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

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

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

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

Landsec Annual Report 2017 1 2 the placeeven more inviting for visitors. That’s cut costs and energy use, and helps make efective we’ve turned of theairconditioning. At Bluewater, our upgraded system is so supplies airasfresh as you’d fndatthecoast. ventilation system at The Zig Zag Building and productive spaces. Which is why our We design our buildings to be healthy, efcient Landsec Annual Report 2017 Report Annual Landsec A breath of fresh air Our year Report Strategic

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

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

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

Community impact We’ve launched the UK’s frst scafolding academy inside a prison, helping ofenders at HMP Brixton get the skills and experience they need to fnd employment outside – reducing the risk of re-ofending.

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

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

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

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

6 Landsec Annual Report 2017 Strategic Report Strategic

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

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

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

Landsec Annual Report 2017 7 8 and theRoyal Parks. transformation of this area between Victoria Station public art and striking architecture complete the with hundreds of alfresco diningseats. Pedestrianisation, pop-up kiosks are set to open this summer, together work, visit andplay. 17 new restaurants andthree eateries making this a stylish and delicious place to of array an and space ce of landmark SW1, of with We’ve created a stunning new destination in the heart

Landsec Annual Report 2017 Report Annual Landsec Nova shines bright

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

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

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

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

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

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

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

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

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

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

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

Landsec Annual Report 2017 13 14 World Architecture Festival. Architecture World was named ‘Best o fce scheme in the world’ at the exceptional natural light – just some of the reasons it terraces, shower rooms, fltered air, stunning views and public realm in SW1. The ofces feature outdoor ofce space with retail, restaurants and re-imagined productive. The Zig Zag Building combines high-end makes employees happier, healthier and much more Research tell us that enriching the work environment

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

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

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

RobertNoel Executive Chief

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

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

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

6

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

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

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

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

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

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

Go to page 24 for more information

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

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

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

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

Get an overview of these opportunities and challenges on page 18

Landsec Annual Report 2017 21 Market cycle

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

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

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

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

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

Investing through the life-cycle

Refurbish or retroft to re-let

Invest Reinvest capital capital

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

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

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

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

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

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

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

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

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

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

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

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

Reported Threshold Reported Threshold Retail London

24 Landsec Annual Report 2017 Strategy Delivery Reward Report Strategic

Performance vs KPIs Strategic objectives Remuneration Management of risk

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

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

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

35% increase in Leesman employee survey score versus 2016

Sustainability Matters 7 Operational efciency 7 Community Employment 7 Programme

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

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

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

Inputs Core activities

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

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

Manage Develop

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

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

Outputs

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

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

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

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

£ Financial

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

Revenue proft1 (£m) Chart 7 Valuation surplus/ Chart 9 Adjusted diluted Chart 10 Dividend Chart 12 (defcit)1, 2 (£m) net assets (pence per share) (pence per share)

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

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

Adjusted net debt (LHS) Group LTV (RHS)

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

Sustainable design and innovation We think about the long-term Social appeal, impacts and resilience of our assets, designing with long- term value in mind. We look to Customers enhance biodiversity and support From retailers to shoppers and the wellbeing of those who use diners, from ofce occupiers our buildings. And we work closely and their employees who work with our partners to minimise in our spaces to their visitors, we environmental impacts. aim to provide our customers with a fabulous experience. We Natural resources design our buildings to support Being efcient helps us to the wellbeing and productivity mitigate our impacts and reduce of those who visit and work cost. Our aim is to reduce carbon in them. Diversity intensity, energy and waste while A broad range of backgrounds maximising the benefts of the Jobs and opportunities and perspectives make us a space we create and manage. We create income for our stronger business. We always look to be thoughtful employees and those of our and smart in the way we buy, use, many suppliers. We aim to Living wall re-use and dispose of resources. Featuring 52,000 plants, ensure that everyone who 20 Fenchurch Street’s living Target works on our behalf is treated Health, safety and wall enriches both the — To reduce carbon intensity and paid fairly and promptly. security (kgCO /m2) by 40% by 2030 We believe our business should visitor experience and urban 2 We work to maintain an compared with a 2013/14 refect the diversity of the biodiversity. exceptional standard of health, baseline, for property under communities we serve. And safety and security in all the our management for at least we help disadvantaged people working environments we two years, with a longer-term and young people to access job control. We also partner and ambition of an 80% reduction opportunities in our industry. collaborate with others to help by 2050 raise standards in our industry — To continue to procure 100% renewable electricity across Target our portfolio and achieve — To help a total of 1,200 3 MW of renewable electricity disadvantaged people capacity by 2030 secure jobs by 2020 — To send zero waste to landfll — To ensure the working with at least 75% recycled environments we control are across all our operational and fair and ensure that everyone construction activities by 2020. who is working on our behalf – within an environment we control – is paid at least the Living Wage by 2020.

Landsec Annual Report 2017 29 £ Financial review

Highlights

£382m Revenue proft1 (2016: £362m)

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

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

Martin Greenslade Greenslade Martin Ocerf Financial Chief

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

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

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

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

Taxation 1 2 Net rental income movement in the year

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

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

Revenue proft Table 14

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

1. Includes fnance lease interest, after rents payable.

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

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

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

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

Valuation analysis Table 18

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

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

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

Landsec Annual Report 2017 33 Profts on disposals Our net assets principally comprise the Combined Portfolio less net debt. Profts on disposals relate to the sale of investment properties, trading We calculate an adjusted measure of net assets, which is lower than our properties, joint ventures and other investments. We made a total proft net assets reported under IFRS due to an adjustment to increase our net on disposals of £67m, compared with £120m last year. The proft on disposal debt to its nominal value. We believe this better refects the underlying of investment properties of £20m includes the disposal of The Printworks, net assets attributable to shareholders as it more accurately refects the Manchester and Ealing Filmworks. The proft on disposal of trading properties future cash fows associated with our debt instruments. of £36m includes a proft on the settlement of our remaining interest in the At 31 March 2017, our net assets per share were 1,458p, a decrease Kodak land at Harrow, together with the sale of residential units at Nova of 24p or 1.6% from 31 March 2016. At 31 March 2017, adjusted diluted and Kings Gate, both SW1. Other profts on disposal amounted to £11m. net assets per share were 1,417p, a decrease of 17p or 1.2% from 31 March 2016, driven by the reduction in the valuation of the Combined Portfolio. Net fnance expense (included in capital and other items) Chart 20 summarises the key components of the £159m decrease in This largely comprises the amortisation of the bond exchange our adjusted net assets over the year. de-recognition adjustment (as explained in the notes to the fnancial Movement in adjusted net assets (£m) statements) and the fair value movement on interest-rate swaps. 1 YearMovement ended 31 March in2017 adjusted net assets (£m) Chart 20 Exceptional items 12,000 This year we’ve classifed two items totalling £169m as exceptional. 382 (147) 67 (289) They’re excluded from revenue proft by virtue of their exceptional nature, 11,365 (140) (32) but form part of our pre-tax profts. 11,206 During the year, we purchased some of our bonds with a nominal value 11,000 of £690m, paying a premium of £137m. The redemption premium and £30m of the bond exchange de-recognition adjustment associated with the redeemed bonds, £2m of unamortised issue costs and £1m of associated 10,000 fees (£170m in total) have been charged to the income statement as a fnance expense. Further details are given in the fnancing section below. Other Dividends At 31 March 2016, we provided for the onerous lease on our head f t pro Revenue Redemption of Redemption at 1 April 2016 April 1 at Valuation de f cit Valuation ofce at 5 Strand, which arose following our commitment to move to 2017 March at 31 f ts on disposals Pro medium term notes medium term 100 Victoria Street, SW1. During the year, we agreed to assign the lease assets net Adjusted assets net Adjusted on 5 Strand to a third party at a lower net cost than originally estimated 1. Including our proportionate share of subsidiaries and joint ventures, as explained in the and we’ve therefore released the balance of the provision of £2m. Partly Presentation of fnancial information above. ofsetting this release is £1m of relocation costs incurred during the year.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Jobs Target

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

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

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

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

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

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

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

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

42 Landsec Annual Report 2017 Risk management framework Report Strategic

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

Risk heat map

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

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

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

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

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

Risk Mitigation Opportunity Strategic Change in objective the year

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

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

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

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

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

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

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

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

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

Colette O’Shea Managing Director, London Portfolio

46 Landsec Annual Report 2017 London Report Strategic Portfolio review

Actions and outcomes Our results

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

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

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

48 Landsec Annual Report 2017 Strategic Report Strategic

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

Landsec Annual Report 2017 49 Retail Portfolio review

Our results Actions and outcomes

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

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

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

Scott Parsons Managing Director, Retail Portfolio

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

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

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

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

1. On a proportionate basis.

Landsec Annual Report 2017 53 Going Viability Concern Statement

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

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

Robert Noel Chief Executive

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

Dame Alison Carnwath Carnwath Alison Dame Chairman

56 Landsec Annual Report 2017 Governance 57

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

We conducted an internal evaluation and I thank them for their commitment. and I thank them for Carnwath Alison Dame Chairman of our Board’s eectivenessf during theyear. this of outcome and followed process The review and its results are set out on page 66. Looking ahead At Landsec,we are fortunate to have a are who Management Senior and Board very experienced and exceptionallywell providing with engaged are We ed. f quali whilst returns attractive with shareholders property a top-class giving customers hard work employees our All experience. business the for enthusiasm our share and ectiveness f e and changes Board Nicholas Cadburywelcome to I am delighted and January 1 on joined Nicholas Board. our to experience that commercial wealth of brings a in said I As discussions. Board our inform will will O’Byrne Kevin year, last you to letter my year this later Board the from retiring be as over take will Nicholas does, he when and, had having Committee Audit the of Chairman year’s this of oversight Kevin’s of t f bene the thanks special my convey to like would I results. and Board the on years nine his for Kevin to Committee. Audit the his leadership of and more broadly when looking at future future at looking when broadly more and can Landsec that role the and opportunities parts other in see will You sense. wider a in play this how of examples Report Annual this of the business. practice throughout is put into will you Report Sustainability separate our In the building the business for we are see how for legacy strong a leave we that so future contribution our of part As us. following those to thewider issues of governance currently the to responded we consideration, under Green Governance Corporate Government’s Paper and await the outcome initiatives. governance and other of that review and securitysafety Health, our customers, of and security safety The health, remains visitors and contractors employees, our with closely work We us. for priority top a that record safety a maintain and partners Our benchmarks. industry of ahead well is mental on year last the over position leadership us saw industry construction the in health our to December in visit the with recognised for State of Minister the by Victoria in site Nova ecting f Re Work. and Health People, Disabled vigilant remain we threats, ever-changing the both and cyber physical security. on matters of The expectations being placed on companies, The expectations being placed companies, on being judged, are which they ways in and the these debates Board The rapidly. changing are investments c f speci considering when issues

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

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

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

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

Before that, he held the position of of position the held he that, Before Cressida was previously a member of of member a previously was Cressida 2014 in CBE a received Cressida LandsecAnnual Report 2017 Independent (as per the UK Corporate Corporate UK the per (as Independent Code). Governance Committees of Chairman become will He Committee. Kevin to succession in Committee, that 2017. conin frmedbe to date a at O’Byrne, 10. NicholasCadbury 10. Director* Non-executive Non- a as Board the joined Nicholas 2017. January 1 on Director executive Career held has he position a PLC, Whitbread of 2012. November since Farnell Premier of Ocer f Financial Chief to prior and 2011, in joined he which PLC, a in PLC Retail Dixons at worked he that managementincludingvarietyasofroles, 2011. to 2008 from O cer f Financial Chief an as ed f quali originally Nicholas Waterhouse. Price with accountant experience and competencies Skills, and wide-ranging brings Nicholas general and nancialf international Group the to experience management facing consumer in working from gained leisure retail, the in particularly businesses, has also He sectors. hospitality and operational and commercial extensive strategy to relation in skills and knowledge development. IT and * Non-executive Director* Non-executive Non- a as Board the joined Cressida 2014. January in Director executive Career in them joined having plc Group 3i with 1995from JPMorgan. She co-founded becoming 3i’s 2005, in business infrastructure the led and 2009, in Partner Managing Adviser Investment as acted which team 250 FTSE a plc, Infrastructure 3i to all on advised She company. investment from transactions Infrastructure’s 3i of leaving her to through 2007 in otation f its 2014. in UK’s advisory the the Infrastructureboardfor on UK, works that unit Treasury HM the is She priorities. infrastructure long-term of Head Director, Managing currently Plan Pension Canada the of Infrastructure, non-executive a and Board Investment Limited Group Water Anglian of director Ltd. Holdings Ports British Associated of and investment infrastructure to services for policy. and experience and competencies Skills, of understanding deep a has Cressida projects infrastructure long-term large, considerable has She businesses. and general returns, investment of experience leadership. and management Committees Committee. Remuneration 9. Cressida Hogg CBE

Chairman of the the of Chairman A member of the Audit Audit the of member A

gure within the private private the within gure f senior A Stacey is a Director Emeritus of of Emeritus Director a is Stacey

Simon is a trustee of the University University the of trustee a is Simon Stacey has served as Chairman of of Chairman as served has Stacey Skills, competencies and experience experience and competencies Skills, ofunderstanding extensive has Simon metrics nancial f management, portfolio capital on rates interest of impact the and equity private in expertise has He markets. considerable and markets capital and talented highly managing experience professionals. Committees member a and Committee Remuneration Committee. Nomination the of executive positions held in retail and and retail in held positions executive industries. other Committees a 2017, April 1 from and, Committee Committee. Nomination the of member Simon8. Palley Director* Non-executive a as Board the to appointed was Simon 2010. August in Director Non-executive Career a had has Simon industry, equity in career ranging broad and successful and consulting banking, investment at career his started He equity. private Bain to moving before Manhattan Chase join to 1988 in there left He Company. & and President Vice a as Trust Bankers equity private a Partners, BC to moved years, 17 for worked he where 1990 in rm, f Partner. Managing of position the to rising the of Chairman became then Simon Partners Centerbridge rm f equity private is He 2013. until held he post a Europe, UK of director non-executive a now Adviser Senior a Investments, Government TowerBrookto Capital Partners andan GIC. of arm equity private the to adviser Wharton The of graduate MBA an is He Pennsylvania. School, Foundation. Tate The and Pennsylvania of Non-executive Director* Director* Non-executive Staceyjoined theBoard Non-aas 2012. January in Director executive Career served she where Company & McKinsey for internationally and US the in clients co-founded she there, Whilst years. 24 rst f the was and ce f o Jersey New the industry an as appointed be to woman the in leader a was She leader. practice Goods Consumer and Retail rm’s f North the of head the as served Practices, Practice Apparel and Retail American Practice Retail Global the as acted and & McKinsey from retired She Convener. has and 2010 September in Company career. portfolio a pursued then since Inc Group Restaurant Fiesta of Board the since company) listed NASDAQ (a Februaryand2017 as non-executivea positions Former 2012. since director Inc CEB of director non-executive include advisory member-based listed NYSE (a listed NYSE (a Inc ANN company), and specialtyretailer) apparel woman’s Corporation. Holding Tops experience and competencies Skills, to thought analytical deep brings Stacey of expertise considerable with Board, the a at gained insights and trends retail management international leading board cant f signi has She consultancy. non- through gained experience level 7. Stacey Rauch

Chairman of the Audit Audit the of Chairman A member of the Audit Audit the of member A

Kevin is a chartered accountant accountant chartered a is Kevin Chris is a chartered surveyor. He He surveyor. chartered a is Chris

Chris is currently a Wilkins Fellow Fellow Wilkins a currently is Chris 6. Chris6. Bartram general management positions at large large at positions management general long-standing a is He retailers. listed of Chairman and Director Non-executive his use to able is who Committee Audit the cycle property a across gained experience to challenge additional bring to management. Committees the of member a and Committee Committee. Nomination Sainsbury PLC on 9 January 2017, joining January2017, 9 on Sainsbury J PLC where PLC Group Poundland from them from Ocer f Executive Chief been had he 2016. December 31 until 2016 July 1 Director Finance Group was he Formerly, 2012 to 2008 from plc sher f King of its of CEO became he which following China, in businesses Koçtas and B&Q left he until UK, the and Germany Turkey, previous His 2015. May in business that of Director Finance Group include roles Finance European and plc Retail Dixons Company. Oats Quaker The of Director experience and competencies Skills, Kevinhas extensive understanding gained of retail insights and operations trends, and nancial f senior of number a during 5.Kevin O’Byrne Director* Non-executive a as Board the to appointed was Kevin and 2008 April in Director Non-executive Independent Senior of position the held 2016. July 21 to 2012 April from Director Career He Andersen. Arthur with trained who of Ocer f Financial Chief appointed was Committees President of the British Property British the of President Bank the of Chairman and Federation Forum. Property England of of University College, Downing of board advisory an and Cambridge, within entities overseas certain to member Group. Estate Real Capital Brack the experience and competencies Skills, industry, property the of scion a is Chris investment, property of decades with allocation capital and management fund of range a across gained experience real the within disciplines and businesses cant f signi has He sector. estate a as management general of experience of Chairman and Executive Chief former businesses.signicantf Non-executive Director* Non-executive a as Board the to appointed was Chris 2009. August in Director Non-executive Career Orchard of Partner and Chairman was LLP, Management Investment Street leadingcommercialpropertya investment until market, UK the on focused manager as act to continued and 2015, March 31 2017. March 31 until rm f that to adviser an Crown The of Counsellor Board a was He having 2015, December 31 until Estate Member. Board a as served previously Managing include positions Former of Chairman NV, Haslemere of Director Management, Fund Wootton Lang Jones and Nomination Committees. Committees. Nomination and A member of the the of member A Chairman of the the of Chairman

Edward became Vice Chairman of of Chairman Vice became Edward Dame Alison worked in in worked Alison Dame

Edward is a Board member of The The of member Board a is Edward Edward joined Jupiter in 1994 as a as 1994 in Jupiter joined Edward Dame Alison was appointed a Dame Dame a appointed was Alison Dame Dame Alison is currently a non- a currently is Alison Dame Remuneration Committee and, from from and, Committee Remuneration the of member a 2016, September 29 Committee. Nomination understanding of stock markets and markets stock of understanding expectations. investor Committees cant experience of of experience cant f signi has Edward of CEO former a as management general listed large a and backed equity private a manager fund a been Having company. excellent an has also he years, many for Fairbairn Foundation and a trustee of of trustee a and Foundation Fairbairn of Age the of Orchestra the Enlightenment Trust. experience and competencies Skills, moving to Electra Investment Trust in 1986 1986 in Trust Investment Electra to moving manager. fund a was he where Esmeé the of trustee a Forum, Investor fund manager and held the position position the held and manager fund UK to 1999 from Ocer f Investment Chief of Schroders at career his started He 2000. before analyst investment an as 1982 in through a management buy-out from its from buy-out management a through 2007 in Commerzbank, owners, previous the on listing rm’s f the oversaw and Exchange2010. LondonStockin Career March in plc Management Fund Jupiter Ocer f Executive Chief been having 2014, his During 2007. June since company the of company the steered Edward CEO, as time Edwardjoined BoardtheNon-a as was He 2014. January in Director executive on Director Independent Senior appointed 2016. July 21 4. Edward4. Bonham Carter Director* Independent Senior Committees of member a and Committee Nomination Committee. Remuneration the to create the optimal Board environment environment Board optimal the create to Directors fellow her of out best the get and has She meetings. outside and during both management, asset alternative in expertise manufacturing. global and banking Skills, competencies and experience experience and competencies Skills, board cant f signi very has Alison Dame of range a across gained experience level her enables This countries. and industries and audit committee chair of the Frankfurt Frankfurt the of chair committee audit and SE. BASF company, chemicals listed business. to services her for 2014 in Group Limited, Paccar Inc (a Fortune 500 500 Fortune (a Inc Paccar Limited, Group senior a and Limited, CICAP and a company) also is She Partners. Evercore to and advisor Takeovers on Panel UK the of member member board supervisory a and Mergers plc, Glas Cymru Cyfyngedig (Welsh (Welsh Cyfyngedig Cymru Glas plc, Water),Barclays plc and Man Group plc. Insurance Zurich of director executive Dame Alison was also a Senior Partner at Partner Senior a also was Alison Dame Managing a and Securities Phoenix Jenrette. & Lufkin Donaldson, at Director director non-executive a as served has She Group Gallaher plc, Provident Friends of nance for 20 years before pursuingbeforeyears 20 for fnance banking her During career. portfolio a female rst f the became she career, Co. & Wagg Schroder Henry J. of director a Non-executive Director in September 2004 2004 September in Director 2008. Non-executive a November in Chairman became and Career corporate and banking investment 3.Dame Alison Carnwath Board the of Chairman as Board the to appointed was Alison Dame Non-executive Directors Non-executive Executive Committee

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

60 Landsec Annual Report 2017 Governance 61

LandsecAnnual Report 2017 Health, Safety and and Safety Health, Committee Security for Responsible Group’s the overseeing policy health and safety security and operations, and policy governance, at all Group procedures performance properties, and targets against goals. towards progress cient, reliable and and reliable cient, f su receive Committee each and Board The provided meetings and are of in advance information timely to expertise and resources necessary all to access given or with their undertake and responsibilities their l f ful to them enable ectiveduties in an ef manner. The role of the Board Board the of role The its committeesand Nomination Committee Committee Nomination composition and size structure, the Reviews of the Board and its Committees and Board the to recommendations makes responsibility It has oversight accordingly. and Board the of planning succession for process the leads and Management Senior monitors It appointments. Board new for and governance in corporate developments accordingly. advises the Board pages on 64-67. details More ecting the the ecting f a issues business. Sustainability Committee developing for Responsible the implementing and sustainability Group’s to linked strategy, with integrated and overall Group’s the In strategy. corporate considers also it so, doing social, environmental, energy and economic Retail and London Committees Executive the for Responsible and operational nancial, f performance governance Retail and London the of Each portfolios. business also can Committee up transactions approve to avalue of £10m. Chief Executive Executive Chief the of leadership for Responsible Group’s the of articulation and Group and developing with together Vision, the managing strategy, implementing and business the of performance overall motivated and ective f e an ensuring approve can He place. in is team leadership £10m between value a with transactions below. details More and £20m. Remuneration Committee Committee Remuneration Reviews and recommends to the Board and policy remuneration executive the of packages the remuneration determines members other and Directors Executive the has also It Committee. Executive the of remuneration Group’s the of oversight employees. all for policy pages on 76-91. details More The matters reserved to the Board and the terms of reference reference of terms the and Board the to reserved matters The an on reviewed are which Committees, its of each for at website Company’s the on found be can basis, annual within fall these of outside matters Any www.landsec.com. reports He authority. and responsibility Executive’s Chief the through Committees Management all of activities the on to reports regular cer’s) f O Financial Chief the (and his the Board.

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

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

metrics over the short short the over metrics also It term. medium and impact likely the considers of macro-economic the on developments April 1 From business. will Committee this 2017, the into subsumed be Committee.Investment Asset and Liability Liability and Asset Committee for Responsible of impact the considering purchases, proposed sales, debt and developments arrangements funding balance Group’s the on control internal and sheet

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

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

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

Board meetings and attendance Table 29

AGM

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

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

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

62 Landsec Annual Report 2017 Governance 63

Table 30

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

o

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

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p

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

3. Internal control and risk management management and risk control Internal 3. — — — Leadership4. and people — — — —

Traf cking statement for publicationwebsite its on with continue to agreed and Considered scheme Defned Beneft Pension American the of closure the Agreed Depositary programme. Receipt Chairman of the Audit, Remuneration and Remuneration Audit, the Chairman of Committees Nomination the to change no approved and Reviewed Directors Non-executive for annual fees and Regulations Abuse Market the Considered an updated Securities Dealing Codeapproved Slavery and Human the Group’s Approved considered in depth the independent report report independent the depth in considered with a consultation which followed carried out reviewed regularly investors; institutional our feedback from institutional shareholders, roadshows and other engagement activities Reviewed the new Landsec brand proposition the from reports meeting regular Received strategy, including progress versus annual annual versus progress including strategy, targets and improvements planned and safety health, regular Reviewed updates security corporate in developments Reviewed and legal key received and governance updates regulatory and strategy relations investor the Reviewed strategy, including the bond tender and and tender bond the including strategy, issuance. new evaluation the Board of Discussed the outcome agreed and review, ectiveness f e and opportunities improvement sustainability 2020 the Group’s Considered disposals of properties with a value in excess excess in value a with properties of disposals £150m of Going Group’s the approved and Considered dividend Statements, Viability and Concern and arrangement funding debt policy, gearing levels funding bond the approved and Considered by reference to itsby peers approval Board versus performance Reviewed completed acquired, assets and schemes key for or developed and analysis liquidity portfolio Considered exposure development and acquisitions approved and Considered an in-depth review of both the London and and London the both of review in-depth an businesses Retail the property of status Debated the changing risk position, Company’s the including cycle, impact business any for preparations and le f pro political and other risks Brexit Considered versus performance Group’s the Reviewed and benchmarks external targets, and budget Reviewed the Group’s strategy, in particular particular in strategy, Group’s the Reviewed

— — — — — — — — — — — 2. Governance, stakeholders and shareholders shareholders and stakeholders Governance, 2. — — — — — — — — — 1. Strategy, property and funding funding and property Strategy, 1. — The diagram below shows the key areas of Board activity during the year. year. activity the Board during of areas shows the key below The diagram Board activity Board Dear Shareholder, Board composition and succession Letter I am pleased to present the Nomination We believe that the current composition of the Committee report which summarises our Board and its Committees remains appropriate work over the past year. for the time being but this is kept under from the regular review. Governance The Committee supports the ongoing I can report that we complied in full with the development of Directors. It agreed the scope Chairman principles of the 2014 UK Corporate Governance of a comprehensive induction programme for Code throughout the year. You will fnd more Nicholas Cadbury that started when he joined of the detail regarding our compliance, governance the Board and was pleased to support the and efectiveness elsewhere in this report. ongoing professional development of Martin Greenslade who attended a six-week world-class Board and Committee changes Nomination Executive Program at Stanford University, USA, Last year, I explained that Kevin O’Byrne, who last summer. joined our Board as a Non-executive Director Board succession is a very live topic at Committee in April 2008, would be standing down as Committee meetings. In particular, we discuss Senior Independent Director in July 2016, and executive talent and leadership in the wider would retire from the Board in 2017. We started property industry. Our goal is to retain and the external search to fnd Kevin’s successor recruit the best at Board and senior leadership in early 2016, appointing Spencer Stuart (an Committee members levels. As a matter of prudence, we monitor independent search consultancy appointed a range of candidates who may be suitable Dame Alison Carnwath (Chairman) following a tender process) to assist with replacements for existing Directors. We believe Chris Bartram* the recruitment. that Non-executive Directors should generally I am delighted to say that Edward Simon Palley* stay for nine years, with the appointment of Bonham Carter became the Company’s Senior Stacey Rauch* new Directors providing an opportunity to Independent Director in July 2016, and that add diverse perspectives and skills. However, Edward Bonham Carter* the search for a new Non-executive Director it is important to ensure that the experience *Independent Non-executive Director was successful with Nicholas Cadbury joining gained through one property cycle is available our Board on 1 January 2017. Nicholas will for the next, and that we have a mixture of real succeed Kevin O’Byrne as Chairman of the estate, fnancial, retail and general expertise to Highlights Audit Committee later this year. We will issue hand. As such, the Committee may determine — Successful and thorough appointment an announcement in due course to confrm occasionally that it is in the Company’s best process to fnd Nicholas Cadbury the date of Kevin’s retirement. interests for a Non-executive Director with Nicholas is CFO at Whitbread PLC — Increased focus on changes to the particular skills to stay beyond the nine year and therefore has all the technical skills governance landscape afecting term identifed in the UK Corporate Governance required to become Chairman of the Audit the Company Code at which point some investors or Committee. However, it was important to — Thorough assessment of succession plans. governance bodies may begin to question their the Committee that any new Director could independence. Should this occur, we will explain bring complementary non-fnancial skills and the decision and the rationale to shareholders. experience, and Nicholas’ role at a consumer- Key responsibilities Finally, the Committee supports the Board facing business like Whitbread – and previously — Reviews the structure, size and in its work to secure the long-term health of the at companies such as Dixons – will be a true composition of the Board and Company, and its strategy for success in a fast- asset to our Board discussions. On behalf of its Committees and makes changing world. This can only be achieved with the Committee, I extend my warm welcome recommendations to the the right people in the organisation, and the to Nicholas as a member of the Board. Board accordingly Committee has considered the likely business Also, Stacey Rauch joined the Nomination needs of the Company and its management — Oversight responsibility for succession Committee on 1 April 2017 to broaden her capability – and succession plans – at executive planning of the Board and Senior perspective of and contribution to the Company. Management and leads the process and senior management level. We also for new Board appointments recognise and support the extensive leadership development work that is being undertaken — Monitors developments in corporate with all management levels within the Group. governance and advises the Board accordingly.

64 Landsec Annual Report 2017 Governance 65 LandsecAnnual Report 2017

nd more information on these these on information more nd f will You

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

Chairman

Dame Alison Carnwath Carnwath Alison Dame

all the Directors will stand for re-election at at re-election for stand will Directors the all support the with Meeting General Annual the of the Board. and will be in a position to discharge theirwill be discharge in a position to and year. in the coming duties and responsibilities whose Cadbury Nicholas of exception the With time, the frst fed for appointment is being rati for more than sixyears. The Committeewas the other and each of that Simon, fdent con independent remains Directors, Non-executive time commitment of all the Non-executive Non-executive the all of commitment time the of behalf On year. the during Directors in I conducted a specifc review Committee, ce f o in been has he as Palley Simon to relation commitment of each of the Non-executive Non-executive the of each of commitment Committee the by reviewed been has Directors and the contributions fed on which satis itself Independence and re-election to the Board the to re-election and Independence ectiveness ef and The independence, Efectiveness Board, Committee and Directors’ performance evaluation cycle

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

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

66 Landsec Annual Report 2017 Governance 67 Table 31

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

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

Landsec continues to make good progress progress good make to continues Landsec combine to contribute towards a high high a towards contribute to combine better is which Board, ective f e performing, supportable to and direct Company. the of The addition diversity. greater of in terms the that meant has Board the to Cadbury Mr reduced has Board the on women of percentage will this However, year). last 33% (from 30% to reverse later in2017 when Kevin O’Byrne retires voluntary will again be meeting the we and targets set by the Hampton-Alexander review forwomen on the Board of FTSE 350 companies. Further, we are pleased the to report(comprising Landsec thatin 36%Management ofSenior are Leaders) Senior and Committee Executive target voluntary this with line in again women, review. fed in the Hampton-Alexander identi Diversity policy Diversity in its broadest diversity embraces The Board experience, of range wide believingthat a sense, knowledge and skills perspective, background, Nicholas Cadbury Chris Bartram Kevin O’Byrne Hogg Cressida CBE Edward Bonham Carter Potential conficts of interest Director Alison Dame Carnwath

Directors continued to receive regular regular receive to continued Directors The Board and its Committees receive receive Committees its and Board The to the commercial property market the rapidly developing technology that may may that technology developing rapidly the customers its and ectbusiness af the challenges and threats longer-term possible geopolitical and macro-economic trends. macro-economic and geopolitical

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

68 Landsec Annual Report 2017 Governance 69

LandsecAnnual Report 2017 A rigorous process was followed by the the and review, this nd f you that hope I I would like to thank the other members thank the other to would like I

support that I have received throughout throughout received have I that support tenure. my Nomination Committee in appointing my will Nicholas Cadbury. Nicholas successor, Chairman as year this later me replacing be Whitbread of CFO the As Committee. this of customer-facing highly-regarded a PLC, extensive an with 100 FTSE the in company knowledge the has Nicholas portfolio, property relevant and recent (and skills technical and lead this Committee. fnancial experience) to been having of t f bene the have will Nicholas through Committee Audit the of member a his by supported and, process year-end the thisfdent I am con induction programme, a smooth transition. will ensure continuity report that follows, a helpful explanation of Committeeyear. the work of during the the Kevin O’Byrne CommitteeAudit Chairman, and that of its Committees. This evaluation evaluation This Committees. its of that and frmed the Committee that con continued to with clear priorities, at a high standard, operate around clarity and responsibilities ned f well-de workplan. its year ahead The changing rapidly the to already referred have I operates, which the Company in environment changes economic and political important with to follow from the decision to leave the EU. is change technological of pace increasing The assess we that opportunity and threat a both The Committeewill continue basis. on a regular clear provide and management, with work to addresses it that ensure to Board, the to reports the with consistent is that way a in issues these values. and culture Company’s management with together Committee, the of their support for year. during the and EY, new ChairmanAudit Committee– year last my is this earlier, mentioned I As have I Committee. Audit the of Chairman as and time at Landsec, my enjoyed thoroughly fellow my thank the Chairman, to would like management, and the Company’s Directors the for shareholders and advisers external ectiveness f Committeee an out carried Board the year, the During its performance of evaluation facilitated internally

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

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

70 Landsec Annual Report 2017 Governance

71

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

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

Under current regulations, the Company regulations, Under current Audit the of recommendation the On rmation from EY that they maintain maintain they that EY from rmation f con the with line in safeguards internal appropriate standards professional applicable Company the by taken actions mitigation the independent EY’s safeguard to seeking in policies of operation the including status, non- of amount the regulate to designed the and EY by provided services audit employees EY former of employment partner engagement audit the of tenure the years) ve f than greater being (not ectiveness f e and performance internal the review of EY referred to above the outcome of the independent AQRT AQRT independent the of outcome the review referred to above.

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

72 Landsec Annual Report 2017 Governance 73 LandsecAnnual Report 2017 The Company runs a whistleblowing whistleblowing a runs Company The Taking the above into account, together together account, into above the Taking if preferred. These include an independent third- preferred. if telephone a comprising facility reporting party matters Any and an online process. hotline reported are investigated by the Company the Committee, to and escalated Secretary no were there year, the During appropriate. as whistleblowing incidents reported. the and year every campaign awareness induction the of part form also arrangements The policy employees. new for programme cover to extended been have facilities and the of requirements the and suppliers key human and slavery covering legislation new fcking reporting. tra Bribery policy and corruption bribery for policy tolerance has a zero The Board in Company, The sort. any of corruption and to training regular gives policy, the operating of areas highlighting on the procedures, f sta to required are employees New vulnerability. when they module an online training complete have to required are suppliers principal Our join. within place in practices and policies similar their own businesses. requirements in respect of theAnnual Report. editorial an of establishment the included This teamwho were responsible for preparing, and, verifyingand compiling content the the with meetings review regular through consistent that ensuring Directors, Executive between existed links appropriate and reporting Annual the of sections and messages key the to presented was paper c f speci A Report. its in assist to Board) the (and Committee and balanced fair, a of testing and challenge assessment. understandable Committee the EY, by expressed views the with recommended, and in turn the Board confrmed, as a taken Annual Report, 2017 that the understandable and balanced fair, is whole, for information necessary the provides and position, assess the Company’s to shareholders strategy. and model business performance, policy Whistleblowing Group’s the reviews Committee The within a specifc incorporated arrangements, concerns report to employees allow which policy, wrongdoing about or suspected impropriety the within otherwise) or nancial f (whether and anonymously basis, fdential on a con Group Fair, balanced and understandablesame the year this applied Committee The previous in adopted approach diligence due Code key the of one assess to order in years

Additionally, the CommitteeAdditionally, receives and cant cant f signi including register, risk Group’s the have exposures how and risks, emerging and period the during changed maintained by the Group. the by maintained summary reports and progress against against progress and reports summary on audit internal from actions agreed various of ectiveness f e the of review their system control internal the of elements

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

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

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

74 Landsec Annual Report 2017 Governance 75

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

nancial nancial f and business year, the During team treasury our by provided were updates & Standard to management senior and Poor’s, Fitch Ratings and Moody’s c f speci non-deal held team treasury Our institutional side credit with meetings year half the after analysts and investors and full year results key our with maintained is dialogue Regular relationship banks, including at least bi- and team treasury our with meetings annual and Executive the by hosted dinners in-house Directors Non-executive and London portfolios. These were tours Leeds, Trinity conducted Kent, at Bluewater, key Oxford, Westgate Leeds, Rose, White Fenchurch 20 and SW1, Victoria, in properties Street, EC3 In addition our to annual investor conference, tours and presentations various hosted we Retail the in assets major our of some of potential lenders. potential can investors debt our on information Further www.landsec.com/investors. at: found be In addition, the team met with around 40 40 around with met team the addition, In for roadshow deal the of part as accounts in exercise issue new and tender bond the year. this of January/February with engaged actively also team treasury Our We conducted 12 sales team meetings meetings team sales 12 conducted We Executive the provided which year the during present to opportunity the with Directors the to directly performance and strategy our banks. investment major the of teams sales Executive provide conferences Industry large a meet to chance a with Directors and formal a on numberinvestors of this attended Conferences basis. informal Property, Global UBS the included year Lynch Merrill America of Bank and Morgan JP America of Bank the London, in conferences the York, New in conference Lynch Merrill and Amsterdam in conferences Kempen Miami. in Conference Citi the and York New a held Executive Chief and Chairman The dinnersenior the for heads equities of from institutions. UK

Credit rating agencies rating Credit — — Private shareholders’ programme shareholders’ Private give to encouraged are shareholders Private the with communicate and to feedback Secretary. the Company through Directors meet to able also were they year the During Shareholders’ Kingdom United the at Directors Annual the at and meeting Association Meeting. General programme investors’ Debt investors institutional side Credit and analysts — — Banks — — — conferences Industry — initiatives Other — Investor tours and presentations presentations and tours Investor —

During the year, the programme of investor investor of programme the year, the During The Company approaches its debt investor its investor debt approaches The Company The Company has a comprehensive comprehensive a has Company The teams in the business was held in Victoria, SW1, and focused on the the on focused and SW1, Victoria, in held was management senior with Portfolio London its of aspects all on updates presenting our of ve f of tours included day The business. Nova. to visit a including Victoria in buildings opportunity an provided also conference The for attendees meet to the management The investor conference is held annually and and annually held is conference investor The portfolios London and Retail the on focuses conference the year, This years. alternate in The geographic spread of the programme programme the of spread geographic The Africa South America, North Europe, covered East and Far the other and Director, Independent Senior The to available were Directors, Non-executive shareholders with meet shareholders representing more than half half than more representing shareholders year the during value by register the with contact maintained Chairman The her undertook and shareholders principal UK the in roadshows investor biennial usual Netherlands the and The Executive Directors had meetings with with meetings had Directors Executive The The presentations and an audio recording of of recording audio an and presentations The the on available made were conference the non-attendees enable to website corporate to access the information provided. attend the Company’s full year and half- and year full Company’s the attend presentations. results yearly Institutional shareholders were invited to to invited were shareholders Institutional

— Investor conference Investor — — — — — Meetings with principal shareholders with Meetings — events included: programme shareholders’ Institutional any feedback is considered and the Company feedback is considered any from guidance practice best account into takes Association. the Investment to ensure that they understand the objectives objectives the understand they that ensure to major investors. views of and that ensuring basis, partnership a on relations and potential investors understand the the understand investors potential and and performance. strategy business, Group’s Board the to provided is feedback Shareholder investor relations programme (designed for for (designed programme relations investor shareholders private investors, institutional existing help to aims which investors) debt and supported by the Executive Directors, has has Directors, Executive the by supported ective f e ensuring for responsibility overall with shareholders. communication The Board is committed maintaining The Board to and shareholders with dialogue open an relationship that of importance the recognises The Chairman, process. in the governance Approach to investor relations investor to Approach relations Investor Dear Shareholder, As I have highlighted previously, the Directors’ I am pleased to introduce the Directors’ remuneration outcomes for the executives at Remuneration Report for the year. Landsec are largely driven by outperformance The political and economic uncertainty versus our peers and do not always refect our Remuneration to which I alluded last year has certainly absolute performance. For Total Property accelerated in some unexpected ways, Return, our performance is compared to beginning with the UK’s decision to leave the IPD, a widely-used industry benchmark over Report – European Union. Although the UK economy both a one year and three year period, for has continued to perform well overall, the the calculation of bonus and LTIP outturns Chairman’s property industry has been impacted by respectively. Over one year, we estimate wavering consumer and business confdence. that we will have slightly underperformed We believe our decision to complete speculative the benchmark which now encompasses all Annual development earlier than others remains the March-valued properties within IPD. Over a right one. The priorities over the past year have three year period, where we are still measured Statement been to lengthen lease terms in London ofces, against a sector weighted index of the IPD and to lease up our development programme, Quarterly Universe, I am pleased to say we have including Westgate Oxford, due to open in outperformed the benchmark. To have achieved October. Behind the scenes, we have also been this while putting the business on such a strong active in ensuring that the business is in the fnancial footing is a very good performance. Committee members best possible position – fnancially, culturally, In terms of Total Shareholder Return, we are reputationally and capability-wise – to take measured over a three year period and were Simon Palley (Chairman)* advantage of new opportunities to deliver disappointed not to outperform our peer group. Dame Alison Carnwath shareholder value. Edward Bonham Carter* Cressida Hogg CBE* *Independent Non-executive Director

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

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

Simon Palley Simon Committee Remuneration Chairman,

76 Landsec Annual Report 2017 Governance 77

LandsecAnnual Report 2017 I look forward to discussions with some of of with some discussions I look to forward Turning to the Long-Term Incentive Plan, Our Total Property Return of 12.7% per per 12.7% of Return Property Total Our outperformed years three the over annum sector-weighted the benchmark, our of that per 11.5% was which Universe, Quarterly IPD element As this annum. a result, vests in full. over Return Shareholder Total our However, for 16.2% versus 9.2%, was period same the the of element This group. comparator the vest. not does therefore, LTIP,

the right behaviours from our executives, who who executives, our from behaviours right the remain completely focused ongroup thepeer deliveryour of outperform “To – goal stated our through return shareholder total of terms in the property cycles”. you in the coming year. Simon Palley Committee Remuneration Chairman, and 86.1% for Martin Greenslade (57.4% of of Martin for (57.4% Greenslade and 86.1% year. both lower than last maximum), to years three the over performance for is which 31 March the 2017, outturn is as follows: — — awards 2014 the of 50% total, in Therefore, vest. will Looking forward consulting be will we year this Later on our representatives with shareholder the for preparation in Policy, Remuneration Executive AGM. year’s next at vote binding great a attracting is that area an is pay including quarters, many from focus of deal work to keen very are we ever, As government. while sentiment, stakeholder of spirit the within drive to continue proposals any that ensuring When this performance was combined with with combined was performance this When individual their against performance strong the 88.1% was pay-out bonus total the objectives, maximum) of (58.7% Noel Robert for salary of

As I mentioned above, our measure of Total Total of measure our above, mentioned I As and broader a uses now Return Property benchmark IPD unweighted of March- all not was benchmark The properties. valued we but writing, of time the at available in resulting underperform, slightly to expect bonus. the of element this from payment no again was performance t f pro revenue The threshold our above cantly f signi strong, very from rents ectsf increased re This 2015. in set and programme development successful our outweighing than more costs, interest lower rent lost through disposals last year. There discipline ongoing strong been also has managementaround the of costs. This full. in out paid plan the of element letting targets have been challenging to to challenging been have targets letting have objectives corporate Other meet. the through culture the evolving on focused our with ahead pressing and move ce f o these and agenda, sustainability ambitious met. been largely have c business business c f speci the against Performance a had Retail mixed. more was objectives for demand high with performance, strong successful the and Oxford, Westgate at space Rose, White to extension the of pre-letting London, In highlights. particular as Leeds and political current of impact the where been has demand on uncertainty economic development ambitious the felt, keenly more

last year’s outturn. The performance can be be can performance The outturn. year’s last summarised as follows: — — — More detail on remuneration remuneration on detail More year the for outcomes was slightly year the bonusThe annual for but below Directors, Executive for above target

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

Fixed pay

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

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

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

Base pay Pension Benefts Base pay Pension Benefts

Annual bonus outturns

Robert Noel 2017 Chart 36 Martin Greenslade 2017 Chart 37

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

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

Robert Noel 2016 Chart 38 Martin Greenslade 2016 Chart 39

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

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

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

LandsecAnnual Report 2017

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

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

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

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

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

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

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

Annual bonus Long-term Pension Annual bonus deferred into Total incentives Basic salary1 Benefts2 allowance3 paid in cash shares4 emoluments vested5 Total

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

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

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

– – – – – – – –

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

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

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

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

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

Pension Pension Assessment — — — — — — — — — — — — — — — — — – – – – – – – – allowance

2016/17 7.8 5.2 4.2 6.2 18.2

39.0 39.0 – – – – – – – – (£000) Percentage Percentage (maximum) 2015/16 of base salary base of ts f Bene – – – – – – – – 2016/17

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

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

Non-executive Directors Non-executive 1. in 2017) and the extension of White Rose, Leeds. Net Net Leeds. Rose, White of extension the and 2017) in the as used were rents headline, than rather ective, f e key measure of performance. c targets were set for both both for set were targets c f speci – lettings Development the on focus a with portfolios, Retail and London the London developments andWestgate Oxford (opening Key business targets Property Return (TPR) relative to an IPD benchmark benchmark IPD an to relative (TPR) Return Property propertiescomprising all March-valued (excluding Landsec).Total benchmark value c. £170bn. Target Total ungeared Group’s The – Return Property Total Annual bonus outturn Annual In the year under review, each Executive Director had the potential to receive a maximum annual bonus of up to 150% of base salary. Of this, 130% was was 130% this, Of salary. base of 150% to up of bonus annual maximum a receive to following The potential the year. had the of Director beginning Executive the each at set were review, targets under All year the In targets. personal meeting on dependent 20% and targets Group meeting on dependent table confrms the targets and their respective outcomes.The on-target bonus expectation is 75% of salary. 1.2 Dame Alison Carnwath Dame Singlegure of remunerationf total for each Director Residential speci – salesfc targets were set for the developments. Victoria residential ft. pro growth real revenue in long-term in Group Share Retail (Nova, New Street Square, 20 Eastbourne Terrace Terrace Eastbourne 20 Square, Street New (Nova, Retail Rose). White and c aggregate and individual individual and aggregate c f speci – budgets Project and London both in projects for set were targets budget Kevin O’Byrne c targets were specifc targets culture, customer-focused truly customer external and internal of rollout the around set excellence programmes.An improvement to (already was also sought. satisfaction scores high) customer Customers – recognising the importance of creating a creating of importance the recognising – Customers vision and values and create a step change in a more more a in change step a create and values and vision measured be to culture, innovative and collaborative employee “after” and “before” in movement through a recognised external benchmark.versus surveys People – ensuring that the omaximised as an opportunity embed to the purpose, f ce move to Victoria was Chris Bartram Simon Palley Stacey Rauch Edward Bonham Carter Cressida Hogg Cressida Nicholas Cadbury Annual bonus outturn continued

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

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

130.0 Total Group elements 71.1

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

Total 150.0 Robert Noel 88.1 Martin Greenslade 86.1

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

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

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

Outturn

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

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

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

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

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

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

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

1 1 4 1 79 72 tual tual

Chart 52 £1, Chart 54 Ac £2, Ac

1 0 83 26 £2, £4, Maximum Maximum

8 get get nnual bonus (24.1%) nnual bonus (24.5%) A Long-term incentives (40%) A Long-term incentives (39.2%) 73 ar ar (£000)

£1, £2,622 On-t On-t

) ) y y (£000)

£644 £982 Fixed pa Fixed pa Individual outcomes by Executive Director versus Target and Maximum Target versus Director Executive by Individual outcomes 0 0 0 0 0 0 0 0

Base salary (27.9% Pension (6.9%) Benefts (1.1%) Pension (7.1%) Benefts (0.8%) Base salary (28.4% As proposed to apply for awards to be made thisyear under the LTIP. Percentages are of the actual. ,00 ,00

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

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

Directors’ shares (Audited)Table 56

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

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

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

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

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

84 Landsec Annual Report 2017 Governance 85 2.2 3.1 15.0 10.0

70.0 20.0 dates

375.0 (£000) Table 59 Table 60 Exercisable Exercisable ve years years ve f over (including2017/18) Average % increase % Average 08/2017 – 02/2018 – 08/2017 08/2018 – 02/2019 – 08/2018 (Audited)Table 58 (Audited)Table 2.0 2.0 878 1,938 1,060 % increase% 31 March31 2017 LandsecAnnual Report 2017 Number of options at at options of Number – – (£) 510 784 (£000) Market exercise exercise price at at price FromJune1 2017 – – Number exercised 769 500 Exercised/(lapsed) during year during Exercised/(lapsed) (£000) Current – – per share (p) share per Exercise price price Exercise

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

878 1 April April 1 1,060 1,938 options at at options Number of Number Remuneration Committee Chairman Chairman Committee Remuneration Senior Independent Director Chairman Director Non-executive Chairman Committee Audit Non-executive Director’s fees Director’s Non-executive They have remained unchanged for 2016/17. When Nicholas Cadbury was appointed to the Board on 1 January 2017, he received the published base base published the received he 2017, January 1 on Board the to appointed was Cadbury Nicholas When 2016/17. for unchanged remained have They fee of £70,000 per annum. 3.2 Non-executive Directors’ fees Directors’ 3.2 Non-executive 2016. April 1 ect ef and took from benchmarking exercise, a market following 2015 In Decemberreviewed were Directors Non-executive for The fees Robert Noel Martin Greenslade Accordingly, the followingAccordingly, salaryJune2017: increases ectwille1 f take from Directors Executive cer roles in 2015, the Committee Committee the 2015, in roles cer f O Financial Chief and base a cer f O Directors Executive Chief Executive the both both of awarded exercise therefore has It benchmarking detailed practice. a best conducted emerging Having with line in year, this necessary was exercise formal no that concluded increases. and exceptional promotions excluding the Group, across employees by received increase with the average This is in line 2%. of salary increase 3. Application of Policy for 2016/17 for Policy of Application 3. base salaries Directors’ Executive 3.1 Martin Greenslade qualifying employees (including Executive Directors) and under HMRC rules does performance include rules conditions. not under HMRC and qualifyingDirectors) Executive (including employees The options over shares set out below for Martin Greenslade relate to the Company’s Savings Related Share Option Scheme. The Scheme is open to all all to open is Scheme The Scheme. Option Share Related Savings (Audited) shares ordinary over 2.3 options Directors’ Company’s the to relate Greenslade Martin for below out set shares over options The 3.3 Performance targets for the coming year Table 61

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

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

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

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

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

86 Landsec Annual Report 2017 Governance 87

: A further 194 candidates candidates 194 further A : : Commence Commence : : A further 156 candidates candidates 156 further A : : Commence : A further 174 candidates candidates 174 further A : : Commence implementation implementation Commence : LandsecAnnual Report 2017 rmed in 2018 report.2018 frmedWill be in con rmed in 2018 report.2018 Will befrmed in con rmed in 2018 report.2018 Will befrmed in con cant improvement in both both in improvement cant f Signi satisfaction consumer and internal maximum for is required scores payout. For maximum, two out of four four of out two maximum, For with 2018, by achieved targets the towards progress measurable other two. Tangible examples of innovation innovation of examples Tangible inwill be stated and will be required 2018 report. Threshold employment into Target employment into Maximum employment. into Target fed identi sites in 60% of Maximum of in 80% implementation and identifyfedidenti sites further opportunities. Threshold of in 40% implementation fedidenti sites rmed in 2018 report.2018 Will befrmed in con

— Performance range — — — — — — — — — — — —

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

— Performance measure — — — — — — — — — — —

A high profle new openingt f pro andrevenue keyand income of driver in the future development the of value the Proves growth. capital and drives Key driver of income, revenue growth.and capital proft Ensures that momentum is is momentum that Ensures a of delivery the behind maintained key iconic project. Ensures that the needs of Ensures and future, both current customers, ways culture, our of heart the at are workingof and decision-making. Allows us to attract and retain retain and attract to us Allows of (in terms talent the diverse background) and ethnicity gender, the anticipate fully to necessary our customers. changing needs of ciently sufciently we remain that Ensures strategic our in future-facing long-term the ensuring focus, the business. of sustainability communities in which it operates, which it operates, communities in by future a sustainable and create workforce. building a skilled A key way in which Landsec can can Landsec which in way key A the to commitment its on deliver Key to our long-term responsible a as sustainabilityreputation and business. Director focuses on his individual individual his on focuses Director sense, in the broadest contribution to, limited but not with, aligned specifc business targets personal on focus a Encourages development. Ensures that each Executive Executive each that Ensures

— — Link to strategy and value for shareholders for value and strategy Link to — — — — — — — — —

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

— continued Metric 3.3 Performance targets for the coming year year coming the for targets Performance 3.3

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

Total Shareholder Return (Unaudited) Chart 62

400

359.9

350 325.2 323.9 324.7

300 285.0 304.0 303.0

250 264.4 ) 224.1 250.3

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

100

50

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

Land Securities Group PLC FTSE 100 FTSE 350 Real Estate

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

Chief Executive remuneration over eight years Table 63

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

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

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

133,717 ¹ withheld Table 65 Table 64 Table 66 % change% Number of votes votes of Number 55 255 (£m) 0.63 Against ts f Bene % of votes votes of % March 2016 March No change No change LandsecAnnual Report 2017 % 50 For 289 (£m) +2.4 +2.0 Salary 99.37 % of votes votes of % March 2017 March

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

Simon Palley Committee Remuneration Chairman of The Directors’ Remuneration Report was approved by the Board on 17 May 2017 and signed on its behalf by: and signed on its2017 behalf by: 17 May on the Board by Reportwas approved The Directors’ Remuneration 1. To approve the Annual Report on Remuneration for the year ended 31 March 2017 Resolution Resolution 8. Results of the voting on the Directors’ Remuneration Report at the AGM in 2016 2016 in AGM the at Report Remuneration Directors’ the on voting the of Results 8. as follows: were AGM 2016 Report the Directors’ Remuneration at the Company’s in respect of seeking approval cast on the resolutions votes The ed that the advice it receives is independent and objective. Aside from some support in benchmarking benchmarking in support some from Aside objective. and fees independent is received it receives it advice review, the under that year ed f satis is nancial f the Committee For The Group. Conduct. the of with Code Group connection other no has Hewitt Aon purposes, review pay for Board the below roles of £76,290 in connectionwith itswork for the Committee. of various published surveys to help determine appropriate remuneration levels and relied on information and advice provided by the Group General General Group the by provided advice and information on relied and levels remuneration appropriate determine help to surveys published various of Consultants the Remuneration signed up to HewittAon voluntarily has Director. Human Resources and the Group Secretary Counsel and Company the other members during the year were Dame Alison Carnwath, Edward Bonham Carter and Cressida Hogg. The Committee meetings were also also were meetings Committee The Hogg. and the Committee, chaired Cressida Simon Palley and the members attended and all of all meetings. Carter year, the of the course The Committee times over met four Bonham the Edward as acted who Carnwath, Alison Secretary Dame Company were and year Counsel the during General members Group the other and the Director, Resources Human Group the Executive, Chief the by attended Secretary. Committee’s ed by the allotment of newly issued shares. At 31 March 2017, the total number of shares which could be be could which shares of number total the 2017, March 31 At shares. issued newly of allotment the by ed f satis be can Group, the with service month’s the Company. of capital the issued share 1% of less than fcantly signi which represents shares, was 354,783 allotted under this Scheme 7. Remuneration Committee meetings t Trust (administered by an external trustee) which acquires acquires which trustee) external an by (administered Trust t f Bene Employee an of funding the through ed f satis are Plan Option Share Executive the existing Land Securities Group PLC shares in theThe market. Employee Bene fTrust heldt 792,556 shares at 31 March2017. 2. and Plan Bonus Share Deferred MSP, LTIP, the under made those cover Dilution which 6. arrangements, incentive long-term Company’s the under granted Awards 1. % change Metric Spend on pay The chart below shows the total spend on pay for all Landsec employees, compared with our returns to shareholders in the form of dividends: of in the form shareholders to with our returns compared employees, all Landsec spend for pay The chart on shows the total below 5.2 The relative importance spend on pay of The relative 5.2 Chief Executive Chief Average employee below the Board, this rose to 2.4%. The ratio of the salary of the Chief Executive to the average salary across the Group (excluding Directors) was was Directors) (excluding Group the across salary average the to Executive Chief the of salary the of ratio The 2.4%. to rose this Board, the below 13:1 (£768,668:£58,683). from 37.6% to 74.5% of salary (2016: 40.1% to 114.2%). The average bonus was 55.6% of salary (2016: 67.0%). The LTIP and MSP awards made to Senior Senior to made awards MSP and LTIP The 67.0%). (2016: salary of 55.6% was bonus average The 114.2%). to 40.1% (2016: salary of 74.5% to 37.6% from Directors. Executive made to basis on the same awards as the vested Management employees other All b. employees for Including salary adjustments and promotions 2.0%. was Directors, the Executive including all employees, for increase pay The average 5.1 Pay across the Group the across Pay 5.1 ranged Directors) Executive the (excluding employees senior most 16 Seniorour Management a. for bonuses) discretionary (including bonuses review, under year the During 5. The context of pay in Landsec in pay of The context 5. Dividend paid AGM, and intended to remain in place for targets, with a signifcant proportion of Summary three years. The Policy set out in the Additional remuneration weighted towards performance- Information section of this Report therefore linked variable pay. remains in force until 2018, when any proposed The Committee operates within the Policy of Directors’ revisions will be discussed with shareholders, at all times. It also operates the various incentive and their views sought, well in advance of the plans and schemes according to their respective AGM. A summary statement on the planned rules and consistent with normal market Remuneration application of the Policy in 2017 is shown in practice, the UK Corporate Governance Code table 67 below. and, as applicable, the Listing Rules. Within the Policy The Remuneration Committee’s primary Policy, the Committee will retain the discretion objective when setting the Policy is to provide to look at performance “in the round”, including competitive pay arrangements which promote withholding or deferring payments in certain the long-term success of the Company. To circumstances where the outcomes for Directors 1. Approach to Policy achieve this, the Committee takes account of are clearly misaligned with the outcomes for As stated in last year’s report, some revisions the responsibilities, experience, performance and shareholders. Any specifc circumstances which were made to the Company’s long-term contribution of the individual, as well as levels necessitate the use of discretion will always be incentive arrangements in 2015. The Directors’ of remuneration for individuals in comparable explained clearly in the following year’s Annual Remuneration Policy (Policy) for Executive and roles elsewhere. The Committee also takes into Report on Remuneration. No such discretion Non-executive Directors was then put to a account the views expressed by shareholders was exercised by the Committee during the year binding shareholder vote at the Annual General and institutional investors’ best practice under review. Meeting (AGM) on 23 July 2015, and received a expectations, and monitors developments The table on pages 175-179 provides 98.8% vote in favour. It therefore took formal in remuneration trends. The Policy places more detail on the discretion reserved to efect from that date, replacing the previous signifcant emphasis on the need to achieve the Committee for each element of the policy approved by shareholders at the 2014 stretching and rigorously applied performance remuneration package.

2. Application of the Policy in 2017/18

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

90 Landsec Annual Report 2017 Governance

91 657 1,001 (£000) Table 70 Table 69

Totalf xed Chart 68

128 196 (£000) Pension m Holding period on on period Holding LTIP awards ends.

Base year +5 year Base — £2,952 Maximu LandsecAnnual Report 2017

21 19 19 (£000) ts f Bene £1,805 On-target

Chief Financial Ofcer s in excess of 100% of 100% of of in excess salary)vests but vest awards LTIP two a to subject remain year holding period. nal portion of the the of portion nal f The awards (i.e. bonus annual

Base year +3 year Base — — 510 784

Base £657 (£000) Fixed pay

Long-term incentive nnual bonus A (i.e. between 50% and and 50% between (i.e. salary)vests. 100% of rst deferred portion deferred The frst bonus annual the of

Base year +2 year Base — £4,529 y Maximum

Fixed pa

£2,765 On-target Chief Executive

The annual bonus targets and the measured are annual the of portion rst f of 50% to up (i.e. bonus cash in paid is salary) deferred is remainder The nil-cost options. into

— — Base year +1 year Base Annual bonus (cash and deferred shares) and vested and unvested LTIP awards are subject to withholding withholding to subject are awards LTIP unvested and vested and shares) deferred and (cash bonus Annual provisions. and recovery £1,001 Fixed pay 22%; Annual bonus 26%; Long-term incentives 52% (Percentages are of the maximum). of are (Percentages 52% incentives Long-term 26%; Annual bonus 22%; pay Fixed incentives. long-term of vesting and any grant between of price movement the date does include share value not Maximum Fixed pay Base salary Benefts Pension.

— — — Base year year Base ts and and ts f bene salary, base latest the of Consists allowances pension Pension allowance calculated at 25% of new base salary Annual bonus the maximum pays out at 50% of LTIP is assumed to vest at 50% of theAnnual bonus pays out in full total award. LTIP vests in full.

— — Robert Noel, Chief Executive Based on what a Director would receive if performance was in line line in was performance if receive would Director a what on Based with expectations: — — — — Martin Greenslade, Chief Financial Ofcer Chief Martin Greenslade, 0 Element of of Element remuneration received. 500

,500 ,000 1,500 1,000 2,500 3 2,000 4,500 5,000 4,000 — Paymentschedule year Financial nancial years the various paymentsvarious in the charts made/released the actually years are which fnancial Directors. Executive in to illustrates table The following For illustration purposes only, the table assumes that the annual bonus payment is equivalent to at least100% of salary. 4. Payment4. schedule Fixed and variable pay reward scenarios reward pay variable and Fixed pay Fixed In developing the above scenarios, the following assumptions have been have assumptions made: the following the above scenarios, In developing 3 Fixed and variable pay reward scenarios (£000) reward pay variable and Fixed erent levels of performance for the coming year. coming the for performance of levels erent f di at Director Executive each to provided opportunity remuneration the illustrate follow that charts The 3. Fixed and variable pay reward scenarios reward pay variable and Fixed 3. Total opportunity at maximum and target levels award award Maximum On-target Results and dividends Nicholas Cadbury was appointed an Directors’ The results for the year are set out in the independent Non-executive Director of the fnancial statements on pages 103-154. Board on 1 January 2017 and joined the Audit The Company has paid three quarterly Committee with efect from that same Report interim dividends to shareholders for the year date. He will become Chairman of the Audit under review, each of 8.95p per ordinary share. Committee in succession to Kevin O’Byrne These comprised two payments (totalling who is expected to step down from the The Directors present their report and audited 17.90p) as a Property Income Distribution (PID) Board at some point during 2017. accounts for the year ended 31 March 2017. and one payment (8.95p) as a normal dividend The Service Agreements of the Executive (i.e. non-PID). The Board has recommended Directors and the Letters of Appointment Additional disclosures a fnal dividend for the year of 11.7p per of the Non-executive Directors are available Other information that is relevant to this report, ordinary share, payable wholly as a PID (net of for inspection at the Company’s registered and which is also incorporated by reference, withholding tax, where appropriate), making a ofce. Brief details of these are also included including information required in accordance total dividend for the year of 38.55p per share, in the Directors’ Remuneration Report on with the UK Companies Act 2006 and Listing representing an increase of 10.1% compared pages 76-91. Rule 9.8.4R, can be located as follows: with the prior year. Subject to shareholders’ approval, the fnal dividend will be paid on Appointment and removal of Directors The appointment and replacement of Directors Table 71 27 July 2017 to shareholders on the register at the close of business on 23 June 2017. is governed by the Company’s Articles of Likely future developments in The Board has also declared a frst quarterly Association (Articles), the UK Corporate the business Pages 16-17 dividend in respect of the 2017/18 fnancial year Governance Code (Code), the Companies Employee engagement Page 40 of 9.85p per ordinary share, payable wholly as a Act 2006 (Act) and related legislation. The Going Concern and PID (net of withholding tax, where appropriate), Board may appoint a Director either to fll a Viability Statement Page 54 to be paid on 6 October 2017 to shareholders casual vacancy or as an addition to the Board Governance Pages 55-94 on the register at the close of business on so long as the total number of Directors does 8 September 2017. not exceed the limit prescribed in the Articles. Capitalised interest Page 116 A Dividend Reinvestment Plan (DRIP) An appointed Director must retire and seek Financial instruments Page 138 election is currently available in respect of election to ofce at the next AGM of the Credit, market and liquidity risks Pages 139-142 all dividends paid by the Company. Company. In addition to any power of removal conferred by the Act, the Company may by Related party transactions Page 153 Events since the balance sheet date ordinary resolution remove any Director before Greenhouse gas emissions Page 166 Since 31 March 2017, the Group has redeemed the expiry of their period of ofce and may, the £273m Queen Anne’s Gate bond in its subject to the Articles, by ordinary resolution Company status entirety at a premium of £63m. The redemption appoint another person who is willing to act as Land Securities Group PLC is a public limited was fnanced through existing Group facilities. a Director in their place. In line with the Code liability company incorporated under the laws On 13 April 2017, the Group’s joint and the Board’s policy, all Directors are required of England and Wales. It has a premium listing arrangement, the Metro Shopping Fund Limited to stand for re-election at each AGM. on the London Stock Exchange main market Partnership (Metro), completed the sale of for listed securities (LON:LAND) and is a ShopStop (Clapham Junction) LLP to DV4 Directors’ powers constituent member of the FTSE 100 Index. (a fund owned by Delancey Real Estate Asset The Board manages the business of the The Company is a Real Estate Investment Management Limited (Delancey)). On the same Company under the powers set out in the Trust (REIT). It is expected that the Company, date, Delancey sold its stake in Metro to Invesco Articles. These powers include the Directors’ which has no branches, will continue to operate Real Estate European Fund. The partnership was ability to issue or buy back shares. Shareholders’ as the holding company of the Group. subsequently renamed The Southside Limited authority to empower the Directors to make Partnership and the £85m third-party debt in market purchases of up to 10% of its own Disclaimer the fund was repaid in full. ordinary shares is sought at the AGM each year The purpose of this Annual Report is to provide On 15 May 2017, the Group acquired three (see below). The Articles can only be amended, information to the members of the Company retail outlet centres from Britel Fund Trustees or new Articles adopted, by a resolution passed and it has been prepared for, and only for, the Limited (as trustee of the BT Pension Scheme). by shareholders in general meeting by at least members of the Company as a body, and no The three assets, Freeport, Braintree, Clarks three quarters of the votes cast. other persons. The Company, its Directors and Village, Street and Junction 32, were acquired Directors’ interests employees, agents and advisers do not accept for a total consideration of £333m. or assume responsibility to any other person to Save as disclosed in the Directors’ Remuneration whom this document is shown or into whose Directors Report, none of the Directors, nor any person hands it may come and any such responsibility The names and biographical details of the connected with them, has any interest in the or liability is expressly disclaimed. current Directors (all of whom held ofce share or loan capital of the Company or any of A cautionary statement in respect of throughout the year except for Nicholas Cadbury its subsidiaries. At no time during the year ended forward-looking statements contained in – see below), and the Board Committees of 31 March 2017 did any Director hold a material this Annual Report appears on the inside which they are members, are set out on pages interest, directly or indirectly, in any contract of back cover of this document. 58 and 59. Kevin O’Byrne ceased to act as signifcance with the Company or any subsidiary the Company’s Senior Independent Director undertaking other than the Executive Directors following the Company’s Annual General in relation to their Service Agreements. Meeting (AGM) on 21 July 2016. Edward Bonham Carter was appointed to that position as his immediate successor.

92 Landsec Annual Report 2017 Governance 93 LandsecAnnual Report 2017

1

8.91

3.33 4.37 3.40 6.44

Table72 voting rights rights voting share capital share Percentage of total total of Percentage attaching to issued to attaching

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

At the Company’sAGM held onJuly21 The total number of voting rights attaching to the issued share capital of the Company on 31 March 2017 is 790,749,497. 2017 March on 31 the Company of capital rights attaching the issued share voting to number of The total

employee share plans. In relation to the EBT, the EBT, to In relation plans. share employee shares any vote to not agreed has Trustee the any If meeting. general at any held in the EBT rights of ordinary shares held in the EBT can can EBT the in held shares ordinary of rights the satisfy to Company the by directed be various its under awards outstanding of vesting All the issued and outstanding ordinary shares shares ordinary outstanding and issued the All of the Company have equalvoting rightswith control special no are There share. per vote one control the that save them to attaching rights Shareholder voting rights and restrictions restrictions and rights voting Shareholder shares of transfer on report has been signed. Information provided to to provided Information signed. been has report available publicly is DTR the under Company the toview via the regulatory information service on website. the Company’s information or otherwise, during the period from from period the during otherwise, or information from period the being 2017, May 17 to April 1 this which on date the to through end year the The Company received no further DTR DTR further no received Company The above the to change of way by cations, f noti 1. Legal & General Investment Management Ltd Ltd Management Investment General & Legal Inc. Group, Vanguard The BlackRock, Inc. BlackRock, Management Investment Bank Norges StateStreet Global Advisors Ltd Shareholder name Shareholders holding 3% or more of the Company’s Issued Share Capital Share Issued Company’s the of more or 3% holding Shareholders below) and a renewal of that authority will will authority that of renewal a and below) sought. be capital at that time and to allot shares within shares allot at that time and to capital These shareholders. by approved limits certain (see AGM 2017 the at expire will authorities 2016, shareholders2016, authorised the Company shares ordinary of purchases market make to share issued its of 10% to up representing relating to share capital, including the movementsto 34 note in out set are year, the during fnancial statements. value 10p each all ranking pari passu. No other other No passu. pari ranking all each 10p value At Company. the by issued been have securities 31 March there 2017, were 801,244,628 ordinarydetails Further paid. fully and issue in shares Share capital capital Share capital share of class single a has Company The nominal of shares ordinary which is divided into place appropriate Directors & O Liability fcers & Directors place appropriate legal potential of respect in cover insurance action its against Directors. only to the extent permitted by law. A copy of of copy A permitted law. the extent to by only inspection for available is indemnity of deed the be will and ce f o registered Company’s the at in has Company The AGM. 2017 the at available Director against any liability incurred in relation relation in incurred liability any against Director to acts or omissions arising in theapplies ordinary indemnity The duties. their of course Directors’ indemnities and insurance insurance and indemnities Directors’ each indemnify to agreed has Company The Change of control are aforded equal opportunities to enter There are a number of agreements that take employment and progress. The Company has efect, alter or terminate upon a change of therefore established procedures designed control of the Company following a takeover. to provide fair consideration and selection of None of these are considered signifcant. The disabled applicants and to satisfy their training Company’s share plans contain provisions that and career development needs. If an employee take efect in such an event but do not entitle becomes disabled, wherever possible Landsec participants to a greater interest in the shares takes steps to accommodate the disability of the Company than created by the initial by making adjustments to their existing grant or award under the relevant plan. There employment arrangements, or by redeployment are no agreements between the Company and providing appropriate retraining to enable and its Directors or employees providing for continued employment in the Group. compensation for loss of ofce or employment Further information regarding the or otherwise that occurs specifcally because of Company’s practical safeguarding of human a takeover. rights and promotion of equal opportunities is included as part of the Social review in the Human rights and equal opportunities Strategic Report on page 38. The Company operates a Human Rights Policy which aims to recognise and safeguard the Political donations human rights of all citizens in the business No political donations were made in the year areas in which we operate. We support the (2015/16: nil). principles set out within both the UN Universal Declaration of Human Rights (UDHR) and the Auditor and disclosure of information to International Labour Organization’s Declaration the auditor on Fundamental Principles and Rights at So far as the Directors are aware, there is no Work. Our Policy is built on these foundations relevant audit information that has not been including, without limitation, the principles brought to the attention of the Company’s of equal opportunities, collective bargaining, auditor. Each Director has taken all reasonable freedom of association and protection from steps to make himself or herself aware of any forced or child labour. The Policy has been relevant audit information and to establish that extended to take account of the new Modern such information was provided to the auditor. Slavery Act that came into force in October A resolution to confrm the reappointment 2015 and requires the Company to report of Ernst & Young LLP as auditor of the annually on its workforce and supply chain, Company will be proposed at the 2017 AGM. specifcally to confrm that workers are not The confrmation has been recommended to enslaved or trafcked. The Company’s frst the Board by the Audit Committee and EY has slavery and human trafcking statement, indicated its willingness to remain in ofce. relating to the fnancial year ended 31 March 2017 Annual General Meeting 2016, was approved by the Board on This year’s AGM will be held at the earlier 29 September 2016 and posted on the time of 10.00 am on Thursday, 13 July 2017, Company’s website on 30 September 2016. at 80 Victoria Street, London SW1E 5JL. A Landsec is an equal opportunities employer separate circular, comprising a letter from the and our range of employment policies and Chairman, Notice of Meeting and explanatory guidelines refects legal and employment notes in respect of the resolutions proposed, requirements in the UK and safeguards the accompanies this Annual Report. interests of employees, potential employees and other workers. We do not condone The Directors’ Report was approved by the unfair treatment of any kind and ofer equal Board on 17 May 2017. opportunities in all aspects of employment and advancement regardless of race, nationality, By Order of the Board gender, age, marital status, sexual orientation, disability, religious or political beliefs. The Tim Ashby Company recognises that it has clear obligations Group General Counsel and Company Secretary towards all its employees and the community at large to ensure that people with disabilities Land Securities Group PLC Company number 436904

94 Landsec Annual Report 2017

Governance 95

LandsecAnnual Report 2017 Independent Auditor’s Report Auditor’s Independent statement Income Statement of comprehensive income Balance sheets Statement of changes in equity Statement of cash fows the fnancial statements to Notes Statement of Directors’ Responsibilities

97 103 103 104 105 106 107 Contents 96 Financial statements Financial Statement of Directors’ Responsibilities

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

96 Landsec Annual Report 2017 Financial Statements 97 LandsecAnnual Report 2017 Parentcompany Balance sheet as at 31 March 2017 March Balance sheet at 31 as Statement of changes in equity for the year then ended Statement of cash fows for the year then ended Related notes1 to 39 to the fnancial statements The valuation of investment property (including properties within the development programme and investment investment and programme development the within properties (including property investment of valuation The ventures) joint in held properties and incentives rents, of treatment the recognition, revenue of timing the including recognition, Revenue recognition of trading property proceeds. which were subject to the same audit scope. This included the Group audit team performing direct audit audit direct performing team audit Group the included This scope. audit same the to subject were which of statements. nancial f Group the within included balances venture joint on procedures The Group solely operates in the United Kingdom and operates through two segments, London and Retail, both both Retail, and London segments, two through operates and Kingdom United the in operates solely Group The Overall Group materiality of £61m which represents 0.5% of the carrying value of investment properties line item item line properties investment of value carrying the of 0.5% represents which £61m of materiality Group Overall 2017 March balance Group the sheet in at 31 not balances account to applied is tax before t f pro adjusted of 5% represents which £21m of materiality c f Speci related to investment properties (either wholly owned or held within joint ventures).

— — — — — nancial nancial f and Group ActCompanies 2006; the the of provisions the with regards accordance as and, 2006, Act Companies the of requirements the with accordance in prepared been have statements nancial f The Regulation. IAS the of 4 Article statements, nancial statements’) give a true and fair fair and true a give statements’) nancial f ‘ (the statements nancial f company Parent and statements nancial f Group PLC’s Group ended; then year Securities the for Land t f pro Group’s the of and 2017 March 31 at as airs f a company’s Parent the of and Group’s the of state the of view Union; European the by adopted as IFRS with accordance in prepared properly been have in statements applied as nancial f Union Group The European the by adopted as IFRS with accordance in prepared properly been have statements nancial f company Parent The

Companies Act 2006. Act Companies nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) (IFRS) Standards Reporting Financial International and law applicable is the of preparation their provisions in the with applied been has that accordance in applied framework as reporting statements nancial f The nancial f company Parent the regards as and Union European the by adopted as Risks of material misstatement material of Risks Overview of our audit approach audit our of Overview Consolidated statement of changes in equity for the year then endedyear the for changes in equity of statement Consolidated then endedyear the cash fows for of statement Consolidated Related notes1 to 39 to the fnancial statements Consolidated balance sheet as at 31 March 2017 March balance Consolidated sheet as at 31 then endedyear the for income statement Consolidated then endedyear the income for comprehensive of statement Consolidated Land Securities Group PLC’s fnancial statements comprise: Group What we have audited have we What — — — — Our opinion on the fnancial statements on the Our opinion In our opinion: To the members of Land Securities Group PLC Independent Auditor’s Report Auditor’s Independent Audit scope Materiality Independent Auditor’s Report continued

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

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

98 Landsec Annual Report 2017 Financial Statements 99

LandsecAnnual Report 2017 Key observations communicated to the the to communicated observations Key AuditCommittee We audited the timing of revenue revenue of timing the audited We rents of treatment recognition, recognition and incentives and and proceeds property trading of management of risk the assessed audit the upon Based override. we performed, procedures been has revenue that concluded appropriate an on recognised year. the in basis

Our response to the risk the to response Our Scope of our procedures our of Scope revenue. was subject over full scope audit procedures to whole Group The and corroborated the arithmetical accuracy of these schedules and the resulting resulting the and schedules these of accuracy arithmetical the corroborated and lease incentives. tenant of straight-lining for amounts in revenue incentives’ lease ‘tenant of recoverability of assessment the with challenged tenants We major the of viability nancial f the evaluating by balance receivable related lease incentive debtors. IFRS with complied adopted policies recognition revenue the whether assessed We Union. the European by as adopted included Wewhich performedtesting, entry journal auditincluding procedurescontrols of override management specifcally designedrevenue. impact which toentries journal addresson focus particular the risk year ofthe during recognised proceeds property trading of sample a tested revenue We that verify to order in bank to cash and contracts to agreement through been have ownership of and rewards risks when the signifcant is recognised the buyer. to transferred this information to the Group’s property information management system. system. management property information the Group’s to this information We also performed and year the controlsin agreements lease testingamended or new of onsample a theselected billingsWe information management process.property the PIMS, into input data the agreed system, including lease incentive clauses. included We performedincentives upon focusing included detailed This agreements. testing lease to back them forappropriate athe samplewhether assessed of critically revenue we and transactionsagreements lease within by agreeing had been treatment followed. accounting whether revenue, performed analytical the recognition of on assess were Detailed procedures to revenue related property other and incentives rents, including revenue had been recognised in the appropriatecalculate to accountingused period.schedules the to agreements lease Incentives of sample – a agreed We Leases Operating 15 SIC with accordance in revenue of straight-lining Our audit procedures over revenue recognition included: revenue over Our audit procedures the and recognition revenue over controls to relating testing out carried and We prevent to Group the by designed been have which rents of treatment the includedThis testing recognition. in revenue and errors detect fraud and the upload lease of terms and changes to approvals governing controls

uence the economic economic the uence f in to expected be reasonably could aggregate, the in or individually that, misstatement or omission an of magnitude The our audit procedures. of and extent the nature determining a basis for provides Materiality the fnancial statements. of the users decisions of in forming our audit opinion. our audit opinion. in forming Materiality fed identi above. misstatement material of work on the risks the audit all of and audit the on misstatements ed f identi of ect f e materiality Our application of the evaluating in audit, the performing and planning in materiality of concept the apply We Tailoring undertaking including theopinion, audit scopecompany subject same the were to which Parent both of and and Retail, London two segments, Group through Kingdom and operates in the United operates the solely The Group issue to necessary work the all performed team audit Group The scope. audit Compared to the prior year, there have been no changes to our assessment of the risks of material misstatement. material of the risks of been our assessment have no changes to there year, the prior Compared to audit our of scope The deferral of revenues to assist in in assist to revenues of deferral targets future or current meeting or expectations. t based targets may place place may targets based t f pro to management on pressure This recognition. revenue distort or overstatement in result may (page 113); and Note 6 Note and 113); (page Statements Financial the of 113) (page revenue and expectations Market Refer to the Accountability section section Accountability the to Refer (pages Report Annual the of policies Accounting 70-74); £62m trading property sales sales property trading £62m rental £603m (2016: proceeds trading £195m and income property sales proceeds) of rents, incentives and and incentives rents, of recognition of trading property proceeds and income rental £587m 2017: Revenue recognition, including including recognition, Revenue revenue of timing the treatment the recognition, Risk Independent Auditor’s Report continued

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

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

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

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

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

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

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

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

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

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

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

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

100 Landsec Annual Report 2017 Financial Statements 101

LandsecAnnual Report 2017 We have no exceptions to report. We have no exceptions to report. We have no exceptions to report. nancial statements; or or statements; nancial f audited the in information the with inconsistent Materially of knowledge our with, inconsistent materially or on, based incorrect materially Apparently or audit; our performing of course the in acquired Group the misleading. Otherwise Adequate accounting records have not been kept by the Parent company, or returns returns or company, Parent the by kept been not have records accounting Adequate or us; by visited not branches from received been not have audit our for adequate Remuneration Directors’ the of part the and statements nancial f company Parent The Report to be audited are not in agreementor withmade; thenot accountingare law by recordsed f speci and returns;remuneration or Directors’ of disclosures Certain We have not received all the information and explanations we require for our audit. The part of the Corporate Governance Statement relating to the company’s compliance compliance company’s the to relating Statement Governance Corporate the of part The review. our for ed f speci Code Governance Corporate UK the of provisions ten the with The Directors’ statement in relation to going concern and longer-term viability, set out on on out set viability, longer-term and concern going to relation in statement Directors’ The and 54; page

nancial information in the the in information nancial f non- and nancial f opinion, our in if, you to report to required are We annual report is: — — between — inconsistencies any ed f identi have we whether report to required are we particular, In and balanced performing the audit and the Directors’ statement of in the course our knowledgefair, acquired is whole a as taken accounts and report annual the entity’s the consider assess they to that shareholders for necessary information the provides and understandable appropriately report annual the whether and strategy; and model business consider we performance, that Committee Audit the to communicated we that matters those addresses beenshould have disclosed. In light of the knowledge and understanding of the Company and its environment obtained in in obtained environment its and Company the of understanding and Report knowledge the Strategic of the in light In misstatements material no ed f identi have we audit, the of course the or the Directors’ Report. We are required to report to you if, in our— opinion: — — — — We are required to review: — consistent withnancial f the statements; ReportThe Strategic and Directors’ the Report have been prepared in accordance with applicable legal requirements. The Report information given Strategic in the and Directors’ the Reportnancial for f the year for whichnancialf the statements prepared are is

— — The part Directors’ of the Remuneration Report be audited to has been properly prepared in accordance with Companies the and Act 2006; audit: the of course the in undertaken work the on Based

reporting ISAs (UK and Ireland) Ireland) and (UK ISAs In our opinion: — — no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the the and Company the than other anyone to responsibility assume or accept not do we law, by permitted extent fullest the To purpose. other no formed. we have the opinions or for this report, for work, our audit for members as a body, Company’s 2006 Act Companies the prescribed by matters Opinion on other This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work work audit Our 2006. Act Companies the of 16 Part of 3 Chapter with accordance in body, a as members, Company’s the to solely made is report This report and for them in an auditor’s to state to required we are members matters those the Company’s to state we might has been so that undertaken nancial nancial f the of preparation the for responsible are Directors the 96, in page on out statements set nancial f the Statement on opinion an Responsibilities express and Directors’ audit the in to Auditing is the fully with more responsibility comply explained Our to As us view. require fair and standards true a Those give they that ed f satis being (ISAs). for and Ireland) and (UK statements Auditing on Standards International and law applicable with accordance Auditors. for Standards Ethical Practices Board’s Respective responsibilities of directors and auditor Companies Act Act Companies 2006 reporting Matters on which we are required to report exception to required by are we which on Matters Listing Rules review review Rules Listing requirements Independent Auditor’s Report continued

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

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

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

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

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

Notes Revenue Revenue ed to the income statement: the ed to f reclassi bewill not subsequently that Items on defned beneft pension (loss)/gain scheme Net re-measurement credit/(charge) tax above Deferred on re-measurement parent the of owners to ft attributable Pro Statement of comprehensive income for theyear ended 31 March2017 for theyear ended 31 March2017 Income statement Income Costs Total comprehensive income attributable to owners of the parent Other comprehensive (loss)/income attributable to owners of the parent the of owners to attributable (loss)/income comprehensive Other t on disposal of investment properties investment ft on disposal of Pro Loss on disposal of investment in joint venture investment other ft on disposal of Pro cit)/surplus on revaluation of investment properties investment of Net (defcit)/surplus on revaluation ft pro Operating t from joint ventures joint ft from pro post-tax of Share Finance income Finance expense t before tax ft before Pro Taxation Diluted earnings perDiluted share t attributable to owners of the parent the of owners to ft attributable Pro Earnings per share attributable to owners of the parent: Basic earnings per share Balance sheets at 31 March 2017

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

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

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

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

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

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

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

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

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

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

R M Noel M F Greenslade Directors

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

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

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

1. At 1April At 2015 At 1April At 2015 for theyear ended 31 March2017 Statement of changes in equity in changes of Statement t for the year ended 31 March 2016 March endedyear 31 the ft for Pro Total comprehensive income for the fnancial year Share-based payments Transactions with owners: Share-based payments Dividends paid to owners of the parent of owners Dividends paid to At 31 March2016 Dividends paid to owners of the parent of owners Dividends paid to Loss for the year ended 31 March 2017 Share-based payments the parent of owners Dividends paid to Acquisition ownof shares At 31 March 2017 Total transactions with owners of the parent Total comprehensive income for the fnancial year At 31 March 2016 Dividends paid to owners of the parent of owners Dividends paid to Transactions with owners: Share-based payments Acquisition ownof shares Total transactions with owners of the parent At 31 March 2017 Statement of cash fows for the year ended 31 March 2017

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

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

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

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

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

106 Landsec Annual Report 2017 Financial Statements 107

LandsecAnnual Report 2017 nancial nancial f consolidated the preparing in eliminated are transactions venture joint intra-group the in from arising interest losses and Group’s gains the of unrealised extent any the and to balances eliminated are Intra-group ventures joint with transactions from arising gains Unrealised statements. impairment. of is no evidence that there the extent to but only way, in the same eliminated losses are Unrealised concerned. accounted for as a joint operation when the Group, along with the parties that have joint control of the arrangement, have rights to the assets and rights to have the arrangement, with the parties of along control joint that have when the Group, operation as a joint for accounted liabilities, the assets, of share including the Group’s by for accounted are operations Joint arrangement. the to the liabilities relating obligations for basis.income and expenses on a line-by-line along with the other parties that have joint control of the arrangement, have rights to the net assets of the arrangement. Interests in joint ventures are are ventures joint in Interests arrangement. the of in assets net the to separately rights have presented be to year arrangement, the the for of loss or t f control pro joint have post-tax that parties other is venture’s the with joint the arrangement along of joint A share sheet. Group’s the balance the in requires method separately equity The presented be to accounted. assets net equity venture’s joint the of share Group’s the and statement income the Joint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement. Interests in joint joint in the income statement. Interests agreement. contractual by established control, joint has Group the activities whose over entities those are arrangements Joint when the Group, venture as a joint for is accounted arrangement joint A operation. or a joint venture as either a joint for accounted are arrangements on consolidation. in recognised are movements and date sheet balance the at reassessed is classifed as a fnancial liability, value are these interests the the holder, parties third of at the option redeemable in a subsidiary instruments held by are Where value; fair at carried is liability The liability. redemption the called ective date of acquisition or to to or acquisition of date ective f e the from included are year the during of adjusted disposed are or policies acquired accounting ventures Group joint from and er f di which subsidiaries of ventures results The joint and subsidiaries of policies Accounting disposal. of date ective f e the Basis of consolidation of Basis and all its subsidiary Company the of the fnancial statements incorporate 2017 March endedyear 31 the for fnancial statements The consolidated returns variable is exposed to an entity where exists Control the Company. by Subsidiary undertakings controlled those entities are undertakings. its power the investee. ect through over af returns those to and has the ability share capital of Land Securities PLC. The merger reserve represents the excess of the cost of acquisition over the nominal value of the shares issued by issued by the shares of value the nominal acquisition over cost of the of the excess reserve represents The merger Securities PLC. Land of capital share reserve redemption The capital ft. pro or distributable a realised reserve does represent not The merger Securities PLC. Land acquire to the Company represents the nominalvalue of cancelled shares. Land Securities Group PLC (the Company) has not presented its own statement of comprehensive income (and separate income statement), as as statement), income separate (and income comprehensive of statement issued own the its of 100% presented not acquired has Company Company) the (the when PLC 2002 Group Securities September 6 on Land arose reserve merger The 2006. Act Companies of 408 Section by permitted nancial statements and the reported amounts of revenues revenues of amounts reported the and statements nancial f the of date the at liabilities and assets of amounts reported the ect f a that assumptions included are estimates and judgements accounting cant f signi or actions, Group’s event the amount, the best knowledge of basedon management’s are on Although these estimates and expenses during the reporting period. details Further estimates. those from er f di may ultimately results actual 2. in note aggregated. Where line items have been aggregated in the primary statements, explanatory notes providing a breakdown of the aggregated balances the aggregated of a breakdown providing notes explanatory in the primary been statements, have aggregated line items Where aggregated. the fnancial statements. to included in the notes are and estimates the use of principles (GAAP) accounting requires accepted with generally in conformity fnancial statements of The preparation nancial statements and has made some changes with the intention of simplifying the the simplifying of intention the with changes some made has and statements the to nancial f the reporting to of pounds, presentation the thousand hundred reviewed has nearest Group the the to reporting year, from is the been During have changes main the statements of One nancial f the in presented. are separately results presented Group’s the previously which were in that way items line cant f insigni certain Additionally, pounds. million nearest have been prepared in Pounds Sterling (rounded to the nearest one million), which is the presentation currency of the Group (Land Securities Group PLC PLC Group Securities (Land Group the of currency presentation the is which million), one available-for-sale nearest the to property, (rounded investment of Sterling Pounds revaluation in the by prepared ed f been modi as have convention cost historical the under and undertakings), subsidiary its all and and pension fnancial instruments assets. derivative investments, nancial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards as as Standards Reporting Financial International with preparation of Basis accordance in and basis statements concern nancial f The going a on IFRS. prepared under been reporting have companies statements to nancial f applicable These 2006 Act Companies the and Interpretations IFRIC (IFRS), EU the by adopted 1. Basis of preparation and consolidation and preparation of Basis 1. This section also includes a summary of new European Union (EU) endorsed accounting standards, amendments and interpretations that have not yet yet not have that interpretations and amendments standards, accounting endorsed (EU) Union European new of summary a includes also section This Group. the of results reported the on impact expected their and adopted, been nancial statements as a whole. A description of of description A whole. as a the fnancial statements to policies accounting relate that signifcant Group’s the of This section a description contains the fnancial statements. to note properties)the relevant within investment is included (e.g. policiesaccounting individual areas specifc to for theyear ended 31 March2017 General – 1 Section nancial statements fnancial the to Notes Notes to the fnancial statements for the year ended 31 March 2017 continued

2. Signifcant accounting judgements and estimates

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

3. Amendments to IFRS

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

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

108 Landsec Annual Report 2017 Financial Statements

109

LandsecAnnual Report 2017 All items in the segmental information note are presented on a proportionate basis. A reconciliation from the Group income statement to the the to statement income Group the from reconciliation A basis. proportionate a on presented are note information segmental the in items All 78. is included in table note information in the segmental presented information c to a particular particular a to c f speci not are ventures) joint to relating those than (other expenses nance f and facilities debt such, as and, basis pooled a on ventures, attributable neither directly nor can bewhich are reasonably centrally incurred services) items Unallocated income and expenses (Group are segment. individual segments. allocated to t arising from from arising t f pro the which policies. and Group-wide development organisational to succession planning, level lowest the is t f pro segment However, t. f pro revenue joint is of tax before exception t f the pro with underlying of structure, measure nancing f primary its manages Group’s Group The The segments. two the between analysed is Group the of operations ongoing the During the year, the chief operating decision maker was the Executive Committee (ExecCom), which comprised the Executive Directors, the managing managing the Directors, Executive the comprised which (ExecCom), and Committee airs f A Executive the was Corporate the maker and decision Director HR operating Group the chief the year, Secretary, the Company During and Counsel General Group the portfolios, London and Retail the of directors The information Sustainability presented to ExecComDirector. includes reports from all functions the of business fnancial wellas planning,as strategy, ces and central London shops and the Retail Portfolio includes all our shopping centres and shops (excluding central London shops), shops), London central and shops (excluding centres includes all our shopping Portfolio shops and the Retail London ces and central f o our London the UK. in are operations the Group’s All of park properties. assets and retail and leisure hotels decisions. strategic make to senior management by reviewed segments operating based on the information the Group’s has determined Management 4. Segmental4. information includes all Portfolio The London Portfolio. and the Retail Portfolio beingLondon the two segments, operating into organised are operations The Group’s t better represents the results of the the of results the represents better t f pro revenue believe We information. items other additional and provide capital columns excludes other and the business IFRS; the with of presented accordance performance in are t income f pro presented rental the revenue on of focuses it components as The stakeholders glossary. to the in performance given is t f pro operational revenue of Group’s nition f de full A year. to year from cantly f signi vary can which on a proportionate 4. basis in note t, and items not directly related to the underlying rental business, principally valuation changes, changes, valuation principally business, the underlying rental to related directly not and items results ft, pro as revenue to we refer which Group’s expense), interest the represents column Total The items. other is presented and Our income statement items. and other as capital to capital we refer which and t f properties items, fts disposal or losses on the of and exceptional pro pro revenue to relate that items those into split format, columnar a in subsidiaries are consolidated at 100% with any non-owned element being adjusted as a non-controlling interest or redemption liability, as appropriate. as appropriate. liability, or redemption interest non-owned being element adjusted as a non-controlling with any 100% at consolidated subsidiaries are on a proportionate basis in all fnancial measures. presented are operations Our joint (including costs associated of net properties investment our leasing from generate we income the components: key two has statement income Our nancial measures include the results of our our of results the include measures nancial f our of number a accordingly, and discuss Group’s we the measures include basis other the of proportionate a many on to applied presented is being as principle same described The are that Measures basis. proportionate a on subsidiaries and all and ventures joint sheet, balance and statement income the on line one as the Group’s to presented This is in contrast is our subsidiaries. the non-owned elements of exclude adjusted to and are basis, on a line-by-line ventures ventures joint of share joint in interest Group’s the where statements, nancial f statutory a better explanation to stakeholders of the activities and performance of the Group, as it aggregates the results of all of the Group’s property interests interests property Group’s the of all of results the aggregates it as Group, the of performance and activities the of stakeholders to explanation better a fnancial statements. in the statutory line items a number of across be presented to required which under IFRS are Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint arrangements and properties properties and arrangements joint through owned part that Group, basis the a on by owned Group the wholly of are results that the properties review of management combination a is portfolio Internally, property Our interest. non-controlling a holds party third a where but Group the by owned provides presentation this consider We structure. of is an example £14.4bn, with assets totalling ownership our The Combined Portfolio, of a proportionate share. present to ownership of forms erent adjusts these dif for regardless properties our in have we interest economic the ecting f re approach, this This section focuses on the performance of the Group for the year, including segmental information, earnings per share and net assets per share, and net assets earnings per per share, share information, segmental including year, the for This sectionGroup the on the performance of focuses togetherwith further details on specifc components of the income statement and dividends paid. Section 2 – Performance – 2 Section Notes to the fnancial statements for the year ended 31 March 2017 continued

4. Segmental information continued

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

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

Reconciliation of revenue proft to proft before tax

2017 2016 Total Total £m £m

Revenue proft 382 362

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

Proft before tax 112 1,336

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

– – – – – – – – – – £m £m the the IFRS IFRS year 1,338 1,338 11,699 11,699 1,476p 169.4p 1,482p 168.8p nancial nancial f fPro for t LandsecAnnual Report 2017 Net assets Net 2 2 4 (1) (1) (4) 34 68 £m £m 113 169 2017 2017 382 (314) 11,516 48.3p 48.4p 1,417p 11,206 1,418p Adjusted earnings earnings Adjusted Adjusted Adjusted Adjusted Adjusted net assets net 1 – 2 2 4 (1) (1) 10 (4) 68 £m 113 £m 170 359 n/a EPRA EPRA EPRA assets 11,516 45.4p 45.4p 11,520 1,456p earnings EPRA netEPRA – – – – – – – – – – £m £m the the IFRS 113 113 IFRS year year 14.3p 14.3p 11,516 11,516 1,456p 1,458p nancial nancial f t for for t f Pro Net assets Net – Group – Joint ventures

1 2 For EPRA triple net assets, see table 81. erence in the adjustment for EPRA earnings and adjusted earnings relates to the amortisation of the bond exchange de-recognition adjustment, which is included in EPRA earnings, but but earnings, EPRA in included is which adjustment, de-recognition exchange bond the of amortisation the to relates earnings adjusted and earnings EPRA for adjustment the in erence f di The excluded from adjusted earnings. adjusted earnings. from but excluded included in EPRA earnings, which are costs, fce relocation the head o to EPRA earnings and adjusted earnings in the adjustment relates for erence The dif

1. 2. 1. Net assets per share assets Net Net assets attributable to owners of the parent Net assets of attributable owners to EPRA measures for both earnings per share and net assets per share have been both assets have assist comparison earnings and net per per between for included share to share propertyEPRA measures European companies. Earnings per share adjusted diluted net assets per share. We consider this to be a useful measure for shareholders as it gives an indication of the total return on investment investment on return total the of indication an gives it as shareholders for measure useful a be to this consider We share. per assets net diluted adjusted over theyear. ows associated with our our with associated ows f cash future the ects f re accurately more it as shareholders to attributable assets net underlying the ects f re better this believe opening the by divided instruments. debt share, per assets net diluted adjusted in change the plus year the in paid dividends cash the as calculated is return business Total earnings and adjusted earnings per share better represent the results of the Group’s operational performance to stakeholders as they focus on the the on focus they as stakeholders to performance operational Group’s the of results the represent better share per earnings adjusted and earnings We rental adjustment. income performancede-recognition of the exchange business bond the and and exclude capitalpurposes andhedging otherfor itemsused which swaps canvary signif cantlyinterest-rate fromof year to year. value fair the excludes assets net Adjusted business return. In the tables below we present earnings per share and net assets per share calculated in accordance with IFRS, together with our own own our with together IFRS, with accordance in calculated share per assets net and share per earnings present we below tables the In return. business adjusted believe business return. We total of the calculation also present We EPRA. by and certain required adjusted measures measures share. per earnings adjusted of calculation the for basis the is t, f pro revenue of measure adjusted tax a is which earnings, Adjusted 5. Performance measures Performance 5. total and share per assets net diluted adjusted share, per earnings diluted adjusted are measures performance nancial f key Group’s the of Three Net assets per share per assets Net Basic earnings per share per earnings Basic t attributable to owners of the parent of ft attributable owners to Pro Diluted net assets per share assets net Diluted Fair value of interest-rate swaps Diluted earningsDiluted per share Taxation Exceptional items Exceptional Other ft used calculation in per Pro share Valuation and profts on disposal

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

5. Performance measures continued

Number of shares

2017 2016

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

Total business return

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

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

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

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

1. The following table reconciles revenue per the income statement to the individual components of revenue presented in note 4. in note presented revenue the individual components of to per the income statement revenue reconciles table The following which is presented in the ‘Capital and other items’ column. Also included in the ‘Capital and other items’ column is the non-owned element of the the of element non-owned the is column items’ other and ‘Capital the in included Also column. items’ other and ‘Capital the in presented is which ft. pro revenue from which is excluded subsidiaries Group’s cantly after exchange or if the Group Group the if or exchange after cantly f signi occur to expected is completion if particularly completion, on or exchange unconditional on occurs generally properties trading between and completion. obligations outstanding has signifcant exchange of sale the on proceeds of exception the with statement, income the of column t’ f pro ‘Revenue the within ed f classi is revenue All nance income as appropriate. Finance income is allocated to each period during the lease lease the during period each to allocated is income Finance appropriate. as income nance f and principal of repayments as for accounted are received This termbuyer. sothe asto to produce transfer a constant periodicownership of rate of rewards interest and on therisks remainingcant f signi netthe investmentwhen in the recognised f nanceare lease properties and is recognisedtrading of within sale the revenue.on received Proceeds Service charge income and management fees are recorded as income in the period in which they are earned. are income in the periodwhich they as in recorded are fees Service income and management charge Rentals the lease. of in the lease at inception the net investment equal to recognises a receivable the Group When property is let under a fnance lease, t-out or similar costs, are an integral part of of part integral an are costs, similar or t-out f to payments contribution cash lease a or being period rent-free rents, initial an as such Contingent lease, a basis. into enter to straight-line occupiers same to the ered f on o being recognised therefore are and property the of use the for consideration net the earned. are periodswhich they as income in the in recorded are rents, turnover example for a lease, of at the inception fxed not that are The Group recognises revenue on an accruals basis, when the amount of revenue can be reliably measured and it is probable that future economic that future and it is probable measured can be reliably revenue of when the amount basis, on an accruals recognises revenue The Group Group. incentives the to Lease ow f will ts f bene lease. the of term the over basis straight-line a on statement income the in recognised is uplifts, rental xed f including income, Rental Rental income Rental income (excluding adjustment for lease incentives) 6. Revenue 6. Service income charge Adjustment for lease incentives Other property related income Other property related Rental income Service income charge Trading property sales proceeds Other property related income Other property related Trading property sales proceeds Finance lease interest Finance lease interest Other income Other income Revenue per the income statement Revenue in the segmental information note Notes to the fnancial statements for the year ended 31 March 2017 continued

7. Costs

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

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

Group

2017 2016

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

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

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

Group

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

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

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

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

Audit jointof ventures Audit related assurance services servicesOther assurance Audit parentof company and consolidated fnancial statements Audit subsidiaryof undertakings Full-time Part-time It is the Group’s policy to employ the Group’s auditor on assignments additional to their statutory duties where their expertise and experience with the the with experience and expertise their where duties statutory their to additional assignments on auditor Group’s the employ to policy Group’s the is It by pre-approved are they than £25,000 expected be greater to are fees If services. for tenders seeks the Group appropriate Where important. are Group Committee.Audit the Non-audit fees: Services provided by the Group’s auditor Group’s the by provided Services Audit fees: 8. Auditor remuneration Auditor 8. Details of the employee costs associated with the Group’s key management personnel are included in note 37. included in note personnel management are key with the Group’s costs associated the employee of Details t f bene ned f de the or scheme pension contribution ned f de the Remuneration either under Directors’ the in accruing ts f given bene is shares retirement had Company’s the Directors in Executive interests no and options year, the share During emoluments, Directors’ on Information nil). (2016: scheme Report on pages to76 91. t Pension Scheme, who are employed by by employed who are Scheme, the Defnedft Pension Bene of and two employees Secretary the Company Directors, the Executive of With the exception Land Securities Group PLC, all employees are employed by subsidiaries of the Group. Indirect property or contract and administration Direct property or contract services: The average monthly number of employees during the year was: year employees the during number of monthly The average Employer payroll taxes payroll Employer 32) Other pension costs (note 33) Share-based payments (note Salaries and wages Salaries and Employee costs Employee Notes to the fnancial statements for the year ended 31 March 2017 continued

9. External valuer’s remuneration

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

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

10. Net fnance expense

Group

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

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

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

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

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

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

– 71 71 83 £m 64 2017 289 289 289 Group and Company and Group 7.9 8.15 8.15 8.15 8.15 Total 8.95 8.95 10.55 LandsecAnnual Report 2017 per ordinary share (2016: 10.55p) to to 10.55p) (2016: share ordinary per – – – – – – 8.15 11.7p 8.95 Non-PID Pence per share share per Pence – – 7.9 PID 8.15 8.15 8.15 8.95 10.55 (2016: £83m). Subject to shareholders’ approval at the Annual Annual the at approval shareholders’ to Subject £83m). (2016: £92m per ordinary share (2016: 35.0p). (2016: per share ordinary 38.55p in total (2016: 8.15p or £64m in total), was paid on 7 April 2017 as a Property2017 April was paid on 7 or £64m in total), 8.15p (2016: in total £71m Paymentdate 10 April 2015 April 10 24 July24 2015 9 October 2015 9 October 7 January 2016 January 7 8 April 2016 April 8 28 July 2016 July 28 7 October 2016 7 October 6 January 2017 January 6 per ordinary share, or per share, ordinary 8.95p

Third interim Third Final First interim First Second interim Third interim Third Final First interim First Second interim Accounting policy Signicant accountingf judgements and estimates Accounting policy

at the start of each accounting period, the assets of the tax exempt business must be at least 75% of the total value of the Group’s assets; Group’s the of value total the of 75% least at be must business exempt tax the of assets the period, accounting each of start the at and business; exempt tax the from arise must ts f pro total Group’s the of 75% least at distributed. be must business rental property the of t f pro taxable notional the of 90% least at

12. Income tax 12. A Dividend Reinvestment Plan (DRIP) has been available in respect of all dividends paid during the year. nal dividend will result in a further estimated distribution of of distribution estimated further a in result will dividend nal f This PID. a as paid be dividend paid The total 2017. June 23 business on at the close of registered shareholders to 2017 July will be27 paid the fnal dividend on Meeting, General is therefore 2017 March endedyear 31 in respect the and recommended of A third quarterly interim dividend of 2017 March of endedyear 31 the a fnal dividend for has recommended The Board Income Distribution (PID). For the year ended 31 March 2015: Ordinary dividends paid dividends Ordinary nancial statements when paid. Final dividend distributions are recognised as a as recognised are distributions dividend Final paid. when statements nancial f the in recognised are shareholders to distributions dividend Interim shareholders. by approved are in the periodwhich they liability in 11. Dividends 11. — group REIT status, certain ongoing criteria must be met. The main criteria are as follows: are The main criteria certain must be met. ongoing criteria status, REIT group — — ts and gains from the qualifying qualifying the from gains and ts f pro its on tax corporation UK pay not does Group the result, a As maintain to order In (REIT). normal. Trust as tax Investment corporation Estate to Real subject a be is to Group The continue Group the of gains and ts f pro Non-qualifying UK. the in business rental t and (ii) relating to investments in subsidiaries to the extent that they will not reverse in the the in reverse not will they that extent the to than on a business combination, other subsidiaries assets liabilities, or in (i) arising on the initial recognition of erences dif temporary is made for No provision investments to relating (ii) and t f pro taxable nor accounting neither ect f a that foreseeable future. nancial reporting purposes and the amounts used for taxation purposes. Deferred tax is determined determined is tax Deferred purposes. taxation for used amounts the and the purposes or reporting realised is nancial f asset for the when liabilities apply and to assets of expected are amounts and carrying date the reporting the by enacted substantively or enacted been have that rates tax using is settled.liability erences between between erences f di temporary on method liability and any year the sheet income for payable on the taxable is the tax tax Current balance the tax. and deferred comprises current year the ft for using on the pro Income tax full in provided is tax Deferred years. previous of respect in adjustment For the year ended 31 March 2016: For the year ended 31 March 2017: ows cash f of statement Dividends in the Dividends in statement of changes in equity of Dividends in statement withholding tax on payment of erence Timing dif Gross dividends Gross Notes to the fnancial statements for the year ended 31 March 2017 continued

12. Income tax continued

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

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

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

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

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

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

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

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

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

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

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

Accounting policy

values are determined by the Group’s external valuers. The combined value of the Group’s total investment property portfolio (including the Group’s Group’s the (including portfolio property investment total Group’s the of value combined The valuers. external Group’s the by determined are values 14. note in is shown as a reconciliation ventures) properties joint investment held through of share aggregates the results of all of the Group’s property interests which under IFRS are required to be presented across a number of line items in the the in items line of number a across presented be to required are IFRS under which interests property Group’s the of all of results the aggregates these of Both fnancial statements. value. statutory realisable net and cost of lower the at carried are properties trading and value fair at carried are properties investment Group’s The Internally, management review the results of the Group on a basis that adjusts for these forms of ownership to present a proportionate share. The The share. proportionate a present to ownership of forms these for adjusts that basis a on Group the of results the review management it as Internally, Group, the of performance and activities the stakeholders to in our propertieswe have fecting re the economic interest proportionate this share, of explain example is an £14.4bn, better with assets totalling to Combined Portfolio, presentation this consider We structure. ownership our of regardless owned by the Group but where a third party holds a non-controlling interest. In the Group’s IFRS balance sheet, wholly owned properties are presented presented are properties owned wholly sheet, balance IFRS Group’s the the In requires which interest. ventures, non-controlling a joint in holds party investments third a its to where but accounting Group the equity by applies owned Group The properties’. ‘Trading or properties’ ‘Investment either as ventures’. in joint within ‘Investments be presented to ventures properties joint of held by share Group’s This section focuses on the property assets which form the core of the Group’s business. It includes details of investment properties, investments in joint joint in investments properties, investment of details includes It business. Group’s the of core the form which assets property the on focuses section This ventures and trading properties. properties and arrangements joint through owned part Group, the by owned wholly are that properties of combination a is portfolio property Our Section 3 – Properties – 3 Section Net defcit/(surplus) properties investment of on revaluation ft/(loss) pro Operating Adjustments for: 13. Net cash generated from operations from cash generated Net 13. Reconciliation of operating pro tof t/(loss) net cash generated from operations nance lease. Finance leases are capitalised within investment properties at the commencement of the lease at the lower of the fair value of the the of value fair the of lower the at lease the of commencement the at is properties payment lease investment Each within borrowings. capitalised within are leases recorded is Finance lease. liability nance f corresponding a and payments, lease minimum the of value present the and property propertiesThe investment liability. on the outstanding rate a constant achieve to and a fnance charge the liability allocated between of repayment value. carried at their fair subsequently held under fnance leases are Some of the Group’s investment properties are owned through long-leasehold arrangements, as opposed to the Group owning the freehold. Where the the Where freehold. the owning Group the to opposed as a as arrangements, for accounted long-leasehold is lease through the owned are Group, the properties to asset the investment of Group’s ownership the of of Some rewards and risks the all substantially transfers lease the and lessee a is Group both. Investment properties are measured initially at cost including related transaction costs, and subsequently at fair value. Fair value is based on on based is value Fair value. fair at subsequently and costs, transaction related investment an of including value cost at fair the initially between measured erence f are di The properties date. Investment reporting each both. at valuer independent professional a by determined as value, market defcit. surplus or valuation as a property is included in the income statement at the reporting and its carrying re-measurement date prior to amount assets. within non-current on the balance sheet properties presented Investment are Investment properties are properties, either owned or leased by the Group, that are held either to earn rental income or for capital appreciation, or or appreciation, capital for or income rental earn to either held are properties that Investment Group, the by leased or owned either properties, are properties Investment Loss on disposal of investment in joint venture t on disposal of trading properties trading ft on disposal of Pro properties investment ft on disposal of Pro investment other of disposal on t f Pro Movement in impairment of trading properties trading in impairment of Movement Share-based payment charge Other (Decrease)/increase in payables and provisions (Decrease)/increase operations from cash generated Net Changes in working capital: working Changes in in receivables Increase Notes to the fnancial statements for the year ended 31 March 2017 continued

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

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

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

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

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

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

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

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

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

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

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

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

2 – – – 5 for (3) 14 £m £m 32 80 46 2017 (34) (34) (186) share (205) 4.7% 12,144 12,358 Adjustment Adjustment proportionate – – 1 43 171 £m LandsecAnnual Report 2017 1,673 Joint 1,630 ventures £m (14) 739 220 268 Group Group 12,832 12,358 ventures) (excl. joint joint (excl. (2016: £968m). (2016: £m 2017 (39) 367 238 (147) 13,873 14,439 Portfolio £1,169m Combined 2 – – (1) (1) for £m (35) (34) share Adjustment Adjustment proportionate proportionate 1 – (8) 57 40 £m Joint 1,812 (2016: £201m). The average rate of interest capitalisation for the year is year the for capitalisation interest of rate The average £201m). (2016: 1,763 ventures (2016: £6,720m). £6,720m). (2016: £206m £m 311 (31) 238 (186) £6,713m Group Group 12,144 12,662 ventures) (excl. joint joint (excl.

Investment portfolioInvestment Developments

Refer to note16 for a breakdown of this amount by entity. numbers. in the Group which is consolidated but own, we do not which X-Leisure in the interest This represents

2. 2. 1. 1. t, to arrive at the valuation. As the development approaches completion, the valuer may consider the income capitalisation approach approach capitalisation income the consider may valuer the completion, approaches development the As valuation. the at arrive to t, f pro developer’s to be more appropriate. Properties in the development programme are typically valued using a residual valuation method. Under this methodology, the valuer assesses the the assesses valuer the methodology, this Under method. valuation residual a using valued typically are programme development the in Properties including fnance and complete, costs to estimated Deductions then made for are yield assumptions. using income and value development completed valuation techniques. The fair value of investment properties is determined using the income capitalisation approach. Under this approach, forecast net net forecast approach, this Under approach. capitalisation income the using derived determined is market at properties discounted are investment of costs, value fair estimated The with fair together the techniques. rents) produce valuation would (market ows f values cash all to rental applied estimated if derived which, market rate, current upon discount based average ows, f The cash value. fair of opinion valuer’s the produce to rates capitalisation value, is described as the equivalentyield. discussions of the assumptions used by the independent valuer, as well as a review of the resulting valuations. Discussions of the valuation process and and process valuation the of Discussions valuations. resulting the of review a as well as valuer, independent the by used assumptions the of discussions appropriate using resultsand areterms held length between seniorarm’s on management, theAudittransactions Committeemarket andrecent the independentcomparable using valuer onderived a half-yearlyprimarily basis.was value fair of opinion valuer’s The The fair value of investment properties at 31 March 2017 was determined by the Group’s independent valuer, CBRE. The valuations are in accordance accordance in are valuations The CBRE. valuer, independent Group’s the by the by determined was performed 2017 valuations March The 31 at properties properties. similar investment for of value transactions fair of The includes evidence process This market to units. reference business by at Retail and arrived were London and the within standards people RICS with relevant and management senior by internally reviewed are valuer independent Investment properties include capitalised interest of of propertiesInvestment interest include capitalised properties investment is cost of The historical Valuation process The net book value of leasehold head properties leases been have is where of capitalised The net bookvalue Net bookvalue nance leases and head leases separately. The following table reconciles the net net the reconciles table following The separately. leases head and leases nance f tenant incentives, lease presenting Group the to due sheet balance value. market the to properties investment the of value book cit)/surplus on revaluation of investment properties investment of Net (defcit)/surplus on revaluation the in March at 31 bookvalue Net presented value book net the from ers f di valuer, external Group’s the by determined as properties, investment Group’s the of value market The Capitalised interest Capitalised Disposals fnance leases in Net movement Acquisitions expenditure: Capital Net book value at the beginning of the year beginning the of at the bookvalue Net 14. Investment properties Investment 14. Plus: tenant lease incentives tenant Plus: Less: head leases capitalised capitalised leases head Less: Plus: properties as fnance leases treated Plus: Market value Market cit)/surplus on revaluation revaluation on cit)/surplus f (de Net properties of investment Notes to the fnancial statements for the year ended 31 March 2017 continued

14. Investment properties continued

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

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

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

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

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

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

Market value at 31 March 2017 – Group 12,662

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

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

Sensitivities

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

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

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

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

15. Trading properties

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

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

16. Joint arrangements

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

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

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

124 Landsec Annual Report 2017 Financial Statements 125 LandsecAnnual Report 2017 Joint venture partner venture Joint Joint operation partners operation Joint Joint venture partner venture Joint Management Countryside Properties PLC Canary Wharf Group plc Wharf Group Canary and GIC Estate M&G Real Lend Lease Retail Partnership Asset Aberdeen and Hermes Canada Pension Plan Investment Board Plan Investment Canada Pension Limited Partners Estate Real Delancey Limited Partners Estate Real Frogmore Partnership J Sainsbury plc Ebbsfeet Property Limited Limited PropertyEvans Group Trust Property Exempt Unit Schroder Intu PropertiesIntu plc The Crown Estate Commissioners Estate The Crown 1 Business segment Business segment London Retail Year end date 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 December 31 March Business segment London London Retail London Retail London Retail Retail Retail Retail Ownership interest interest Ownership Ownership interest interest Ownership 50% 30% 50% Percentage owned Percentage & voting rights 50% 50% 50% 50% 50% 50% 50% 50% 50% 3 6 4 6, 7 6, 6, 8 6, 2 5, 6 5, reporting date. Limited. Developer Victoria Circle and Partnership Limited Residential Nova Partnership, Limited Victoria Circle Victoria includes the Nova, (Delancey)). Limited Management Asset Estate Real Delancey (a fund owned by DV4 its assets to one of the sale of completed (Metro) Partnership Limited Shopping Fund Metro 2017, April 13 On Partnership. The Southside Limited renamed The partnershipwas subsequently Fund. European Estate Real Invesco to in Metro sold its stake Delancey On the same date Limited. and Harvest Limited GP GP 2 Harvest Oak Limited, Selly 2 Harvest Limited, Harvest Management Development Partnership, Limited Harvest2 includes Harvest At 31 theMarch Millshaw2017, Property Co. Limitedwas in the process of being liquidated. West India Quay Unit Trust is held in the X-Leisure Unit Trust (X-Leisure) in which the Group holds a 95% share. nancial information for the Group’s own reporting period and and period reporting own Group’s the for information nancial f using performed is accounting Group’s the cases all In venture. joint the of date reference accounting the is shown date year-end The

7. 8. 3. W1. Street, Oxford 26-32 in its disposed interest of Partnership The Oriana Limited 2016, September 23 On 4. 5. tables. within Other in subsequent Included 6. 1. 1. 2. All joint ventures are registered in England and Wales with the exception of the Metro Shopping Fund Limited Partnership and West India Quay Unit Unit Quay India important the business activities the Group. to of strategically West therefore are arrangements and Partnership Limited Fund Shopping Metro the of exception the with Wales and England in registered are ventures joint All Trust which are registered in Jersey. eet Limited Partnership which holds development land as trading properties, and Millshaw and Millshaw properties, land as trading which holds development Partnership The Ebbsfeet Limited of with the exception property investment operate joint Group’s the all of Victoria and Nova, activities Partnership, The Alliance Limited Oxford Westgate The properties. trading year. in the prior and property its interest which disposed only of Limited Property Co. investment of development the in engaged also are Partnership Limited Oriana The All of the Group’s joint arrangements have their principal place of business in the United Kingdom. All of the Group’s joint arrangements own and and own arrangements joint Group’s the of All Kingdom. United the in business of place principal their have arrangements joint Group’s the of All Countryside Securities (Springhead) Limited Land The following joint arrangement was sold in the year ended 31 March 2017: March endedyear 31 was sold in the arrangement joint The following venture Joint Joint operation Joint Kent Bluewater, Held at 31 March 2017 March Held at 31 20 Fenchurch Street Limited Partnership Joint ventures Joint The Group’s joint arrangements are described below: are arrangements joint The Group’s Nova, Victoria Nova, West India Quay Unit Trust Harvest Partnership The Ebbsfeet Limited Limited Property Co. Millshaw Metro Shopping Fund Limited Partnership Limited Shopping Fund Metro St. David’s Limited Partnership Westgate Oxford Alliance Limited Partnership The Oriana Limited Partnership The Oriana Limited Notes to the fnancial statements for the year ended 31 March 2017 continued

16. Joint arrangements continued

Joint ventures

Group

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

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

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

Segment proft before fnance expense 36 1 15 27 2 – 41 1 42

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

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

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

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

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

126 Landsec Annual Report 2017 Financial Statements –

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

– – – – – 1 1 2 2 2

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

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

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

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

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

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

16. Joint arrangements continued

Joint ventures

Group

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joint ventures (our share) ventures Joint commitments capital Total Trading properties Contracted capital commitments at the end of the yearrespect in of: the of end at the commitments capital Contracted propertiesInvestment 17. Capital commitments commitments Capital 17. Net investment Net 1April At 2015 Joint ventures Joint Total comprehensive income Cash contributed Loan advances Loan repayments Property distributions and other Cash distributions At 31 March2016 Total comprehensive income Cash contributed Loan advances Other distributions Disposal of investment Disposal of Cash distributions Loan repayments At 31 March 2017 Notes to the fnancial statements for the year ended 31 March 2017 continued

18. Net investment in fnance leases

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

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

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

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

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

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

tested for impairment. The other intangible asset relates to the Group’s acquisition of its interest in Bluewater, Kent in 2014 and represents the estimated fair value of the the of value fair estimated the represents and 2014 in Kent Bluewater, in On interest its of years. 20 of acquisition period a over Group’s the amortised to being is relates asset asset the and £30m intangible was other deferred The The acquisition of date amount. the at same the value of fair goodwill The corresponding centre. and the for £6m, of rights liability management tax being is deferred a goodwill the recognised of Group the element asset, corresponding the intangible and the of amortised, is recognition asset intangible the as statement income the to released being is liability tax At 1April At 2015 19. Intangible assets Intangible 19. Transfer from other property, plant and equipment ve years. fve Intangible assets arising on business combinations are initially recognised at fair value. Goodwill is not amortised, but is tested at least annually for for annually least at tested is but amortised, not is Goodwill value. within the business. assets assets and software arising on business combinations comprise goodwillfair intangible Intangible used other and internally at Software recognised lives. initially are useful expected combinations their over business on arising statement assets income the to Intangible amortised are combinations business on arising assets intangible Other impairment. normally amortisation at cost less accumulated amortised economic useful lives, and are stated basis their estimated assets over are on a straight-line Capital expenditure Capital Amortisation Amortisation Impairment of goodwill on unwind of deferred tax liability tax deferred goodwill of Impairment on unwind of At 31 March2016 At 31 March 2017 Capital expenditure Capital Impairment of goodwill on unwind of deferred tax liability tax deferred goodwill of Impairment on unwind of Amortisation Amortisation Notes to the fnancial statements for the year ended 31 March 2017 continued

Section 4 – Capital structure and fnancing

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

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

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

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

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

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

1. 20. Capital structure 20. Market value of investment properties investment of value Market Property portfolio Trading properties Total property portfolio (a) Borrowings Borrowings Net debt Net Monies held in restricted accounts and depositsMonies held in restricted Fair value of interest-rate swaps Cash and cash equivalents Fair value of foreign exchange swaps Net debt (b) debt Net Less: Fair value of interest-rate swaps Reverse bond exchange de-recognition (note21) Adjusted net debt (c) Total equity (d) Adjusted equity total Fair value of interest-rate swaps Reverse bond exchange de-recognition (note21) Adjusted equity total (e) Weighted average cost of debt Adjusted gearing (c/e) (c/a) LTV Group LTV Group Security Gearing (b/d) Gearing Notes to the fnancial statements for the year ended 31 March 2017 continued

21. Borrowings

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

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

Group

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

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

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

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

134 Landsec Annual Report 2017 Financial Statements

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

2016 2016 249 485 950

of of (806) (400) 1,435 Group Group Group 2,873 3,784 Premium Premium Undrawn £300m 31 March 2016 £265m – – – – – 21 23 24 £m 30 £m £m 125 361 2017 2017 400 698 400 (391) (690) 1,760 1,885 2,873 2,949 Purchases – – 1 6 57 29 £m £m 44 137 2016 430 430 of its A3 MTN due in 2022, 2022, A3 MTN due in its of Drawn Premium Premium LandsecAnnual Report 2017 £3m 31 March 2017 of its A3 MTN due in 2022, 2022, A3 MTN due in its of – – 2 23 55 55 £m £m 1.974% MTN due in 2026 and a 272 184 2017 209 690 of its A7 MTN due in 2032. The table below The table 2032. A7 MTN due in its of £206m Purchases £2m £400m £m 2016 485 1,865 1,380 . The Group purchased Authorised £13m £m at 31 March 2017 (31 March 2016: £12.6bn). The secured debt debt secured The £12.6bn). 2016: March (31 2017 March 31 at 125 2017 have been capitalised within non-current borrowings. within non-current been have capitalised . The Group purchased 1,815 1,940 £2m £124m £12.9bn of its A5 MTN due in 2027 and 2027 A5 MTN due in its of 2017 as at at as 2021 31 March Maturity Maturity 2021-22 £23m of MTNs for a premium of of a premium MTNs for of £55m of MTNs for a premium of of a premium MTNs for of £635m of its A4 MTN due in 2026, 2026, A4 MTN due in its of of its A4 MTN due in 2026. On the same date, the Group issued a the Group On the same date, 2026. A4 MTN due in its of £20m £164m 4.875% MTN due 2019 MTN due 4.875% 5.425% MTN due2022 4.875% MTN due 2025 MTN due 4.875% 5.391% MTN due2026 5.391% MTN due2027 5.396% MTN due2032 of its A10 MTN due in 2025, 2025, A10 MTN due in its of

Syndicated debt Syndicated and bilateral bank debt debt bank bilateral and Syndicated A8 MTN purchases £7m paid. with the premiums together purchases, summarises the aggregate 2.399% MTN due in 2031. Costs associated with the issues of the new MTNs of MTNs of the new with the issues of Costs associated 2031. MTN due in 2.399% Earlier in the theyear, Group also purchased a further and their fair values are based prices. are on their respectivevalues market and their fair purchased the Group 2017, On 8 February and 2025 A10 MTN due in its each MTN, whereupon the interest rate for the last two years may either become LIBOR plus an increased margin (relative to that at the time of issue), issue), of time the at that to (relative margin increased an plus LIBOR become either may years two last the for rate interest the whereupon MTN, each Exchange the specifc notes. and conditions of or subject coupon depending a fxed on the terms uplift, to Stock Irish the on listed are MTNs The costs. issue of amortisation the includes and paid coupon the on based is rate interest ective f e The exibility when the loan-to-value and interest cover in the Security cover and interest when the loan-to-value for fexibility substantial the Group which gives date regime covenant operating has a tiered structure maturity legal the before years two being maturity, with becomes restrictive more environment operating the expected exceeded, these limits are If the 1.45 times respectively. until than than 65% and more less are xed Group f is rate interest The gearing. in reduction a encourage to provisions t from security over a pool of investment investment of pool a over security from t f bene Limited investors David’s Debt (MTNs) St. notes Medium term Group. the Security Victoria, the of assets Nova, of pool oating f Partnership, and xed f Limited the on Alliance secured are Oxford MTNs The Westgate in investment Group’s the and properties development properties, Partnership and 20 Fenchurch Street Limited Partnership, in total valued at Other At 31 March Bond exchange de-recognition adjustment on redemption of medium term notes notes term medium of redemption on adjustment de-recognition exchange Bond Foreign exchange movement on non-GBP borrowings Redemption of medium term notes fnance fees) (net of notes medium term Issue of Amortisation adjustment de-recognition bond exchange of At the beginning of theyear borrowings new Proceeds from Repayment of borrowings Reconciliation of the movement in borrowings Bilateral debt Bilateral A3 A10 A4 A5 A7 Notes to the fnancial statements for the year ended 31 March 2017 continued

21. Borrowings continued

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

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

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

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

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

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

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

Counterparties with external credit ratings Counterpartieswith external credit A BBB+ The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings of the counterparty where the account or deposit the account where the counterparty of ratings external credit to reference can be assessed cash and cash equivalents by of quality The credit is placed. Short-term deposits Cash at bank and in hand 23. Cash and23. cash equivalents BBB+ Counterparties with external credit ratings Counterpartieswith external credit A The credit quality of monies held in restricted accounts and deposits can be assessed by reference to external credit ratings of the counterparty where where counterparty the of ratings credit external to reference by assessed be can deposits and accounts restricted in held monies of quality credit The or depositthe account is placed. Cash at bank and in hand 22. Monies held in restricted accounts and deposits accounts Monies in restricted held 22. Short-term deposits Cash and cash equivalents comprises cash balances, deposits held at call with banks and other short-term highly liquid investments with original original with investments liquid highly short-term other and banks with are call at held management cash deposits Group’s balances, the cash of part comprises integral an equivalents form cash and and demand Cash on repayable are that overdrafts Bank less. or months three of maturities cash fows. of the statement the purpose of for deducted cash and cash equivalents from Short-term deposits nition of cash and cash equivalents. Holding cash in restricted accounts does not prevent the Group Group the prevent not does accounts restricted in cash Holding by these monies with conditions that restrict the use of in accounts the Group cash held by accounts and depositsMonies held in restricted represent equivalents. cash and cash of nition f de the meet not does such, as and, Group the putting by monies on short-term these deposit. returns optimising from Notes to the fnancial statements for the year ended 31 March 2017 continued

24. Derivative fnancial instruments

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

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

The fair values of the fnancial instruments have been determined by reference to relevant market prices, where available. The fair values of the Group’s outstanding interest-rate swaps have been estimated by calculating the present value of future cash fows, using appropriate market discount rates. These valuation techniques fall within Level 2, as defned by IFRS 13.

Fair value of derivative fnancial instruments

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

Notional amount

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

138 Landsec Annual Report 2017 Financial Statements 139 14 25 £m (67) 2016 2016 684 Group (2,391) (3,047) 13 30 £m 672 (43) 2017 (3,118) (2,446) LandsecAnnual Report 2017 cant credit risk as the tenants tenants the as risk credit cant f signi a considered not is This receivables leases. lease nance f Finance tenant of respect in tenants from receivable amounts to relates balance This good of fnancial standing. generally are considered to be low. Furthermore, a credit report is obtained from an independent rating agency prior to the inception of a lease with a new with a new a lease of the inception to prior agency report an independentrating a credit from is obtained Furthermore, be low. to considered these deposits In general represent at inception. the tenant from the deposit that is required This report the size of determine is used to counterparty. rent. months’ six and three between Trade receivables are presented in the balance sheet net of allowances for doubtful receivables. Impairment is made where there is objective evidence evidence objective is there where made is Impairment receivables. the doubtful to for relative allowances low of is net balance sheet The balance the in concerned. presented are receivables the is of receivables terms receivables Trade original trade the to of risk according credit due the amounts all collect arrangements, to able be tenancy not will Group’s Group the the of that diversity and nature long-term the to owing and, sheet balance the of scale rating is lowered to BBB+.The Group’s treasury function currently performs aweekly review of the creditFurthermore, ratings of all fnancial the institution treasury counterparties. function ensures that funds deposited with a singleTrade fnancial receivables institution remain within the Group’s policy limits. nancial institutions. In line with with line In institutions. nancial f and banks with deposits institutions and nancial f and instruments Bank derivative nancial f from arises Group the of risks credit principal the of One minimum the relationship, lending committed a has Group the with a banks and fnancial institutions which rated independently manages the deposit only the Group where with Directors, of the Board by approved the policy institutions nancial f and banks UK For accepted. are A- of rating minimum nance lease receivables and amounts due from joint joint from due amounts and receivables lease nance f receivables, other and trade equivalents, cash and cash are assets nancial f principal Group’s The Furtherventures. details concerning the credit risk counterpartiesof is provided in the note that specifcally relates to each type asset.of Financial risk factors risk (i) Credit Financial liabilities at amortised cost ft and loss pro through value Financial liabilities at fair Cash and cash equivalents Other investments Loans and receivables receivables and Loans nancial assets and liabilities into the categories required by IFRS 7, ‘Financial Instruments: Disclosures’: ‘Financial Instruments: IFRS 7, by required the categories fnancial assets and liabilities into Group’s summarises the table The following nancial performance and includes the use of derivative derivative of use the includes and performance nancial f Group’s the on these of ects f e adverse potential the minimise to seeks strategy management hedge certain to fnancial instruments risk exposures. Directors. of the Board function treasury by under policies approved the Group’s is carried out by Financial risk management A review of the Group’s objectives, policies and processes for managing risk is set out in “Managing risk” and “Our principal risks and uncertainties” uncertainties” and risks principal “Our and risk” “Managing in out set is risk managing for processes and policies objectives, Group’s the of review A speci on fc fnancial risks. information further and includes quantitative nancial risk management provides on f detail This note 45). to (pages 42 risk overall The Group’s risk. liquidity risk and credit risk), interest-rate (principally risks market fnancial risks: of variety a is exposed to The Group 25. Financial25. risk management Introduction Notes to the fnancial statements for the year ended 31 March 2017 continued

25. Financial risk management continued

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

Management monitors the Group’s available funds as follows:

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

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

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

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

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

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

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

Group

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

140 Landsec Annual Report 2017 Financial Statements – – – 141 3 6 32 25 28 79 35 35 84 £m £m 2016 2016 Total Total Total 5,142 4,815 Group Group 3,250 3,250 – – – – – – – – – – 10 79 £m £m rate 253 253 Over Over 3,377 3,288 5 years Floating (2016: £0.7bn), and its its and £0.7bn), (2016:

– – – – – – – – – 3 35 20 £m £m rate Fixed years £0.5bn 1,186 1,244 2,997 2,997 2 and 5 and 2 Between LandsecAnnual Report 2017

– – – – – – 1 4 28 28 £m 94 £m 170 261 203 2017 years Total 1 and 2 and 1 3,270 2,887 Between – – 1 1 3 6 32 25 79 28 £m 58 94 £m 171 318 261 rate 441 1 year Floating Floating Less than than Less – – – £m rate Fixed 2,829 2,829 (2016: £2m). The sensitivity has been calculated by applying the interest rate rate interest the applying by calculated been has sensitivity The £2m). (2016: £2m (2016: £nil) impact on the Group’s income statement and equity. The Group’s foreign exchange risk risk exchange foreign Group’s The equity. and statement income Group’s the on impact £nil) (2016: £nil xed (2016: 94.9%). Based on the Group’s debt balances at 31 March 2017, a 1% increase in interest rates would increase the annual annual the increase would rates interest in increase 1% a 2017, March 31 at balances debt Group’s the on Based 94.9%). (2016: xed f 88.9% Sterling Financial maturity analysis set out below: are swaps, ect the interest-rate the ef account of after into taking borrowings, undiscounted the Group’s fle of pro rate The interest paper, fully hedged through foreign exchange swaps. At 31 March 2016, the Group had no foreign currency exchange exposure. A 10% weakening or or weakening 10% A exposure. exchange currency foreign no had Group the 2016, March 31 At swaps. exchange foreign through hedged fully paper, have would therefore Sterling of strengthening low. is therefore 307m, $118m and CHF35m of commercial commercial of As it is solelybased, the UK CHF35m Group does notand frequently enter into foreign any currency transactions$118m other than in connection307m, with€ its fnancing activities.issued had Group the into entering by exposure that 100% of 2017, hedge to policy March it is the Group’s 31 fed, is identi currencies in foreign At committed signifcant Where expenditure value. Sterling the x f to currency foreign of purchases forward Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the the not is that currency a in denominated are liabilities or assets Foreignrecognised or exchangetransactions commercial future when arises risk exchange Foreign functional currency. Group’s net debt was net debt by equity and reduce net fnance expense in the income statement swaps and cash and cash equivalents. interest-rate net of borrowings, rate variable the change to debt, these may qualify for hedge qualify accounting. for these may debt, At 31 theMarch Group2017, (including jointventures) had pay-fxed interest-rate swaps in placewith a nominalvalue of ve years. Due to a to Due years. ve f coming the for rates interest xed f at be hedging to expenditure capital Measurement’, and committed net Recognition with associated Instruments: debt in ‘Financial increases 39 IAS plus under debt the x f required to certainty ventures of joint level our high the within used also principally are hedges factors, of combination interest-rate c f limited-recourse Speci on exposure accounting. hedge interest for the x f qualify to not do ventures context joint this in geared used in used are instruments hedges c f speci Where debt. limited-recourse on exposure rate interest The Group is exposed to market risk through interest rates, availability of credit and foreign exchange movements. exchange and foreign credit of availability rates, interest risk through market is exposed to The Group existing its of 80% least at requires generally that policy hedging a has rates and Interest exposure, rate interest its manage to products derivative uses Group The (iii) Market risk (iii) Market nance lease liabilities) liabilities) lease nance f (excluding Borrowings Euro Finance lease liabilities liabilities lease Finance US Dollar Derivative fnancial instruments Derivative Swiss Franc Trade payables Capital accruals Capital Accruals Amounts owed to joint ventures joint Amounts owed to Other payables Non-current trade and other payables and other trade Non-current Redemption liabilities Notes to the fnancial statements for the year ended 31 March 2017 continued

25. Financial risk management continued

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

Group

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

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

Group

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

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

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

Group

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

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

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

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

The fair value of the other investments is calculated by reference to the net assets of the underlying entity. The valuation is not based on observable market data and therefore the other investments are considered to fall within Level 3 of the fair value hierarchy.

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

Accounting policy

The majority of the Group’s trade receivables are considered past due as they relate to rents receivable from tenants which are payable in advance. payable in advance. which are tenants from receivable rents to relate past considered due as they are receivables trade the Group’s of The majority £nil). past due (2016: are receivables other Group’s the None of As at 31 March 2017 March 31 at As impaired Not over the non-cancellable life theof lease. Ageing of trade receivables The accounting for lease incentives is set out in note 6. The value of the tenant lease incentive, included in current trade and other receivables, is spread spread is receivables, other and trade current in included incentive, lease tenant the of value The 6. note in out set is incentives lease for accounting The Net trade receivables receivables trade Net 26. Trade26. and other receivables This section focuses on our working capital balances, including trade and other receivables, trade and other payables, and provisions. payables, and other trade receivables, and other trade including balances, capital working This sectionon our focuses Section 5 – Working capital Working – 5 Section Impaired Property sales receivables money. A provision for impairment is made where there is objective evidence that the Group will not be able to collect all amounts due according to the collect be to will not able to all amounts due according is objective that the Group there evidence where impairment is made for provision A money. assets. within non-current the balance is presented collectionyear, If one is expected than in more concerned. the receivables of original terms Trade and other receivables are recognised initially at fair value, subsequently at amortised cost and, where relevant, adjusted for the time value of Gross trade receivables trade Gross Tenant lease incentives (note 14) As at 2016 March31 impaired Not Prepayments and accrued income Prepayments Impaired Amounts due from joint ventures joint Amounts due from Gross trade receivables trade Gross Other receivables Total current trade and other receivables Non-current amounts due from joint ventures ventures joint from due amounts Non-current Non-current property sales receivables Non-current Total trade and other receivables Notes to the fnancial statements for the year ended 31 March 2017 continued

26. Trade and other receivables continued

Movement in allowances for doubtful accounts

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

Movement in tenant lease incentives

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

27. Trade and other payables

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

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

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

Derivative fnancial instruments Derivative Total other current liabilities Provisions 30. Other current liabilities Other current 30. Pension surplus (note 32) Total other non-current assets Other property, plant and equipment plant Other property, Other investments 29. Other29. non-current assets A full list of subsidiary undertakings at 31 March 2017 is included on page180. At the beginning of theyear 33) share-based payments (note to relating contributions Capital At 31 March 28. Investments in Investments subsidiary28. undertakings nancial statements, together with mandatory disclosures required in accordance accordance in required disclosures mandatory with together statements, nancial f the of areas other of respect in disclosure further gives section This IFRS. with Section 6 – Other required disclosures required Other – 6 Section In accordance with ‘IFRS 2 – Share Based Payments’ the equity settled share-based payment charge for the employees of the Company’s subsidiaries is is subsidiaries value. impairment in for provision less any balance sheet, at cost in the Company’s in subsidiaryCompany’s undertakings stated Investments are the of employees the for charge payment share-based settled equity the Payments’ Based Share – 2 ‘IFRS with accordance In equity. in the Company’s increase with a corresponding subsidiaries, in the investment of in the cost as an increase treated Notes to the fnancial statements for the year ended 31 March 2017 continued

31. Other non-current liabilities

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

32. Net pension surplus

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

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

Defned contribution schemes The charge to operating proft for the year in respect of the defned contribution scheme was £3m (2016: £2m).

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

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

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

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

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

(190) Group Group Group 1 1 1 7 6 % (1) 18 (8) 26 49 29 £m £m (12) (41) 100 2016 (39) 2017 2017 1 17 14 59 49 £m 120 2017 246 (232) LandsecAnnual Report 2017 – 7 % 20 24 49 100 2017 (2016: 27%) in respect of deferred scheme scheme deferred of respect in 27%) (2016: 25% (2016: 12%) in respect active scheme participants, of (2016: (2016: £0.1m). (2016: 11% £0.1m t scheme liabilities at 31 March 2017 is is 2017 March 31 at liabilities scheme t f bene ned f de the of duration average weighted The retirees. of respect in 61%) (2016: 64% (2016: 16.7years). (2016: years

participants, and and participants, 17.3 nancial instruments had a fair value of of value a fair had fnancial instruments The defned split beneft scheme liabilities are During the year, the Scheme sold some corporate bonds and gilts to purchase a buy-in policy with Just Retirement for £111m. This insurance contract is is contract insurance This £111m. for Retirement Just with policy buy-in a purchase have to assets gilts and Scheme bonds other All corporate some assets. sold Scheme unquoted the are which year, the annuities During are owned contracts Indirectly Insurance Group. the assumptions. by 19 IAS issued same the instruments using nancial asset f an as owned valued directly any include not do assets Scheme The markets. active in prices quoted Equities The net surplus recognised in respect the defned beneft scheme can be of analysed as follows: Net re-measurement (losses)/gains on scheme liabilities (losses)/gains Net re-measurement (loss)/gain re-measurement Net Cumulative net re-measurement loss recognised in other comprehensive income Analysis of gains and losses of Analysis gains/(losses)Net re-measurement on scheme assets Analysis of the amounts recognised in other comprehensive income comprehensive other in recognised amounts the of Analysis Interest expense on defned beneft scheme liabilities Interest fnance income to credit Net Analysis of amount credited to net fnance expense net to credited amount of Analysis income on plan assets Interest ft pro operating to charged amount the of Analysis service Current cost ft pro operating to Charge Analysis of the amounts charged to the income statement income the to charged amounts the of Analysis Bonds – Government – Bonds Bonds – Corporate – Bonds Insurance contracts Insurance Cash and cash equivalents Fair value of scheme assets Fair value of scheme liabilities pensionNet surplus Notes to the fnancial statements for the year ended 31 March 2017 continued

32. Net pension surplus continued

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

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

The mortality assumptions used in this valuation were:

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

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

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

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

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

The Company did not operate any defned contribution schemes or defned beneft schemes during the fnancial year ended 31 March 2017 or in the previous fnancial year.

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

Number (millions) 1 1

2 4 8 £m Charge (2016: £0.3m). (2016: (2016: £1.5m). (2016: £0.2m – – 2 2 4 £0.8m (2016: £4m). (2016: 2017 Number £4m (millions) LandsecAnnual Report 2017 1 1 1 2 5 £m Charge (2016: 1,249p). The estimated fair value of awards awards of value fair estimated The 1,249p). (2016: 1,053p (2016: £0.3m). (2016: £0.3m (2016: 1,238p). The estimated fair value of awards granted during the year under the scheme was under the scheme year during the granted awards of value fair The estimated 1,238p). (2016: (2016: 1,227p). The estimated fair value of awards granted during the year under the scheme was under the scheme year during the granted awards of value fair The estimated 1,227p). (2016: (2016: 1,262p). The estimated fair value of awards granted during the year under the scheme was under the scheme year during the granted awards of value fair The estimated 1,262p). (2016: 1,046p 887p 1,006p Accounting policy

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

33. Share-based payments continued

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

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

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

1. Executive plans are granted at nil consideration.

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

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

2. Executive plans are granted at nil consideration.

150 Landsec Annual Report 2017 Financial Statements

151 2016 2016 16% 85% years 3 to 5 3 to 1.07% 1.07% 2.49% 1,024p 1,280p to 1.58%to option plan option Correlation – – Correlation Group vs. index vs. Group 2017 2017 18% Savings related share share related Savings 85% 953p years 3 to 5 3 to 1,191p 2.94% 0.35% 0.35% to 0.57% to 2016 2016 16% 20% 1.02% 1,328p 1,328p 2.40% 3 years 3 LandsecAnnual Report 2017 2005 ESOS 2005 2017 2017 18% 20% 0.21% 3.48% 1,005p 1,005p 3 years 3 of comparator companies comparator of Expected volatility – index – Expectedvolatility nil 2016 2016 n/a 16% 20% 1 to 2 1 to years 0.52% 0.52% 1,245p to 0.67% nil 2017 2017 n/a 18% 20% 1 to 2 1 to years 0.15% 0.15% 1,005p Deferred bonus share plan share bonus Deferred Expected volatility – Group – volatility Expected to 0.21% 2016 n/a 2016 n/a 16% 1.02% 1,325p 2.40% 3 years 3 Exercise price Exercise 2017 2017 n/a n/a 18% 0.21% 3.48% 1,005p 3 years 3 Long-Term Incentive Plan Incentive Long-Term 2016 1,325p 2017 1,005p Share price at date of grant of date at price Share Year ended 31 March Long-Term Incentive Plan scheme are as follows: scheme are Fair values are calculated using the Monte Carlo simulation option pricing model for awards with market performance conditions. Awards made under under made Awards conditions. performance market with the awards for for model model Fair this pricing into value option inputs The inputssimulation Carlo condition. Monte the for using market-based a awards is calculated which are withvalues condition, marketFair TSR a include performance2009 March 31 after granted conditionswere which LTIP 2005 the behavioural considerations. Risk-free rate is the yield at the date of the grant of an award on a gilt-edged stock with a redemption date equal to the the to equal date redemption a with stock gilt-edged a on award an of vesting/exercise restrictions and grant the ects non-transferability, the ef of for bestmodel estimate has been basedof determined upon management’s date the at yield the is rate Risk-free considerations. behavioural award. that of vesting anticipated Expected volatility is determined by calculating the historic volatility of the Group’s share price over the previous ten years. The expected life used in the the in used life expected The years. ten previous the over price share Group’s the of volatility historic the calculating by determined is volatility Expected Share price at grant date price at grant Share Fair values are calculated using the Black-Scholes option pricing model for awards with non-market performance conditions. Inputs into this model for for model this into Inputs conditions. performance non-market with awards for model pricing option Black-Scholes the using calculated are values Fair as follows: are year each under nancial plan in the f the grants Fair value inputs for awards with non-market performance conditions Year ended 31 March Exercise price Exercise Expectedvolatility Expected life Risk-free rate Risk-free Expectedyield dividend Notes to the fnancial statements for the year ended 31 March 2017 continued

34. Ordinary share capital

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

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

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

Group and Company Number of shares

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

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

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

35. Own shares

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

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

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

152 Landsec Annual Report 2017 Financial Statements – – – – – – – 3 6 9 153 (1) (2) £m £m £m (12) (15) (63) 2016 2016 joint joint 400 (272) Group owed to to owed ventures Amounts Company – – – – – 1 1 – 5 5 3 8 93 46 40 £m £m £m (55) joint joint 2017 2017 (294) owed by by owed ventures Amounts Year ended and as at 31 March 2016 – 1 (2) (3) 62 35 £m (14) (14) Net (32) (63) 100 ventures into joint joint into LandsecAnnual Report 2017 investments investments – – – – – 1 1 7 17 18 44 £m Income/ (expense) – – – – – – – (1) (2) (3) (6) £m joint joint owed to to owed ventures Amounts – – – – – – – 10 56 43 £m 109 joint joint owed by by owed ventures Amounts – 2 8 (1) (1) (2) Year ended and as at 31 March 2017 (4) 67 £m (12) (16) Net (37) ventures into joint joint into investments investments – – – 1 – – – 9 12 41 19 £m Income/ (expense) Short-term benefts employee Share-based payments ed in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is is Directors individual of remuneration the about information Further Disclosures’. Party ‘Related 24 IAS in ed f speci categories applicable the of each 91. to Report part in the audited provided the Directors’ Remuneration on pages 76 of Remuneration of key management personnel for in aggregate is set out below the Group, personnel management of the key who are and Managing Directors, the Directors of The remuneration 20 Fenchurch Street Limited Partnership joint arrangements are disclosed as follows: are arrangements joint Joint arrangements Joint As the disclosed Group 16, has investmentsin note in a number jointof arrangements. Details transactionsof and balances between the Group and its Recharge of costs Dividend received paid Interest Transactions with subsidiary undertakings: Subsidiaries parties related with other as follows: business, of course in the normal transactions, into entered the Company year, During the 37. Related37. party transactions that any material liabilities will arise from the contingent liabilities. contingent the will arise from liabilities material that any 36. Contingencies 36. anticipated not is It business. of course ordinary the in arising warranties and guarantees, claims, legal of respect in liabilities contingent has Group The Nova, Victoria Nova, Metro Shopping Fund Limited Partnership Limited Shopping Fund Metro St. St. David’s Limited Partnership Westgate Oxford Alliance Limited Partnership The Oriana Limited Partnership The Oriana Limited Harvest eet Limited Partnership The Ebbsfeet Limited Millshaw Property Co. Limited Property Co. Millshaw West India Quay Unit Trust Notes to the fnancial statements for the year ended 31 March 2017 continued

38. Operating lease arrangements

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

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

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

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

39. Events after the reporting period

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

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

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

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

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

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

Combined Portfolio value by location at 31 March 2017 Table 74

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

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

Total shareholder returns1 Table 75

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

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

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

18

16

14

12

10

8

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

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

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

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

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

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

For the year ended 31 March 2017 1 1 2 12 13 (2) (2) 19 10 (3) 32 37 29 94 69 £m (10) 112 113 (79) (58) (96) 185 587 597 587 559 482 365 (186) (359) Group Group income 78.7% 93.4% 14,088 business statement Tax-exempt Tax-exempt

1 1 Calculated according to REIT rules. REIT to according Calculated Removal of the non-wholly owned share of results of the Group’s subsidiaries. The non-wholly owned subsidiaries are consolidated at 100% in the Group’s income statement, but only the Group’s Group’s the only but statement, income Group’s the in 100% at consolidated are subsidiaries owned non-wholly The subsidiaries. Group’s the of Reallocationresults of of the share share of post-taxowned proft from jointventures non-wholly reportedthe of in the Group incomeRemoval statement to the individual line items reported in the segmental information note. ft reported information in the segmental pro is included in revenue share note.

1. t before tax (£m) tax ft before Pro REIT balance of business of balance REIT To retain the Group’s REIT status it must meet conditions from the REIT legislation. At least 75% of the Group’s assets and 75% of the Group’s income income Group’s the of 75% and assets Group’s the of 75% least At legislation. REIT business balance of REIT the from conditions meet must it status REIT Group’s the retain To below: at the balance are these tests sheet date of The results qualifying to activities. must relate 1. 2. Rental income nancial statements). The Group’s income income Group’s The statements). nancial f the to 4 (note note information segmental the to statement income Group’s the reconciles below table The owned non-wholly the excludes and basis consolidated owned non-wholly the Group’s of the results of 100% and includes ventures proportionately joint methoda accounting for using the equity is prepared on statement prepared is note information segmental the contrast, In subsidiaries. management. by reviewed with the fnancial information This is consistent subsidiaries. the Group’s of share Reconciliation of segmental information note to statutory reporting Finance lease interest Balance of business – 75% assets test 75% – business Balance of fts test pro 75% – business Balance of Rents payable Gross rental income (before rents payable) rents (before income rental Gross Adjusted assetstotal (£m) Service expense charge Net service expense charge Gross rental income (after rents payable) rents income (after rental Gross Service income charge Other property related income Other property related Direct property expenditure Net rental income rental Net Indirect property expenditure Other income t on disposal of investment properties investment ft on disposal of Pro Loss on disposal of investment in joint venture t on disposal of other investment other ft on disposal of Pro cit)/surplus on revaluation of investment properties investment of Net (defcit)/surplus on revaluation Movement in impairment of trading properties trading in impairment of Movement t on disposal of trading properties trading ft on disposal of Pro fce relocation Head o Other Finance income ft pro Operating Finance expense t from joint ventures joint ft from pro post-tax of Share t before tax ft before Pro Taxation t attributable to owners of the parent the of owners to ft attributable Pro Business Analysis – Group continued

Cost analysis Table 80

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

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

EPRA performance measures Table 81

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

1. EPRA adjusted earnings and EPRA adjusted earnings per share include the amortisation of bond exchange de-recognition of £24m and the net head ofce relocation credit of £1m. 2. EPRA adjusted net assets and adjusted diluted net assets per share include the bond exchange de-recognition adjustment of £314m. 3. Our NIY and Topped-up NIY relate to the Combined Portfolio, excluding properties in the development programme that have not yet reached practical completion, and are calculated by our external valuer. EPRA NIY and EPRA Topped-up NIY calculations are consistent with ours, but exclude all developments. 4. Our measure refects voids in our like-for-like portfolio only. The EPRA measure refects voids in the Combined Portfolio excluding only the development programme. 5. The EPRA cost ratio is calculated based on gross rental income after rents payable, whereas our measure is based on gross rental income before rents payable. We do not calculate a cost ratio excluding direct vacancy costs as we do not consider this to be helpful.

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

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

% 3.8 2.8 8.5 0.5 8.4 11.4 64.6 Value (£m) 100.0 2020 LandsecAnnual Report 2017

London Portfolio Portfolio London Portfolio Retail Total Financial services Services trade Retail Public administration Manufacturing communications Transport, Wholesale trade 2.6 Other 5 (%) 2019 95 2018 (million sq ft) Trading properties Trading Development programme Development 0 10 Estimated future spend includes the cost of residential space but but space residential of cost the includes spend future Estimated excludes interest. % portfolio value and number by of 2017 March 31 at propertyholdings £m 9.99 – 0 24.99 – 10 49.99 – 25 99.99 – 50 149.99 – 100 199.99 – 150 200+ Total Floor space Annual net rent breakdown breakdown rent net Annual by occupier business sector 70 Committed development – estimated future spend future estimated – development Committed 20 50 30 40 80 90 60 100 1

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

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

1 2 2 3 8 24 68 £m 112 351 (37) 170 218 (20) (56) 277 250 Year ended 31 March 2017

On a proportionate basis.

requirements of previous periods. to distribute as a PID to complywith REIT regulations.The Company the minimum distribution. make end to after 12 months year the has distribution the to relate may year the in paid dividends PID Accordingly, PID dividends paid in the year PID dividends paid in the to tax before t f pro Company’s the of reconciliation a provides table The required is Company the which of 90% income, exempt tax estimated its PID thereon (90%) PID thereon Cumulative tax adjustments and removal of net net of removal and adjustments tax Cumulative residual tax result incomeEstimatedyear exempt tax for Tax adjustments allowances Capital interest Capitalised Impairment of goodwillImpairment of asset Amortisation intangible of Redemption of medium term notes Fair value movement on interest rate-swaps Revaluation of redemption liabilities Interest income Interest de-recognition exchange bond of Amortisation adjustment Adjustment to exclude Valuation and profts on disposals t before tax per accounts tax ft before Pro PID Table 1. M&S Cineworld Telecity Group H&M Gates K&L Boots Sainsbury’s Taylor Wessing Accor Government Central Bank Mizuho Deloitte Deloitte Top 12 occupiers at 31 March 2017 Business Analysis – London

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

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

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

18 City 8.1 (3.1)

16 Mid-town (1.0) (5.1)

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

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

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

In administration Voids

160 Landsec Annual Report 2017 Additional information

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

LandsecAnnual Report 2017 Shopping centres Shopping centres parks Retail and hotels Leisure Other Total (sq ft)

sq ft 16.7m Rentalvalue change excludes units materially altered during theyear.

Currys & PC World PC & Currys Retail other (excludingAccor) Total Top 10 retail customers Boots Sainsbury’s H&M Cineworld Next Group Arcadia M&S Vue Tesco Retail like-for-like — rental and capital value trends % year ended March 2017 31 and shops Shopping centres Retail parks Leisure and hotels Total Retail like-for-like portfolio 1. Retail Portfolio foor space .2 17 3 Mar Chart 93 Chart 94 .0 16 3 Sep 0.3 14.1 22.6 .5 16 2 Mar Retail Portfolio Retail .8 17 0 Mar .6 16 0 Sep .0 16 1 Mar Leisure and hotels Leisure Shopping centres and shops and shops Shopping centres parks Retail 63.0 and hotels Leisure Other 17 (%) Mar .2 16 0 Sep (%) Retail parks Retail 16 Mar Voids .4 17 4 Mar .5 16 4 Sep and shops .6 16 3 Mar £6.1bn Shopping centres In administration 1 2 5 3 4 0 a break clause in 2031 and 12 yearly thereafter. yearly 12 and 2031 clause in with a break Fund which comprises15 schemes of sold prime were leisurehotels Three andUK. entertainmentthe in hotels Group Accor space. 25 own years also 75 We for Accor to leased are 22 remaining The 2017. March 31 after Retail Park. Leisure and hotels We own fve stand-alone leisure assets and a 95% share of the X-Leisure er er f o and centres town from away located typically are parks retail 13 Our shopping. convenient with parking providing and leisure retail of a range Bexhill and Park Retail Lakeside Thanet, Cross Westwood include Assets across the UK including Bluewater, Kent, Trinity Leeds, Gunwharf Quays, Quays, Gunwharf Leeds, Trinity Kent, Bluewater, including UK the across Portsmouth and Buchanan Galleries in Glasgow. Retail parks Shopping centres and shops locations retail major in centres shopping 13 of portfolio our Comprises Business Analysis – Retail – BusinessAnalysis Retail Portfolio valuation – like-for-like Retail Portfolio Retail – like-for-like Voids and units in administration Sustainability reporting

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

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

Cumulative total number of jobs secured Table 98

1,200

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

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

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

162 Landsec Annual Report 2017

Additional information 163

2050

7 /1 2 11 Table 101

Table 102 2016 c 2045 77 andse L 14 3/ 129 01 Baseline 2040

72 /1 62 2035 d 2016 ) by 40% by 2030 compared compared 2030 by 40% by ) 2 il LandsecAnnual Report 2017 ta Re 14 3/ 64 y 2030 01 Baseline

72 Sector Pathwa Landsec Pathway – projecte 2025 /1 213 2016 ondon L 2020 4 7 /1 24 2013 Baseline Reduce energy intensity (kWh/m intensity energy Reduce 2015 0 0 0 10 50 70 20 50 30 40 80 90 60

2030 target 150 100

250

20 300

Landsec Pathway – target Landsec Pathway – actual

m h/ KW

2 m e/ CO Kg 2 2 Performance our to compared 13% by intensity energy portfolio reduced have We our from realised savings by achieved been has This baseline. 2013/14 programme. management active energy a 2013/14 baseline, for property under our management for at least least at for management our under property for baseline, 2013/14 a to years. two The above chart shows the energy intensity improvements we have made made have we improvements intensity energy the shows chart above The buildings ce f O whole. as Landsec and portfolios Retail and London our in assets than Retail intensity a much higher energy have naturally in London 2013/14.14% since by intensity Portfolio London reduced we have and have we Overall 3%. by reduced has intensity Portfolio Retail Our reduced Combined Portfolio intensity13% by and are on track to meet commitment. 2030 our Landsecintensity energy Landsec carbon emissions intensity pathway intensity emissions Landsec carbon our performance against the required indicates The above fgure are We sector. wider the and portfolio our of pathways decarbonisation our for track on are and pathway target our outperforming currently 2030 commitment. Commitment Energy: Table 100 16 Sept

16 Mar ) by 40% by 2030 compared compared 2030 by 40% by ) 2 /m 15 2 Sept Commitment 15 Mar Landsec 14 Sept Continue to procure 100% renewable electricity across our our across electricity renewable 100% procure to Continue Retail Reduce carbon intensity (kgCO carbon Reduce intensity ll with at least 75% recycled across all all across recycled 75% least at with ll f land to waste zero Send 14 Mar London % % 70 50% 30% 40 80% 60% 90% generation mix. generation Performance to compared 18.5% by intensity carbon portfolio reduced have We 2013/14via reductionsour This has been in energy achieved baseline. energy changes in the UK’s favourable by and assisted consumption to a 2013/14 baseline, for property under our management for at least least at for management our under property for baseline, 2013/14 a to years. two Carbon: Commitment Landsec monthly portfolio recycling rates 2014-16 portfolio rates Landsec monthly recycling sent to landfll. to sent and recycling 68.4%. and recycling construction of tonnes 7,571 of total a 2016/17, for activities construction In 2% being less than with was recycled, 98% Over was generated. waste ll and recycled 70.8%. 70.8%. landfll and recycled from waste 2016/17 In of we diverted 99.9% and 70.3%. was 99.3% which before year the from This is an improvement ll f with 77% of landfll 100% from land divert to continues Portfolio Our London from 99.9% diverting are we Portfolio, Retail our In recycled. waste our operational and construction activities by 2020. and constructionour operational activities by Performance of our installations atTrinity Leeds andWhite Rose thiswill rise1.4 to MW. Commitment Waste: 100% waste streams. streams. waste 100% completion the following We haveMW, 0.6 setis acapacity new current metric Our 2030. to by achieve capacity 3 MW of renewable electricity electricity is from 100% renewable sources. We have agreed our new new our agreed have We sources. 100% renewable all electricity is from 2017. April 1 ect ef from which has taken Energy with Corona gas contract from derived gas green as volume total our of 15% procuring now are We portfolio and achieve 3 MW of renewable electricity capacity by 2030. by capacity electricity renewable of MW 3 achieve and portfolio Performance 2016; April 1 has been in place since with SmartestEnergy Our contract Efcient use of natural resources Commitment Renewables: Sustainability reporting continued

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

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

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

164 Landsec Annual Report 2017 Additional information 165 Table 105 Table 104 hours spent by spent hours by 1 May 2016 May 2016 July 2016 October 2016 October 2016 November 2016 November 2017 January 2017 March 2017 March 2017 March 2017 March 2017 March 2017 April Date LandsecAnnual Report 2017 Work Inclusion Award Clean and Green Award Clean and Green Partnership with a National Charity Award Leadership Environmental Team of the Year Award construction & property – partnership Charity National Commitment to the Community Award the Community to National Commitment EC4 Ludgate, New 1&2 Award, Year the Building of EC4 Ludgate, New 1&2 Building, Best Commercial Year, the Project of Developer and Development ces Refurbishment & Fit-Out award & BREEAM Ofces Refurbishment EMA Most Inspiring Energy Reduction Project 2016 – – Reduction2016 Project Most Inspiring Energy EMA World’s Best Ofce, The Zig Zag Building, SW1 Management and Chairman’s Cup Chairman’s and Management 20 Fenchurch Street, EC3, Platinum Award 2016: 13th out of 22 in performance league table2015: 22nd out of 23 in performance league table 2016: 4th out of 13 in performance table league performance in 13 leagueof out 10th table2015: Facilities for Award Premier EC4, Square, Street New

employees volunteering employees partner for raised partnership £360,000 Over Mencap in our three-year — Winner: Shortlisted: Shortlisted: Shortlisted: Shortlisted: Shortlisted: Reaccreditation: — — Retail — — 2,678 cash investment. and promotion time, of £2m equivalent Over Winner: Winner: Winner: Winner: EC4 Ludgate, 1&2 New Winner: Landsec with Collaboration in Bailey NG Winner: Winner: — 2016: A- (Leadership)A- 2016: disclosure2015: 99/score B A- score disclosure2014: 96/ disclosure2013: 88/score B disclosure2012: 92/score B score 77%2016: score 77%2015: score 78% 2014: score 67% 2013: score 68% 2012: score 76/percentile2016: ranking 92 score 72/percentile2015: ranking 89 score 70/percentile2014: ranking 87 score 72/percentile2013: ranking 87 score 70/percentile2012: ranking 85 We continue to retain our established positionReceived ina GoldAward theat EPRA SustainabilityFTSE4GoodAwards 2016 for Sustainability Index Reporting ces Of Award category Performance

for the2017/18 fnancialyear. This year we launched a new community investment activity tool. We anticipate that with continued employee engagement on how to use the new tool we will see increased investment statistics statistics investment increased see will we tool new the use to how on engagement employee continued with that anticipate We tool. activity investment community new a launched we year This

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

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

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

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

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

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

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

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

Table 112 2.26%

41.76%

45.82% (%)

0.20% 12. End-of-life treatment of sold products of treatment End-of-life 12. leased Downstream assets 13. Franchises 14. Investments 15. 1. Purchased goods and services (PG&S) services and goods Purchased 1. goods Capital 2. 3. Fuel- and energy-related activities transportation Upstream and distribution 4. Waste generated 5. in operations Business travel 6. 7. Employee commuting Upstream8. leased assets 9. Downstream transportation and distribution sold products of Processing 10. products sold of Use 11. Scope 1 Scope 2 Scope Category Capital goods Downstream leased assets Purchased goods and services (PG&S) 9.96% Fuel- and energy-related activities Others Scope 1, 2 and 3 emissions 2016/17 2016/17 emissions 3 and 2 1, Scope – Scope 2 Scope Scope 3 GHG Scope GHG 1 Scope on reduction strategies. customers transport of materials used within our construction activity and and activity construction our within used materials of transport and customers our with associated those are assets leased Downstream these in impacts our reduce to working are We assets. our within and partners chain supply our with closer working by categories The two largest contributing categories are Capital goods Capital and are categories contributing The two largest emissions. our entire of making up 80% leasedDownstream assets, manufacture the with associated emissions the include goods Capital Landsec – Scope – 3 Landsec GHG emissions 2016/17 business. For the categories that are applicable we have obvious hot spots hot obvious we have applicable that are the categories For business. below: highlighted which are The GHG Protocol splits Scope 3 emissions into 15 categories. We assessed assessed We categories. 15 into emissions 3 Scope splits Protocol GHG The our to applicable were ones which decided and individually one each Landsec Combined Portfolio analysis

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

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

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

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

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

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

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

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

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

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

Combined Portfolio 8.2 9.1

1. Mean is the rent weighted average of the unexpired lease term across all leases (excluding short-term leases). Term is defned as the earlier of tenant break or expiry. Development pipeline

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

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

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

170 Landsec Annual Report 2017 Additional information 171 15 10 67 20 211 £m £m 182 163 168 146 n/a n/a n/a 259 cost cost 248 Table 117 Table 118 development development development development Forecast total total Forecast Forecast total total Forecast 7 14 19 67 £m £m 182 163 148 168 146 n/a n/a n/a 259 248 Total Total Total Total development development development development costs to date to costs costs to date to costs n/a date date 2019 2019 Actual/ Actual/ Actual/ Actual/ Jul 2017 Jul 2017 Jul Jul 2017 Jul LandsecAnnual Report 2017 Apr 2017 Apr Apr 2017 Apr Apr 2015 Apr estimated estimated estimated estimated Oct2017 Oct2015 Oct2016 Nov 2015 Nov May 2016 May completion completion – 2 6 % 17 21 14 16 22 87 24 95 £m Net ERV n/a n/a n/a Sales by unit unit by income/ exchanged exchanged 3 3 3 18 47 59 £m 170 183 130 100 n/a n/a 382 396 n/a n/a n/a value Market Market of units of Number % 42 93 89 89 68 90 Size 100 100 100 100 100 n/a n/a sq ft status status Letting 36,700 20,200 166,800 108,600 % 50 50 50 Size 100 sq ft 41,800 interest interest 79,200 26,700 38,700 30,700 92,800 89,000 192,700 481,400 274,800 793,000 355,300 200,000 Ownership % 50 50 50 50 50 100 100 100 100 of use of interest interest Ownership Description Description Residential Residential Residential Residential of use of

Retail Retail Retail Retail Retail Retail Retail ce Of ce Of ce Of ce Of ce Of Description Description Residential

1

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

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

The Group has applied the European Securities and Markets Authority (ESMA) ‘Guidelines on Alternative Performance Measures’ in these annual results. In the context of these results, an alternative performance measure (APM) is a fnancial measure of historical or future fnancial performance, position or cash fows of the Group which is not a measure defned or specifed in IFRS. The table below summarises the APMs included in these annual results, where the defnitions and reconciliations of these measures can be found, as well where further discussion is included. The defnitions of all APMs are included in the Glossary and further discussion of these measures can be found in the fnancial review.

Table 119

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

Five year summary

Income statement Table 120

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

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

Revenue proft 382 362 329 320 291

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

172 Landsec Annual Report 2017 Additional information – – 173 11 31 14 42 50 £m (11) (18) 152 (37) 188 2013 570 345 (118) (837) (436) (364) 1,301 907p 955p 959p 903p 7,487 68.1p 9,652 37.0p 29.8p 11,216 36.8p 68.4p (3,315) 11,446 (3,462) (3,699) (4,290) Table 121 – – 15 21 14 (4) 35 50 £m (12) 187 193 (23) (33) 2014 595 366 (513) (320) (845) 1,443 8,418 9,848 30.7p 40.7p 40.5p 11,577 (3,331) 11,859 1,017p 141.8p 1,013p 142.3p (3,948) (2,849) (2,909) 1,069p 1,065p 10 14 53 35 29 50 £m (10) 185 (35) 222 (45) (30) 2015 283 650 404 (191) (367) (568) 1,434 41.7p 41.5p 12,158 (4,172) 14,031 (3,801) (3,593) 1,337p (3,703) 13,944 31.85p 1,293p 1,343p 306.1p 1,299p 10,606 304.7p LandsecAnnual Report 2017 – – 19 25 38 44 86 £m (19) (19) 124 183 613 (47) (28) (35) 2016 445 (327) (289) 1,668 45.7p 35.0p 45.9p 14,471 (2,861) 11,699 14,377 12,358 1,476p (3,239) 169.4p (2,854) 1,482p 1,439p (2,964) 1,434p 168.8p – – 21 51 (7) (9) 36 30 £m 122 123 165 (25) 591 418 (36) 2017 (713) (302) (404) 1,734 14.3p 14.3p 11,516 48.3p 48.4p (2,615) (3,261) 1,417p 12,144 1,418p 14,253 (2,905) (2,545) 14,439 1,456p 1,458p 38.55p

Investment propertiesInvestment Balance sheet sheet Balance Five year summary Five Intangible assets Intangible Net investment in fnance leases Net investment Loan investments Investment in joint ventures in joint Investment Trade and other receivables Other non-current assets Other non-current Total non-current assets Trading properties and long-term development contracts Trade and other receivables Monies held in restricted accounts and depositsMonies held in restricted Cash and cash equivalents Total current assets assets current Total Non-current assets held for sale held for assets Non-current Net assets Net Total non-current liabilities Trade and other payables liabilities Other non-current Redemption liability Total current liabilities Borrowings Borrowings Trade and other payables liabilities Other current Market value of the Combined Portfolio the of value Market Net debt Net Results per share share per Results Total dividend payable in respect of the fnancial year Adjusted net debt Basic earnings per share Diluted earnings per share share per earnings Diluted Adjusted earnings per share Adjusted diluted earnings per share Net assets per share Diluted net assets perDiluted share Adjusted net assets per share Adjusted diluted net assets per share Acquisitions, disposals and capital expenditure

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

Proft on disposal of investment properties 19 1 – 20 79

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

Proft on disposal of trading properties 29 7 – 36 41

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

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

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

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

174 Landsec Annual Report 2017 Additional information

175

Table 123 LandsecAnnual Report 2017 The Policy will apply ThePolicy stated. as The Committee has the discretion discretion the has Committee The to determine the precise amount Policy, the within salary base of for salary the approving including will It Director. newly-appointed a are there whether determine also salary award to reasons c f speci for those than greater increases the wider workforce. as apply always will Policy The specific are there unless stated, it why circumstances individual shouldnot.

Discretion — — —

Increase in responsibilities responsibilities in Increase role the of scope or progression salary apply To appointed newly a for Director salary Director’s the Where the below fallen has positioning. market

For 2017/18, the annual base base annual the 2017/18, For Executive the of salaries (Chief £784,041 are Directors (Chief £510,367 and Executive), representing cer), Of Financial increasea 2% salary annual maximum The normally not will increase increase average the exceed workforce the of rest the across increases Higher 2%). (2017/18: made and exceptional, be will circumstances, c f speci in including: — — —

The value of benefits may vary vary may benefits of value The on depending year to year from the cost to the Company. pension a receive Directors contributionor cashallowance salary. of 25% of

— — Opportunity

— —

Professional advice in connection with their directorship accommodation and subsistence Travel, necessary as appropriate example for gifts, Occasional gifts. leaving or service long Car allowance Car Private medical insurance Lifeassurance Ill health income protection pay sick and Holiday Increases throughout the rest of of rest the throughout Increases the business exercise benchmarking Market undertakenperiodically ensure to the around at set are salaries competitive market the of median roles comparable in people for level experience, of levels similar with contribution and performance Director’s a of scope the in Changes further a require also may role salary. to adjustment

— — — contribution ned f de a into Participation equivalent. cash or scheme pension Directors receive a combination of: combination a receive Directors — — — — — Reviewed annually, with ef ect from and1 June, fects: re — — —

Operation — — — contribution to the business business the to contribution Executive enabling by retirement build to Directors benefits. To help recruit and retain retain and recruit help To performing high executives continued reward To retention of high performing performing high of retention executives. To provide protection and and protection provide To benefits competitive market and recruitment aid to their experience, skills and and skills experience, their importance and knowledge, to the business. To aid the recruitment, recruitment, the aid To of motivation and retention performing high executives of value the ect f re To

— Pension — Benefits — — Base salary Base — Purpose and link to strategy Purposeto and link 1. Executive Directors Executive 1. Remuneration policy Remuneration policy continued

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

176 Landsec Annual Report 2017 Additional information 177

When to make awards awards make to When andpayments size the determine to How or payment, a award, an of an of much how and when vest should award award an receives Who payment or Director departing a Whether leaver” “good a as treated is and LTIP the of purposes the for of proportion what and whether leaving of time the at vest awards date vesting subsequent a at or of change a with deal to How corporate other any or control require may which event awards. to adjustments

LandsecAnnual Report 2017 In exceptional circumstances, the the circumstances, exceptional In period the extend may Committee are levels ownership share which by to up by achieved be to required years. two will retain the flexibility to determine determine to flexibility the retain will Executive departing a whether a as treated be should Director “good leaver”. The Policy will apply ThePolicy stated. as Committee the Policy, the Within

The outturns of the LTIP are are LTIP the of outturns The and formulaically calculated has Committee the therefore these, adjust to discretion no should they determines it unless down adjusted be Committee the Policy, the Within including: exibility f retain will — — — — —

Discretion — — — — —

The maximum participation participation maximum The HMRC with line in vary may levels participants 2017/18, For limits. per £500 to up save may five or three either for month accumulated their using years, period the of end the at savings 20% a at shares purchase to price market the to discount grant. of date the at Normal and current award award current and Normal salary. of limit300% –

Opportunity — —

Chief Executive – 250% of salary of ChiefExecutive 250% – salary of 200% – Directors Executive Other

Executive Directors are expected to build up up build to expected are Directors Executive set value a with shareholdings maintain and salary: base of percentage a at — — performance condition or where there has has there where or condition performance or whether misconduct, gross or fraud been overpayment. the caused this not Directors, Executive including employees, All Scheme SAYE the in participate to entitled are UK with line in Company the by operated guidelines HMRC prevailing. currently the performance of the benchmark and and benchmark the of performance the the for required is outperformance significant vest to award maximum issued newly either by satisfied be will Awards and market the in purchased shares or shares subject be will shares issued newly of use any scheme the in contained limits dilution the to shareholders by approved or rules vested hold to required are Directors Executive further a for shares post- two years(including vesting year three the following employment) expiry period (malus provisions recovery and Withholding overpayment applyandclawback) whereany material a of result a as made was a or results Company’s the of misstatement nancial period and continued employment. employment. continued and period nancial f no is re-testing There their measures, the reviews Committee The to prior targets and weightings relative award each directly and relative are selected measures The shareholders. of interests the to aligned measure a to weighted is award an of 50% industry the versus Return Property Total of 50% and period year three a over benchmark to Total Shareholder Return versus our listed year period three a over comparatorgroup for vest awards no measure, each For benchmark. the of that below performance matching for vest will (20%) proportion a Only The Committee may make an annual award award annual an make may Committee The LTIP under the shares of the of basis the on determined is Vesting stretching against achievements Group’s year three xed f a over targets performance

Operation — achieved be to required normally are levels These to appointment in order of years within fve awards. incentive long-term future qualify for subject not awards share unvested or Deferred towards count may conditions performance to basis. tax on a net of levels the ownership — — — — — — — — —

shareholders in terms of the the of terms in shareholders growth Company’s andperformance. To provide close alignment alignment close provide To longer-term the between and Directors of interests To encourage all employees employees all encourage To long-term a make to Company’s the in investment savings- a through shares, related arrangement. of Directors shareholdersandof Promotes retention. over the long-term in excess excess in long-term the over general by created that of increases market of execution Rewards long- the and strategy our of outperformance term competitors our interests long-term the Aligns Incentivises value creation

Share ownership guidelines — Savings Related Share Option Scheme (SAYE Scheme) (SAYE Scheme Option Share Related Savings — — — — Long-Term IncentiveLong-Term Plan (LTIP) — Purpose and link to strategy Purposeto and link Remuneration policy continued

2. Non-executive Directors

Table 124

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

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

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

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

178 Landsec Annual Report 2017 Additional information 179

LandsecAnnual Report 2017 Shareholders will be informed of the the of informed be will Shareholders Directors’ Non-executive and Chairman for arrangements fee the appointment, On In the case of an internally appointed an internally In the case of For external and internal appointments,

er a cash amount amount cash a er f o may Company The be may which of payment recruitment, on to years, two to up of period a over staggered refect thevalue of benefts a new recruit may employer. a former from received have additional all and package remuneration Executive appointed newly to payments their appointment. at the time of Directors 3.4 Letters Appointmentof Directors Non-executive the and Chairman The the with Agreements Service have not do of them has a Letter each of Instead, Company. their of terms the out sets which Appointment prior months’ three the including appointment, can appointment their which on notice written The time. any at party either by terminated be are Appointment of Letters current the of dates Remuneration on Report Annual the in shown Directors’ Executive the with together these, and inspection for available are Agreements, Service fce. o registered at the Company’s in set be would Director Non-executive new a remuneration approved the with accordance time. that at force in policy basis or ongoing) when it considers these these considers it when ongoing) or basis to be in the best interests of the Company. on solely based be would payments such Any former the leaving when lost remuneration the account into take would and employer existing delivery mechanism (i.e. cash, shares, performance time horizons and options), conditions. element pay variable any Director, Executive be would role prior the of respect in awarded as adjusted terms, its to according out paid relevant to take into account the appointment. ongoing remuneration other any In addition, appointment to prior existing obligations are they that provided continue, would the at approval for shareholders to put opportunity. earliest that the Company the Committee agree may one a on expenses, relocation certain meet will is Director a Where appropriate. as basis, time retained is exibility f overseas, from recruited to provide benefts that take account of residence. practice in their country of market The annual bonus would operate in in operate would bonus annual The the of elements the to addition In Remuneration of newly appointed appointed newly of Remuneration

and/or share-based elements (on a one-time one-time a (on elements share-based and/or exibility to set the salary of a new hire at at hire new a of salary the set to exibility f the with initially, level market the to discount a implemented planned increases a series of to (subject years few following the over to salary the bring to role) the in performance exceptional very in Only positioning. desired the a newly will the salary of circumstances median market the exceed Director appointed role. the for benchmark approved the of terms the with accordance pro-rated opportunity the with albeit policy, for the period of employment in the f rst year. responsibilities and timing the on Depending of the appointment, it may be necessary and measures performance erent f di set to targets initially.The would LTIP also operate level in maximum The Policy. the with accordance variableof pay that may be eredof to a new aggregate an at therefore is Director Executive not does limit This salary. of 450% of maximum arrangements buy-out any of value the include (see below). deemed appropriate remuneration package covered by the Policy, existing certain out” “buy may Committee the Director Executive incoming an of remuneration cash additional either of er f o the through leaver” provisions. However, if an executive executive an if However, provisions. leaver” competitor a in role similar a for resigned has extremely are such provisions then organisation provisions leaver” “good Where apply. to unlikely be to deemed are awards share of respect in should awards participant’s a appropriate, to subject and basis pro-rata time a on vest performance relevant the of satisfaction the lapsing. the awards balancewith the of criteria decide to discretion retains Committee The in so do to inappropriate is it if pro-rate to not avoidance the For circumstances. particular is employment of termination the if doubt, of the and reasons, ed f speci the of one for not to discretion its exercise not does Committee awards all outstanding vest, to an award allow lapse. automatically 3.3 Directors Executive externally a new for package The remuneration in set be would Director Executive appointed Company’s the of terms the with accordance the at force in policy remuneration approved on Policy the present, At appointment. of time has Committee the but apply, will salary base

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

cant cant f signi no are there and redundant, to likely is Committee the issues, performance “good some of granting the on favourably look reasons for their departure), “good leaver” leaver” “good departure), their for reasons an if example, For can be applied. status made been ectively f e has role executive’s circumstances, such as redundancy, disability, disability, such as redundancy, circumstances, the at circumstances other or retirement the Committee into of (taking discretion the and performance individual’s the account outstanding unvested awards automatically automatically awards unvested outstanding However, employment. lapse on cessation of prescribed certain in LTIP, the of rules the under under the Company’s share plans will be be will plans share Company’s the under relevant the of basis the on determined position is that any The default plan rules. severance or early retirement. There are no no are There retirement. early or severance with Directors Executive for provisions special regard to compensation in the event of fce. o loss of the compensation period. The Company doesThe Company the compensation period. guarantee that arrangements any make not on abatement no or limited with pensions of notice. The Group’s normal approach is to to is approach normal Group’s The notice. of to payments compensatory reduce or stop receive they when Directors Executive former remuneration from other employment during to mitigate losses are taken into account by amounts determining when Committee the lieu in pay including termination, on payable on the occurrence of certain events such as as such events certain of occurrence the on the of circumstances The misconduct. gross individual’s the account into (taking termination opportunity individual’s an and performance) be terminated without notice and without without and notice without terminated be for except compensation, or payment further termination, of the date sums earned up to 3.2 Directors Executive may Agreement Service Director’s An Executive to hold external non-executive directorships, and Board, the of approval prior the to subject to retain fees from these roles. employment can be terminated at any time any at can be terminated employment prior months’ 12 giving on party either by written notice. until the Director’s agreed retirement date or or date retirement agreed Director’s the until line In agree. parties the as date other such Directors’ Executive the policy, Group with 3.1 Agreements Service have Directors Executive The continue normally which Company the with 3. Directors’ Service Agreements and Letters of Appointment of and Letters ServiceAgreements Directors’ 3. Subsidiaries, joint ventures and associates

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

180 Landsec Annual Report 2017 Additional information 181 LandsecAnnual Report 2017 X-Leisure (Brighton Cinema) Limited X-Leisure (Brighton Cinema II) Limited X-Leisure (Edinburgh) Limited X-Leisure Limited Roebuck House (GP) Limited Roebuck House (Nominee) Limited Rosefarm Leisure Limited PropertiesSevington Limited Limited Shirec Limited Partner Southside General Stag Place (GP) Limited Stag Place (LP) Limited Stag Place Limited Partnership Property Real Company London of The City Limited Hull Limited The Imperial Hotel Limited Trust Westminster The Tops Estates Limited Tops Shop Centres LimitedTops Shop Estates LimitedTrinity Quarter Developments LimitedWallace City Limited Watchmaker Finance Limited Limited Developments f Whitecli Willett Limited Developments Wood Lane Nominee No.1 Limited Wood Lane Nominee No. 2 Limited LSIT (Management) Limited (Management) LSIT Nominees (Notting Limited Metro Hill No.1) Nominees (NottingMetro Hill No.2) Limited Nominees (Victoria Place) Limited Metro Limited (2001) Micadant LLP No.1 Partnership UK Leisure & Retail O2 Limited Oriana LP Apartments Castle Limited Oxford QAM (2026) Limited QAM (GP) Limited QAM (Holdings) Limited QAM (LP) Limited QAM Funding Limited Partnership QAM Nominee1 NoLimited QAM Nominee No 2 Limited QAM Property1Trustee NoLimited QAM PropertyTrustee No 2 Limited Ravenseft Industrial Estates Limited Ravenseft Properties Limited Ravenside Investments Limited Retail Property HoldingsTrust Limited Name LS Whitefriars Limited Whitefriars LS Limited Plaza Wilton LS Limited Lane Wood LS Limited Zag Zig LS LS Roebuck House (LP) Limited (LP) House Roebuck LS Limited Lane Rose LS Limited House Selborne LS Limited Square Soho LS Limited Taplow LS Limited No.2 Taplow LS Limited Thanet LS Limited GP Square Times LS Limited Square Times LS Limited 1 Nominee TMS LS Limited 2 Nominee TMS LS Limited Road Court Tottenham LS Management Development Circle Victoria LS Limited Limited Investments GP Circle Victoria LS Limited LP1 Circle Victoria LS Limited LP2 Circle Victoria LS Limited Properties Victoria LS Limited Voyager LS Limited Wellington LS Limited Westminster LS Limited No.2 Westminster LS Limited Rose White LS LS Maidstone Limited Maidstone LS Limited Lane Mark LS Limited Millshaw LS Limited Mirage LS Limited Moorgate LS Limited Investments Square Street New LS Limited Holdings Nominees LS Limited Occupier LS Limited Holdings ONC LS Limited Developments Change New One LS Limited Change New One LS Limited Oxygen LS Management Development House Park LS Limited Limited Retail Poole LS Limited Investments Portfolio LS Limited Developer House Portland LS Limited Company Finance Property LS Limited Solutions Property LS Limited Court Lion Red LS Limited Warehouses Retail LS Name LS Ludgate (No.2) Limited (No.2) Ludgate LS Limited (No.3) Ludgate LS Limited Development Ludgate LS LS London Holdings One Limited One Holdings London LS Limited Three Holdings London LS Limited (No.1) Ludgate LS LS Kingsmead Limited Kingsmead LS Limited Leisure LS Limited Lewisham LS LS Kings Gate Residential Limited Residential Gate Kings LS Limited No.2 Residential Gate Kings LS LS Howard Centre Welwyn Limited Welwyn Centre Howard LS Limited Hungate LS Limited Juliet LS LS Harvest Limited Harvest LS Limited House Hill LS Limited Gate Holborn LS LS Harrow Properties Limited Properties Harrow LS Limited Investments (GP) Harvest LS Limited 2 Harvest LS LS Harbour Exchange Option Limited Option Exchange Harbour LS Limited (Leasehold) Harrogate LS Limited Harrogate LS LS Greyhound Limited Greyhound LS Limited Gunwharf LS LS Galleria Limited Galleria LS Limited Investments Greenwich LS Limited Greenwich LS LS Empress State Limited State Empress LS Management Development Fenchurch LS Limited LS Eastbourne Terrace Limited Terrace Eastbourne LS Limited Quarry Eastern LS Limited Investments Park Easton LS LS Company Secretaries Limited Secretaries Company LS Limited Cornerhouse LS Limited Director LS LS City & West End Limited End West & City LS Limited House Gate City LS Limited Square Clayton LS LS Chattenden Marketing Limited Marketing Chattenden LS Limited eld f Chester LS Limited f Cardi LS Limited Cardinal LS Limited Properties Centre LS LS Canterbury Limited Canterbury LS Limited Investments (GP) f Cardi LS Limited (Holdings) f Cardi LS Name Subsidiaries, joint ventures and associates continued

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

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

182 Landsec Annual Report 2017 Additional information % % 183 1.2 1.3 1.6 6.5 0.3 0.8 0.4 2017 2018 89.5 e 127 e 98.4 100.0 100.0 6 July 6 13 July 13 27 July27 15 May 6 April 6 22 June 22 23June Tabl Table 125 Table 126 9 March 31 March

5 January 5 6 October 1 December 8 September 14 November

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

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

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

184 Landsec Annual Report 2017 Additional information 185

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

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

1

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

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

Company Secretary Tim Ashby Group General Counsel and Company Secretary

Investor relations Edward Thacker Head of Investor Relations

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

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

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

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

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

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

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

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

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

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

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