industry, which since 2000 has developed a generation renewable of GW capacity 5.1 of energy. Adaptation climate to change has taken on a fresh impetus in the wake of increased flooding in the UK. As a result, arewe consolidating our activities a into plan. adaptation corporate strategic performance performance emissions CO of areexploring upcycle to ways office and retail catering useful waste into products. glasses drinking producing already are We empty upcycled using employees our for wine bottles from restaurants located in our properties in central London. change Climate diminished in change not has Climate importance asmaterial a issue. It presents and risk regulatory and financial physical, Mitigating business. our opportunity to actions relating CO to 1,511 1,58 4 1,813 3,456 5,789 (tCO 20,054 25,843 29,299 2012/13

rather than tCO 2

e) 2 Total Scope 3 Indirect emissions from electricity and electricity and from emissions Indirect losses distribution transmission Indirect emissions from energy used used energy from emissions Indirect tenants our by exclusively Indirect emissions from business from emissions Indirect travel Emissions from generated electricity generated from Emissions usage Direct emissions from fleet and and fleet from emissions Direct heating of buildings of heating Waste generation Waste is an issue for us. We have workedWe hard maintain to and e have used the GHG Protocol Corporate Accounting and Reporting Standard calculate to our emissions. This includes reporting missions for market-based reporting are reported in tCO in reported are reporting market-based for missions he 2015/16 market-basedhe 2015/16 Scope 2 figure has not been externally assured by PwC, since our electricity suppliers have been unable New Scope 2 Guidance requires that we quantify and report Scope 2 emissions from purchased electricity consumption for our our for electricity consumption purchased from emissions 2 report Scope and quantify we that requires Guidance 2 Scope New emissions our of Reporting method. market-based the and method location-based the methodologies: different two using use own in this way demonstrates that we are making efforts reduce to our climate impact through sources. renewable the purchase of electricity generated from E T provideto evidence of the exclusivity and traceability of the green electricity that we purchase. W all sources of emissions that are under our operational control. For more detail on the breakdown of emissions, please see online.

Carbon emissions: Scope 1, Scope 2 and Scope 3 emissions Carbon emissions: Scope 1, Scope Scope 3 Emissions intensity (indexed intensity Emissions CO kg 2 Scope 2 Data notes: 1 Gross Scope 1 and 2 Scope 1 Emission source Emission However, in 2015/16, of the 6,972 tonnes of the of 6,972 in 2015/16, However, operational waste generated, 99% was diverted from landfill 4,098andof the generated, waste construction of tonnes 96% was diverted from landfill, equivalent £900,000to avoided of landfill tax.We aim generateto zero 2030 waste by and will develop targets help to us meet this aspiration. In line with the trend towards creating a circular as economy, another focus our of stewardship programme we improve the condition our of Sites of Special Scientific We to Interestaim (SSSIs). meetthe Government targets of 95% of sites in favourable or recovering condition and, those, 2020 of by in 50% favourable condition.Our current achievement is 94% respectively – marginallyand 41% lower than in previous years because acquired we land with SSSIs in poor condition. However, given our programme works, of Natural England forecast will we meet both targets. produces, hope we work to with both partners prioritise to our actions and activity. management estate enhance our Gross Scope 2 and 1, 3 4 3 CrownEstates_AR2016.indb 53 Resources and relationships review continued

Volunteering hours increased by 51%

Our Living Wage commitment pay per hour in London £9.40

Number of working hours without a reportable health and safety incident improved by

29% Our people The individual skills, improvement, we have introduced an Health and safety incidents competencies and experience incident severity rate. Each incident is rated 7 of our people which collectively in relation to its severity and the results are 6 create value and deliver our collated at the end of the year. The target 5 business objectives. for 2015/16 was to achieve an incident severity score of less than 225. Our final 4 We depend on our talented, professional score was 174.4, which is 22% better 3 and experienced people to turn our vision than the target. 2 and strategy into results. We aim for our Our accident frequency rate (AFR) 1 0.75 business to be a great place to work so that remained consistent. The number of 0 0.22 we can continue to attract, develop, retain serious incidents that were reportable and inspire the best people and empower 2011/12 2012/13 2013/14 2014/15 2015/16 under RIDDOR remained consistent with them to deliver our strategic objectives. two reports during 2015/16. Accident severity rate (ASR) Our shared purpose, vision and core At Windsor Great Park we have Accident frequency rate (AFR) values – together with great leadership – continued to deliver a bespoke behavioural play a key role in our performance, ASR — Total number of employee lost days per 1,000 safety programme designed to improve particularly in the way they encourage hours worked overall safety performance. Employees are AFR — Total number of reportable incidents per 100,000 innovation, creativity and growth. We look to employee hours worked surveyed annually and we continue to see all our people to embody our core values of an improving trend in relation to safety commercialism, integrity and stewardship. behaviour, culture and attitudes. Health and safety Inclusion and diversity We are committed to protecting the health Our policy on equality and diversity covers and safety of our employees and those age, disability, gender, race, religion and who enjoy the use of our assets. Our sexual orientation. This year we worked overall performance has been very good. collaboratively with networking groups and The number of hours without a reportable other like-minded organisations to share incident under the Reporting of Injuries, best practice regarding inclusion and Disease and Dangerous Occurrence diversity. As a result, we committed to the Regulations (RIDDOR) increased from RICS Inclusive Employer Standard and we 490,916 to 632,920 hours – a 29% will use this as a framework for continued improvement. Our incident rates this year improvement. During the year we ran demonstrate that our reporting culture mentoring and career events to promote is improving while serious incidents opportunities for individuals from less are reducing. privileged backgrounds. We also hosted Given the unique set of risks we networking events for LGBT organisation manage, it is difficult to identify an industry networks, and we supported the rate on which to base our improvement development and progression of target. To overcome this, and to set a senior women in the business. stretching target that drives continuous

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Recognising the importance of These improvements, combined with and wellbeing offers. continue We to provide beneficial ratesfor dental services as well as a free comprehensive employee assistance facility. During the year also we extended access an on-site to occupational health nurse. All the of above is having a positive impact on sickness levels and performance. Our overall sickness level for including was 2.3%, a short-term 2015/16 sickness 0.7%. of rate behaviours and Culture The results our of survey ‘One Voice’ demonstrate the pride our employees feel about working for The Crown Estate. Building on the successfullaunch the of survey saw we improvements last year, this year with high response rates anda “Great Place Work” to staff engagement score of compared83% the UK to National normal In additionrating organisation- 78%. of to wide action plans, have we also encouraged teams find to improvements that will have the biggest positive impact at a local level. the work we way with each other and external stakeholders, have we refined our performance management to approach to includeto anobjective on consistent demonstration The of Crown Estate behaviours. further training and the implementation of an improved HR system, will enhance individual manager and ownership, focussed on getting the best from our people. people. our Volunteering 95 Volunteering numbers rose in 2015/16: people volunteered for 800 of a total hours, hours. have We increase on 2014/15 a 51% actively promoted volunteering and offer opportunities ‘employer-supported’ more with stronger connections what to do we as a business. business. a as Female – as a percentage of total Male – as a percentage of total 8 000+ 2 £90, 12 999 A 6 000£60, , -£89 We adhereWe all to applicable laws in the are notWe aware any of breaches As outlined in last report, year’s we TheCrown Estate Integrated Annual Report 2015/16 stakeholders that slavery and human trafficking do not occur within our further For chain. supply and workplace details on how are we complying with the our visit please Modern Slavery Act, www.thecrownestate.co.uk/ website: modern-slavery-act. UK, including those relating human to rights chain, supply our For employment. and which stretches beyond the UK, are we and contractors our through committed business partners operate to in accordance with the Universal Declaration Human of Rights (UDHR), the International Labour Organisation Core (ILO) Conventions, and and Business on Principles Guiding the Human Rights endorsed the by United Council. Rights Human Nations during the year. Wellbeing helpWe our employees lead to a healthy life increase to their wellbeing. believe We inthat, turn, this helps them contribute to even more in their enhancing job, our performance. ran we a Throughout 2015/16 series health of and wellbeing events that provided employees with information on health and lifestyle, together with access to medical screenings and health consultations. have introduced health BUPA insurance cover for our employees.During the year extendedwe enabling the offer, employees purchaseto cover for family members also. employees enables benefit health new The accessto medical a 24/7 helpline for advice and support, and discounted online health 999 33 000£50, , -£59 8

999 3 000£40, , -£49 4 999 £30,000 9 -£39, 25 999 7 £20,000 -£29, 6 We are proudWe be the to first UK-wide Our range employee of core benefits 20k £ Under 4 Human rights rights Human Following the enactment the of Modern have we a legalSlavery obligation Act 2015, outlineto how prevent we slavery and human trafficking occurring within our business do we organisations or business takewith. this We obligation extremely seriously and have put in place processes ensureto can we demonstrate our to We offerWe competitive reward packages, aiming set these to around the market median for the majority roles. of Reward is benchmarked against comparable organisations in the We relevant sector. continue align to performance and reward. 34% of our of total employees34% are female. our of Main20% Board, the of 29% Management our of Board and 18% senior managers are female. Reward a range other of employee discounts. property company accredited as a Living Wage employer the by Living Wage Foundation. This commitment ensures that everyone working for The Crown Estate, regardless whether of they are employees or contractors, will receive a minimum hourly in London wage £9.40 of and £8.25 outside London, significantly above the new perNational hour. Living £7.20 Wage of medical private includes pensions, and enhanced maternity insurance, paternity season leave, sick ticket pay, travel loans and annual medical screening at a senior level. During the year opened we an easy-to-use online benefits portal that enables employees manage to their access and choices benefit voluntary Employee salary ratios by gender 2015/16 (66% male, 34% female) CrownEstates_AR2016.indb 55 Resources and relationships review continued

Average hours of training per year per employee

2015/16 20 Our know-how 2014/15 19 Our collective expertise and Learning and development Key areas for learning and development 2013/14 14 processes which provide us with competitive advantage. during the course of the year included 2012/13 18 succession planning, professional 2011/12 12 Our collective expertise adds a lot to our development, inclusion and diversity, success as a business. Not only do we health and safety compliance, leadership recruit for talent but we also develop our coaching and IT applications. Employee turnover employees during their time with us. Our focus on succession planning (% of total employees) We also benefit from the expertise is supported by a simple but effective 2015/16 14 of our close business partners and work approach to assessing performance and

2014/15 15 to deploy these resources, and our own, potential, and identifying key positions and to best advantage. Our ability to know internal candidates. We have seen the 2013/14 11 when and where to invest and disinvest, benefits for this approach with succession 2012/13 15 our pro-active asset management style, and development plans leading to a number 2011/12 11 and our collaborative and customer- of successful internal appointments across focussed approach all combine to help the business. Data note: The turnover rate is based on average monthly number of staff us consistently outperform our IPD Employee turnover (not FTE) and excludes casuals and consultants. bespoke benchmark. It is important to monitor employee turnover Know-how is very difficult to measure. year-on-year as it is an indicator of trends It is often linked with the way we work and issues within the business. A certain with stakeholders in pursuit of higher turnover rate is healthy, bringing fresh talent returns. Our abilities help to enhance our into the business which can also help to reputation and earn trust, enabling us to highlight where training of existing attract and keep great partners and quality employees is required to overcome tenants, facilitate speedier transactions knowledge decay. However, too high a and command higher returns. Know-how turnover can lead to a loss of continuity, is found in all parts of our business, as experience and expertise, and can be an you will see in the ‘Review of activities’. indicator of management issues which Amongst many other things, it results in need to be addressed. We monitor our us delivering great buildings, achieving turnover on a regular basis and make a BREEAM Outstanding or Excellent, and point of understanding the reasons for unlocking strategic land. employee departure.

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22/06/2016 11:24 estminster jobseekers into sustainable jobseekersestminster into in projects including(not employee time). management London Recruit past year invested we million over £1 Run inpartnership with Westminster City Council and Cross River Partnership, host we the Recruit London scheme. Since 2009, community employment innovative this and training initiativehas helped 1,330 W End supported West and employment businesses with free recruitment services. placements 109 were During 2015/16, made. The resulting economic contribution, assuming payment at the Living has Wage, been calculated million as £2.28 the to community local and (Source: Government Candidates Foundation). Rowntree Joseph are supported throughout and helped to job-ready skilled, producing access training, hospitality and roles. retail for candidates Mentoring support is provided in the Recruit months. six to up for workplace recognition widespread gained has London and has expanded outside our portfolio to include partners such as the New West End Company and Capital and Counties. John Lelliott John Officer Financial Chief Interim

This year led we a number public of seminars in areas where manage we a critical mass assets. of These facilitated debate on how the UK can unlock the potential its of towns and cities and grow property between top-quality link the property and management performance. a more balanced economy. Each these of opportunity an direct for provided sessions and meaningful engagement with our peers, partners and customers, as well as local authorities and MPs. focus Customer This year appointed we our first Customer Engagement Manager work (CEM) to with service customer cross-business our developing, is CEM The group. champions business- a embedding and implementing wide customer As part strategy. this of we have joined the Real Service Best Practice Group (RSBPG), the only group in our industry dedicated improving to customer service occupiers to and demonstrating period. This includes disputed invoices and invoices This includes disputed period. amounts recoverable from third parties. On average suppliers are paid within days 26 of receipt invoice. of observe We the principles the of Better Payment Practice Code. donationsCharitable Under the terms the of Crown Estate Act are we restricted1961 in our ability make to the by permitted As charitable donations. we (Section Crown Estate Act 4(2)) 1961 £nil). made donations £5,600 of (2014/15: programme Stewardship Through the stewardship programme we collaborate with partners deliver to practical projects that generate lasting value. These organisations people, benefit can projects and the environment in the communities where work we as well as our business and our employees. Projects arise from and and business objectives support core our cover a wide range activities. of Over the Over the coming years expect we reap to the benefitsof our customer strategy to andsee increased customer satisfaction levels, as measured against an established baseline. performance payment Supplier suppliers our paying to commit We within 30 days receipt of a correctly of documented invoice, or on completion a of service where a fee is recoverable from a third party, or in a shorter period according contract.to Over the past financialyear we suppliers of paid 77% within the committed TheCrown Estate Integrated Annual Report 2015/16

.

that our political The relationships we have have we relationships The communities, customers, with partners and business central are that government business. our to Building on last success year’s with the Thorough community consultation communityconsultation Thorough It is important Our networks stakeholders understand what do we and our including business, to approach our commercialism conscious to commitment Due the breadth to and geographic spread of our portfolio, engage we with a great number politicalof stakeholders across the UK. These Big Green Leaf campaign, have we hosted community regional second seriesa of events across our portfolio retail of and leisure parks. The focus this year was on encouraging active healthy, lifestyles. These events attracted a strong turnout, driving footfall our to assets and bringing together employees, tenants and local people. and noted that 48% our actions have a positive impact on wider society, creating value beyond financial return. recognise our delivery against our primary commercial sustainable generate to objective returns More 60% for broadly, HM Treasury. would describe us as acting collaboratively devolved and local government develop – to a more detailed understanding their of views on our role and work. Of those surveyed, 74% include constituency some 160 MPs who represent the seats where hold we and manage assets, as well as MPs with policy interests in our sectors. For the first timewe carried out a detailed survey more of than these of stakeholders – across110 national, remains at the heart our of approach to development, and management asset enabling local residents inform to and help share our proposals as they progress Recent process. planning the through a on consultations include examples strategic land scheme at Marlborough Stakeholder engagement Stakeholder Throughout the year continued we focus to on building excellent relationships with our networks, strengthening our reputation as a partner choice of and leading player in sectors. core our and Princesshay leisure scheme in Exeter. A large and diverse set stakeholders of make up our networks. They are a vital component ourof business activity. By listening and responding them to enhance we customer service and earn goodwill and trust. CrownEstates_AR2016.indb 57 Chairman’s review An introduction from our Chairman

Structural change Senior executive restructure The conclusion of our senior executive structural review was that we needed to restructure our senior executive team, not only to support the future direction of the business, but also to further empower the business leaders working below senior executive level. Our existing senior executive structure was therefore reconstituted, as an Executive Committee (C-suite), at the end of this year, and is moving to an enhanced structure from 1 April 2016. Those changes, which had the full backing of the Board, are detailed in the box opposite. With the Executive Committee sitting alongside functional committees covering both our corporate (Finance and Operations Committee) and portfolio (Investment Committee), the new structure both facilitates the empowerment Sir Stuart Hampson of senior staff to deliver within a framework Chairman of appropriate checks and balances and incorporates a new Board and Committee The Crown Estate prides structure that encourages the delivery of our core strategies, and effective reporting itself on being an agile and Leadership and to the Board. More detail of the new senior progressive business, willing effectiveness executive roles within the Executive and able to deliver change Committee can be found on page 63. that acts to enable continuous Strong governance requires continuing business development in openness to rigorous evaluation of the way Scotland restructure support of our long-term the Board operates, how the senior This year we have also been focussed on executive team runs the business on a devolution, following the enactment of the vision and strategy. This year Scotland Act 2016, which provides for the has been no exception, with day-to-day basis, and the preparedness of the Board and senior executive team transfer of Crown Estate management in significant change across Scotland to the Scottish Government. all aspects of our business, to respond to outcomes of such reviews. Therefore, this year we decided to augment Whilst the precise date for transfer has yet in particular within our our annual Board effectiveness appraisal to be confirmed, we have also established a governance structure, but also and also undertook a review of our senior Scotland Portfolio – with a new governance in our people and assessing executive structure. structure to ensure that Crown Estate our own effectiveness. economic assets in Scotland are well managed, by a talented team, ahead of a facilitated handover. We will be ready for that handover by April 2017. These changes

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TheBoard (New Committee) (New April 2016 onwards 2016 April land (Ronnie Quinn) (Ronnie land Management Board Management st Executive Commitee Executive 1 Janurary 2016 onwards 2016 Janurary st 1 Finance and Operations Committee Committee Operations and Finance Executive Commitee (New Committee) (New Commitee Executive Investment Committee (Expanded terms) Committee Investment Our focus for the year ahead will be: and operations management in the (new) Scotland Scotland (new) the in management operations and Chief Executive through the (streamlined) Scotland Scotland (streamlined) the through Executive Chief Sir StuartSir Hampson Chairman and Accounts. Looking ahead As you can see, it has been another busy year for the Board, and further details its of activities are set out in the Board activity table detailed later in this report. findexampleskey of the relationshipswe build, throughout the Annual Report embedto our new governance structure and Committees the into business whilst seeking further to empower our staff at all business continue levels; to prepare to our Scotland Portfolio for devolution the to Chief a recruit to Government; Scottish Financial Officer, whowe hope will join the Board as an executive director; and to continue assess to how work we as a business and as a Board ensure to that we are operating at the highest possible level. very essence our of business. will You Relations with stakeholders with Relations As a statutory corporation withfinancial a responsibility do we not HM Treasury, to business our shareholders. However, have is reliant on the relationships form we with all our of stakeholders and business partners. These relationships are extremely important us, as to they underpin the Responsibility for management in Scotland held by: by: held Scotland in management for Responsibility General Manager – Scotland Portfolio, reporting the to Creation of the Scotland Portfolio, consolidating portfolio consolidating Portfolio, Scotland the of Creation

Committee, reporting to the (new) General Manager – Scot – Manager General (new) the to reporting Committee,

March 2016 March (Main) Board (Main) st December 20015 December To 31 st Management Board Management Management Board Management To 31 Portfolio and operations operations Portfolio and Given the outsourced nature our of The enactment the of Modern Slavery TheCrown Estate Integrated Annual Report 2015/16 The Board has considered the Annual Report and Accounts and are the of view that taken as a whole balanced they are fair, and understandable and provide the information necessary for our stakeholders assessto performance, The Crown Estate’s business model and strategy. business, rely we heavily on our third party suppliers reflect to ourof way doing business and ensuring that they will always demonstrate our core values. therefore We have robust due diligence processes in place when are we contracting with third party suppliers and joint venture partners. places new statutoryAct in 2015 business a as us, on requirements generating more than £36 million in revenue seek to ensureeach to year, that and we, those within our supply chain, do not engage in any activity relating slavery to and human trafficking.We take our our and very seriously, responsibilities slavery and human trafficking statement, outlining the steps mitigate take we to any risk these of activities within our business and supply chain, can be website. our on found Remuneration In last report, year’s I mentioned that our been had Committee Remuneration working closely with reward specialists, ensure to Watson, Willisthat our Towers encouraged remuneration executive successful long-term promoted and performance governance exemplary and standards from our executive team. Working closely with the HM Treasury, we havewe now concluded that process, which will work in supporting our new senior executive structure. management carried out on a UK wide basis

between Management Board members reporting the to Chief Executive through the Scottish Management Board. Responsibility for management in Scotland functionally split split functionally Scotland in management for Responsibility

At theAt end December, of said we Senior Executive Executive Senior Restructure Senior Executive Committee Executive Senior Restructure Scotland Restructure Scotland Structural governanceStructural changes role in finding a suitable candidate. I am a suitable candidate. finding in role pleased confirm to that James Darkins, former Chief Executive TH of Real Estate, joined the Board on 1 January 2016. Accountability take ourWe responsibilities as a Board, with business commercial a as and accountability the HM to Treasury, extremely seriously. As a result operate, we and have always operated, as a going strengthenconcern. that To assurance and commitment our to stakeholders, have we included our viability statement within the risk section this of Annual Report and Accounts (page 47). extremely important that were we able to recruit a new Board Member who possessed substantial property industry experience and crucial a played Committee Nominations our goodbye Chris to Bartram, who retired from the Board having made a huge contribution ourto business in his two full terms as a Board Member and a year as a Board Counsellor. departure, With Chris’s it was and succession This allowed assess us to and describe our level performance of haven’t in we a way previously. The results were extremely identify enabled to also us but encouraging, areaskey for continued improvement. Board review review Board The Board effectiveness review took on a more in-depth assessment framework this where detailedyear, scoring was added to the effectiveness questionnaire completed Board by Members and Counsellors. are also summarised in the above box and are picked up in our Scotland Management report. Board CrownEstates_AR2016.indb 59 The members of our Board

1 2

6 7

Sir Stuart Hampson CVO, DL Alison Nimmo CBE Chairman and First Commissioner* Chief Executive and Second Commissioner

Appointment Appointment Sir Stuart took up the post of Chairman of Alison took up the post of Chief Executive of The Crown Estate on 1 January 2010, and was The Crown Estate on 1 January 2012, and was re-appointed on 1 January 2014. re-appointed on 1 January 2016. Key strengths Key strengths • Leadership • Leadership • Strategic overview • Corporate overview • Government relations • Government relations • Urban regeneration/property Experience Sir Stuart was educated at St John’s College, Experience Oxford. He spent 12 years as a civil servant before Alison spent five years with the Olympic Delivery joining the John Lewis Partnership where he was Authority (ODA) where, as Director of Design and Chairman for 14 years. He was a founding member Regeneration, she was responsible for delivering of the Oxford Retail Group on planning law and of the overall design and early delivery of many of the London First, the private/public sector partnership venues for the London 2012 games. Her previous aimed at maintaining London’s standing as a world- roles have included Chief Executive of One class capital. He was appointed a Commander and Project Director of Manchester Millennium Ltd. of the Royal Victorian Order by Her Majesty She was awarded a CBE in 2004. The Queen in the 2016 Birthday Honours List.

Paula Hay-Plumb Dr Tony White MBE Independent Non-Executive Board Member* Independent Non-Executive Board member*

Appointment Appointment Appointed to the Board on 1 January 2015. Appointed to the Board on 1 January 2011, and re-appointed on 1 January 2015. Key strengths • Finance Key strengths • Governance and audit • Low carbon energy and investment • Regeneration • Competitive energy markets Experience Experience Paula is an experienced board director in both the Tony has worked in the utility and finance sectors public and private sectors. She is a Non-Executive since leaving Oxford University with a Doctorate in Board Member of Hyde Housing Association and Physics in 1977. His professional interests include Aberforth Smaller Companies Trust plc. Paula chairs the valuation of generating assets in liberalised The Crown Estate Audit Committee. power markets, the evolution of energy markets in a carbon constrained world and the development of She is a Chartered Accountant and a Member network regulation. He left Climate Change Capital, of the Association of Corporate Treasurers. In a bank he and four others established in 2003, but 1997/98 Paula chaired the Government’s Coalfields continues to provide advice through his company Taskforce and subsequently became a founding BW Energy Limited. Trustee of the Coalfields Regeneration Trust.

* The independence of each non-executive Board Member/Counsellor has been assessed against the criteria for independence as set out in section B.1.1. of the UK Corporate Governance Code 2014.

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Gareth Baird DL Baird Gareth Independent Non-Executive Board Board Independent Non-Executive Commissioner* Scottish and Member Dipesh Shah OBE Board Member* Board Independent Non-Executive Independent Non-Executive 10 5 Appointment on 1 October 2009, Appointed to the Board on 1 October 2013. and re-appointed Key strengths • Scottish affairs • Farming • Enterprise Experience generation tenant farmer involved is a third Gareth near Kelso in the in arable and beef production in Scotland’s and is a leading figure Borders agricultural and food and drink sectors. Appointment 2011, on 1 January Appointed to the Board on 1 January 2015. and re-appointed Key strengths infrastructure and • Energy including renewables Experience in business, Dipesh has an extensive background and energy, utilities including renewable appointments include: Previous infrastructure. Chief Executive of the UK Atomic Energy Authority, Chief Executive of several businesses in BP Group Plc, HgCapital PLC, Chairman of Viridian Group Renewable Power Partners LlP and of European Photovoltaics Industry Association, and a Non- of London and of Lloyd’s Executive Director Babcock International Plc. Group

David Fursdon DL Fursdon David Independent Non-Executive Independent Non-Executive Counsellor* Board Peter Madden OBE Peter Independent Non-Executive Independent Non-Executive Counsellor* Board 4 9 Appointment 2008. on 1 January Appointed to the Board member on as a Non-Executive Board Retired 31 December 2015, and was appointed as a Counsellor on 1 January 2016. Board Key strengths • Rural land/business • Public bodies Experience surveyor and David is a qualified rural chartered He was educated at St John’s agricultural valuer. He and at the RAC Cirencester. College, Oxford family estate in owns and manages an 800-acre of the Country Devon. He was formerly President Land & Business Association (CLA).

Appointment Counsellor on 1 January 2014. Appointed as Board Key strengths • Sustainability • Urban innovation Experience Cities Peter is the Chief Executive of the Future of excellence on urban Catapult, a global centre innovation that brings together cities, businesses and universities to develop solutions to the he was needs of our cities. Previously, future a non- Chief Executive of Forum for the Future, organisation working globally with cities, profit governments and leading businesses to promote sustainable development.

TheCrown Estate Integrated Annual Report 2015/16

Ian Marcus Non-Executive Board Member Board Non-Executive Member* Independent Board Senior and James Darkins Independent Non-Executive Independent Non-Executive Member* Board 3 8 Appointment 2012, and on 1 January Appointed to the Board Appointed Senior on 1 January 2016. re-appointed January 2015. Member on 31 Independent Board Key strengths • Real estate investment banking Experience Real Chairman of European Ian was previously Suisse where Estate Investment Banking at Credit property bank’s for leading the he was responsible its asset management, activities across related private banking and investment banking businesses.

Appointment on 1 January 2016. Appointed to the Board Key strengths • Strategic leadership • Real estate investment management • International joint ventures Experience of success James has an extensive track record estate investment management in the global real 2001 he led the expansion of industry. From and estate business in Europe real Henderson’s Asia Pacific. In 2014 TH Real Estate was formed as between Henderson and TIAA-CREF, a joint venture estate fourth largest real becoming the world’s investment manager with combined assets of £59 as Chief Executive of TH Real billion. He retired Estate in 2015.

CrownEstates_AR2016.indb 61 The members of our Management Board

1 2

5 6

Alison Nimmo CBE Paul Clark Chief Executive Chief Investment Officer

Alison took up the post of Chief Executive of The Paul joined The Crown Estate in 2007 and until the Crown Estate on 1 January 2012 (see page 60 for end of 2015 had overall responsibility for investment full biography.) strategy as well as leading The Crown Estate’s Urban portfolio. As part of the wider executive reorganisation, Paul has now stepped into the role of Chief Investment Officer and is now the strategic Rob Booth lead on portfolio management, investment and General Counsel and Company Secretary development for The Crown Estate. Significant recent initiatives have included managing major West End and retail joint ventures with a range of major investors including NBIM (Regent Rob is a qualified solicitor, who joined The Crown Street), Gingko Tree Investment (Fosse Park) and Estate in 2012 from City law firm Herbert Smith Oxford Properties (St James’s Market). Significant Freehills, where he specialised in commercial current activity includes 700,000 sq ft of mixed- property and infrastructure projects. use development under construction in the West End, overseeing major capital market trading and Rob has been the General Counsel and Company executing the investment strategy for the business. Secretary of The Crown Estate since 1 January 2016, having previously held the role of Head of Prior to joining The Crown Estate, Paul was Legal. Rob has responsibility for all of the legal responsible for the Church Commissioners’ affairs of The Crown Estate and, as Company £1.7 billion property investment portfolio. Beyond Secretary, is responsible for the delivery of company his Chief Investment Officer role at The Crown secretarial support to the business, ensuring robust Estate, Paul is also a Non-Executive Director of standards of corporate governance. Rob is also the the Hermes Property Unit Trust and Ronson strategic lead on Knowledge Management Capital Partners. and Information Security.

Ken Jones Director of Rural and Coastal

Ken joined The Crown Estate in November 2012 following a 31-year career at Savills. At Savills, he headed up portfolio valuation and agricultural investments with clients including the Church Commissioners, the Duchy of Lancaster and The Crown Estate. A Chartered Surveyor by profession, he is responsible for the strategic development and management of agricultural, mineral and forestry estates, including rural residential and commercial interests, as well as the only Royal Park within The Crown Estate portfolio, the Windsor Estate, and over half the foreshore around the UK. He is a Liveryman of the Worshipful Company of Farmers.

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To ease transition, those stepping into the the into stepping those transition, ease To Chief Executive (who chairs the Executive Executive the chairs (who Executive Chief Committee); is constituted by: • • Chief Investment Officer; • Chief Operations Officer; and Officer. Financial Chief • The Executive Committee will be advised by the General Counsel and Company Secretary, who also advises the Board. their adopted roles Committee Executive new new titles from 1 January the However, 2016. Management Board continued in operation the facilitate To year. financial the throughout structure: Committee Executive the to move portfolio leadership will move a new to director to reporting – organisation the within layer the Chief Investment Officer; the Director of Counsel General and Operations Business left The Crown Estate December on 31 2015 responsibilities functional passing (immediately theto Chief Operations Officer and the General Counsel and Company Secretary); and Rob Hastings left The Crown Estate on March31 2016. 1st April The1st new 2016. Executive Committee As detailed on page 58, the senior executive structure at The Crown Estate will be revised on structure Board Management its from Management Board restructure

Judith Everett Judith Chief Operating Officer 4

Judith joined The Crown Estate in 2013 and until the Estate in Judith joined The Crown end of 2015 led on communications and engagement wider executive Estate. As part of a for The Crown into the Judith has now stepped reorganisation, and is the strategic of Chief Operating Officer role lead for a portfolio of corporate functions including Sustainability Health and Safety, Human Resources, and all aspects of branding, engagement and internal and external communications. Judith has experience of business development, marketing and external at an international affairs level worked with Royal a variety of sectors, having across Dutch Shell, Scottish Enterprise and Threadneedle where AstraZeneca, Investments. She joined from leadership she was on the global Corporate Affairs team, covering strategy, brand and sustainability. and Judith is a graduate of both Aberdeen International she read universities where Relations and Business.

TheCrown Estate Integrated Annual Report 2015/16

John Lelliott Interim Chief Financial Officer Financial Chief Interim Rob Hastings Director of Energy, Minerals and Infrastructure and Minerals Energy, of Director 7 3 John became Finance Director in 2001, having in John became Finance Director As part of a wider Estate in 1985. joined The Crown discharging the John is executive reorganisation, pending the of Interim Chief Financial Officer, role and his retirement. of a permanent CFO recruitment for John has responsibility In his interim role, Finance, Information Services (IS) and Internal Audit. John is a member of the ACCA Global Sustainability Accounting for Forum, The Prince of Wales A4S CFO (A4S) and the Sustainability project and Leadership Forum. John is also a Trustee Vice-Chair UK. of Asthma

on developing low carbon energy assets. He is serving on the joint governmentcurrently and and Storage Developers industry Carbon Capture Forum and is also chairing the Finance Steering for the EU Ocean Energy Forum. Group of Shell Wind Energy Limited. He has also served of the British Windas a Director Energy Association (now Renewable UK). Over the last nine years he has as a new core established Energy and Infrastructure Estate, concentrating for The Crown business area His penultimate role was as a Director and Chairman was as a Director His penultimate role Rob joined The Crown Estate in 2006 as the Rob joined The Crown of the Marine Estate. Director engineer in 1985 Rob qualified as an aeronautical industry and after a short spell in the aerospace completed an MBA at Manchester Business School. He spent the next 15 years in the energy small to very sector in a range of enterprises from level, including roles large, all at executive director general manager, as business development director, and chairman. managing director

CrownEstates_AR2016.indb 63 Board evaluation exercise How our Board is performing

Each year, the Board Main actions from 2015 Board Effectiveness Review Progress recorded in 2015/16 conducts a formal evaluation of its effectiveness. The process for this year included the completion of appraisal questionnaires by The Board suggested that it would be helpful to It has been confirmed that the Board will now individual Board members be provided with a mid-year investment strategy receive investment strategy papers twice each year. paper which would supplement the strategy With the creation of the Finance and Operations and Counsellors. The paper taken at the strategy awayday meeting. Committee from 1 April 2016, the Board will also appraisal questionnaires receive updates on the financial asked questions on key and operational strategies.

areas of focus; strategy and performance, Governance Given the delegated levels of authority, many This information will form part of the mid-year and the Board, and Board Rural portfolio sales require Investment Committee investment strategy paper provided to the Board Members and the senior approval without escalating up to the Board. The each year. executive team. Board would like sight, for information, of significant cumulative change in the Rural portfolio. However, this year, it was decided that each question should also be graded so that performance scores could be Given the evolving nature of the business, the A paper was taken to the February 2016 Board, obtained. These scores allowed for greater Board would welcome sight of what assets fall and will return to the Board on an annual basis. clarity on the view of the Board and we within our ‘core’ and ‘non-core’ business areas. have represented the scoring on this page.

Where approval was at 80-100% we have indicated “Strongly Approved” and where The Board should review the decision to reduce Following a trial of a reduced number of Board approval was at 60-80% we have indicated the number of Board meetings (following meetings, it has been decided that seven meetings ‘Approved’. All questions achieved at least the reduction of meetings as a result of the a year fits sufficiently with the cyclical pattern of 60% approval. PwC review in 2013). the business and its reporting framework. (This equates to a reduction of two meeting per year.) The questionnaires were followed up by one-to-one meetings between Board members and Counsellors and the Chairman. Once all interviews were Given the importance the business places This is now a standing agenda item for the strategy on risk and risk reporting, there should be a awayday, along with the investment, operational complete, the Chairman produced an standing agenda item for risk at every strategy and financial strategies. evaluation paper which was taken to the awayday meeting. Board strategy meeting in October 2015 for full discussion on identified issues, how best to address issues identified and where A summary of the findings of retrospective The Retrospective Investment Appraisal paper, further progress could be made and how investment reviews should be shared with the which goes to the Investment Committee, now best to carry plans forward to completion. Board as an aid to better decision-making in also goes to the Audit Committee. A high-level To supplement this, Ian Marcus the future. analysis paper will follow on to the Board the Senior Independent Board Member, from 2016 onwards. conducted a separate review of the Chairman’s effectiveness in a private session with the Board, which was held in July 2015.

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we felt that, given the flow of information coming to theup Board, we required seven meetings per year fully to allow the Board fulfil to effectively. duties its essentially which Committee Executive our of creation the With creates three separate strategy areas feeding into our corporate decision the with paired operations) and finance (investment, strategy provideto the Board with mid-year updates on our strategies, we would hope that the Board will see a positive change in the balance matters operational/management and issues strategy/policy between which are addressed across an optimum number of meetings year. the throughout Crown The on limits statutory imposes 1961 Act Estate Crown The Estate in relation the to number of Board members we can appoint our However, CEO). and Chairman a of inclusive members, (eight that ensure to hard extremely working are Committee Nominations As a business that is run as a going concern, we will always take the evaluation and mitigation of risk extremely seriously. The Board are therefore instrumental in contributing our to risk management. Whether that be in discussions at Board meetings in relation to our of any with associated risks financial and/or political reputational, that whether or transactions, or developments forthcoming or current be identifying the business’risk appetite and re-evaluating key risks during our annual risk workshop at our strategy Given awayday. our continue will Board the business, the for ambitions and plans future playto an active role in our risk management. The Chief Executive and senior management team work extremely well together. This should be strengthened by the further in 2016/17 Committee. Executive new the of creation Conflicts and potential conflicts of interest are taken extremely Members and Board business. the of levels all throughout seriously, Counsellors are asked complete to an annual disclosure exercise but are also prompted declare to any interest the to Board Secretary or Chairman before each meeting. On occasion, Board Members/ to asked or papers of circulation the from omitted are Counsellors abstain from certain parts of the meeting, avoid to potential conflict ensure to processes its reviews regularly Estate Crown The situations. situations. conflict avoid to enough robust are they that Following PwC’s review we reduced in 2013, the number of Board meetings from nine six. to Having trialled six meetings in 2014, we optimise our quota and really seek identify to and gaps in skill-set (as they did with the appointment of James Darkins following Chris Bartram’s retirement) and also look to at the diversity of the Board in terms of areas such as gender and ethnicity. Business response Business

Approved Strongly Approved Strongly Approved Strongly Approved Strongly Approved Score

TheCrown Estate Integrated Annual Report 2015/16

Do you consider that the matters reserved for the Boardare balance right the strikes business Board that and appropriate matters? And does the Board devote quality time reviewing to strategy? of implementation the skills, and knowledge diversity, of mix right the with appropriate, is given the nature of the business? And is it the right size ensure to its effectiveness? optimum How would you rate the Board’s contribution effective to management? risk Do you feel the Chief Executive and the senior management team work well together? Board the of composition the that consider you do opinion, your In Is there an adequate process in place for Board Members/ between strategy/policy issues and operational/management operational/management and issues strategy/policy between potential manage and understand disclose, to Counsellors conflicts of interest? Question from appraisal questionnaire appraisal from Question CrownEstates_AR2016.indb 65 Board activities Our Board’s year

This year Board Members have Windsor London enjoyed visits to assets across The Crown Estate’s portfolios, May 2015 July 2015 including Fosse Shopping Park in Leicester, Gwynt y Môr (North Wales), St James’s Market, and a dredger at Greenwich Wharf. Received an update on progress Attended a cyber security against the Windsor Estate business presentation from PwC. They also hosted receptions in plan for 2015/16. Scotland and Wales. Estate visits and other events are organised Re-approved the sale of Morfa Approved the site acquisition and Shopping Park, Swansea, (under throughout the year to enable funding of the development on a joint the business’ investment guidelines) Board Members to deepen their venture basis, with Gingko Tree following a six month time lapse. Investments, at the Castle Acres site, knowledge of The Crown Estate. Fosse Park, Leicester. Noted the capital forecast for “When the opportunity presented itself to July 2015. visit Gwynt y Môr windfarm, offshore North Approved the joint venture agreement Wales, my fellow Commissioners and I with Gingko Tree Investments in grabbed it with alacrity. Such visits are a relation to the conditional funding Noted the 2015/16 Quarter 1 Revenue source of considerable education which place and purchase of Rushden Lakes Results and Forecast Out-turn to into perspective many of the finer points of Shopping Park. 31 March 2016. discussion at our Board meetings. We were accompanied on the visit by several colleagues from The Crown Estate who briefed us Noted the capital forecast for Approved the current risk registers. extensively on what the visit entailed. Even April 2015. then, no brief could adequately prepare one for the scale and engineering complexity of Noted the Annual Reports of the: the wind farm developments we were about to Reviewed the unaudited 2014/15 year 1. Corporate Governance encounter. At close quarters, the sheer scale end revenue results, and delegated Monitoring Group of the installation is breathtaking, each turbine final sign-off of the accounts, for 2. Audit Committee located half a kilometre apart in neat arrays inclusion within the Annual Report, to the Audit Committee. 3. Remuneration Committee. which stretched far into the distance. A vast array of some 160 turbines, each of 3.6 MW nominal capacity, adjoins the earlier North Discussed and approved legal Hoyle development which was the UK’s first Approved the direction of travel for the continued modernisation of the considerations which would assist in commercial offshore wind farm. Together, their plans to modernise the business. combined capacity of 636 MW is capable of business and the need to prepare for potential changes and challenges in (Structure for Growth). powering around 400,000 homes and makes a major contribution towards satisfying UK’s drive the business/political environment. towards cleaner sources of power. Glancing out (Structure for Growth). Approved the disposal of up to 31 of the windows on the train returning from Flint, ‘Old Land Revenue Properties’ and the majestic site of several wind farms dotted Noted the register of interests and heritage assets to English Heritage along the coastline provided a memorable for fair value. snapshot of the visit. The Crown Estate can approved draft statements regarding feel justifiably proud of being at the forefront the composition of the Board, the of developing the largest offshore renewable independence of non-executive Board programme in the world. Our thanks to RWE Members, and the statement on Energy and its partners for hosting the visit.” Board diversity.

Dipesh Shah OBE Board Member

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Noted the capital forecast for for forecast capital the Noted February 2016. the approved and Considered indicative revenue target for the year which wasending March 31 2017, Portfolio. Scotland the of exclusive for Plan Corporate the Approved 2016/17. Approved the final stages of our strategy. accommodation for proposal revised a Approved Lakes Rushden of acquisition the Rushden, Park, Shopping Northamptonshire. and residential rural of outcome the Noted sales (Phase activity and 1) in 2014/15 (Phaseprogress and 2); in 2015/16 outlined proposal sale the approved for 2016/17. imposed requirements legal the Noted on The Crown Estate under the approved 2015; Act Slavery Modern the steps the business is taking to meet the legal requirements under Act Slavery Modern the of 6 section and approved2015; the wording of human and ‘slavery business’ the trafficking statement’. London March 2016 March

London Noted the capital forecast for for forecast capital the Noted January 2016. QuarterNoted the 3 Revenue 2015/16 Results and Forecast Out-turn to 31 March 2016. our of principles key the Approved strategy. accommodation proposed approved and Agreed delegated and changes governance detailed of implementation the those deliver to arrangements changes the to Chief Executive, with the changes take to effect from 1 April 2016. Noted the criteria and scale of Crown Estate non-core assets. Boyle Charlotte headhunter with Met of The Zygos Partnership, discuss to new the for process recruitment the Chair and CFO. Feb 2016

TheCrown Estate Integrated Annual Report 2015/16

the ‘Scotland Portfolio’. ‘Scotland the Re-approved the sale of Morfa following Swansea, Park, Shopping a change in purchaser. for forecast capital the Noted November 2015. approach sustainability the Approved and noted progress on Total Stewardship the Contribution, targets. public and Programme, Noted the current status of proposed and on-going our projects. development a of development the Approved strategic framework for health and safety, and noted performance to date. to changes governance the Noted apply the to Scotland Portfolio as the devolution; for prepares business approved the changes the to Terms of Reference for the Scottish Management Board and the the approved Board; Management year financial to Scotland for budget end and confirmedTreasury that HM noted and notified; formally be should the brand name be to applied to The Crown Estate in Scotland as, London Nov 2015

Approved the sale of the freehold Park. Shopping Slough in interest offshore the on update an Noted portfolio. wind for forecast capital the Noted 2015. September Attended a PwC seminar on the situation. economic current London Sept 2015 CrownEstates_AR2016.indb 67 London Board activities continued

Attendance at Board and Committee meetings

Board Board Audit Nomina- Remuner- Scotland Strategy Committee tions ation Manage- away-day Committee Committee ment Board Total number 6 1 3 2 5 4 of meetings Sir Stuart Hampson 6 1 n/a 2 n/a n/a Alison Nimmo 6 1 3 2 5 3 Chris Bartram1 4 1 n/a n/a n/a n/a David Fursdon2 5 1 2 2 5 n/a Gareth Baird 6 1 n/a n/a n/a 4 Dipesh Shah 6 1 n/a n/a 5 n/a Tony White 6 1 3 n/a n/a n/a Ian Marcus 6 1 3 2 5 n/a Peter Madden3 4 1 n/a n/a n/a n/a Paula Hay-Plumb 6 1 3 n/a n/a n/a James Darkins4 2 n/a 1 n/a n/a n/a

1 Board Counsellor. Retired 31 December 2015. 2 David Fursdon retired as a Board Member on 31 December 2015 to become a Board Counsellor and simultaneously retired from the Audit Committee and Nominations Committee. 3 Board Counsellor. 4 Appointed 1 January 2016.

Number of papers 2015/16 Balance of Independent Non-Executive and Executive Directors at Board meetings as at 31 March 2016

Governance Strategy Independent Independent 5 (9.8%) (formation, Non-Executive Non-Executive implementation, Board Chairman monitoring) Counsellors 1 Risk 7 (13.7%) 2 3 (5.9%) Chief Executive Transactions and Member 7 (13.7%) of the Board Finance 1 11 (21.6%) Independent Non- Executive Board Other Members 18 (35.3%) 6

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Audit Committee Audit auditing, internal and external for Responsible controls, financial internal reporting, financial laws with compliance and management risk Committee Remuneration Responsible for reward systems and packages for management. senior Committee Nominations requirements skills identifying the for Responsible Members, Board for planning succession and Board Management and Counsellors Board executive directors. Instigates the process for Board appointments and re-appointments. and regulations. and

The UK Corporate and The Governance Code of Good Code 2014 The Crown Estate Act 1961 Act Estate The Crown Powers and responsibilities of the Crown Estate Commissioners are set out in the Crown Estate Act 1961. or reputation in Scotland. in reputation or or affecting, The Crown Estate’s business Estate’s Crown The affecting, or Responsible for decisions relating to, to, relating decisions for Responsible and Minerals Energy, and Infrastructure transactions over £20 million. approval Urban of transactions over £50 million and Rural and Coastal Committee Investment transactions approve to authority delegated Has up £50 to million for Urban and up £20 to million for Rural and Coastal, Energy, Minerals and Windsor. and Infrastructure ManagementScotland Board and overall strategic direction. Matters reserved the Board to are set out in terms reference, of including The Board The Board agrees the objectives, broad policy Management Board strategic implement to authority delegated Has direction as set by the Board on strategy, financial and operational matters and ensuring delivery of objectives. business TheCrown Estate Integrated Annual Report 2015/16 Our governance is supplemented two by supporting governance standards insofar as they are applicable our to business and not outside our powers prescribed the by Crown Estate Act 1961, 2011. Practice

In addition the Board to Committees, Committee) is given on the table the right. to A summary the of role and duties the of Committee, (Audit Committees Board six Management Committee, Investment Board, Scotland Management Board, Remuneration and Committee Nominations The Board has established a and Committees of number Committee that each ensures sufficient with provided is resources to enable it to duties. its undertake there are four other management committees established the by Chief Executive, composed a mix of of Management Board, executive directors and other senior executives. These are the Risk Committee, Joint Venture Management Group, the Central Health and Safety Committee and the Group. Monitoring Governance Corporate Board committeesBoard Committee reports CrownEstates_AR2016.indb 69 Committee reports continued Management Board

Members of the Management Board The members of the Management Board as at the end of the year are: Alison Nimmo Chief Executive and Chair Paul Clark, Judith Everett, Rob Hastings, Ken Jones, Rob Booth and John Lelliott Executive Directors The secretary to the Management Board is Cheryl Lake. Meetings are held on a monthly basis.

Duties The main duties of the Management Board are to:

Alison Nimmo • implement the strategic direction of Chief Executive and Chair of the Management Board and Investment Committee The Crown Estate; • provide the Board with strategic advice, support and guidance in relation to The Crown Estate’s managed assets in Scotland; team in Scotland who manage those • set and ensure the achievement of Introduction by the Chair assets. We therefore decided that Scotland of the Management Board corporate objectives, including financial should be managed as a separate and operational performance; The Management Board has business unit to ensure a smooth handover, when the time comes. This has • keep under review The Crown Estate’s of course been engaged in involved creating new and robust investment strategy in the light of monitoring the progress of the governance structures for our Scotland economic market conditions; business against our corporate Portfolio as well as the creation of a • monitor investment performance against objectives and long-term Scotland Committee to support the bespoke benchmarks and financial strategic goals. However, there work of the Scotland Management Board performance against revenue targets; have been two key focusses going forwards. • ensure that business risks are properly for the Management Board Secondly, the Management Board identified and managed; has also had the task of implementing the • ensure health and safety issues are this year. actions arising from our Structure for monitored and reported effectively; Firstly, we have continued to provide Growth work stream, which included the technical input to HM Treasury and restructure of our senior executive team in • exercise oversight and control over Scottish Government in relation to the preparation for the disbandment of our The Crown Estate’s financial, human future transfer of the management of Management Board on 31 March 2016, and other resources; and our economic assets in Scotland to the and the creation of our new Executive • promote sustainability and customer Scottish Parliament. As part of this work, Committee from April 2016 (as described focus throughout the business. we have been extremely focused on what on page 58). is best for our Scottish assets and our

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business plans and budgets budgets and business plans Estate’s key strategic key risks andEstate’s re-visiting the defined risk appetitefor business; the reviewed quarterly updates on the progress devolution of Crown of Estate management in Scotland; approved the budget for the works to be undertaken in association with the devolution Crown of Estate management in Scotland; reviewed quarterly updates on the sustainability to approach business’ which included Contribution Total and the stewardship programme; and reviewed bi-annual updates on health and safety, policy and governmental across focus customer and engagement, the full breadth the of organisation. management, as well as defining The Crown reviewed and had input the into business’ plans; management crisis to relation in made progress monitored an internal information systems update; examined factors key identified, and to approach, proposed the approve priorities; HR current addressing reviewed the investment strategyand endorsed the revenue targets exclude (to 2016/17; for Scotland) timetable; corporate the approved priorities, corporate objectives; strategic KPIs and target; and the material issues, alignto with the business’ long- vision; term ensured the effective resourcing and delivery business plans including of sustainability targets; reviewed quarterly updates on risk TheCrown Estate Integrated Annual Report 2015/16 In reviewing operational the strategy, • • • • • corporate corporate Management Board ensures that the are aligned to the business’ long-term long-term business’ the to aligned are strategic objectives. During the year the Management Board performed the following activities: • • • • • • • 3 5 5 4 9 9 9 8 attended

Number of meetings agenda, whilst enhancing whilst agenda,

1 3

4 2 This delegation is in respect of financial relations stakeholder and customer sustainability Following the announcement of our senior executive Rob Hastings did not attend the final three restructure meetings of the year. Following the announcement of our senior executive Ken Jones did not attend the final three restructure meetings of the year. Vivienne King left the business on 31 December 2015. Rob Booth became a member of the Committee on 1 January 2016. • • operational • people • • governance • accountability and coherence across the areas: following • operational strategy help to monitor and drive the corporate Vivienne King Rob Booth Ken Jones The Management Board is an executive authority under operating committee delegated the by Board and is responsible for implementing the strategic direction of the business, whilst operating within the delegated financial limitsavailable to the Executive. Chief 2 2 3 4 1 1 Paul Clark Judith Everett John Lelliott Rob Hastings Alison Nimmo During the Management the year, Board met nine of a total times. Attendance by individual members the of Management Board was as follows: Report Management the of Board’s activitiesBoard’s CrownEstates_AR2016.indb 71 Committee reports continued Investment Committee

and energy-related investments and Introduction by Chair of the divestments of: £50 million for any single Investment Committee proposal from the Urban Portfolio; and This year’s focus for the £20 million for any single proposal from the Rural & Coastal, Energy & Infrastructure Investment Committee has portfolios or the Windsor Estate. involved several key strategic This includes joint ventures and sales of non-core assets across major developments. both the Urban and Rural & In reviewing investment or divestment Coastal Portfolios, as well as proposals the Investment Committee the approval of acquisitions reviews individual cases against The and developments which Crown Estate investment strategy to we have undertaken in ensure alignment to long-term objectives. collaboration with our Report of the Investment joint venture partners. Committee’s activities The Investment Committee During the year the Investment Committee has not been asked to approve performed the following activities: many acquisitions this year, given the business’ focus on • approved strategic non-core sales the development of many across the Urban and Rural & Coastal portfolios; key assets which are held within The Crown Estate’s • approved development costs for several core assets; Urban Portfolio. • evaluated progress against specific Members of the investment proposals; Investment Committee • evaluated retrospective investment appraisals against investment purchases, The members of the Investment capital development projects, and Committee as at the end of the year are: long-term strategic land developments; Alison Nimmo • considered and endorsed proposals Chief Executive and Chair within delegated authority limits before Paul Clark, Rob Hastings, they are submitted to the Board; and Ken Jones and John Lelliott • monitored major capital projects against Executive Directors approved plans. Alan Meakin During the year, the Investment Committee Investment Strategy Manager met a total of nine times. Attendance by individual members of the Investment The secretary to the Investment Committee was as follows: Committee is Cheryl Lake. Additional attendees are invited from time Number of meetings to time at the Investment Committee’s Alison Nimmo 9 discretion, such as the General Counsel Paul Clark 8 and Company Secretary, where required. John Lelliott 7 Duties Alan Meakin 9 Ken Jones 6 The Investment Committee is a committee Rob Hastings 1 5 of the Board and has a transactional remit subject to its delegated authorities. 1 Following the announcement of our senior executive This delegation is in respect of real estate restructure Rob Hastings did not attend the final three meetings of the year.

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13% 27% 20% audit Other Financial reporting 22/06/2016 11:28 and external external and performance Valuations and and Valuations (including litigation) litigation) (including Audit Audit Committee met three times

Committee also meets with the Audit Audit The Audit Committee invites the CEO, CEO, the invites Committee Audit The The Audit Audit Audit Committee time allocation Governance and and Governance management risk 20% audit Internal 20% years each on the Investment Committee, from experience commercial strong bring the energy and real estate sectors, respectively. James Darkins appointment to real significant brings Committee Audit the estate investment experience. Further credentials the of members areset out on pages 60 and 61. Interim GeneralCIO, CFO, Counsel & Audit, Internal of Head Secretary, Company and Group Financial Controller attend to all Audit National appropriate The meetings. Office representatives(NAO) (external audit) are also invited attend to all meetingsthe of complete have and Committee Audit access all to financial andother information. The NAO withoutNAO management present, and the Audit Committee Chair meets with the regularly. Audit Internal of Head Key areas of Audit Committee Audit of areas Key activity and judgement applied performed has Committee each Audit The itsof principal duties during the year in line supported has it particular, In remit. its with the Board in fulfilling itsoversight reporting, financial on responsibilities systems internal of control, management monitoring processes for and risks, of regulation. and legislation with compliance the In particular for 2015/16, with comply to sought has Committee relevant UK Corporate elements the of 2014 and requirements Code Governance guidance, particularly in relation risk to management. The allocation time of across the areas key Audit of Committee activity has been set out below: during 2015/16. In addition, the Chair during 2015/16. provided an oral report the Board to after each meeting, and an annual report on its activities during the year. Committee Audit Audit Committee believe believe Committee Committee to adequately adequately to Committee Audit Audit Audit Audit The members the of perform the role set out for it the by Board. In particular, the have good levels experience of and knowledge from across relevant sectors to enable the Members of the Audit Committee Audit Members the of members of the Audit The current Committee are: Hay-Plumb Paula Chair and Board Member Darkins James Board Member Marcus Ian Board Member Tony White Board Member The secretary the Audit to Committee is Greenhill. Lauren that the financial knowledge and commercial experience the of Audit Committee meet the needs the of business. Paula has served just over one full year on the Audit Committee as Chair and has held public the both in positions financial senior and private sectors. She is a Chartered Accountant and has been chairing Audit White Tony years. 17 over for Committees and Ian Marcus, both having served for four TheCrown Estate Integrated Annual Report 2015/16

first Audit Audit first to the Auditto

Committee eight years of Board Counsellor on

Committee was March 2016. to becometo a There has been one significant changeto the during Committee Audit the membership of Jamesthe year. Darkins, who joined the Board on 1 January became a new 2016, member the of Audit Committee. He replaced David Fursdon who transitioned Introduction by the Chair the by Introduction Committee Audit the of This is the first fullyear in which I have chaired the Audit Committee and I have been impressed with the level of input discussion, productive and both from fellow my committee executive. the and members particularly is This helpful given the important role the Audit Committee plays in of effectiveness the overseeing internal and management risk control on behalf of the Board.

Paula Hay-Plumb Paula Committee Audit the of Chair Audit Committee Audit

31 December after31 2015 was November 2015, and James’was November 2015, Committee. David’s last Audit Audit last David’s Committee. valuable input and contribution CrownEstates_AR2016.indb 73 Committee reports continued

In discharging its duties during the year the A summary of the key business taken at each Audit Commitee meeting Audit Committee obtained assurance from a number of sources in order to obtain is set out below: comfort over key areas of governance and June 2015 control. These included: Note and approve the risk management update • Review of the results of both the interim Review of Internal Audit programme and results and final valuations, with particular Review of Head of Internal Audit annual opinion 2014/15 regard to the processes supporting the Review of management assurances on internal control supporting the Governance Statement valuation, use of valuation experts and Review of annual valuation and performance of The Crown Estate 2014/15 areas of judgement. Particular attention Review of assurance over the annual valuation was given to the valuation of our joint venture assets and the additional Review of external audit completion report (including management letter) on the 2014/15 financial statement audit assurance sources that support the valuation. The Audit Committee also Approval of Annual Report and Accounts 2014/15 acknowledged the steps taken by Note of update on procurement process management to ensure the appropriate Review of cyber security arrangements independence of our principal valuers. November 2015 • During the year, the Audit Committee Note and approve the risk management update received regular reports on the important Review of Internal Audit programme and results area of risk management to enable it to Review of interim valuation and performance for six months ended 30 September 2015 make a robust assessment of the principal risks facing the business. In particular, the Note unaudited interim financial statements for six months ended 30 September 2015 current key corporate risks including the Note external audit’s planning report on the 2015/16 financial statement audit and approve re-appointment mitigations and action plans were of external auditor discussed and approved. This involved Review of Retrospective Investment Appraisal results and lessons learned reviewing reports on crisis management Review of governance and financial control of joint ventures and business continuity including our Review of changes to UK Corporate Governance Code ability to manage emerging threats such March 2016 as cyber security. For 2015/16 this Note and approve the risk management update included the outputs from the Board strategic risk workshop on risk appetite Review of Internal Audit programme and results and emerging risks, opportunities and Endorse the Internal Audit programme for 2016/17 themes, held in October 2015. A formal Note the Internal Audit Charter independent assessment of our risk Note the process being adopted regarding the Viability Statement for inclusion within the 2015/16 accounts management processes was also Note the accounting update provided in advance of the preparation of the 2015/16 accounts performed in 2015/16, which gave a high Review external audit’s progress report on the 2015/16 financial statement audit degree of assurance. • The Audit Committee reviewed key Review and discuss processes to prevent and detect fraud assurances on internal control during Review of Crisis Management and Business Continuity arrangements the year. This was undertaken primarily Review of arrangements in complying with the Modern Slavery Act 2015 through the results of Internal Audit Note and approve the risk management update activity undertaken in 2015/16 as well Note: The 2015/16 Annual Report and Accounts were approved at the June 2016 Audit Committee. as assurance provided by the executive for their area of responsibility. It worked • accounting for the pending devolution of of which were presented by the Head of closely with the Head of Internal Audit the management of assets in Scotland to Internal Audit. The Audit Committee takes who has unfettered access to the Scottish Government; and its role of oversight in the prevention and business, receiving all summary reports • assessment of business viability in line detection of fraud and bribery very on key processes and controls in line with the requirements of the UK seriously. Whistleblowing policies are in with the internal audit programme and Corporate Governance Code. place and updated as and when required strategy. In addition, the Audit Committee As part of this review, the Audit Committee to bring them in line with best practice. discussed and agreed the internal audit considered whether the 2015/16 Annual Suspected fraud or bribery can be reported programme for the year ahead. Report was fair, balanced and understandable through a dedicated whistleblowing hotline Following consideration of sources of and whether it provided the necessary or inbox, available to tenants, suppliers and assurance throughout the year and the information for stakeholders to assess The members of the public and staff. If the results of external audit, the Audit Crown Estate’s performance, business suspected fraud or bribery involves a Committee reviewed the annual financial model and strategy. It was satisfied that, member of staff at director level or above, statements, with particular attention to taken as a whole, the Annual Report is fair, it can be reported to the Chair of the Audit accounting policies, areas of judgement, balanced and understandable. After taking Committee. Appropriate training is in place audit adjustments and the level of unadjusted external advice it was also satisfied that the in relation to the Bribery Act for all new staff. errors. The significant issues considered in 2015/16 Annual Report and Accounts is in In the spirit of continual improvement relation to the annual financial statements alignment with the IIRC Framework. the Audit Committee reviews its forward and the key areas of judgement taken were: During the year the Audit Committee work programme regularly to ensure it • appropriateness of the valuation in relation assessed the fraud risks, summary results receives the right information to discharge to significant elements of our portfolio; its duties effectively.

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22/06/2016 11:28

Board and Board Committee succession and membership Senior executive leadership and structural changes Board recruitment and re-appointments Board and senior executive identify the skills requirements and Members, Board for succession planning Board Counsellors and Management Board executive directors and oversee the selection process the Board to subject the public to appointments process which has been agreed with the Treasury at the time; instigate the process for Board appointments and re-appointments and make recommendations in in line with or, the case Non-Executive of appointments, as required the public by appointments and process; Management recommend and review Board appointments. succession planning in particular: • • • • Duties The main duties this of Committee are: • • • Report Nominations the of activities Committee’s During the year the Nominations Committee met consider in to May and November 2015 all matters within its terms reference, of

Nominations Committee Nominations with HM Treasury plan to an effective transition a new Chairperson to The of Crown Estate and the recruitment a new of both which of CFO, are being managed Members the of The current members the of Nominations are: Committee StuartSir Hampson Chairman and Chair Nimmo Alison Executive Chief Marcus Ian Board Member and SID Hay-Plumb Paula Board Member Meetings be are held to twice a year, or as frequently as required. The secretary the Committee to is Stuart Allan. Following decision my stand to down from rolemy as Chairman, and John Lelliott’s impending retirement, have we worked in line with the principles the of OCPA process. recruitment TheCrown Estate Integrated Annual Report 2015/16

I would thank like to David Fursdon, who Nominations the from down stood Committee following his transition Board to Counsellor on 1 January for his 2016, valuable contribution, and welcome to Paula Hay-Plumb who will bring her perspective and experience the to as well as Committee, Nominations gender on diversity. focus our increasing continued to form an important structure governance our part of ahead planning 2015/16, during the effective management for The Nominations Committee has Nominations The Introduction by the Chair of the the Chair the of by Introduction Committee Nominations succession Member Board of membership committee and significant the overseeing and organisational our to changes senior and structure

Sir StuartSir Hampson Committee Nominations the of Chair team. executive Nominations Committee Nominations

CrownEstates_AR2016.indb 75 Committee reports continued Scotland Management Board

Duties The Scotland Management Board is responsible for the newly created Scotland Portfolio and, more widely, The Crown Estate’s business and reputation in Scotland, in order to ensure that Scottish interests are thoroughly considered. The main duties of the Scotland Management Board are: • implementing the strategic direction set by the Board; • oversight of: financial; operational; people; customer and stakeholder relations; • governance and sustainability insofar as they relate to Scotland; • setting, owning, monitoring and driving forward the corporate agenda; and Gareth Baird • adding value to the business through Chair of the Scotland Management Board greater strategic oversight. Report of the Scotland Management Board’s activities Scotland Portfolio, reporting regularly to the During the year the Scotland Management Introduction by the Chair of the Scotland Management Board. Our team is Board met four times and considered Scotland Management Board working hard to prepare for and deliver a all matters within its terms of reference, in particular: This year our business in smooth and prompt transfer. We will do all that we can to keep our stakeholders Scotland continued to focus on • considering matters relating to informed and to minimise uncertainty for devolution; sectors of strategic importance our customers, staff and the communities such as offshore wind, rural • business planning for its Scottish we work with across Scotland. business and monitoring financial and coastal, and aquaculture. Members of the Scotland performance from Scotland; This combination of mature and Management Board • exploring business opportunities in emerging industries required Scotland; and the team in Scotland to remain The current members of the Scotland Management Board are: • introducing a systematic approach to agile, and ready to respond to engagement with stakeholders and the new opportunities. Gareth Baird media, and the instigation and promotion Chair and Board Member Beyond that operational activity, our primary of LMAs and other local initiatives. Alison Nimmo focus has been preparation for devolution of Chief Executive the management of Crown Estate economic assets in Scotland to Scottish Government. John Lelliott As detailed in our Chairman’s introduction Interim CFO on pages 58 and 59 this has involved both Ronnie Quinn a restructure of our operational business, General Manager – Scotland Portfolio to create the Scotland Portfolio, and a The secretary to the Scotland Management realignment of our governance, with Board is Laura Russell. Meetings are usually responsibility for operational management held four times a year, or as frequently now falling to our General Manager – as required.

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22/06/2016 11:29 Crown Crown (who is Board Members. The Two Board CounsellorsTwo also Under the Act (First Schedule, para. 5) The primary duty the of Board is to The Crown Estate may only invest in land within the UK and may hold gilts and cash. Investment in equities or outside theof UK is not permitted; The Crown Estate must comply with written directions about the discharge of their functions under the given Act, to them by the Chancellor the of Exchequer or the Secretary State of for Scotland; and The Crown Estate cannot borrow. with the Act. Estate. As such, the Crown Estate corporation statutory a Commissioners is six Non-Executive Non-Executive), the Chief Executive and Composition of the Board Composition the of the Board comprised March 31 2016 At Chairman a members: eight and not a company for the purposes the of Companies Act 2006. The formal name of the organisation is the Crown Estate Commissioners but it operates under the brand name “The Crown and Estate” any references the “Commissioners” to are to the individual Executive and Non-Executive Board Members and vice versa. Estate Commissioners as a corporate body corporate a Commissioners as Estate commercial independent an with operating mandate in the management the of attend the Board in an advisory capacity as co-optees. in right the of in Crown; other words lands owned the by Crown corporately. funds are provided Parliament by (Resource Finance) as a contribution towards the cost Board of Members’ salaries and the expenses their of office. the authority perform to all acts the of only subject ownership, of right Crown’s restrictionsto any in the The Act. key restrictions are: • • • The assets managed The by CrownEstate are not the property the of Government, nor are they part private the of Sovereign’s estate. The properties form part the of Sovereign the hereditary of possessions maintain the Crown Estate as an estate in land and maintain to and enhance its value and the return obtained from but it, with due regard the requirements to good of management. The Crown Estate has composition the of Board is compliant

of the of To supplementTo this, Ian Marcus the Board papers encompass regular Board TheCrown Estate Integrated Annual Report 2015/16 Report the of Committee on Crown Lands (‘the Report’), Eve 1955 which envisaged the role the of Crown Estate Commissioners as analogous that of to trustees a trust. of It established the Crown (the Board) (the Senior Independent Board Member, Member, Board Independent Senior conducted a separate review the of Chairman’s effectiveness in a private session with the Board, which was held in July 2015. The Commissioners Board of Estate Crown the Statutory of position Commissioners Estate Crown the and The (the Act) Crown Estate Act 1961 adopted the recommendations Board Members are indemnified against any personal civil liability which is incurred in the proper execution their of Board functions provided that the Board Member good in reasonably, honestly, acted has faith and without negligence and how best carryto plans forward completion. to Board processes All procedures key and policies affecting the Board are maintained and operated by the Company Secretary. Liability Information flow Information Board Members and Counsellors receive a regular and controlled flowof information relevant the fulfilment to of their role. For example, details portfolio of valuations and benchmarks, external performance against at particularly directed information financial revenue performance, and various market research information and presentations. reports from the Chief Executive, Interim Chief Financial Officer andothers on a planned basis. Formal minutes the of Management and Committee Investment Board are made available Board to Members and Counsellors. Between Board meetings, other information is circulated as necessary keep to Board Members and Counsellors informed on relevant issues, and outside formal meetings the Board as required. may be asked make decisions to ‘out Board Members committee’. of and Counsellors have access up-to-date to information, market and corporate

The agenda for Board meetings is As well as meetings in London, the set the by Board Secretary and the Chief Executive. Board papers are circulated a week in advance each of meeting. the Audit Committee, two meetings the of of meetings four Committee, Nominations the Remuneration Committee and four of the Scotland Management Board. In addition Board to meetings, each year the Board convenes for a two day strategy meeting, at which business key risks, business external strategy, factors and the broad direction the of business are discussed in depth. This meeting year’s was held in Leicestershire where the opportunity was taken visit to the Fosse Shopping Park, which forms part our of Regional Portfolio. Board also met In addition, in Windsor. there were three scheduled meetings of Board meetings, processesBoard meetings, and liabilities meetings Board Board meetings are pre-scheduled and a calendar Board of and Committee meetings is circulated well inadvance enable to Board Members and Counsellors plan to their respective schedules, ensuring meaningful participation in meetings. The Board held six scheduled meetings during the year ending March 31 2016. We supplementWe our statutory requirements under with the the Crown Estate Act 1961 terms the of Code Good of Practice 2011, issued jointly HM Treasury by and the Cabinet Office, and the UK Corporate issuedGovernance the by Code 2014, Financial Reporting Council. The Board provisions and principles supports the set out in both codes insofar as they are applicable the circumstances to of The Crown Estate and are consistent with the CrownEstate Act 1961. The Crown Estate is in an unusual position as a public body set up to carry outa whilst mandate, commercial independent remaining That from Government. draw to us enables structure on best practice corporate best on the both from governance sectors. public and private 2011 Code Good of Practice, and the2011 2014 Code Governance Complying with the Crown EstateAct 1961, CrownEstates_AR2016.indb 77 Governance continued

The Board is of the view that collectively • agreeing the investment strategy; and independence is implied. None of the Board members have the appropriate • granting or varying authority levels Non-Executive Board Members or balance of skills, experience and qualities for Board Committees and the Counsellors has (to his or her knowledge) to discharge the Board’s duties and Chief Executive. any conflict of interest which has not been responsibilities effectively, and that as disclosed to the Board. currently constituted the Board has strong Certain matters are delegated to Each of the Non-Executive Board independent and diverse characteristics. committees of the Board and these are Members has a Royal Warrant from The Board is satisfied that no individual, described in the terms of reference of Her Majesty the Queen and terms of or group of individuals, is or has been the committees in question. The duties engagement from The Crown Estate. in a position to dominate the Board’s of the Audit Committee, Remuneration The role of Company Secretary is held decision-making. Committee, Nominations Committee, by Rob Booth, General Counsel and Investment Committee, Management Company Secretary. In addition to other Duties Board, and Scotland Management Board executive duties, the Company Secretary’s The main duties of the Board are to: are summarised earlier in this report. responsibilities include: The Chairman, Sir Stuart Hampson, • supporting and advising the Chairman in • agree objectives, policies and strategies, is responsible for chairing the Nominations relation to matters such as the annual and monitor the performance of Committee and the Board and overseeing review of Board effectiveness executive management; the official business of The Crown Estate. and succession, terms of reference of • agree and set the overall strategic His duties include managing the business the Board and Committees, and relevant direction of the business for of the Board, ensuring its effective changes in corporate governance; implementation through the executive operation, keeping under review the general Management Board; progress and long-term development of • providing support to the Senior Independent Board Member in the • keep under review the general progress The Crown Estate, representing The Crown annual appraisal of the Chairman; and and long-term development of the Estate to its various stakeholders and the organisation in light of the political, general public, chairing the selection panel • ensuring agendas allow sufficient time for economic and social environments in for the appointment of Board Members debate and challenge and that the Board which it operates; and Counsellors and undertaking the is equipped with the relevant tools and annual appraisal of Board Members sufficient information to effectively • control and monitor the financial state and Counsellors. perform their role. and performance of The Crown Estate; The Chief Executive, Alison Nimmo, is The secretariat service to the Board is • approve major expenditure and responsible for directing and promoting the administered by the Board Secretary, transactions including acquisitions, profitable operation and enhancement of Cheryl Lake. All Board Members, including disposals and investment in joint The Crown Estate. Her duties include the Non-Executives, have access to the ventures; as well as approve novel or responsibility for the development of The advice and services of the Company contentious transactions; Crown Estate and its effective operation, Secretary and Board Secretary. • ensure that The Crown Estate pursues strategic planning, ensuring implementation sound and proper policies in relation to of objectives, policies and strategies Senior Independent Board Member risk management, health and safety approved by the Board (including and corporate governance; sustainability targets and objectives) being Ian Marcus is the nominated Senior Independent Board Member, and his role is • ensure an adequate system of controls responsible for public relations and acting defined in our Boards’ and Committees’ (financial and otherwise) is in place; and as the Treasury’s appointed Accounting Officer for The Crown Estate. terms of reference. The role includes • ensure adequate succession and appraising the performance of the remuneration arrangements are in place. The Non-Executive Board Members Chairman, representing the Board on and Counsellors selection panels, and acting as an Delegated authorities intermediary for other Board Members. The Non-Executive Board Members are Ian has extensive experience of The Board has a formal schedule of David Fursdon (retired in December 2015 The Crown Estate and enjoys the respect of matters reserved for its consideration as a Board Member, and became a Board the Chairman and other Board Members in and decision which include: Counsellor on 1 January 2016), James carrying out his role as Senior Independent • approving the annual budget and Darkins, Gareth Baird, Dipesh Shah, Board Member. His experience, the quality corporate plan; Tony White, Ian Marcus, Paula Hay-Plumb of his advice, his considered and well- • agreeing capital expenditure or disposals and Peter Madden (Board Counsellor). The measured approach, together with his over £50 million for Urban transactions Board annually reviews the independence mindfulness of taking the collective view, and over £20 million for Rural and of each of its Non-Executive Members and makes for a highly professional discharge Coastal, Energy and Infrastructure and Counsellors to ensure that they bring an of his Senior Independent Board Windsor related transactions; objective viewpoint and that no lack of Member duties. • agreeing novel and contentious transactions over £5 million;

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1 Jan 2014 1 Jan 2015 1 Jan 2015 1 Jan 2015 1 Oct 2013 1 Jan 2016 1 Jan 2016 1 Jan 2016 most recent renewal recent most Date of appointment or Length of service as Board Counsellor Board 7 years 6 years 5 years Date of expiry 31 December 201731 December 2015 31 December 2016 months 2 years and 3 1 year 3 months 4 years

3 years 2 years Date of appointment as a Counsellor 1 January 2014 1 January 2015 1 January 2016 1 year 3 1 2

Peter Madden’s appointment as Board Counsellor commenced on 1 January 2014. Peter was appointed under the Counsellor commenced appointment as Board Peter Madden’s party adviser’. Counsellor category of ‘external third Board 31 December 2015. Counsellor on his position as Board from Chris Bartram retired 31 December 2015, following two successful terms. Member on his position as Board from David Fursdon retired TheCrown Estate Integrated Annual Report 2015/16 Peter Madden 1 2 3 Appointment Chris Bartram David Fursdon James Darkins James Hampson Hampson (Chairman) Hay-Plumb Paula Sir Stuart Sir Nimmo Alison Executive) (Chief Gareth Baird ShahDipesh Time served by Board Members as at 31 March 2016 Time Members as at 31 March served by Board Board Counsellors as at 31 March 2016 as at 31 March Counsellors Board White Tony Marcus Ian (SID as from 1 January 2015)

of theof

Board a Member, appointment process), the Similar arrangements apply the to Board Members are nominated for retiring Board Members; external third parties as prospective Board Members who have gone through process;the OCPA and external third parties as advisers who have not gone through the process. OCPA Treasury Minister (who is involved at each stage the of representative the of Treasury and an independent The member. selection process additionally includes the involvement Chancellor and the Deputy Prime Minister. appointment the role to the of Chairman. Counsellors Board Non-Executive termsThe reference of Crown Estate’s for the Board allow for the appointment of Board Counsellors drawn from: • • • The Treasury is responsible for for responsible is Treasury The recommending The Crown Estate appointments the Prime to Minister and Her Majesty the Queen. appointment following interview a by selection panel which comprises: the Chairman, a Appointment and tenure Board Members are appointed for a term four upof to years, with the possibility of extension for a second term also of up to four years. The maximum consecutive term which a Board Member may serve on the Board as a Board Member is currently eight years. The appointmentprocess for Non-Executive Board Members follows the Officeof the Commissionerfor Public Appointments Code Practice. (OCPA) of One principles the of key this of Code is selection based on merit, after fair and open competition, and with the aim of achieving a balance relevant of skills and backgrounds on the Board, with minimal conflictsof interest with their outside appropriate an Maintaining activities. skills, of range diverse a including balance, background knowledge and experience, is paramount of importance. Gender and ethnic diversity is a significant element this.of Executive search consultants support panels selection our to appointed are required identify to a pool suitable of includes which consideration for candidates a good balance female of candidates and candidates drawn from an ethnically diverse possible. wherever background, CrownEstates_AR2016.indb 79 Governance continued

There can be no more than four Board • the Chief Operating Officer on the Board The Governance report, together with Counsellors in place at any given time, familiarisation programme and Core the material issues we have identified, set two under the first two categories above, Proposition and Positioning, health and out the principal issues and opportunities and two under the last category above. safety, sustainability and HR strategy; facing the business and the processes in The role of Board Counsellor is to • the Interim Chief Financial Officer on the place to manage these. assist the Board in order to provide the organisation’s finances and accounting There have been no personal data collective Board with an appropriate arrangements; related incidents in 2015/16 which are balance of skills, knowledge and expertise required to be reported. • the Chief Investment Officer and others to supplement the knowledge of the Board In making my statement as accounting about their respective portfolios and and inform decision-making. Board officer, in line with ‘Managing Public investment strategy; Counsellors attend Board meetings in a Money’, it is my judgement that the Board non-voting capacity as co-optees. They are • the Board Secretary about Board has handled these issues successfully and additionally available to serve on Board meeting processes and procedures that they have been supported by an Committees (other than the Audit and and annual processes including Board appropriate governance framework. Nominations Committees) at the invitation appraisals and declaration of interests; So far as I am aware, I confirm that of the Chairman. and there is no relevant audit information of • other senior managers as appropriate. which the auditors are unaware. I have also Succession planning taken all steps necessary in order to make Statement of The Crown Estate Board Members’ appointments and myself aware of all relevant information and re-appointments are staggered to allow the Commissioners’ and Accounting have established that the auditor is aware of managed transition of the Board’s business Officer’s responsibilities that information. I am confident that The Crown Estate and enable the Board to maintain an The Board is responsible for ensuring that will continue to operate as a successful, appropriate balance of skills. The Crown Estate has in place a system of well-governed business going forward. controls, financial and otherwise, and under Induction There will be inevitable challenges that all section 2(5) of the Crown Estate Act 1961 is businesses will face in the medium term. A member of the HR team acts as required to prepare a statement of I believe the governance arrangements secretary to the selection panel for new accounts in the form and on the basis we have in place are robust and sufficient Board appointments, and oversees the determined by the Treasury. The financial to manage those challenges. However, induction of new Board Members upon statements are prepared on an accruals I envisage that some of the priorities going appointment. basis and must give a true and fair view of forward that the Board will need to consider All new Board Members and The Crown Estate’s revenue profit and will include: Counsellors receive a full, formal and capital profit, state of affairs at the financial tailored induction on joining the Board. year end and of its income and expenditure • the ability to retain our key people in the Induction programmes for Board Members and cash flows for the financial year strong employment market, particularly are designed to: in question. within the industry we operate in; • build an understanding of the nature of In preparing the accounts the Main • the ability to retain our partners and The Crown Estate, its business and the Board is required to: investors if there is seen to be a decline in markets in which it operates; • observe the accounts direction issued the attractiveness of the sectors in which • build a link with employees; by the Treasury, including the relevant we operate or the perception of London as a global city; and • build an understanding of The Crown accounting and disclosure requirements, Estate’s main relationships and and apply suitable accounting policies on • the risks and opportunities posed by stakeholders; a consistent basis; technology to our business, including cyber security. • build an understanding of the role of a • make judgements and estimates on a Non-Executive Board Member, reasonable basis; Counsellor and Executive Director; and • state whether applicable accounting • build an understanding of the decision- standards have been followed, and making framework within which the disclose and explain any material Board operates. departures in the financial statements; Alison Nimmo CBE and Chief Executive The induction programme includes the • prepare the financial statements on a 8 June 2016 provision of necessary background going concern basis. information, briefing by key management personnel and training, where appropriate. The Treasury has appointed the Chief It typically includes meetings with: Executive (the Second Commissioner) as the • the Chief Executive about the overview of Accounting Officer for The Crown Estate. The Crown Estate, the management Her responsibilities as Accounting Officer, team and the challenges for the business; including her responsibility for the propriety and regularity of the public finances and for • the General Counsel and Company the keeping of proper records, are set out Secretary about the Crown Estate Act in ‘Managing Public Money’. 1961 and corporate governance;

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The exceptional results achieved are a testament to our people and our values of commercialism, integrity and stewardship. The same values underpin our remuneration policy which is set out in more detail over the following pages of this report. Our primary aim in setting these policies is to ensure we continue to attract and retain talented, professional and experienced people and that our employees, including senior management, are inspired, motivated and incentivised to deliver on the stretching objectives set by reference to our Vision 2022 strategy. In March 2016, HM Treasury approved the Remuneration Committee’s recommendations following a wide-ranging review of executive reward strategy. This enabled the Remuneration Committee to implement some key changes to our Ian Marcus reward framework such as the first review Chair of the Remuneration Committee of the Chief Executive’s reward package since 2012 and improved performance- related bonus opportunities for the rest of the business in 2015/16. The final part of the newly-approved It has also been a significant year of change reward framework will be implemented in Introduction by the Chair of to our senior executive team with Vivienne 2016/17 to support the new senior the Remuneration Committee King, Business Operations Director and executive structure in place from April 2016. The Remuneration Committee remains This is the second year that I General Counsel, leaving on 31 December 2015 and Rob Hastings, Director of focussed on ensuring our remuneration have chaired the Remuneration Energy and Infrastructure, leaving on design supports our people, our values Committee. In January 2016, 31 March 2016. and the ongoing development of our high James Darkins was appointed The Crown Estate continued to deliver performance culture. to the Board and became a on its financial and operational goals during member of the Remuneration the course of the 2015/16 financial year. Committee in February 2016. The management team have returned £304.1 million to HM Treasury representing

James brings with him a wealth Governance a 6.7% growth in net revenue surplus over of knowledge and experience the prior year. Management are also tasked which will complement the with ensuring an appropriate balance highly-valued contributions between financial success, value for money made by David Fursdon and and securing long-term growth whilst Ian Marcus Dipesh Shah throughout respecting our stewardship mandate. Chair of the Remuneration Committee the year.

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Governance and role to the success of The Crown Estate. The • salary increases for executive directors This report is prepared in accordance Chief Executive’s remuneration package and senior managers with earning with the requirements set out in the UK is set by the Remuneration Committee, potential in excess of £140,000, together Corporate Governance Code and the on the recommendation of the Chairman with overall levels of salary increases Government Financial Reporting Manual. of the Board within the guidelines across the business/organisation approved by HM Treasury in March 2015; effective in July 2015; Members of the • approve the design of, and agree the Remuneration Committee • achievement against personal scorecard targets for, any performance-related pay targets under the annual bonus scheme The Remuneration Committee is chaired schemes operated by The Crown Estate for executive directors and allocation of by Ian Marcus. Other members of the and approve the total annual payments bonus; and Committee are Dipesh Shah and James made under such schemes; • achievement against the performance Darkins who are Board Members, and • determine the policy for, and scope conditions for the award of long-term David Fursdon who was appointed Board of, pension arrangements for The cash incentive plans (five employees Counsellor from 1 January 2016. The Chief Crown Estate; currently have outstanding long-term Executive, the Head of Human Resources incentive awards, three of whom and the Head of Reward (in her delegated • ensure that contractual terms on are not executive directors but are role as secretary to the Remuneration termination, and any payments made, are senior management). Committee) also attend meetings and other fair to the individual and The Crown Estate, directors (for example the Interim Chief and comply with such Treasury guidance Remuneration policy Financial Officer) may attend on invitation of as may be in place, to ensure that failure and benchmarking is not rewarded and that the duty to the Remuneration Committee as required, The Crown Estate’s remuneration policy mitigate loss is fully recognised; and however, none are involved in any decision seeks to provide sustainable levels of relating to his or her own remuneration. • approve and oversee any major changes remuneration to attract, retain and motivate Responsibilities and terms in employee benefits structures high quality personnel, recognising that of reference Advisors whilst we are a public corporation, we compete for talent in a highly commercial The Remuneration Committee is appointed The Crown Estate’s Head of Human environment. Accordingly, for the majority by and reports to the Board. A minimum Resources and Head of Reward provided of employees, we aim to pay salaries of two meetings are held annually and in information and advice to the Remuneration at around market median and bonus 2015/16 the Remuneration Committee met Committee throughout the year. Further awards determined by reference to the on five occasions. The primary purpose market intelligence was provided by performance of the business and individual of the Remuneration Committee is to set external recruitment consultancies, senior contribution. The Remuneration Committee remuneration policy for The Crown Estate. individuals from relevant comparator has adopted a progressive but conservative The full scope of its responsibilities are to; organisations and the principal advisor to the Remuneration Committee. performance-related pay policy to ensure • determine and agree with the Board Willis Towers Watson (formerly Towers that an appropriate proportion of executive the remuneration framework for The Watson) have been the Remuneration director remuneration is delivered through Crown Estate; Committee’s appointed principal advisors performance-related pay, with incentives to • set the overarching objectives and since 2014. During 2015, Willis Towers outperform targets, which include external parameters of remuneration policy for Watson provided the Remuneration benchmarking. The Crown Estate, having regard to the Committee with a broad range of strategic Remuneration packages for executive remuneration trends across the relevant advice relative to reward and benefit directors are benchmarked by the market, and to review the ongoing matters across The Crown Estate. Committee using research prepared by appropriateness and relevance of the The Chair of the Remuneration the Head of Reward in conjunction with remuneration policy to ensure that it is Committee provides an oral report to the our external independent advisors. The sufficient to attract and retain the calibre Board after each committee meeting, and research is carried out by benchmarking of people necessary for the future the Remuneration Committee submits an roles against one or more proprietary pay performance of the business; annual report to the Board reporting on its surveys, which benchmark against a large • obtain reliable, up-to-date information activities during the year group of real estate, energy sector and commercial sector comparators with a about remuneration in other relevant Activities and highlights comparable organisations; similar capital value to The Crown Estate. During the course of the year, the The Remuneration Committee also • determine the total individual Remuneration Committee considered a has oversight for the pay and reward policy remuneration package of each Executive number of matters, including: across the business, with particular focus Director, including salary, allowances, • a review of progress against people and on the remuneration of senior employees bonuses, any long-term incentive culture targets under the Corporate Plan; (with the potential to earn £140,000 or payments and pension benefits to ensure more), whose pay is also the subject of that the Executive and other members of • an ongoing review of remuneration policy benchmarking research prepared by senior management of The Crown Estate to ensure it remains fit-for-purpose, Human Resources. are provided with appropriate incentives including a fundamental review of The general policy is to compensate to encourage enhanced performance remuneration design and structure for leavers within contractual terms for loss of and are, in a fair and responsible manner, the senior executive team; office/early termination. rewarded for their individual contributions

82 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 82 22/06/2016 11:29 Components of Directors’ Directors’ long-term cash Non-Executive Board appointments remuneration incentive plans held by the Chief Executive and Executive directors’ remuneration is made Paul Clark and Rob Hastings are entitled Management Board executive up of the following components: to receive a one-year discretionary non- directors • fixed pay, comprising base pay, flexible pensionable cash incentive award. This The Board of The Crown Estate positively benefits allowance (including annual leave has been put in place as a transitional encourage and fully support Non-Executive converted into cash), pension allowance arrangement, commencing in April 2015, appointments and see these as part of the or contribution to a pension scheme, with any payment due on 31 July 2016. directors’ development. Alison Nimmo and private healthcare membership or a The transition arrangement was awarded a number of other executive directors also cash-equivalent payment; and pending outcomes of a fundamental review hold directorships of charities, which is of the design of remuneration arrangements • variable pay, comprising annual bonus, actively encouraged by The Crown Estate. across the course of 2014 and 2015. long-term cash incentive plan Alison Nimmo holds one paid non- The award commenced in April 2015 and arrangements and transition award executive board appointment in addition to provided Paul Clark with an award of up to incentive payments (for selected her Crown Estate appointment. Paul Clark 35 per cent of base pay and Rob Hastings executives). holds two paid non-executive board with an award of up to 45 per cent of appointments in addition to his Crown Estate Principles and policy on base pay at 31 March 2016 subject to appointment. They are permitted to retain annual bonuses performance against specific criteria in the earnings from their appointments and the 2015/16 review period. All awards and The annual bonus arrangement for executive Board is satisfied that these are manageable targets are subject to the approval of the directors is based on the achievement of key alongside their executive responsibilities Remuneration Committee. business targets, with a maximum possible and do not generate any conflict of interest. award of 60 per cent of basic salary in Directors’ departure payments In accordance with our policy on non- 2015/16 (80 per cent maximum for the Chief executive earnings, which requires Vivienne King, Director of Business disclosure for appointments in publicly Executive). The maximum award is subject Operations and General Counsel, and to receipt of an outstanding individual listed companies, Alison Nimmo earned Rob Hastings, Director of Energy and £60,250 to 31 March 2016, as a non- performance rating and is conditional on Infrastructure, both received payments The Crown Estate’s performance meeting executive board member of Berkeley Group upon leaving the business based upon Holdings plc. Paul Clark is a non-executive or exceeding predetermined performance their contractual entitlements. The detail targets, these targets being outperformance director of Ronson Capital Partners and of these is set out in the paragraph entitled Hermes Property Unit Trust. of the annual net revenue surplus target as ‘Compensation for Loss of Office’ later set by HM Treasury and outperformance of in the report. Pensions the IPD bespoke benchmark on a three- year rolling basis. The Crown Estate operates two pension schemes: the Principal Civil Service Pension Scheme (PCSPS) and The Crown Estate Pension Scheme (CEPS). Each scheme comprises a number of sections, which

Overview of pension scheme benefits Governance

PCSPS PCSPS PCSPS PCSPS CEPS CEPS Quartz CEPS Topaz Pension scheme Classic Classic Plus Premium NUVOS Opal scheme scheme Defined Defined Defined Career Defined Hybrid defined Defined benefit benefit benefit average benefit benefit and de- contribution fined contribution Benefit 1/80th 1/60th 1/60th 1/60th 1/80th 1/80th n/a for each year Scheme retirement age 60 60 60 65 60 65 65 Scheme earnings cap £149,400 £149,400 £149,400 £149,400 £145,800 £30,025 DB n/a from 1 April 2015 section Employee contribution Between 4.6% Between 4.6% Between 4.6% Between 4.6% 1.5% 5% for DB Optional from 1 April 2015 and 8.05% and 8.05% and 8.05% and 8.05% section Optional depending on depending on depending on depending on for defined con- salary salary salary salary tribution section Life cover 2x pensionable 3x pensionable 3x pensionable 3x pensionable 4x base pay 4x base pay 4x base pay salary salary salary salary Ill-health benefit Yes Yes Yes Yes Yes No No Redundancy (attaching benefits) Yes Yes Yes Yes Yes No No

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offer different pension benefits. The sections Directors in PCSPS schemes receive half of the member’s pension. On death in of the PCSPS which provide defined benefits top-up life assurance benefits to provide service, a lump sum benefit of four times are the Classic, Classic Plus and Premium 4x base pay. pensionable pay is payable to CEPS sections, which provide retirement and As at 31 March 2016, a total of 237 members. This benefit has also been related benefits to all eligible employees based employees were members of the open extended to Rob Hastings exceptionally as on individual final emoluments, which are sections of CEPS and a further 43 have he is not a CEPS member. The PCSPS and subject to an upper salary limit of £149,400. elected to receive a cash pension allowance. CEPS (Opal Section) provide a service The NUVOS section provides defined The Crown Estate Board Members, with the enhancement in computing the spouse’s/ benefit retirement and related benefits to exception of Alison Nimmo, Chief Executive, civil partner’s pension. The enhancement all eligible employees based on a career are Non-Executive appointments and are depends on length of service and cannot average emoluments scheme. not members of either CEPS or the PCSPS. exceed ten years. Medical retirement is Since March 2009, no new employees Pension benefits were provided to Alison possible in the event of serious ill-health have been admitted to the PCSPS or the Nimmo, Chief Executive, and members for members of these schemes. In this CEPS Opal scheme, and are instead of the Management Board through the case pensions are brought into payment offered access to the CEPS Quartz or PCSPS or CEPS. immediately without actuarial reduction Topaz schemes, or, alternatively, an 8 per Pension payments increase in line and with service enhanced as for cent cash allowance. The table on page 83 with the retail price index for CEPS and widow(er) pensions. provides an overview of benefits. the consumer price index for the PCSPS. Details of Directors’ membership of Employees not in the pension scheme On death, pensions are payable to the pension schemes is shown under section are offered 8 per cent cash allowance. surviving spouse/civil partner at a rate of entitled ‘Pension Benefits’ later in the report.

The following sections of the Remuneration Report are covered by the Comptroller and Auditor General’s opinion. Remuneration and pension benefits of the Board

Board members Single total figure for remuneration

Pension benefits Benefits in kind Total Salary (£) Bonus payments (£) (to the nearest £1,000)2 (to the nearest £100) (to the nearest £1,000) 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 Sir Stuart Hampson 50,000 50,000 – – – – – – 50,000 50,000 (Chairman) Alison Nimmo 290,000 228,445 250,192 3 109,096 34,000 25,000 400 – 575,000 362,000 (Chief Executive) Gareth Baird 25,828 25,828 – – – – – – 26,000 26,000 James Darkins 4,843 – – – – – – – 5,000 – (appointed 1 January 2016) David Fursdon 14,528 19,371 – – – – – – 15,000 19,000 (appointment expired 31 December 2015) Paula Hay-Plumb 19,371 4,843 – – – – – – 19,000 5,000 (appointed 1 January 2015) Ian Marcus 19,371 19,371 – – – – – – 19,000 19,000 Dipesh Shah 19,371 19,371 – – – – – – 19,000 19,000 Tony White 19,371 19,371 – – – – – – 19,000 19,000 Chris Bartram – 14,528 – – – – – – – 15,000 (appointment expired 31 December 2014)

1 The full year equivalent total remuneration for James Darkins and David Fursdon was £19,371. 2 The pension benefit is calculated as the real increase in pension multiplied by 20 plus the real increase in any lump sum less contributions made by the individual, plus contributions made by The Crown Estate to the individual’s defined contribution scheme. 3 The bonus award for Alison Nimmo has been approved by the Remuneration Committee. Any amount in excess of 50% of current salary is subject to 12 months’ deferral in line with the agreement with The Treasury. For 2015/16 the deferral is £93,822 (2014/15: £nil).

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CrownEstates_AR2016.indb 84 22/06/2016 11:29 Pension benefits Real increase Accrued pension at age Real increase in Cash equivalent Cash equivalent in cash equivalent normal retirement date pension normal transfer value transfer value transfer value as at 31 March 2016 retirement date at 31 March 2016 at 31 March 2015 at 31 March 2016 £000 £000 £000 £000 £000 Alison Nimmo 0-5 0-2.5 34 23 7

Alison Nimmo is the only Board member who is a member of the pension scheme.

The Chairman and Non-Executive Members of the Board are initially appointed for terms of four years with the prospect of renewal for a maximum of one further term. Alison Nimmo, the Chief Executive, is also appointed on a four-year contract with a notice period of 12 months.

Board Counsellors Board Counsellors are non-voting members of the Board and are appointed for a period of one year.

Salary 2015/16 2014/15 Single total figure for remuneration £ £ Peter Madden 19,371 19,371 Chris Bartram (appointed 1 January 2015, appointment expired 31 December 2015) 14,528 4,843 David Fursdon (appointed 1 January 2016) 4,843 –

The salary of Board Counsellors is the equivalent to the single figure for remuneration.

Management Board Executive Directors Single total figure for remuneration

Salary Bonus payments Transition/LTIP bonus Pension benefits (to Benefits in kind Total £000 £000 £000 the nearest £1,000)2 (to the nearest £100) £000 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15

Paul Clark 225-230 210-215 130-1353 110-115 65-70 60-65 45,000 42,000 200 n/a 470-475 430-435

Judith Everett 165-170 150-155 85-90 95-100 4 – n/a 21,000 15,000 400 n/a 250-255 265-2704

Ken Jones 170 -1751 160-1651 80-85 65-70 – n/a 24,000 22,000 400 n/a 275-280 250-255

John Lelliott 195-200 190-1951 75-80 70-75 – n/a n/a n/a – n/a 270-275 260-265

Rob Booth 35-40 n/a 65-70 n/a – n/a 5,000 n/a 100 n/a 110-115 n/a Governance (appointed 1 January 2016) Rob Hastings 180-185 170-175 75-80 80-85 50-55 75-80 50,000 44,000 400 n/a 350-375 375-380 (left the business 31 March 2016) Vivienne King 120-1251 155 -160 – 55-60 – n/a 50,000 46,000 – n/a 170-175 225-260 (left the business 31 December 2015)

1 Includes annual leave converted to cash. 2 The value of pension benefits accrued in the year is calculated as the real increase in pension multiplied by 20 plus the real increase in any lump sum less contributions made by The Crown Estate to the individual’s defined contribution scheme. 3 The bonus award for Paul Clark has been approved by the Remuneration Committee. Any amount in excess of 50% of current salary is subject to 12 months deferral in line with the agreement with HM Treasury. For 2015/16 the deferral is £18,400 (2014/15: £nil). 4 The 2014/15 figures for remuneration paid to Judith Everett have been restated to take account of bonus due and paid to her in respect of the financial year ended 31 March 2015.

The bonus and Transition/LTIP element of remuneration shown above represents the amount accrued in respect of the financial year which are payable in subsequent years. Members of the Management Board are appointed on permanent contracts which provide for a notice period of six months.

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Compensation for loss of office Exit package cost band 2015/16 2014/15 A severance payment of £98,720 was made to Vivienne King Number Number when she left The Crown Estate’s service on 31 December 2015 Less than £10,000 – 1 after 21 years. In addition an amount of £22,410 was paid directly £10,001 – £25,000 2 5 to her pension scheme on leaving – both payments were within her contractual entitlement. £25,001 – £50,000 4 8 A severance payment of £126,937, within his contractual £50,001 – £100,000 6 6 entitlement, was made to Rob Hastings when he left The Crown £100,001 – £150,000 – 1 Estate’s service on 31 March 2016 after 10 years. Total number of exit packages 12 21 The table to the right shows exit packages as a result of the restructuring of the business, particularly of the Energy, Minerals Total cost £0.6m £1.0m & Infrastructure business. The above figures exclude severance payments in respect of Vivienne King and Rob Hastings.

Pay multiples 2015/16 2014/15 £ £ Band of highest paid director’s total remuneration (as defined below) £000 555-560 385-390 Median total remuneration of all employees £ 38,185 36,743 Ratio 14.60 10.57 Total remuneration includes salary, bonus and LTIP payments. It does not include severance payments, employer pension contributions and the cash equivalent transfer value of pensions.

Pension benefits Accrued pension at age Real increase Cash equivalent Cash equivalent Real increase normal retirement date as at in pension normal transfer value transfer value in cash equivalent 31 March 2016 retirement date at 31 March 2016 at 31 March 2015 transfer value £000 £000 £000 £000 £000 Paul Clark 15-20 0-2.5 477 376 60 Judith Everett n/a n/a n/a n/a n/a Ken Jones 0-5 0-2.5 39 25 11 John Lelliott n/a n/a n/a n/a n/a Rob Booth1 0-5 0-2.5 19 n/a 1 Rob Hastings 25-30 2.5-3.0 428 348 39 Vivienne King2 40-50 0-2.5 1,434 1,244 71

1 Relates to service from 1 January 2016. 2 Relates to service up to 31 December 2015 and includes additional service awarded as part of leaving package as described above. Rob Hastings is a member of the PCSPS Premium section, Paul Clark and Vivienne King are members of the CEPS Opal section, Ken Jones and Rob Booth are members of the CEPS Quartz section and Judith Everett is a member of the CEPS Topaz section. John Lelliott has been in receipt of a CEPS pension since December 2010 so has elected to receive an allowance in lieu of a pension scheme contribution. This allowance was equivalent to 14.5% of base pay and is included within the salary amount stated in the table of single total figure of remuneration on page 85.

Staff report Staff costs Average number of staff 2015/16 2014/15 £m £m 2015/16 2014/15 Commissioners (excluding CEO, including counsellors) 0.7 0.7 9 9 Staff with permanent employment contracts 31.1 27.8 448 447 As shown in note 9 of the financial statements (excluding early retirement costs) 31.8 28.5 457 458 Other staff engaged on the objectives of The Crown Estate 0.7 0.4 29 17 Total staff 32.5 28.9 486 484

There were no off-payroll payments during the year.

Alison Nimmo CBE Chief Executive 8 June 2016

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22/06/2016 11:29

The regularity framework that has been applied is the This is not a complete list all of risks identifiedmy by audit but The areas focus of were discussed with the Audit Committee; Crown Estate Act 1961. These financial statements have been prepared under the accounting policies set out within them. I have also audited the information in the Remuneration Report that is described in that been audited. report having as Overview audit approach my of auditmy to Risks significant In considering opinion my on the financial statements, I assessed the risk material of misstatement in the financial statements. I have set out below how audit my addressed specific risk areas in order support to the opinion on the financial statements as a whole and any comments I make on the results procedures my of should be read in this context. only those areas that had the greatest effect on overall my audit allocationstrategy, resources of and direction effort. of I have not, for example, included information relating the work to I have performed around the risk material of misstatement owing fraud to arising from revenue recognition, an area where work my has not identified any mattersto report. their report on those matters that they considered be significant to issues in relation the financial to statements is set out on pages 73-74. In line with auditing standards I performed detailed procedures ensure to I was able gain to assurance from the work conducted by third party valuers engaged by The Crown Estate. In assessing whether their work provides a sound basis for valuation (as objectivity capability and competence, overall their I considered management’s experts), as well as the scope of their work and its relevance theto accounts and my opinion. the applied, they methodology valuation the considered I particular, In completeness and validity of the data inputs those to valuations and, using of appropriateness the team, audit my experts within valuation independent the key assumptions on which the valuations were based. movements significant for reasons the on management challenged have I in individual property valuations at year end confirming these reasonsto documentation. underlying I found The Crown Estate controls over the valuation process be to operating appropriate using prepared been have valuations asset that and adequately methodology and assumptions. I have no matters raise. to My response My

TheCrown Estate Integrated Annual Report 2015/16 the Consolidated statements of comprehensive income; income; comprehensive of statements Consolidated the sheet; balance Consolidated the statement; flow cash Consolidated the the Consolidated statement changes of in capital and reserves; and the related notes. give a true and fair in accordance view, with the Crown Estate and directionsAct 1961 issued thereunder of HM by Treasury, affairs group’s Marchthe The state of as at 31 Crown Estate’s andits of revenue profit 2016 and capital profit for the year then and ended; have been properly prepared in accordance with the Crown and HM TreasuryEstate Act directions1961 issued thereunder. Investment propertyInvestment valuations Estate’s Crown The within balances and transactions significant most The financial statements relateto Investment property assets and their valuations. Management engaged professional valuers provide to valuations of investment property assets March as The at 31 valuations 2016. are formed from the and assumptions of number a use that methodologies of application material in result could incorrect or inappropriate if which judgements, misstatement within the accounts. • • • • Basis of opinionsBasis of I certify that I have audited the financial statementsof The Crown Estate group for the under year ended the March Crown 31 2016 The financial statementsEstate Act 1961. comprise: • • • Opinion regularity on In opinion, my in all material respects the expenditure and income recordedin the financial statements have been appliedto the purposes intended Parliament by and the financial transactions recordedin the financial statements conformto the authorities which govern them. In opinion, my the financial statements: • • Opinion on financialstatements The Certificate andReport of the Comptroller and Auditor General Auditor and Comptroller theto Houses Parliament of Risk CrownEstates_AR2016.indb 87 The Certificate and Report of the Comptroller and Auditor General to the Houses of Parliament continued

Risk My response

Joint arrangements (joint ventures and joint operations) I have: The Crown Estate is involved in a number of joint ventures and joint operations. • in light of The Crown Estate’s plans earlier in 2015/16 to progress new The share of the investment properties held within these investment vehicles arrangements, confirmed that no new joint arrangements (ventures or are subjected to valuations by independent third party valuers and are subject operations) have actually commenced during the period; to the same risk specified above (‘Investment property valuations’). • reviewed existing joint arrangements to confirm that there are no significant changes in agreement or activity that have not been accounted for in The proportion of The Crown Estate’s investments in joint arrangements has accordance with IAS 28 and IFRS 11 or that do not comply with The Crown increased significantly over recent years. Although no new arrangements have Estate Act 1961; been set up in 2015/16, there is a risk of material irregular transactions or • confirmed the share of assets, revenue and expenditure between The Crown misstatement within the financial statements where new, or a change in Estate’s joint operation partners to underlying records (for example, joint existing, arrangements: arrangement contractual agreements, leases and valuation reports); • did not comply with the Crown Estate Act 1961 (which restricts The Crown • confirmed The Crown Estate’s share in its joint ventures’ assets, revenues Estate’s ability to borrow, invest overseas or invest in assets other than real and expenses to the joint ventures’ financial records and supporting valuation estate); and reports; and • were not accounted for in accordance with IAS 28 and IFRS 11 to reflect the • directly performed procedures to ensure I was able to gain assurance substance of the arrangements. from the work conducted by the third party independent valuers that were engaged to perform valuations of property held by joint venture entities. I have no matters to raise.

Upgrade of rental billing system I have focussed my audit work on confirming The Crown Estate’s change management controls operating over the system upgrade. During the year The Crown Estate’s rental billing system, which is used for the automated invoicing of rental income from tenants, underwent a significant In particular, I have confirmed that: upgrade. If there were weaknesses in access controls, system operations or system reporting within the upgraded system, given the links between the • testing of the upgraded system has been completed satisfactorily; system, the general ledger and the accounts, there would be a risk of material • management has assurance over the interface between the upgraded misstatement within the financial statements. property management system and the general ledger; • the system generated reports remain reliable; and • financial data before and after the upgrades are consistent with one another. I have also selected a sample of financial information from the upgraded system and traced this back to source documentation, such as lease agreements, to confirm its accuracy. I have no matters to raise.

In addition to these risks, I also assessed whether there was any I have determined that for financial statement components evidence of fraud due to management override of The Crown connected with the consolidated revenue account within the Estate’s control environment, as required by International Consolidated statements of comprehensive income, misstatements Standards on Auditing. My work in this area did not identify any of a lesser amount than overall materiality could influence the areas of concern. decisions of users of the accounts given the net revenue account profit is distributable to the Consolidated Fund. I have therefore Application of materiality determined that the level to be applied to these components is I applied the concept of materiality in both planning and performing £28.5 million, being approximately 10% of net revenue profit. my audit, and in evaluating the effect of misstatements on my audit As well as quantitative materiality there are certain matters and on the financial statements. This approach recognises that that, by their very nature, would if not corrected influence the financial statements are rarely absolutely correct, and that an audit decisions of users, for example, any errors in Board and senior is designed to provide reasonable, rather than absolute, assurance manager’s remuneration as reported in the Remuneration Report. that the financial statements are free from material misstatement or Assessment of such matters would need to have regard to the irregularity. A matter is material if its omission or misstatement nature of the misstatement and the applicable legal and reporting would, in the judgement of the auditor, reasonably influence the framework, as well as the size of the misstatement. decisions of users of the financial statements. I applied the same concept of materiality to my audit of Based on my professional judgement, I determined overall regularity. In planning and performing audit work in support of my materiality for The Crown Estate’s financial statements at £114.6 million, opinion on regularity, and evaluating the impact of any irregular which is approximately 1% of group net assets. I chose this transactions, I took into account both quantitative and qualitative benchmark as I consider it to be the principal consideration for aspects that I consider would reasonably influence the decisions of users in assessing the financial performance of The Crown Estate. users of the financial statements.

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CrownEstates_AR2016.indb 88 22/06/2016 11:29 Financial statements 89 22/06/2016 11:29 materially inconsistent with the information in the audited financial statements; or apparently materially inconsistent with our knowledge The of Crown Estate acquired in the course performing of our audit; or otherwise misleading. I have identified any inconsistencies between our knowledge acquired during the audit and and the Board’s Chief Executive’s statement that they consider that the annual report is considered and understandable; and balanced fair, the annual report appropriately discloses those matters that I should consider I which Committee Audit the to communicated been disclosed. have the part the of Remuneration Report be audited to has been properly prepared in accordance with HM Treasury directions issued and under the Crown Estate Act 1961; the information given in the sections our business “Our year, and “Consciousstrategy”, commercialism in action, “Creating value, “Ourin context”, risks and opportunities”, “Our performance and Governance” the of annual report for the financialyear for which the financial statements are prepared is consistent with the financial statements. adequate accounting records have not been kept or returns from auditsmy have not yet been received from branches not visited staff;my by or I have not received all the of information and explanations I require for audit; my the financial statements and the partof the Remuneration Report be audited to are not in agreement with the accounting records or returns; or the Governance section the of annual report does not reflect compliance with guidance. HM Treasury’s Consistency of information in the annual in the report information of Consistency Under the International Standards on Auditing (UK and Ireland), I am required report to in opinion, my you if, to information in the reportannual is: • • • In particular, I am required consider to whether: • • I confirm that I have not identifiedany such inconsistencies or statements. misleading Opinion matters on other opinion: my In • • Matters report on which I am required exception to by explanations accounting records received and of Adequacy I report in opinion: my you if, to • • • • I have nothing report to in respect these of matters. In addition, I have completed specific audit procedures on the material transactions and balances within joint The Crown Estate’s ventures’ financial informationto confirm its share of joint venture net assets and profit as included under the equity method in the group accounts.

TheCrown Estate Integrated Annual Report 2015/16 The parent is individually significantby virtueof its size My group audit approach focussed on those balances I am also required obtain to evidence sufficientto give whether the accounting policies are appropriate The to Crown circumstancesEstate’s and have been consistently applied and disclosed; adequately the reasonableness significant of accounting estimates madeby The Crown and Estate; the overall presentation the of financial statements. and I have audited its full financial information. The remaining consolidating(subsidiary) entities have been subjected audit to work for the purpose confirming of that there is no riskof govern them. assessed as being the of greatest significanceto the group financial statements and their users. In establishing overallan approach I considered the size and risk characteristics the of component entities’ financial information and determined the type work of that needed be performed to on each. material misstatement within these entities the group to statements. financial Total assets for the group are £12,879.6 million which of assets for the groupTotal are £12,879.6 are attributable the parent, to £12,879.6 million The Crown Estate. As stated The by Crown Estate on pages and 92 94 , due the to component entities’ for the (except parent) financial information being immaterial the transactions to and balances within the revenue andgroup’s capital profit, wellas net as the group’s assets, The Crown Estate has not presented separate (parent) accounts, only group accounts. Group audit approach audit Group in the financial statements conformto the authorities which reasonable assurance that the expenditure and income recorded in the financial statements have been applied theto purposes intended Parliament by and the financial transactions recorded qualitative grounds. qualitative • • In addition I read all the financial and non-financial information in the annual report identify to material inconsistencies with the audited financial statements to andidentify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired me by in the course performing of the audit. If I become aware any of apparent material implications the consider I inconsistencies or misstatements for certificate my and report. 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 fraud by This or error. includes an of: assessment • Scope of my audit my Scope of I agreed with the Audit Committee that I would report it all to through identified misstatements uncorrected and corrected my auditmy in excess £0.2 million, of as well as differences below this threshold that in view my warranted reporting on CrownEstates_AR2016.indb 89 The Certificate and Report of the Comptroller and Auditor General to the Houses of Parliament continued

The Board’s and Chief Executive’s assessment of principal risks and future prospects Under International Standards on Auditing (UK & Ireland), I am required to report to you if I have anything material to add, or to draw attention to, in relation to the Board’s and Chief Executive’s disclosures in the annual report and financial statements: • confirming that they have carried out a robust assessment of principal risks facing The Crown Estate, including those that would threaten its business model, future performance, solvency or liquidity; • describing those risks and explaining how they are being managed or mitigated; • on whether they considered it appropriate to adopt the going concern basis, and their identification of any material uncertainties to the entity’s ability to continue over a period of at least 12 months from the date of approval of the financial statements; and • explaining 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 Crown Estate 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. I have nothing material to add, or to draw attention to, on these matters. Respective responsibilities of The Crown Estate Commissioners, the Accounting Officer and Auditor As explained more fully in the Statement of The Crown Estate Commissioners’ and Accounting Officer’s Responsibilities, the Board and Chief Executive as Accounting Officer are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. My responsibility is to audit, certify and report on the financial statements in accordance with the Crown Estate Act 1961. I conducted my audit in accordance with International Standards on Auditing (UK and Ireland). Those standards require me and my staff to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Sir Amyas C E Morse Comptroller and Auditor General National Audit Office 157 – 197 Buckingham Palace Road Victoria London SW1W 9SP

16 June 2016

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91 £m £m 1.7 0.2 2.3 9.0 2.6 3.6 (0.6) (6.8) (2.9) (9.0) 32.1 28.7 12.2 71.0 17.0 (96.1) (28.7) (13.3) 301.1 285.1 285.1 397.2 323.4 320.5 285.3 22/06/2016 11:29 1,553.3 1,553.3 1,515.6 1,584.8 1,449.9 Year ended Year Year ended Year 31 March 2015 31 March 31 March 2015 31 March

£m £m 2.1 0.7 6.6 4.5 2.3 1.1 (3.6) (1.2) (3.3) 21.7 30.3 82.0 10.8 13.3 (30.3) (10.8) (14.4) 304.1 304.1 346.2 342.9 418.2 317.9 305.2 (100.3) 1,421.6 1,380.5 1,292.3 1,421.6 1,416.8 Year ended Year Year ended Year 31 March 201631 March 31 March 2016 31 March 5 5 6 9 21 12 22 22 12 15 15 13 13 13 23 13 13 10 16 11c Note Note

TheCrown Estate Integrated Annual Report 2015/16 Net consolidated capital account profit Net capital account profit Items that will not be reclassified subsequently to capital account profit: Items that will not be reclassified Recovery of capital expenditure under the Crown Estate Act 1961 and by Treasury agreement by Treasury Estate Act 1961 and under the Crown Recovery of capital expenditure Net operating profit before depreciation, Treasury agreements and Statutory transfers agreements Treasury depreciation, before Net operating profit and Statutory transfers agreements Treasury before Net operating profit Net consolidated revenue account profit – distributable to the Consolidated Fund profit account Net consolidated revenue Items that will not be reclassified subsequently to the revenue account profit: subsequently to the Items that will not be reclassified Net revenue account profit – distributable to the Consolidated Fund account profit Net revenue Revenue Net revaluation gains on investment property (including profits on disposal) (including profits property gains on investment Net revaluation Depreciation of tangible fixed assets Depreciation agreement Estate Act 1961 and by Treasury the Crown under Recovery of capital expenditure Revenue Parliamentary Supply finance Re-measurement gain on retirement benefits gain on retirement Re-measurement Statutory transfers Investment revenue Share of revaluation gains in other property investments gains in other property of revaluation Share Share of joint ventures fair value movements on interest rate swaps treated as cash flow hedges rate swaps treated fair value movements on interest of joint ventures Share Share of revaluation gains in joint ventures of revaluation Share Share of revenue profit from joint ventures from profit of revenue Share investments other property from profit of revenue Share Statutory transfers Share of profit/(loss) on disposal on property in joint ventures on disposal on property of profit/(loss) Share (Deficit)/surplus on revaluation of owner occupied properties (Deficit)/surplus on Consolidated statement of comprehensive income of the capital account Consolidated statement of comprehensive Capital profit before Treasury agreements and Statutory Transfers and Statutory agreements Treasury before Capital profit Costs Operating surplus Consolidated statement of comprehensive income of the revenue account income of the revenue Consolidated statement of comprehensive Charge from revenue for salary costs revenue Charge from Total consolidated comprehensive capital account profit capital account consolidated comprehensive Total Total consolidated comprehensive revenue account profit revenue comprehensive consolidated Total Consolidated capital account Consolidated revenue account revenue Consolidated of comprehensive income of comprehensive Consolidated statementsConsolidated CrownEstates_AR2016.indb 91 Consolidated balance sheet As at 31 March 2016

31 March 2016 31 March 2015 Note £m £m Assets Non-current assets Investment properties 18 12,302.4 11,228.8 Property plant and equipment: Owner occupied property 19 146.4 147.7 Other property, plant and equipment 21 11.8 11.8 Investment in jointly controlled entities 22 820.4 646.8 Other property investments 23 85.6 79.0 Other investments 24 10.4 10.4 Receivables due after one year 25 64.0 57.4 Total non-current assets 13,441.0 12,181.9

Current assets Inventories 26 0.1 0.1 Trade and other receivables 27 51.0 39.1 Cash and cash equivalents 32 907.3 552.5 Total current assets 958.4 591.7 Pension asset 11a 6.0 5.3 Total assets 14,405.4 12,778.9

Liabilities Current liabilities Payables – amounts falling due within one year 28 153.2 135.3 Provisions 29 1.5 0.8 Total current liabilities 154.7 136.1 Payables – amounts falling due after more than one year 28 1,371.1 1,181.1 Total liabilities 1,525.8 1,317.2 Net assets 12,879.6 11,461.7

Capital and reserves

Revenue reserve available for distribution to the Consolidated Fund 0.9 0.5 Pension reserve 6.0 5.3 Capital reserve 12,813.7 11,393.3 Revaluation reserve 59.0 62.6 Total capital and reserves 12,879.6 11,461.7

The balance sheet of the group is not materially different to the holding company balance sheet.

Alison Nimmo Second Commissioner and Accounting Officer 8 June 2016

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– 93 £m 0.1 1.7 3.4 0.5 2.3 2.3 (8.4) 42.1 32.0 (63.3) (40.6) (74.3) 552.5 283.8 552.0 344.8 297.6 419.0 (283.3) (212.0) (179.1) 22/06/2016 11:29 31 March 2015 31 March

– – £m 2.1 0.2 2.3 2.3 4.5 (3.5) 20.5 20.5 (90.9) (42.4) 654.1 612.7 303.2 907.3 552.5 348.6 321.5 354.8 (299.3) (193.4) 31 March 2016 31 March 31 32 Note TheCrown Estate Integrated Annual Report 2015/16 Net cash inflow from financing activities financing Net cash inflow from Consolidated Fund payment before in cash and cash equivalents Net increase Net cash inflow from investing activities investing Net cash inflow from Increase in cash in the year after Consolidated Fund payment in cash in the year after Increase Net cash inflow from operating activities Net cash inflow from Net investment in joint ventures investments Net investment in other property Parliamentary Supply finance Loan repayment Purchase of plant and equipment and other investments of plant and equipment and Purchase Distributions from investment in joint ventures Distributions from of plant and equipment disposal from Proceeds Distributions received from other property investments other property from Distributions received disposal of investment properties from Proceeds Interest received Interest Other capital receipts Cash and cash equivalents at end of the period Cash flows from financing activities Cash flows from Consolidated Fund payment Cash and cash equivalents at start of the period Cash generated from operating activities Cash generated from Cash flows from investing activities Cash flows from on investment properties Capital expenditure Acquisition of investment property Acquisition of investment Consolidated cash flow statement flow cash Consolidated 2016 March 31 year ended For the CrownEstates_AR2016.indb 93 Consolidated statement of changes in capital and reserves For the year ended 31 March 2016

Revenue account Capital account Total Revenue reserves available for distribution to the Consolidated Revaluation Fund Pension reserve Capital reserve reserve £m £m £m £m £m As at 1 April 2015 0.5 5.3 11,393.3 62.6 11,461.7 Net consolidated profit for the period 304.1 – 1,421.6 – 1,725.7 Other consolidated comprehensive income: Revaluation deficit of owner occupied properties – – – (3.6) (3.6) Re-measurement gain on retirement benefits – 1.1 – – 1.1 Total consolidated comprehensive profit for the year ended 31 March 2016 304.1 1.1 1,421.6 (3.6) 1,723.2 Pension reserve adjustment 0.4 (0.4) – – – Share of joint venture's fair value movements on interest-rate swaps treated as cash flow hedges – – (1.2) – (1.2) Payments to the Consolidated Fund – paid in year (292.5) – – – (292.5) Payments to the Consolidated Fund – payable (11.6) – – – (11.6) As at 31 March 2016 0.9 6.0 12,813.7 59.0 12,879.6

As at 1 April 2014 0.6 5.0 9,840.6 30.5 9,876.7 Net consolidated profit for the period 285.1 – 1,553.3 – 1,838.4 Other consolidated comprehensive income: Revaluation surplus of owner occupied properties – – – 32.1 32.1 Re-measurement gain on retirement benefits – 0.2 – – 0.2 Total consolidated comprehensive profit for the year ended 31 March 2015 285.1 0.2 1,553.3 32.1 1,870.7 Pension reserve adjustment (0.1) 0.1 – – – Share of joint venture’s fair value movements on interest-rate swaps treated as cash flow hedges – – (0.6) – (0.6) Payments to the Consolidated Fund – paid in year (278.3) – – – (278.3) Payments to the Consolidated Fund – payable (6.8) – – – (6.8) As at 31 March 2015 0.5 5.3 11,393.3 62.6 11,461.7

The statement of changes in capital and reserves of the group is not materially different to that of the holding company.

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22/06/2016 11:29

Level 3: unobservable and observable inputs where significantLevel 3: unobservable and observable inputs where Level 1: unadjusted quoted prices in active markets Level 2: observable inputs other than quoted prices included within Level 1 adjustments have been applied. been adopted during the year. been adopted during HM Treasury, the mechanism by which the revenue account is revenue by which the the mechanism HM Treasury, Properties are valued by independent external are valuers at the balanceProperties of investment property Fair value measurement thatFor this purpose, IFRS 13 establishes a fair value hierarchy previous year’s gross revenue as disclosed in note 5, excluding as disclosed revenue gross year’s previous plant and equipment. minimising the use of unobservable inputs. The degree of detail of theminimising the use of unobservable inputs. The degree Interpretations in force at the reporting date. No new standards have standards date. No new at the reporting in force Interpretations IFRS 15 Revenue from contracts with customers – effective for the for contracts with customers – effective IFRS 15 Revenue from IFRS 13 requires the use of valuation techniques for which sufficient the IFRS 13 requires IFRS 16 Leases – effective for the financial year ending 31 March 2020 for the financial year ending 31 March IFRS 16 Leases – effective 2b. Properties 2a. Basis of consolidation following standards and Interpretations were issued but not yet issued were and Interpretations following standards these standards is unlikely to have a material impact on the financial these standards the Appraisal and Valuation Standards of the Royal Institution of Standards the Appraisal and Valuation the entity. The financial statements of subsidiaries are included in the are the entity. The financial statements of subsidiaries service charges, and after taking into account depreciation ofafter taking into account depreciation service charges, and statements in the period of application: sheet date. The valuations have been carried out in accordance withsheet date. The valuations have been carried out in accordance and until the date control ceases. The financial statements of theand until the date control an entity when it is exposed, or has rights to variable returns from theto variable returns from an entity when it is exposed, or has rights all of its subsidiary undertakings. Subsidiary undertakings are those undertakings are all of its subsidiary undertakings. Subsidiary charged is calculated as an amount equivalent to 9 per cent of the as an amount equivalent to 9 per cent of charged is calculated effective are not yet adopted by the EU and so are not available for so are not yet adopted by the EU and are effective Estate anticipates that the adoption ofearly adoption. The Crown group are not materially different to that of the holding company. not materially different are group levels:classifies the inputs into three entity and has an ability to affect those returns through its power over its power those returns through entity and has an ability to affect commences the date control consolidated financial statements from entities controlled by The Crown Estate. The Crown Estate controls Estate. The Crown by The Crown entities controlled 2016 incorporate the financial statements of The Crown Estate and of The Crown 2016 incorporate the financial statements Changes in accounting policies Changes in accounting financial year ending 31 March 2018 financial year ending 31 March Chartered Surveyors.Chartered available, maximising the use of observable inputs anddata are depends on the observability of the inputs used.disclosure 2. Significant accounting policies At the date of authorisation of these financial statements, theAt the date of authorisation The financial statements are prepared in accordance with IFRS and with in accordance prepared are The financial statements The consolidated financial statements for the year ended 31 MarchThe consolidated financial statements for • • • • •

TheCrown Estate Integrated Annual Report 2015/16 The directions from HM Treasury require that the financial require HM Treasury from The directions be carried to the revenue account if the lease is for a term of 30be carried to the revenue net earnings from mineral workings shall be carried one half to thenet earnings mineral workings shall be from any sum received by way of premium on the grant of a lease shall on the grant of a lease by way of premium any sum received years or less and to the capital account if the lease is for a termyears or less and to the capital account if the exceeding 30 years; and account. capital account and one half to the revenue between the capital and revenue account as required by Statutory account as required between the capital and revenue income to be spread over the lease term. However the impact is notincome to be spread income are analysed between revenue and capital accounts. The analysed between revenue income are gains, the income of revaluation the realisation investment properties, include investment properties, owner occupied properties and other owner occupied properties include investment properties, with in accordance prepared They are investments at fair value. Impact of the Crown Estate Act 1961 on theImpact of the Crown Estate Act 1961. Where a lease premium is received in respect of an in respect is received a lease premium Estate Act 1961. Where Reporting Standards (IFRS) as adopted for use in the European (IFRS) as Reporting Standards Estate conflict with the Crown these Regulation, except where provisions and Treasury agreements. agreements. and Treasury provisions account. This to the revenue is taken direct that the income requires is consistent with prior years. This treatment as material. regarded premium, the charge from revenue for salary costs, and the transfers revenue the charge from premium, prepared on that basis. The section then specifies that: prepared reflecting the Report of the Committee on Crown Lands before the Lands before the Report of the Committee on Crown reflecting made thereunder by HM Treasury. made thereunder IFRS cannot be complied with in one respect due to the Crown IFRS cannot be complied with in one respect Union and therefore in compliance with Article 4 of the EU IAS in compliance with Article Union and therefore from borrowing, Treasury agreements provide The Crown Estate The Crown provide agreements Treasury from borrowing, the Act requires capital and revenue to be distinguished in the capital and revenue the Act requires trust, in which the revenue beneficiary is the Exchequer and thetrust, in which the revenue with a reliable and predictable source of capital. By agreement with of capital. By agreement source and predictable with a reliable and capital specifically for the purposes of recouping capital and capital specifically for the purposes of arising on the grant of operating leases over land in exchange for a accounts and for provision to be made for recovering capital to be made for recovering accounts and for provision financial statements statements are prepared in accordance with International Financial in accordance prepared statements are section 2(5) of the Crown Estate Act 1961 and with the directions Estate section 2(5) of the Crown and an accruals basis under the historic cost convention, modified to under the historic cost convention, modified and an accruals basis expenditure out of revenue. As The Crown Estate is prohibited As The Crown out of revenue. expenditure operating lease of less than 30 years the Crown Estate Act 1961 operating lease of less than 30 years the Crown suchrequires under IFRS, which required conflicts with the treatment capital account includes profits or losses arising on the sale ofcapital account includes profits expenditure from revenue where appropriate and the accounts are and appropriate where revenue from expenditure capital is held for Her Majesty and Her Successors. Section 2(4) ofcapital is held for Her Majesty and Her Successors. directions made by HM Treasury, the movements in comprehensive made by HM Treasury, directions domiciled in the United Kingdom. The provisions of the Crown Estate of the Crown domiciled in the United Kingdom. The provisions Notes to the consolidated financial statements financial the consolidated to Notes Act 1961 specify certain distinctions between capital and revenueAct 1961 specify certain distinctions between a Estate resembles that The Crown Act was passed, to the effect Act 1961. Treasury agreements Treasury The Crown Estate Act 1961 allows adjustments between revenue The Crown To meet the requirements of the Crown Estate Act 1961, and the Estate Act 1961, and of the Crown meet the requirements To The Crown Estate is a body corporate regulated by Statute and Estate is a body corporate regulated The Crown These financial statements have been prepared on a going concern have been prepared These financial statements • • • 1. Basis of preparation 1. Basis CrownEstates_AR2016.indb 95 Notes to the consolidated financial statements continued

Investment properties Under the requirements of the Crown Estate Act 1961 a lease Investment properties are those which are held either to earn rental premium received on the grant of a lease with a lease term of 30 income or for capital appreciation or for both. Investment properties years or less is taken to revenue in the consolidated revenue account and those in the course of construction are held at fair value. They in the year that it is granted. are valued on the basis of open market value. When The Crown The Crown Estate as lessee – finance leases Estate begins to redevelop an existing investment property for Leasehold properties are recognised as an asset as the sum of the continued future use as an investment property, the property remains premium paid on acquisition and the present value of minimum an investment property and is accounted for as such. ground rent payments. The corresponding rent liability to the head Energy and mineral assets are valued only where a letting or licence leaseholder is included in the balance sheet as a finance lease exists, where an entry has occurred, or where an interest is expected obligation. to provide either a revenue cash flow or capital receipt within the 2d. Other property, plant and equipment foreseeable future. These assets are stated at cost less accumulated depreciation and Investment properties are measured initially at cost, including related are depreciated on a straight-line basis over their estimated useful transaction costs. Additions to investment properties consist of costs lives as follows: of a capital nature. At the balance sheet date investment properties • Vehicles: 4-10 years depending on nature of the vehicle are revalued to fair value. • Plant and equipment: 4-10 years • Pontoons: 25 years Any surplus or deficit arising on revaluing investment properties is • Computer equipment and software: 4 years recognised in the consolidated capital account. • Office equipment: 4 years Investment properties under development • Useful lives and estimated residual values are reviewed annually. Investment properties under development comprise properties 2e. Joint arrangements – Joint ventures subject to a major programme of redevelopment or development. A joint venture is a joint arrangement whereby The Crown Estate They are categorised as such from the start of the programme until has joint control and has rights to its share of the net assets of the practical completion. arrangement. Joint ventures are accounted for under the equity Owner occupied properties method. The balance sheet incorporates The Crown Estate’s share of Any surplus or deficit arising on the revaluation of properties occupied the net assets of the joint venture. The consolidated revenue account by The Crown Estate is taken to revaluation reserve unless any loss in incorporates the share of the joint venture’s profit after tax and the the period exceeds any cumulative gains previously recognised in the consolidated capital account incorporates The Crown Estate’s share revaluation reserve. In this case the amount by which the loss in the of revaluation of investment properties. period exceeds the net cumulative gain previously recognised is 2f. Joint arrangements – Jointly controlled assets taken to the consolidated capital account. These properties include Joint control is a joint arrangement whereby contractually there is dwellings occupied by The Crown Estate employees and pensioners an agreed sharing of control, which exists only when decisions about at the Windsor Estate. the relevant activities require the unanimous consent of the parties Disposals sharing control. The Crown Estate accounts for its share of the jointly Disposals are recognised at the date of legal completion. Profits and controlled assets, its share of any liabilities jointly incurred with other losses arising on disposal are recognised through the consolidated venturers and its share of income and expenditure arising from capital account. The profit or loss on disposal is determined as the these assets. difference between the sales proceeds and the carrying amount of 2g. Other investments – antiques and paintings the asset at the commencement of the accounting period plus Antiques and paintings are shown at fair value. Any surplus or deficit additions in the period and costs of sale. Properties are transferred arising from changes in fair value are recognised directly in the between categories at the estimated market value on the date revaluation reserve. A valuation was carried out during the year of transfer. ended 31 March 2014. They are valued by recognised experts every Non-current property assets held for sale three years. Properties held with the intention of disposal at the balance sheet 2h. Revenue date are shown in the balance sheet within current assets. Revenue is recorded net of VAT and represents the total value of: 2c. Leases Rental income The Crown Estate as lessor – operating leases Rental income is recognised on a straight-line basis over the term of Leases granted to tenants where substantially all the risks and the lease. A rent adjustment based on open market estimated rental rewards of ownership are retained by The Crown Estate as lessor value is recognised from the rent review date in relation to unsettled are classified as operating leases. Where a premium is received in rent reviews. Where a rent free period is included in a lease, the rental exchange for the grant of a long leasehold interest, the premium is income foregone is allocated evenly over the period from the date of taken to deferred income and released to revenue in the consolidated the lease commencement to the earliest termination date. capital account over the life of the lease.

96 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 96 22/06/2016 11:29 Financial statements 97 22/06/2016 11:29 lease has been granted in exchange for a premium and the buildinglease has been granted in exchange for a premium has not been agreed, rent is accrued from the date of the rent review the date of the rent is accrued from rent has not been agreed, been given to the nature and economic life of the buildings which are been given to the nature based upon the estimation of the revised annual rent. The estimate is The estimate annual rent. based upon the estimation of the revised including an estimate of future rental income. rental including an estimate of future is ‘substantial’ in nature, the useful economic life of the building isis ‘substantial’ in nature, judged to be greater than the lease length regardless of the lease term. than the lease length regardless judged to be greater For both rental and non-rental debts the managing agents debts the and non-rental For both rental responsible for the dealing are instructed to review each debt and to review instructed for the dealing are responsible is objective evidence of impairment. there where provision material respects, where The Crown Estate is the lessor such leases The Crown where material respects, Estate. In instances with The Crown of ownership remain rewards 3d. Risk management valuations 3e. Property 3a. Trade receivables 3a. Trade reviews 3b. Unsettled rent 3c. Operating leases Investment properties and owner occupied properties are shown at are and owner occupied properties Investment properties fair value in accordance with valuations carried out by independentfair value in accordance what part of the debt should be provided for. Management centrally for. should be provided what part of the debt where a premium has been received on the grant of a long lease the has been received a premium where estimates same considerations have been applied. In instances where a long instances where same considerations have been applied. In also review the exposure to different market sectors and make further market sectors and to different the exposure also review as follows: annual rent passed, and the revised date has review rent the Where has this judgement, consideration leases. In exercising operating are and whether the risks andall held within investment properties, valuers. Valuations are based on a number of key assumptions are valuers. Valuations description of this process is included within the risk section. description of this process derived from knowledge of market rents for comparable properties. knowledge of market rents derived from 3. Significant judgements, key assumptions and key assumptions judgements, 3. Significant The Crown Estate actively monitors and mitigates risks. A detailedThe Crown The basis of arriving at the provision for impairment of receivables is for impairment of receivables the provision The basis of arriving at The Commissioners have exercised judgement in identifying that in allThe Commissioners have exercised

TheCrown Estate Integrated Annual Report 2015/16 has an unconditional right to utilise the surplus. b. The Crown Estate Pension Scheme b. The Crown independently administered fund. In accordance with IAS 19 the with IAS 19 fund. In accordance independently administered including aggregates, from the land and seabed. the land and from including aggregates, Re-measurement gains and losses are recognised in the pension recognised gains and losses are Re-measurement Royalties for the extraction of minerals, in return Royalty income is received unit method. The Remuneration Report contains further details of the Fund on an annual basis and will be used for the benefit of the taxpayer. Fund on an annual basis reserve. Following the implementation of IFRIC 14, pension schemereserve. retirement and related benefits to all eligible employees. The schemes benefits and related retirement resource accounts of the Cabinet Office: Civil Superannuation accounts of the Cabinet Office: resource received on the grant of a lease with a lease term of 30 years or less, on the grant of a lease received 2j. Pensions – Defined Benefit Plans 2i. Taxation the Trustees on the basis of triennial valuations using the projected the Trustees the cost of the accruing benefits over the year on the IAS 19 the cost of the accruing benefits over the the sale of produce, miscellaneous fees and sundry income. miscellaneous the sale of produce, surpluses are only recognised to the extent that The Crown Estate to the extent that The Crown only recognised surpluses are assumptions. The contributions are agreed by The Crown Estate and by The Crown agreed assumptions. The contributions are assets and liabilities and as such has accounted for the schemeassets and liabilities and as such has accounted are as follows: are (PCSPS) a. The Principal Civil Service Pension Scheme as a defined contribution scheme. A full actuarial valuation wasas a defined contribution scheme. A full actuarial are held separately from those of The Crown Estate, in an those of The Crown from held separately are operation of the scheme. carried out as at 31 March 2012. Details can be found in thecarried out as at 31 March contribution section and a hybrid section. The assets of the schemecontribution section and a hybrid section. The account. cost of the scheme is charged to the revenue service current gains tax. The consolidated revenue profit is paid to the Consolidated profit revenue gains tax. The consolidated Other income lease premiums comprise income from Other income categories (www.civilservice.gov.uk/pensions). 1 January 2008), a defined from (closed to new entrants with effect Two pension schemes operate within The Crown Estate providing Estate providing pension schemes operate within The Crown Two defined benefit scheme.The PCSPS is an unfunded multi-employer of the underlying Estate is unable to identify its share The Crown The current service cost is The Crown Estate’s share of share Estate’s service cost is The Crown The current The Crown Estate pension scheme has a defined benefit sectionThe Crown The Crown Estate is not subject to corporation, income or capital Estate is not subject The Crown CrownEstates_AR2016.indb 97 Notes to the consolidated financial statements continued

4. Segmental analysis Business segmental analysis All The Crown Estate operations are in the UK and are currently organised into five operating divisions. The divisions are: Urban, Rural and Coastal (R&C),Windsor, Energy, Minerals and Infrastructure (EMI) and The Crown Estate headquarters (HQ). These divisions are the basis on which The Crown Estate monitors its operations and upon which decisions are made by the Board.

Consolidated revenue account

Year ended 31 March 2016 Year ended 31 March 2015 Urban R&C Windsor EMI HQ Total Urban R&C Windsor EMI HQ Total Note £m £m £m £m £m £m £m £m £m £m £m £m Rent and royalties 5 267.4 48.9 5.5 58.3 – 380.1 255.0 48.4 5.1 50.5 – 359.0 Revenue premium income 5 4.1 – – – – 4.1 3.2 0.5 – – – 3.7 Other income 5 6.2 0.6 4.1 – – 10.9 5.5 1.6 3.3 – – 10.4 Revenue (excluding service charge income) 277.7 49.5 9.6 58.3 – 395.1 263.7 50.5 8.4 50.5 – 373.1 Service charge income 5 23.1 – – – – 23.1 24.1 – – – – 24.1 Service charge expense 6 (32.7) – – – – (32.7) (31.6) – – – – (31.6) Net service charge expense (9.6) – – – – (9.6) (7.5) – – – – (7.5) Direct costs: Management fees and costs 6 (9.6) (6.9) (5.6) (1.7) – (23.8) (9.3) (8.3) (5.2) (2.8) – (25.6) Repairs and maintenance 6 (3.1) (0.7) (1.1) – – (4.9) (1.5) (2.1) (1.2) – – (4.8) Other direct expenditure 6 (11.3) (1.9) (2.4) (0.3) – (15.9) (8.3) (2.3) (2.5) (0.1) – (13.2) Total direct costs (24.0) (9.5) (9.1) (2.0) – (44.6) (19.1) (12.7) (8.9) (2.9) – (43.6) Gross surplus/(deficit) 244.1 40.0 0.5 56.3 – 340.9 237.1 37.8 (0.5) 47.6 – 322.0 Indirect costs: Administrative expenses 8 (0.6) (0.2) (0.2) (0.3) (21.7) (23.0) (0.5) (0.2) (0.4) (0.1) (19.7) (20.9) Total indirect costs (0.6) (0.2) (0.2) (0.3) (21.7) (23.0) (0.5) (0.2) (0.4) (0.1) (19.7) (20.9) Operating surplus/(deficit) 243.5 39.8 0.3 56.0 (21.7) 317.9 236.6 37.6 (0.9) 47.5 (19.7) 301.1 Investment revenue 10 0.1 0.1 – – 4.3 4.5 0.1 – – – 3.5 3.6 Share of revenue profit from joint ventures 22 21.7 – – – – 21.7 17.0 – – – – 17.0 Share of revenue profit from other property investments 23 2.1 – – – – 2.1 1.7 – – – – 1.7 Net operating profit/(loss) before depreciation, Treasury agreements and Statutory transfers 267.4 39.9 0.3 56.0 (17.4) 346.2 255.4 37.6 (0.9) 47.5 (16.2) 323.4 Depreciation of tangible fixed assets 21 – (0.1) – – (3.2) (3.3) (0.4) (0.1) (0.5) – (1.9) (2.9) Net operating profit/(loss) before Treasury agreements and Statutory transfers 267.4 39.8 0.3 56.0 (20.6) 342.9 255.0 37.5 (1.4) 47.5 (18.1) 320.5 Recovery of capital expenditure under the Crown Estate Act 1961 and by Treasury agreement 12 – – – – (30.3) (30.3) – – – – (28.7) (28.7) Statutory transfers 15 – – – – (10.8) (10.8) – – – – (9.0) (9.0) Parliamentary Supply finance 16 – – – – 2.3 2.3 – – – – 2.3 2.3 Net consolidated revenue account profit – distributable to the Consolidated Fund 267.4 39.8 0.3 56.0 (59.4) 304.1 255.0 37.5 (1.4) 47.5 (53.5) 285.1

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CrownEstates_AR2016.indb 98 22/06/2016 11:29 Financial statements

99 £m £m 2.6 (6.8) Total Total 12.2 10.4 57.4 11.8 79.0 71.0 (13.3) 147.7 240.1 646.8 597.0 22/06/2016 11:29 1,449.9 1,515.6 (1,317.2) 11,461.7 11,228.8

– – –

£m HQ – – – 9.0 9.0 28.7 28.7 £m HQ 6.4 10.4 As at 31 March 2015 As at 31 March

– – – £m EMI Year ended 31 March 2015 ended 31 March Year (7.0) £m EMI 3.1

– – £m £m 88.6 Windsor Windsor

– – – – – – – – – – – – – – – – – – – – – – – – – £m £m R&C 0.4 0.9 1.0 R&C 1,653.3 172.3 867.7

– – – – – – – – – – – – £m 2.6 (6.8) (5.0) (1.3) £m 3.5 12.2 71.0 59.1 Urban 79.0 53.9 Urban 194.4 27.8 9.4 8.5 646.8 1,188.7 123.5 13.9 123.8 1,262.7 122.2 13.9 116.8 1,262.7 122.2 13.9 116.8 37.7 1,553.3 8,535.5 9,377.8 1,654.6 261.9 870.8 16.8 12,181.9

£m 0.7 6.6 £m 82.0 30.3 10.8 Total (14.4) 13.3 10.4 85.6 64.0 Total 146.4 820.4 964.4 221.4 1,292.3 1,380.5 1,421.6 (1,525.8) 12,302.4 12,879.6

– – –

£m HQ – – – – 41.1 30.3 10.8 £m HQ 4.5 11.8 10.4

As at 31 March 2016 As at 31 March

– £m – – EMI (5.8) £m 5.0 188.6 Year ended 31 March 2016 ended 31 March Year EMI

–

– £m £m 12.5 8.4 4.9 82.4 Windsor Windsor

– – – – – – – – – – – – – – – –

£m – – – – – – – – 74.2 R&C £m R&C TheCrown Estate Integrated Annual Report 2015/16

– – – – – – – –

£m – – – – 6.6 0.7 (7.2) (1.4) 82.0 £m 5.5 0.8 1.0 13.3 Urban 64.0 85.6 55.0 4.0 820.4 189.3 18.8 1,009.8 75.6 12.5 194.4 1,105.2 74.2 12.5 188.6 Urban 1,105.2 9,456.2 1,620.8 188.1 1,037.3 10,486.7 1,625.6 271.5 1,042.3 14.9 13,441.0 5 9 12 13 15 13 13 13 21 Note 22 24 25 23 18 19 Note 18 & 19 joint ventures Non-current assets: Non-current Net revaluation gains on investmentNet revaluation Net assets Investment properties Income from sales of leases Income from Receivables due after one year Investment in joint ventures Share of profit/(loss) on disposal of of profit/(loss) Share Recovery of capital expenditure Share of revaluation gains from of revaluation Share Net consolidated capital Share of revaluation gains in other of revaluation Share Other property, plant andOther property, Owner occupied property Unallocated current assets Unallocated current Unallocated liabilities Other property investments Other property Other investments property in joint ventures property Charge from revenue account for revenue Charge from Statutory transfers property (including profits on profits (including property Capital expenditure Capital profit before Treasury before Capital profit property investments property under the Crown Estate Act 1961 under the Crown Balance sheet salary costs equipment Consolidated capital account Consolidated capital disposal) agreements and Statutoryagreements Transfers Total non-current assets non-current Total and by Treasury agreement and by Treasury account profit 4. Segmental analysis continued 4. Segmental CrownEstates_AR2016.indb 99 Notes to the consolidated financial statements continued

5. Revenue

Year ended Year ended 31 March 2016 31 March 2015 £m £m Revenue account Rent and royalties 380.1 359.0 Revenue premium income 4.1 3.7 Other income 10.9 10.4 395.1 373.1 Service charge income 23.1 24.1 Total revenue reflected in the consolidated revenue account 418.2 397.2 Capital account revenue Income from sale of leases 13.3 12.2

6. Costs

Year ended Year ended 31 March 2016 31 March 2015 £m £m Service charge expense 32.7 31.6 Management fees and costs 23.8 25.6 Repairs and maintenance 4.9 4.8 Other direct expenditure 15.9 13.2 Administrative expenses (see note 8) 23.0 20.9 Total costs reflected in consolidated revenue account 100.3 96.1

7. Property costs

Year ended Year ended 31 March 2016 31 March 2015 £m £m Service charge income (23.1) (24.1) Service charge expense 32.7 31.6 Net service charge expense 9.6 7.5 Direct costs 44.6 43.6 54.2 51.1

8. Administrative expenses

Year ended Year ended 31 March 2016 31 March 2015 £m £m Salaries, national insurance and pension costs 10.2 8.1 Reorganisation and early retirement costs 0.6 0.4 Commissioners’ remuneration 0.7 0.6 Management and administration expenses 11.4 11.6 Auditors’ remuneration 0.1 0.2 23.0 20.9

Auditors’ remuneration includes fees for non-audit services of £8,000 (year ended 31 March 2015: £8,000).

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£m £m 9.1 0.2 3.4 1.4 101 7.5 3.6 1.0 2.6 1.9 458 13.3 16.6 23.0 29.9 29.9 (13.3) Number 22/06/2016 11:29

Year ended Year Year ended Year 31 March 2015 31 March 31 March 2015 31 March

£m £m 2.2 0.2 7.0 4.5 4.3 2.8 1.1 457 1.3 14.4 32.9 32.9 18.5 11.5 25.5 (14.4) Number Year ended Year Year ended Year 31 March 2016 31 March 31 March 2016 31 March

TheCrown Estate Integrated Annual Report 2015/16 Less staff costs charged to capital account costs charged to capital Less staff National insurance costs Pension contributions – other pension schemes Pension contributions – other Bank interest income Bank interest Direct costsDirect Reorganisation and early retirement costs retirement Reorganisation and early investment yield would be in line with pension increases. The actuarial assumptions used to determine the future service contribution rates use The actuarial assumptions used to determine the future investment yield would be in line with pension increases. and post-retirement than the pre-retirement 1 per cent per annum and 0.5 per cent per annum higher respectively investment yields that are at 31.4 per cent of pensionable employer contribution rates remain investment yields adopted for the statutory funding valuation. The regular Staff costs reflected in the revenue account in the costs reflected Staff Included in: IAS 19 retirement benefits – net financing surplus (note 11b) IAS 19 retirement Wages and salaries Wages Current service cost – defined benefit scheme service Current Charged to the capital account that the pre-retirement investment yield would in the long term exceed earnings increases by 2 per cent per annum and the post-retirement by 2 per cent per annum and the post-retirement investment yield would in the long term exceed earnings increases that the pre-retirement 9. Staff costs 9. Staff March 2014 are of the accrued benefits as at 31 March £3.1 million (7.5 per cent). The actuarial assumptions used for the statutory funding valuation administrative expenses and the capital account during the year was as follows: and the capital account during the year administrative expenses earningsSection and 15.7 per cent of capped pensionable earnings Section. per annum for the Opal per annum for the Quartz Core (Quartz Core) with money purchase provision above that level). This disclosure covers the defined benefit sections only. above that level). This disclosure provision with money purchase (Quartz Core) Administrative expenses A full actuarial valuation was carried out as at 31 March 2014 and updated to 31 March 2016 by a qualified independent actuary. 2014 and updated to 31 March A full actuarial valuation was carried out as at 31 March by assets was £41.0 million and this exceeded the actuarial value of the technical provisions 2014, the value of the scheme’s At 31 March Total staff costs staff Total The average number of employees during the year The Crown Estate’s policy is to recognise actuarial gains and losses immediately in each full year. actuarial gains policy is to recognise Estate’s The Crown fromeffect Estate operates a scheme in the UK with a defined benefit section, The Opal Section, (closed to new entrants with The Crown The total cost of Crown Estate employees (including Board members) included in direct operating costs, indirect operating expenses and costs, indirect operating direct members) included in employees (including Board Estate The total cost of Crown 1 January 2008) a defined contribution section and a hybrid section, The Quartz Section, (defined benefit for salaries up to £32,025 pa 1 January 2008) a defined contribution section and a hybrid section, The Quartz Section, 11. IAS 19 retirement benefits 11. IAS 19 retirement 10. Investment revenue CrownEstates_AR2016.indb 101 Notes to the consolidated financial statements continued

11. IAS 19 retirement benefits continued 11a. Balance sheet and notes

31 March 2016 31 March 2015 £m £m Amounts recognised in the consolidated balance sheet Present value of funded obligations (40.3) (41.6) Fair value of scheme assets 46.3 46.9 Net asset recognised in the consolidated balance sheet 6.0 5.3

31 March 2016 31 March 2015 £m £m Changes in the present value of the defined benefit obligation Present value of defined benefit obligation at beginning of year 41.6 36.0 Current service cost 1.3 1.0 Interest cost 1.3 1.6 Members’ contributions 0.1 0.1 Actuarial (profit)/loss on plan liabilities (2.9) 4.1 Benefits paid (1.1) (1.2) Present value of defined benefit obligation at end of year 40.3 41.6 Analysis of the defined benefit obligation Present value of the funded defined benefit obligation 40.3 41.6

31 March 2016 31 March 2015 £m £m Changes in the fair value of plan assets Fair value of plan assets at start of year 46.9 41.0 Interest income 1.5 1.8 Actuarial (loss)/gain on plan assets (1.8) 4.3 Contributions by The Crown Estate 0.7 0.8 Members’ contributions 0.1 0.1 Benefits paid (1.1) (1.1) Fair value of assets at end of year 46.3 46.9

31 March 2016 31 March 2015 £m £m Analysis of return on plan assets Interest income 1.5 1.8 Actuarial (loss)/gain on plan assets (1.8) 4.3 Actual return on scheme assets (0.3) 6.1

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% 103 £m £m £m 1.7 0.2 4.3 0.8 1.0 (4.1) (0.2) (3.1) (0.1) (5.7) (4.1) 2015 3.30% 3.20% 3.20% 3.20% 22/06/2016 11:29 for CMI 1.5% pa adjusted YoB table YoB trend rate trend total assets Year ended Year ended Year ended Year 2013 with S1NxA light Percentage ofPercentage 31 March 2015 31 March 31 March 2015 31 March 2015 31 March 2015 31 March

– £m 4.4 9.5% 23.2 49.4% 19.3 41.1% 46.9 100.0% £m £m £m 1.1 1.1 2.9 2.9 0.6 1.3 2.3 (0.2) (1.8) (2.0) 2016 3.20% 3.20% 3.20% 3.60% for CMI 1.5% pa adjusted 2013 with YoB table YoB trend rate trend Year ended Year Year ended Year ended Year 31 March 2015 31 March S1NxA light 31 March 2016 31 March 2016 31 March 2016 31 March

% total assets Percentage ofPercentage 31 March 2016 31 March

£m 4.3 9.3% 19.4 41.9% 22.6 48.8% 46.3 100.0% 31 March 2016 31 March TheCrown Estate Integrated Annual Report 2015/16 Net financing surplus (note 10) Net financing surplus (note RPI price inflation in salaries Rate of increase Pension increases mortality (life expectancy): Post-retirement Discount rate Equities Loss due to financial assumptions Loss due to demographic assumptions Other Government bonds Current service cost service Current Cumulative actuarial losses since adoption of IAS19 Cumulative actuarial losses since adoption of Gain due to experience the average of these rates weighted by the proportion invested in each asset class at the year end. the average of these rates weighted by the proportion Total pension expense Total Actuarial profit recognised in the consolidated statement of comprehensive income of the revenue account income of the in the consolidated statement of comprehensive recognised Actuarial profit Total actuarial loss on defined benefit obligation actuarial loss Total Actuarial gain/(loss) on defined benefit obligation Actuarial (loss)/gain on plan assets Actuarial profit/(loss) on defined benefit obligation: on defined Actuarial profit/(loss) Total 11f. Principal actuarial assumptions at the balance sheet date 11e. Major categories of plan assets 11d. Cumulative amount recognised in the consolidated statement of comprehensive income of the revenue account income of the revenue in the consolidated statement of comprehensive 11d. Cumulative amount recognised 11c. Total amount recognised in the consolidated statement of comprehensive income of the revenue account income of the revenue of comprehensive in the consolidated statement recognised amount 11c. Total 11b. Amounts to be recognised in the consolidated revenue account consolidated revenue in the to be recognised 11b. Amounts The overall expected return on assets has been derived by considering the long-term expected rate of return for each asset class and takingThe overall expected return on assets has been derived by considering the long-term 2015: £nil). investments included in the fair value of the plan assets was £nil (31 March Estate related The amount of Crown CrownEstates_AR2016.indb 103 Notes to the consolidated financial statements continued

11. IAS 19 retirement benefits continued 11g. Experience gains and losses

31 March 2016 31 March 2015 31 March 2014 31 March 2013 31 March 2012 £m £m £m £m £m Liabilities at year end 40.3 41.6 36.0 32.9 31.1 Assets at year end 46.3 46.9 41.0 39.7 33.9 Surplus at year end 6.0 5.3 5.0 6.8 2.8

Asset (loss)/gain: Amount (£m) (1.8) 4.3 (0.6) 3.3 2.1 Percentage of scheme assets -4.0% 9.2% -1.6% 8.4% 6.2%

Liability gain/(loss): Experience gain/(loss) (£m) 0.6 1.7 (0.3) (0.3) (0.6) Percentage of scheme liabilities 1.5% 4.2% -0.9% -1.0% -1.9%

For 2015/16, employer contributions to The Crown Estate pension scheme (including money purchase sections) were £1.5 million (2014/15: £1.5 million). For 2015/16, employer contributions to The Principal Civil Service Pension Scheme (PCSPS) were £1.5 million (2014/15: £1.4 million). For 2015/16, employers’ contributions were payable to the PCSPS at one of four rates in the range 20.0 per cent to 24.5 per cent of pensionable pay, based on salary bands. For 2016/17 the employer contribution will be between 20.0 per cent and 24.5 per cent of pensionable pay. Employer contributions are to be reviewed every four years following a full scheme valuation by the scheme actuary. The contribution rates reflect benefits as they are accrued, not when the costs are actually incurred, and reflect past experience of the scheme.

12. Recovery of capital expenditure under the Crown Estate Act 1961 and by Treasury agreement

Year ended Year ended 31 March 2016 31 March 2015 £m £m By agreement with HM Treasury the income account is charged with an amount as disclosed in note 1a Total recovered from the capital account 30.3 28.7 Depreciation of fixed assets charged as costs in the income account 3.3 2.9 Total recovered under the Treasury agreement 33.6 31.6

13. Net revaluation gains in property and investments (including profit/(loss) on disposal)

Year ended Year ended 31 March 2016 31 March 2015 £m £m Reflected in the consolidated capital account: Surplus on revaluation of investment properties (note 18) 1,039.2 1,169.9 Adjustment for gross up for deferred rent movement 191.8 190.6 Gain on disposal of investment properties 61.3 89.4 Net revaluation gains on investment property (including profits on disposal) 1,292.3 1,449.9 Share of profit/(loss) on disposal of property in joint ventures (note 22) 0.7 (6.8) Share of revaluation gains in joint ventures (note 22) 82.0 71.0 Share of revaluation gains in other property investments (note 23) 6.6 2.6 Total reflected in the consolidated capital account 1,381.6 1,516.7

Reflected in the statement of comprehensive income of the capital account: (Deficit)/surplus on revaluation of owner occupied property (3.6) 32.1 Total 1,378.0 1,548.8

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£m 105 9.0 22/06/2016 11:29

Year ended Year 31 March 2015 31 March

£m 10.8 Year ended Year 31 March 2016 31 March TheCrown Estate Integrated Annual Report 2015/16 Moieties: Mineral dealings balance for trade receivables is relatively low in relation to the value of the balance sheet and therefore the credit risk attributable to receivables risk attributable the credit therefore to the value of the balance sheet and low in relation relatively is balance for trade receivables basis’, thereby minimising liquidity risks. These deposits are held on a floating interest basis. There is no currency risk as The Crown Estate risk as The Crown no currency is There basis. held on a floating interest risks. These deposits are minimising liquidity basis’, thereby is not permitted by statute to borrow, the payment to the Consolidated Fund in respect of the net surplus for the year is agreed with of the net surplus for the year is agreed the payment to the Consolidated Fund in respect is not permitted by statute to borrow, is primarily attributable to its trade receivables. The amount shown in the balance sheet is net of provision for trade receivables. An allowance for trade receivables. balance sheet is net of provision The amount shown in the to its trade receivables. is primarily attributable to be low. is considered HM Treasury taking into account The Crown Estate’s short-term financing requirements. £292.5 million was paid to HM Treasury prior to theTreasury to HM £292.5 million was paid requirements. short-term financing Estate’s taking into account The Crown HM Treasury Parliamentary Supply and supporting notes which show Outturn against Estimate in terms of the net resource requirement and net cash requirement which show OutturnParliamentary Supply and supporting notes in terms of the net resource against Estimate requirement which is reported separately to Parliament within The Crown Estate Office Resource accounts. Resource Office Estate separately to Parliament within The Crown which is reported requirement In accordance with section 1 of the Civil List Act 1952, the net revenue account profit is due to the Consolidated Fund. As The Crown Estate Fund. As The Crown is due to the Consolidated account profit with section 1 of the Civil List Act 1952, the net revenue In accordance Under the provisions of the Crown Estate Act 1961 the following amounts are carried to the capital account from the income account. carried to the capital account from amounts are Estate Act 1961 the following of the Crown Under the provisions face of the consolidated revenue account and totals £2.3 million (2014/15: £2.3 million). The Crown Estate also prepares a Statement of Estate also prepares account and totals £2.3 million (2014/15: £2.3 million). The Crown face of the consolidated revenue for impairment is made where there is evidence that the debt may not be received under the original terms of the receivable concerned. Theoriginal terms of the receivable under the that the debt may not be received is evidence there where for impairment is made their Office. The contribution to such expenses chargeable to the Parliamentary Supply finance account for the current year is shown on the account for the current The contribution to such expenses chargeable to the Parliamentary Supply finance their Office. year end and a further £11.6 million is included within payables. The total payment in respect of 2015/16 will therefore be £304.1 million of 2015/16 will therefore respect year end and a further £11.6 million is included within payables. The total payment in carrying value. only holds funds in sterling and there are no significant transactions in currencies other than sterling. The Crown Estate monitors the ratessterling. The Crown other than no significant transactions in currencies are and there only holds funds in sterling to maximise returns. as appropriate by the banks and transfers deposits offered (2014/15: £285.1 million). The Crown Estate Act 1961 provides that monies are provided by Parliament in respect of Commissioners’ salaries and the expense of of Commissioners’ salaries and the expense respect by Parliament in provided that monies are Estate Act 1961 provides The Crown The financial liabilities held by The Crown Estate are trade and other payables (note 28), and the fair value of these liabilities equals their trade and Estate are The financial liabilities held by The Crown The financial assets held by The Crown Estate are cash equivalents and trade and other receivables (note 27). The Crown Estate’s credit risk credit Estate’s (note 27). The Crown receivables other cash equivalents and trade and Estate are held by The Crown The financial assets The Crown Estate may not be held other than in land, gilts or cash. Investment in equities or outside the United Kingdom is not permitted. in equities or outside the United Kingdom held other than in land, gilts or cash. Investment Estate may not be The Crown banks on an ‘on-call accounts with major United Kingdom clearing maintained in needed for operational purposes are The cash holdings not 17. Consolidated Fund payment 16. Parliamentary Supply finance 15. Statutory transfers 14. Financial instruments 14. Financial CrownEstates_AR2016.indb 105 Notes to the consolidated financial statements continued

18. Investment properties

As at 31 March As at 31 March 2016 2015 Under Urban R&C Windsor EMI development Total Total Portfolio £m £m £m £m £m £m £m Opening fair value 8,248.5 1,653.3 172.3 867.7 287.0 11,228.8 9,746.6 Less: deferred income from lease premiums received (1,188.7) – – – – (1,188.7) (998.1) Less: Head lease liabilities (2.4) – – – – (2.4) (2.4) Add back: Assets held for sale – – – – – – 56.5 At opening valuation 7,057.4 1,653.3 172.3 867.7 287.0 10,037.7 8,802.6 Acquisitions 39.0 3.4 – – – 42.4 74.3 Capital expenditure 82.7 15.4 6.1 4.9 67.6 176.7 162.3 Capital receipts (3.5) (0.4) (0.3) (16.3) – (20.5) (32.0) Transfers to other categories 179.6 – – – (179.6) – – Disposals (258.4) (97.5) (0.1) – – (356.0) (139.4) Revaluation 822.9 46.6 10.1 181.0 (21.4) 1,039.2 1,169.9 At closing valuation (before lease incentives) 7,919.7 1,620.8 188.1 1,037.3 153.6 10,919.5 10,037.7

Deferred income from lease premiums received 1,380.5 – – – – 1,380.5 1,188.7 Head lease liabilities 2.4 – – – – 2.4 2.4 Closing fair value 9,302.6 1,620.8 188.1 1,037.3 153.6 12,302.4 11,228.8

Reconciliation to valuation At closing valuation (before lease incentives) 7,919.7 1,620.8 188.1 1,037.3 153.6 10,919.5 10,037.7 Add lease incentives 7.1 – – – – 7.1 7.1 At valuation 7,926.8 1,620.8 188.1 1,037.3 153.6 10,926.6 10,044.8

All investment properties are classified as Level 3 within the value hierarchy as defined within IFRS 13. Level 3 inputs used in valuing the properties are those which are unobservable and observable inputs where significant adjustments have been applied to determine specific property valuations, as opposed to Level 1 (inputs from quoted prices) and Level 2 (observable inputs either directly, i.e. as prices, or indirectly, i.e. derived from prices). All properties classified as investment properties under development are within the Urban Portfolio. The historic cost of investment properties at 31 March 2016 was £2,962.6 million (31 March 2015: £2,988.8 million). The value of freehold investment properties at 31 March 2016 was £10,662.2 million (31 March 2015 £9,701.8 million). The value of long leasehold properties at 31 March 2016 was £264.4 million (31 March 2015: £343.0 million). Investment properties identified by the Board as held for sale of £nil at 31 March 2016 (31 March 2015: £nil) are re-classified as current assets in the balance sheet. On 1 April 2011, a 150 year lease was granted to Norges Bank Investment Management (NBIM) in return for a 25 per cent interest in properties located in and around Regent Street in London. In September 2013 a further lease was granted to NBIM in return for a 25 per cent interest in the Quadrant 3 building. The properties within the arrangement have been regarded as a jointly controlled asset for accounting purposes and as such The Crown Estate’s interest of 75 per cent in the properties is included within the valuation figure at 31 March 2016. The Crown Estate’s share of jointly controlled assets was valued at £3,845.3 million at 31 March 2016 (31 March 2015: £3,207.5 million out of the total investment property value of £10,926.6 million (31 March 2015: £10,044.8 million). The property portfolio was valued on 31 March 2016 by independent accredited external valuers with a recognised relevant professional qualification and with recent experience in the locations and categories of the investment property being valued. The valuation methods used are in accordance with RICS and those recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS 13. More information about the fair value measurement is set out in note 20. Valuers’ fees are charged on a variety of bases including, percentage of the valuation and fixed amounts.

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£m 107 3.5 Total 32.1 2015 112.1 147.7 22/06/2016 11:29 As at 31 March

£m 2.3 2016 Total As at 31 March

£m 2.3 Windsor

– £m 4.9(8.5) (3.6) 59.1 88.6147.7 64.0 82.4 146.4 Urban TheCrown Estate Integrated Annual Report 2015/16 Portfolio Revaluation business plans. i.e. as prices, or indirectly, i.e. derived from prices). from i.e. derived i.e. as prices, or indirectly, Fair value hierarchy For all investment property that is measured at fair value, the current use of the property is considered the highest and best. is considered use of the property current at fair value, the that is measured For all investment property for inclusion in Valuation regarding 2016 and VPGA 1 guidance therein (The Red Book) January Standards – Professional RICS Valuation Opening fair value properties are those which are unobservable, as opposed to Level 1 (inputs from quoted prices) and Level 2 (observable inputs either directly, quoted prices) and to Level 1 (inputs from unobservable, as opposed those which are are properties Closing fair value Capital expenditure IFRS 13. is set out in note 20. of owner occupied properties Information about the fair value measurement Valuation process Valuation are in accordance with those recommended by the International Valuation Standards Committee and are consistent with the principles in Committee and are Standards by the International Valuation with those recommended in accordance are assumptions they have made are then discussed and reviewed with the asset management team and Directors. then discussed and reviewed assumptions they have made are each year. qualification and with recent experience in the locations and categories of the investment property being valued. The valuation methods usedrecent experience in the locations and categories of the investment property qualification and with financial statements. 20. Fair value measurement of properties 20. Fair value measurement All owner occupied properties are classified as Level 3 within the value hierarchy as defined within IFRS 13. Level 3 inputs used in valuing the within IFRS 13. Level 3 inputs used in valuing as defined as Level 3 within the value hierarchy classified are All owner occupied properties All are considered as Level 3 in the fair value hierarchy. considered All are The Urban Portfolio is fully valued on a quarterly basis and a tonal exercise is also undertaken at the half year on the rural and residential properties. the half year on the rural and residential is also undertaken at basis and a tonal exercise The Urban Portfolio is fully valued on a quarterly The historic cost of owner occupied properties at 31 March 2016 was £92.2 million (31 March 2015: £89.9 million). was £92.2 million (31 March 2016 at 31 March The historic cost of owner occupied properties professional relevant external accredited valuers with a recognised 2016 by independent portfolio was valued on 31 March The property The entire portfolio is valued on an annual basis by independent and qualified valuers on a fair value basis in accordance with IFRS 13, the value basis in accordance portfolio is valued on an annual basis by independent and qualified valuers on a fair The entire The following table shows an anaysis of the fair values of investment property recognised in the consolidated balance sheet. recognised The following table shows an anaysis of the fair values of investment property The annual valuation is presented to and the process is endorsed by the Audit Committee. A review is also presented as at 30 September as at is also presented is endorsed by the Audit Committee. A review to and the process The annual valuation is presented The valuers use this and other inputs including market transactions for similar properties to produce valuations. These valuations and the to produce market transactions for similar properties The valuers use this and other inputs including The Crown Estate and its managing agents provide data to the valuers, including current lease and tenant data along with asset specific lease and tenant data along valuers, including current data to the Estate and its managing agents provide The Crown 19. Owner occupied property19. Owner CrownEstates_AR2016.indb 107 Notes to the consolidated financial statements continued

20. Fair value measurement of properties continued Valuation techniques used to derive Level 3 fair values:

Fair value Fair value Predominant 31 March 2016 31 March 2015 valuation Key Class of property £m £m technique unobservable inputs Range Principal valuer Urban portfolio: Retail – West End 3,303.1 2,665.8 Investment ERV £35 – £820 psf ITZA C&W Yield 3.0% – 5.4% Retail – Rest of UK 350.1 391.3 Investment ERV £20 – £225 JLL Yield 4.3% – 8.9% Retail and leisure parks 972.9 1,033.0 Investment ERV £12 – £110 psf JLL Yield 4.1% – 6.6% Offices – West End 2,425.4 2,273.9 Investment ERV £25 – £117.50 psf C&W Yield 3.2% – 6.0% Offices – Rest of UK 150.0 163.2 Investment ERV £25 – £28.50 psf JLL Yield 5.3% Residential 468.0 550.7 Comparable £ psf £803 – £4,246 JLL Industrial 125.2 123.0 Investment ERV £4.25 – £7.85 psf JLL Yield 4.34% – 6.24% Owner occupied 64.0 59.1 Investment ERV £102.50 psf C&W Yield 4.25% Other urban 285.7 150.6 Investment Yield 1.9% – 12.8% JLL/C&W/Savills 8,144.4 7,410.6

Categorised as: Completed properties 7,926.8 7,064.5 Under development 153.6 287.0 Owner occupied 64.0 59.1 Total Urban at valuation 8,144.4 7,410.6

Rural and Coastal portfolio: Agricultural 1,336.3 1,384.2 Comparable/ Proportion of vacant 50 – 100% Savills/Strutt & Parker Investment possession value Yield 1 – 4% Coastal 217.2 206.4 Investment Yield 5.5 – 15% Various Forestry 29.1 27.6 Comparable Land value £1,035 – £8,000 Forest valuations per ha Timber value £845 – £4,500 per acre Aquaculture 19.5 18.0 Investment Yield 5% – 12.5% Annual production 140,000 – 160,000 tonnes Minerals 18.7 17.1 Investment Yield 5% – 25% Wardell Armstrong

1,620.8 1,653.3

Windsor portfolio: Owner occupied 82.4 88.6 Comparable Proportion of vacant 65% – 95% Savills possession value Other 188.1 172.3 Comparable/ Yield 1% – 10% Savills Investment Proportion of vacant 65% – 95% posession value 270.5 260.9

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£m 109 79.0

147.7 706.5

22/06/2016 11:29 10,192.5 10,044.8 10,978.0 Principal valuer 31 March 2015 31 March

£m 85.6 889.1 146.4 12,047.7 11,073.0 10,926.6 Range 31 March 2016 31 March 5% – 25% JLL/Powis Hughes 7% – 15% Armstrong Wardell 6.5% – 10% Powis Hughes

Key Yield Yield Yield Discount rate 8.5% – 29% Operational life Annual extraction c. 17 million tonnes unobservable inputs valuation technique Predominant Investment/DCF

£m 867.7 107.5 Investment 157.6 DCF 602.6 Fair value 10,192.5 31 March 2015 31 March

£m 168.1 118.1 751.1 TheCrown Estate Integrated Annual Report 2015/16 1,037.3 11,073.0 Fair value 31 March 2016 31 March levels of status in the development programme. Energy, Minerals and Infrastructure Renewables Investment properties (note 18) Investment properties Share of investment properties of joint ventures at valuation (note 22) of joint ventures of investment properties Share Each Round 1 and Round 2 wind farm has been valued individually using an ‘all risk’ yield applied to the minimum and budgeted rents,Each Round 1 and Round 2 wind farm has been valued individually using an ‘all risk’ Hope value has been included where there is future reversionary potential, e.g. conversion of offices back to their original use as residential. as back to their original use conversion of offices potential, e.g. reversionary is future there Hope value has been included where Discounted cash flow (DCF) Class of property Round 3 has been valued on a portfolio basis. reached in the planning process. the stage Hope value for strategic land is incorporated into the Rural portfolio, discounted to reflect being redeveloped Properties Owner occupied properties (note 19) Owner occupied properties investments (note 23) Other property portfolio: Cables and pipelines Investment Method Investment Method) and then deducting the cost to complete the construction, achieve lettings and appropriate allowances for profit to allowances for profit lettings and appropriate Investment Method) and then deducting the cost to complete the construction, achieve Specific valuation considerations have been applied to the following classes of property: Specific valuation considerations have been applied to the following classes Value of investment properties including share of joint venture investment properties and other property investments and other property investment properties of joint venture including share of investment properties Value the income stream. Strategic land Wind farms assessment of void periods and other costs of letting and then capitalising at an appropriate rate. of letting and then capitalising at an appropriate assessment of void periods and other costs or the actual output, subject to an end allowance where appropriate. or the actual output, subject to an end allowance where compensate for the risk of carrying out the development. Comparable method Aggregates As a cross check, a discounted cash flow of projected revenue streams has been undertaken with appropriate discount rates for differing has been undertaken with appropriate revenue streams check, a discounted cash flow of projected As a cross An indication of value arrived at by comparing information of the subject asset with similar assets for which valuation data is available. An indication of value arrived at by comparing information of the subject asset with similar The fair value of investment property is determined using the following valuation methods: The fair value of investment property Total all portfolios at valuation Total Total value of investment properties including share of property of joint ventures and other property investments and other property ventures of joint of property including share properties value of investment Total This involves the projection of cash flows to which an appropriate market-derived discount rate is applied to establish the present value of market-derived discount rate is applied to establish the present of cash flows to which an appropriate This involves the projection The Investment Method has been used which involves estimating the rental value of each lettable unit within the property, making an unit within the property, value of each lettable involves estimating the rental The Investment Method has been used which The Residual Method has been adopted which involves calculating the potential value when the property has been completed (using the when the property The Residual Method has been adopted which involves calculating the potential value CrownEstates_AR2016.indb 109 Notes to the consolidated financial statements continued

20. Fair value measurement of properties continued Specific valuation considerations have been applied to the following classes of property continued: Rural and residential properties These are generally valued using the Comparable Method and cross checked with the Investment Method. Owner occupied commercial property This has been valued using the Investment Method assuming an appropriate period to let the property at a market rent. Owner occupied residential property at Windsor This has been valued using the Comparable Method with an appropriate discount to the vacant possession value. Sensitivity analysis The significant unobservable inputs used in the fair value measurement categorised within level 3 of the fair value hierarchy of the investment property are: • Estimating the rental value of each lettable unit with evidence derived from other recent lettings in the property itself or similar properties nearby, making adjustments for size, specification, location and letting incentives. • Estimating the length of time taken and the cost to let vacant space and the likelihood of lease renewals. • Deciding the appropriate capitalisation rate to be applied derived from transactions of comparable properties. • Choosing the appropriate discount rate to vacant possession value for differing lengths and types of tenure on rural and residential tenancies. • For property under development the assessment of the value created on completion and the allowance for construction and letting costs to achieve that. • Inclusion of hope value for a higher value use (e.g. strategic land and properties with potential for residential conversion) dependent upon the likelihood, time and cost of achieving that use. • Allowance for the level of volatility on turnover related valuations e.g. aggregates, minerals and aquaculture. • Assessment of functional lifespan of offshore assets e.g. cables and pipelines. • Assessing the appropriate discount rate for offshore windfarms from site exclusivity through to a generating wind farm. Significant increases/(decreases) in the ERV would result in a higher/(lower) fair value measurement. Significant increases/(decreases) in the long term vacancy rate (or yield) would result in a lower/(higher) fair value measurement.

21. Plant and equipment

Plant and Office Motor machinery equipment vehicles Total £m £m £m £m Cost at 1 April 2015 5.6 25.4 1.6 32.6 Additions 0.1 3.1 0.3 3.5 Disposals (0.9) (2.8) (0.7) (4.4) Cost at 31 March 2016 4.8 25.7 1.2 31.7 Depreciation at 1 April 2015 4.0 15.5 1.3 20.8 Charge 0.4 2.9 – 3.3 Disposals (0.8) (2.8) (0.6) (4.2) Total depreciation at 31 March 2016 3.6 15.6 0.7 19.9 Net book value at 1 April 2015 1.6 9.9 0.3 11.8 Net book value at 31 March 2016 1.2 10.1 0.5 11.8

Cost at 1 April 2014 4.6 18.4 1.7 24.7 Additions 1.1 7.0 0.1 8.2 Disposals (0.1) – (0.2) (0.3) Cost at 31 March 2015 5.6 25.4 1.6 32.6 Depreciation at 1 April 2014 3.3 13.6 1.3 18.2 Charge 0.8 1.9 0.2 2.9 Disposals (0.1) – (0.2) (0.3) Total depreciation at 31 March 2015 4.0 15.5 1.3 20.8 Net book value at 1 April 2014 1.3 4.8 0.4 6.5 Net book value at 31 March 2015 1.6 9.9 0.3 11.8

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111 £m 0.7 Total (71.3) 22/06/2016 11:29 2 Property interest Property £m Other Westgate Centre, Oxford Centre, Westgate

St James’s Gateway, London St James’s £m 5.5 18.2 104.4 (2.1) 17.7 82.0 Fosse Shopping Park, Leicester Retail Gallagher Retail Park, Cheltenham Limited Castle Acres, Fosse Park, Leicester Castle Acres, Wexford Wexford Partnership

£m Group Market St James’s St James’s Partner Partnership

£m Pension Plan 14.8 48.2 Oxford PropertiesOxford Market development, London St James’s Oxford PropertiesOxford Market development, London St James’s Oxford PropertiesOxford Market development, London St James’s Maple LP Hercules Unit Trust Hercules Shopping Park, Edinburgh Fort Kinnaird

– – – – – – – – – – £m (0.7) Gingko Tree Investment Limited Gingko Tree Investment Limited Gingko Tree Crown Point Crown

1 £m 4.1 0.7 (1.3) (1.6) (2.2) (7.3) (1.8) (2.9) (17.1) (3.0) (0.2) (0.7) (0.4) (0.8) (1.4) (6.5) 6.6 2.3 5.3 0.3 3.4 5.6 23.5 9.8 3.6 4.0 0.5 8.4 1.9 28.2 6.8 3.4 3.3 0.1 7.6 0.5 21.7 (71.3) 11.6 2.7 18.1 48.3 198.6 66.3 121.9 192.8 174.2 131.5 885.3 205.2 68.6 127.2 193.1 177.6 137.1 908.8 132.6 67.0 125.0 185.8 175.8 134.2 820.4 April 2007 May 2010 PLC Land Securities Group June 2008 Morley Fund ManagementLeeds Point Shopping Park, Crown August 2014 August 2015 Formation date Gibratar LP December 2008 CGNU Life Assurance London in Princes Street, Property November 2010 of Ontario The Healthcare September 2013 September 2013 September 2013 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% owned Percentage

TheCrown Estate Integrated Annual Report 2015/16 Name of jointly controlled entity Name of jointly controlled Maple Investment Limited Partnership Maple Investment Limited Non-current assets Non-current Fosse Park West Limited Partnership Fosse Park West Share of assets and liabilities as at 31 March 2016 at 31 March of assets and liabilities as Share 31 March 2016 31 March Long-term bank loan Expenses St James’s Market Haymarket Limited Partnership Market St James’s Share of net assets Share and expenses for the year ended of revenues Share St James’s Market Regent Street Limited Partnership Regent Street Market St James’s St James’s Market Development Limited Market St James’s Income Westgate Oxford Alliance Limited Partnership Oxford Westgate Wexford Retail Limited Partnership Wexford Share of profit on disposal of property reflected in the consolidated on disposal of property of profit Share Co-ownership agreement Co-ownership agreement Share of profit on ordinary activities reflected in the consolidated activities on ordinary of profit Share Share of profit/(loss) on revaluation of investment reflected in therevaluation of investment on of profit/(loss) Share Current assets Current Gross assets Gross liabilities Current revenue account revenue capital account Total share of revenues and expenses of revenues share Total consolidated capital account 22. Investment in joint ventures 22. Investment All joint ventures operate in the United Kingdom. All joint ventures The St James’s Partnership Group: Partnership The St James’s The Gibraltar Limited Partnership The Crown Estate’s share of assets and liabilities and revenues and expenses of the joint ventures were: and expenses of the joint ventures of assets and liabilities and revenues share Estate’s The Crown The Crown Estate’s investment in joint ventures is described below: in joint ventures investment Estate’s The Crown CrownEstates_AR2016.indb 111 Notes to the consolidated financial statements continued

22. Investment in joint ventures continued

St James’s Wexford Market Retail Partnership Limited Gibraltar LP1 Crown Point Maple LP Group Partnership Other2 Total £m £m £m £m £m £m £m Share of assets and liabilities as at 31 March 2015 Non-current assets 191.7 66.4 107.4 117.9 173.6 49.5 706.5 Current assets 6.9 1.9 6.5 0.4 3.1 5.0 23.8 Gross assets 198.6 68.3 113.9 118.3 176.7 54.5 730.3 Current liabilities (1.3) (1.4) (4.4) (3.0) (2.4) (1.4) (13.9) Long-term liabilities – – – (5.0) – – (5.0) Long-term bank loan (64.6) – – – – – (64.6) Share of net assets 132.7 66.9 109.5 110.3 174.3 53.1 646.8

Share of revenues and expenses for the year ended 31 March 2015 Income 8.4 3.6 3.9 0.3 6.2 2.5 24.9 Expenses (3.7) (0.5) (1.6) (0.3) (0.6) (1.2) (7.9) Share of profit on ordinary activities reflected in the consolidated revenue account 4.7 3.1 2.3 – 5.6 1.3 17.0 Share of loss on disposal of property reflected in the consolidated capital account (6.8) – – – – – (6.8) Share of profit/(loss) on revaluation of investment reflected in the consolidated capital account 28.4 5.7 16.0 28.6 (7.9) 0.2 71.0 Total share of revenues and expenses 26.3 8.8 18.3 28.6 (2.3) 1.5 81.2

1 Gibraltar LP non current assets stated net of lease incentive £3.8 million. 2 Other: Westgate Oxford Alliance Limited Partnership, Princes Street (Co-ownership agreement) and Fosse Park West Limited Partnership.

Summary of movement in investment in joint ventures

Year ended Year ended 31 March 2016 31 March 2015 £m £m At start of period 646.8 396.3 Net equity additions 90.9 212.0 Share of profit/(loss) on sale of property 0.7 (6.8) Surplus on revaluation of investment properties 82.0 71.0 Share of joint venture's fair value movements on interest-rate swaps treated as cash flow hedges (1.2) (0.6) Distributions received (20.5) (42.1) Share of revenue profit 21.7 17.0 At end of period 820.4 646.8

In respect of The Gibraltar Limited Partnership, the partnership entered into a five year £150 million facility with Deutsche Pfandbriefbank AG as facility agent on 19 April 2012. The loan facility has a loan to value covenant of 40 per cent. The General Partner is of the view that the expected movement in the value of properties will result in no breach in this covenant for the foreseeable future. Swap agreements for £92million under the facility for the period from 19 April 2012 until 29 March 2017 were entered into at a rate of 1.37 percent. The margin on the facility is 2.5 per cent. The swaps were valued on 31 March 2016 with a combined fair value deficit of £3.6 million of which The Crown Estate’s share was £1.8 million. The fair value adjustment of the interest rate swaps reflect the net present value of the difference in the projected cash flows at the relevant contracted dates from 31 March 2016 to their contract expiry dates. This valuation technique falls within Level 2 as defined by IFRS 13. The Crown Estate’s share of the fair value adjustment has been recognised in the total consolidated comprehensive capital account profit. The investment property included within the net current assets of jointly controlled entities included above have been valued in accordance with the requirements of IFRS 13.

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£m £m £m £m 113 0.1 1.7 0.2 4.3 1.8 2.6 10.2 10.4 57.4 79.0 55.6 22/06/2016 11:29 31 March 2015 31 March 2015 31 March 31 March 2015 31 March 2015 31 March

– £m £m £m £m 0.1 2.1 6.6 1.8 8.7 10.4 85.6 62.2 64.0 10.4 31 March 2016 31 March 2016 31 March 31 March 2016 31 March 2016 31 March TheCrown Estate Integrated Annual Report 2015/16 Share of net assets reflected in the balance sheet in the balance net assets reflected of Share Stores Share of revaluation of investment reflected in the consolidated capital account of investment reflected of revaluation Share Share of revenue profit of revenue Share Other financial assets Opening balance Other receivables Closing balance In August 2014 The Crown Estate acquired a 6.4% interest in The Pollen Estate, which owns freehold property in an area of Mayfair to in an area property freehold in The Pollen Estate, which owns a 6.4% interest acquired Estate In August 2014 The Crown In September 2006, The Crown Estate acquired a 4.9% share of Lend Lease Retail Partnership, an English Limited Partnership. of Lend Lease Retail Partnership, a 4.9% share Estate acquired Crown In September 2006, The the west of Regent Street in London. the west of Regent Street Other investments comprise antiques and paintings. Other investments comprise antiques and Total Additions 26. Inventories 25. Receivables due after one year 24. Other investments 23. Other property investments property 23. Other The Partnership provides an equity interest in both Bluewater Shopping Centre, Kent and Touchwood Court Shopping Centre, Solihull. Court Shopping Centre, Kent and Touchwood in both Bluewater Shopping Centre, interest an equity The Partnership provides CrownEstates_AR2016.indb 113 Notes to the consolidated financial statements continued

27. Trade and other receivables

31 March 2016 31 March 2015 £m £m Trade receivables 17.6 23.2 Other financial assets 0.1 0.1 Other receivables 21.6 4.7 Prepayments 0.2 – Accrued income 11.5 11.1 51.0 39.1

Trade and other receivables are shown after deducting the provision for bad and doubtful debts of £5.1 million (31 March 2015: £4.8 million). The trade receivable impairment reflects the application of The Crown Estate’s provisioning policy in respect of bad and doubtful receivables. The Board considers that the carrying amount of the trade and other receivables approximates to their fair value. Trade and other receivables outside their payment terms not yet provided are:

31 March 2016 31 March 2015 £m £m

Within credit terms Past due date but not impaired: 0-1 month 0.3 4.3 More than 2 months 0.7 0.5 1.0 4.8 Impairment of receivables Other expenditure includes the movement on the provision for impairment of receivables as follows: Provision at the beginning of the year 4.8 5.4 Income written back/(off) during the year 0.1 (0.1) Increase/(decrease) in the provision for the year 0.2 (0.5) Provision at the end of the year 5.1 4.8

28. Payables

31 March 2016 31 March 2015 £m £m Amounts falling due within one year: Trade payables 5.0 6.0 Rents received in advance 61.4 59.2 Taxes and social security 12.8 10.6 Other payables 18.0 8.9 Consolidated Fund 11.6 6.8 Accruals and deferred income 30.3 31.5 Deferred income on receipt of lease premiums 13.8 12.0 Obligations under finance leases 0.3 0.3 153.2 135.3 Amounts falling due after more than one year: Deferred income on receipt of lease premiums 1,366.7 1,176.7 Obligations under finance leases 4.4 4.4 1,371.1 1,181.1

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–

£m £m £m 115 4.7 3.4 0.3 1.0 0.9 1.5 0.8 0.8 (0.2) 0.8 273.1 915.0 of lease 5,098.1 22/06/2016 11:29 3,910.0 obligations Present valuePresent 31 March 2015 31 March 31 March 2015 31 March

–

£m £m charges 288.6 964.3 5,689.4 4,436.5 Future financeFuture 31 March 2016 31 March

£m 1.1 (0.1) 0.3 50.2 (46.8) 51.6 (46.9) payments Minimum lease

£m 4.7 0.9 3.5 0.3 of lease obligations Present valuePresent 31 March 2016 31 March

– £m charges Future financeFuture

£m 1.1 (0.2) 0.3 51.6 (46.9) 50.2 (46.7) payments Minimum lease TheCrown Estate Integrated Annual Report 2015/16 More than five years More Between two and five years More than five years More Less than one year Less than one year Between two and five years Provision released Provision Reorganisation provision Provision released Provision Reorganisation provision Finance lease liabilities are payable as follows: Finance lease liabilities are aggregate minimum rentals, excluding contingent rents receivable under non-cancellable leases are as follows: leases are under non-cancellable receivable excluding contingent rents minimum rentals, aggregate Contingent rents receivable were £39.8 million at 31 March 2015 (£34.2 million at 31 March 2015). at 31 March 2015 (£34.2 million £39.8 million at 31 March were receivable Contingent rents Obligations under finance leases Operating leases with tenants At 31 March 2016 At 31 March 30. Leasing At 31 March 2015 At 31 March At 1 April 2014 At 1 April 2015 29. Provisions The Crown Estate leases out all of its investment properties under operating leases for average lease terms of 44 years to expiry. The future under Estate leases out all of its investment properties The Crown The amount recognised as an expense in the year in respect of contigent rentals is £0.3 million (31 March 2015: £0.3 million). is £0.3 million (31 March of contigent rentals as an expense in the year in respect The amount recognised The provision is expected to result in an outflow of funds within one year. in an outflow of funds within is expected to result The provision CrownEstates_AR2016.indb 115 Notes to the consolidated financial statements continued

31. Reconciliation of operating surplus to net cash inflow from operating activities

Year ended Year ended 31 March 2016 31 March 2015 £m £m Operating surplus – consolidated revenue account 317.9 301.1 Increase in employee benefits 0.4 0.1 Increase in receivables (8.8) (25.0) Increase in payables 11.3 20.6 increase in provisions 0.7 0.8 Net cash generated from operating activities 321.5 297.6

32. Analysis of change in cash and cash equivalents Year ended Year ended 31 March 2016 31 March 2015 £m £m Balance at start of year 552.5 552.0 Net cash inflow 354.8 0.5 Balance at end of year 907.3 552.5

116 The Crown Estate Integrated Annual Report 2015/16

CrownEstates_AR2016.indb 116 22/06/2016 11:29 Financial statements 117 22/06/2016 11:29 TheCrown Estate Integrated Annual Report 2015/16 Maple Investment GP Limited (50% interest) Maple Investment GP (50% interest) Maple Investment, LP (50% interest) Maple Nominee Limited Purple Holdco Limited (100% interest) Purple Holdco Limited LLP (100% interest) Purple Investment Management GP Limited (50% interest) Fosse Park West LP (50% interest) Fosse Park West Purple Investment GP Limited (100% interest) Shoemaker GP Limited (100% interest) Shoemaker LP (100% interest) Shoemaker Nominee Limited (100% interest) Market Haymarket GP Limited (50% interest) St James’s Market Haymarket LP (50% interest) St James’s (50% interest) GP Limited Market Regent Street St James’s interest) LP (50% Market Regent Street St James’s (North Block) GP Limited (50% interest) SJM Three (North Block) LP (50% interest) SJM Three interest) SJM Four (South Block) GP Limited (50% SJM Four (South Block) LP (50% interest) Market Development Limited (50% interest) St James’s Management Limited (100% interest) Urban lease Property Market Development (No. 2) Limited ( 50% interest) St James’s Shown below are the group’s subsidiaries and other significant holdings, together with the interest owned by the group and registered office. registered and owned by the group together with the interest and other significant holdings, subsidiaries the group’s Shown below are Westgate Oxford Alliance GP Limited (50% interest). Registered office – 5 Strand, London WC2N 5AF office Registered GP Limited (50% interest). Alliance Oxford Westgate – 5 Strand, London WC2N 5AF office Registered Limited Partnership (50% interest). Alliance Oxford Westgate – 5 Strand, London, WC2N 5AF office Registered Nominee No.1 Limited (50% interest). Alliance Oxford Westgate – 5 Strand, London, WC2N 5AF office Registered Nominee No.2 Limited (50% interest). Alliance Oxford Westgate Wexford Retail GP Limited (50% interest) Wexford Retail LP (50% interest) Wexford Retail Nominee Limited (50% interest) Wexford Gibraltar Nominees Limited (50% interest). Registered office – York House, 45 Seymour Street, London W1H 7LX York House, 45 Seymour Street, – office Registered Gibraltar Nominees Limited (50% interest). Gibraltar General Partner Limited (50% interest). Registered office – York House, 45 Seymour Street, London W1H 7LX York House, 45 Seymour Street, – office Registered Gibraltar General Partner Limited (50% interest). 33. Subsidiary undertakings 33. Subsidiary Anther GP Limited (100% interest) Anther Partners LP (100% interest) The Gibraltar Limited Partnership (50% interest). Registered office – York House, 45 Seymour Street, London W1H 7LX York House, 45 Seymour Street, – office Registered The Gibraltar Limited Partnership (50% interest). The registered office of the above companies is 16 New Burlington Place, London W1S 2HX of the above companies is 16 New Burlington Place, office The registered TCE Purple Investment, LP (100% interest) The financial statements include the financial statements of the group and subsidiaries. group include the financial statements of the The financial statements CrownEstates_AR2016.indb 117 Notes to the consolidated financial statements continued

34. Capital commitments At 31 March 2016 The Crown Estate had committed to make capital expenditure of £495.3 million (31 March 2015: £457.2 million) and had authorised additional expenditure of £155.8 million (31 March 2015: £291.8 million).

35. Contingent liabilities At the balance sheet date The Crown Estate had no contingent liabilities.

36. Related party transactions Balances and transactions between The Crown Estate and its subsidiaries, which are related parties of The Crown Estate, have been eliminated on consolidation and are not disclosed in this note. Details of transactions with joint ventures are given in note 22. During the year The Crown Estate recognised management fees receivable from joint ventures of £3.1 million (2014/15: £2.1 million). Details of Director’s remuneration are given in the Remuneration Report. Details of transactions between The Crown Estate and other related parties in the normal course of business are disclosed below: Chris Bartram was a Board Consellor until 31 December 2015. He is a non-executive director of Land Securities Group PLC. Land Securities Group PLC are joint venture partners of The Crown Estate in the Westgate Oxford Alliance Limited Partnership, as disclosed in note 22. Orchard Street Investment Management LLP – where Chris Bartram, Board Counsellor, was the Chairman and a Partner until he stepped down on 31 December 2015 (although he is retained by the firm in an advisory capacity). In 2012, Orchard Street Investment Management LLP took an assignment of a Crown Estate lease from the existing tenant at No.16 New Burlington Place at an annual rent of £384,621. There were no outstanding debts at 31 March 2016 (31 March 2015: £nil) on this tenancy. Savills where David Fursdon, Board Counsellor is a non-executive director, is a non-executive consultant. During the year Savills were paid £3.0 million (£2.8 million in the year ended 31 March 2015). David Fursdon had no involvement in determining either the appointment or remuneration of Savills in this capacity. Tony White, non-executive board member, is non-executive director of Low Carbon Contracts Company (LCCC).The LCCC implement policy and instructions which include a standard form of Contract for Difference (CfD). Given the role The Crown Estate plays in relation to CfDs, both onshore and offshore, and in line with best practice corporate governance, The Crown Estate supplies Tony with relevant information regarding CfD projects where The Crown Estate plays a key role as a substantial investor (over 49% total investment value) or is the landlord. David Shaw, an employee of The Crown Estate, was appointed Chairman of The Pollen Estate during 2015/16. The Crown Estate owns a 6.4% interest in The Pollen Estate Trust. Apart from the above, none of the Board members, members of key management staff or other related parties have undertaken any material transactions with The Crown Estate.

37. Third party deposits At 31 March 2016 The Crown Estate held £24.8 million (31 March 2015: £25.8 million) on deposit on behalf of third parties.

38. Non adjusting post-balance sheet event The UK is set to hold a referendum on 23 June on whether or not to remain a member of the European Union (EU). These accounts were certified on 16 June 2016, prior to the referendum being held. If the decision is to leave the EU, there is likely to be significant uncertainty with substantial and prolonged reduction in market activity and liquidity while the UK renegotiates its relationships with the EU and other nations. This is likely to have an impact on the valuation of the portfolio; however this impact is not quantifiable in the short term. We expect these influences to be removed if there is a decision to remain within the EU.

39. Issue of accounts On 6 June 2016 the financial statements were approved by the Audit Committee on behalf of the Board prior to certification by the Comptroller and Auditor General on 16 June 2016. On this date the financial statements are deemed to be authorised for issue. Post-balance sheet events were considered up to this date.

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– – 119 £m 6.0 2016 85.6 11.8 10.4 64.0 (54.2) (23.0) 395.1 340.9 304.1 820.4 958.4 (154.7) 22/06/2016 11:29 (1,371.1) 12,448.8

– £m 2015

£m 2014

£m 2013

£m 2012

£m 2.3 2.8 6.8 5.0 5.3 2011

– £m 2010

– – – – – – – £m 2009

£m 0.9 0.9 12.0 221.9 135.1 17.5 22.5 105.5 56.5 2008 203.3 185.7 212.7 265.0 266.9 275.3 396.3 646.8 (666.7) (776.2) (837.1) (859.9) (914.2) (920.5) (992.5) (1,181.1) Restated TheCrown Estate Integrated Annual Report 2015/16

– – – – £m 5.6 11.8 4.9 8.5 8.37.1 7.7 7.6 6.5 4.9 4.9 4.9 4.9 5.3 5.3 5.4 10.2 10.4 10.24.9 4.9 4.9 4.95.3 5.3 5.4 (0.8) (0.7) 42.1 38.6 27.5 30.033.1 34.0 35.7 35.879.0 2007 13.8 3.2 11.4 13.3 21.4 23.7 29.3 39.8 57.4 (38.7) (40.2) (42.6) (52.9) (42.5) (41.8) (49.0) (45.9) (51.1) (13.3) (15.5) (17.0) (18.5) (17.1) (18.4) (19.8) (20.0) (20.9) (42.0) (103.1) (164.9) (104.6) (102.3) (121.3) (115.5) (110.9) (136.1) 262.1 231.9 285.8 299.7 306.8314.2 332.2 350.8 373.1 223.4 191.7 243.2 246.8 264.3272.4 283.2 304.9 322.0 200.1 213.4 226.5 210.7230.9 240.2304.1 252.6 267.1 285.1 200.0 211.0 230.0 210.0231.0 240.2 251.8 266.2 285.1 494.6 590.1 421.9 480.6311.0 608.7 610.6 571.3 591.7 6,572.5 11,376.5 7,245.6 6,073.2 6,696.4 7,552.3 8,118.4 8,574.7 9,858.7 7,091.5 7,333.7 6,014.8 6,639.6 7,252.8 8,054.5 8,614.9 9,876.7 11,461.7 12,879.6 7,091.5 11,461.7 7,333.7 6,014.8 6,639.6 7,252.8 8,054.5 8,614.9 9,876.7 The 2008 figures are restated to reflect the adoption of IFRS. The figures shown in prior year columns are as previously reported under previously are as shown in prior year columns reflect the adoption of IFRS. The figures to restated are The 2008 figures UK GAAP. Income account chargeRevenue (excluding service income) Based on the Financial Statements for the years ended 31 March: for the years ended Financial Statements Based on the Ten-year record (unaudited) record Ten-year Direct operating costs (including net operating Direct service charge expense) Gross surplus Gross Administrative expenses Indirect operating expenses operating Indirect Net revenue account profit Net revenue Consolidated Fund payment Balance sheet Investment, development and owner occupied properties Non-current investment property assets investment property Non-current held for sale Investment in joint ventures Other property investments Other property Other plant, property and equipment Other plant, property Other investments Receivables due after one year Current assets (excluding assets heldCurrent for sale) Pension asset Current liabilities Current Non-current liabilities Non-current Capital and reserves CrownEstates_AR2016.indb 119 Glossary

Bespoke benchmark Indirect investments Operating lease An IPD benchmark based upon the IPD Investment in property through joint ventures Any lease that is not a finance lease. Annual March Universe but weighted to and other property investments. Over rented reflect our ownership as at 31 March 2008. Initial yield A property which is let at a rent which is Book value The initial net income at the date of purchase greater than the current open market rent. The amount at which assets and liabilities expressed as a percentage of the gross Parliamentary Supply finance are reported in the financial statements. purchase price including the costs of Monies provided by Parliament in respect purchase. Capital employed of Board Members’ salaries and the expense The capital value of an asset at the beginning Integrated Annual Report of their Office. of a period plus net capital invested over the A concise communication about how an Pre-let period. organisation creates value in the short, An agreement for a letting to take effect at a medium and long term. Capital value future date, often upon completion of a The net assets of The Crown Estate held as IPD development that is proposed or under capital for Her Majesty and Her Successors. Investment Property Databank. construction at the time of the agreement. Carbon Intensity ITZA Public realm The amount of carbon dioxide produced per In terms of zone ‘A’. Publicly owned streets, pathways and rights square metre of floor space. A method for measuring retail space on a of way. like-for-like basis. Consolidated Fund Rack rented The UK Government’s general bank account Lease incentive A rent representing the full letting value of held at the Bank of England. Taxation and Any incentive offered to occupiers to enter a property. other monies paid to the Treasury are paid into a lease. This includes an initial rent-free Red Book into this fund. period or a cash contribution to fit-out. Appraisal and Valuation Standards published Development pipeline Lease premium by the Royal Institution of Chartered Development projects under construction or The price paid for the purchase of a Surveyors. planned, listed according to the date of leasehold interest. Reportable incidents completion. Market rent Any incidents that are reportable to the Direct expenditure The estimated amount for which a lettable Health and Safety Executive (HSE) under Expenditure incurred that relates directly to unit should lease for. the Reporting of Injuries, Diseases and the operation of the properties from which Dangerous Occurrences Regulations Market value revenue is received. (RIDDOR) 2013. The estimated amount for which a property Equivalent yield should exchange for on the date of valuation, Total Contribution The constant capitalisation rate applied to all between a willing buyer and a willing seller in How we value the economic, social and cash flows, that is, the internal rate of return an arm’s-length transaction, after proper environmental contribution that our business from an investment property reflecting marketing wherein the parties have each delivers to the UK. reversions to current market rent. acted knowledgeably, prudently and without Total return compulsion. ERV Capital growth plus the net income as a The estimated market rental value of lettable Material issues percentage of capital employed. space. An issue that would impact our business and Vacancy rate committee decisions. Finance lease The rental value of voids (excluding those A lease that transfers substantially all the Net income surplus held for development) as a percentage of risks and rewards of ownership from the Profit payable to the Treasury. the total rental value of the portfolio. lessor to the lessee. Also referred to as Net revenue profit. Void Head lease Open A1 planning consent Unoccupied and unlet space. A leasehold interest held directly from the A planning consent which permits freeholder and subject to one or more occupation within the A1 Shops use class underleases in the whole, or part of the under the Town and Country Planning property. (use classes) Order 1987 without any restriction as opposed to an A1 use IFRS restricted to bulky goods, such as furniture International Financial Reporting Standards. or white goods.

120 The Crown Estate Integrated Annual Report 2015/16

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