ANNUAL REPORT 2016 PROFIT BEFORE TAX TOTAL PROPERTY TOTAL SHAREHOLDER LAND INCLUDING VALUATION SURPLUS RETURN RETURN1 SECURITIES £1,335.6m 11.5% -9.6% AT A GLANCE 2015: £2,416.5m 2015: 23.0% 2015: 26.3% TOTAL BUSINESS RETURN1 DIVIDEND PER SHARE2 We are the largest listed 13.4% 35.0p commercial property 2015: 30.7% 2015: 31.85p company in the UK by market capitalisation. COMBINED PORTFOLIO VALUE We buy, sell, develop LONDON and manage commercial West End offices 22.5% City offices 12.5% property, with a focus Central London shops 10.1% on offices, retail and leisure Mid-town offices 9.2% Inner London offices 2.2% in London, and retail and £14.5bn Other 0.3% leisure outside London. RETAIL Shopping centres and shops 26.2% Our vision is to be the best property company Retail parks 6.2% in the UK in the eyes of our customers, our Leisure and hotels 10.7% communities, our partners and our employees. Other 0.1% Our goal is to outperform our peer group in terms of total shareholder return through the property cycle. Here we show our financial performance over the last 12 months and REVENUE PROFIT3,4 ADJUSTED DILUTED EARNINGS4 DIVIDEND2 beyond. £m PENCE PER SHARE PENCE PER SHARE 362.1 45.7 35.0 319.6 329.1 299.4 41.5 290.7 40.5 38.5 36.8 31.85 30.7 29.8 29.0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 ADJUSTED DILUTED NAV VALUATION SURPLUS4,5 ADJUSTED NET DEBT AND LTV PENCE PER SHARE £m RATIO4 1,434 2,036.9 4,400 50 1,293 4,290 4,200 4,172 1,013 4,000 3,981 3,948 40 863 903 3,800 907.4 3,600 Notes 763.8 Group LTV % 1. Total Shareholder Return and total business return provide 30 shareholders with the clearest guide to the Group’s progress Adjusted net debt £m 3,400 in financial terms. 3,239 2. We aim to deliver a progressive dividend. 190.9 217.5 3,200 3. Revenue profit is our measure of the underlying pre-tax profit of the Group. 3,000 20 4. Includes proportionate share of joint ventures and subsidiaries, 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 as explained in the notes to the financial statements. 5. The percentage change for the valuation surplus represents Adj. net debt LTV the increase in value of the Combined Portfolio over the year, The six charts above show the main components of our adjusted for net investment. most important indicator of progress – total return. Land Securities Annual Report 2016 1 STRATEGIC REPORT STRATEGIC STRATEGIC REPORT OUR PURPOSE IS TO 14 Chief Executive’s statement 16 Our market 18 Our business model PROVIDE THE RIGHT 20 Development timeline 22 Strategy 24 Investing through the lifecycle 25 Our strategy in action SPACE FOR OUR 26 Key performance indicators 28 London Portfolio review 32 Retail Portfolio review CUSTOMERS AND 36 Financial review 42 Physical review 44 Social review OUR COMMUNITIES – 46 Managing risk 50 Going Concern and HELPING BUSINESSES Viability Statement GOVERNANCE GOVERNANCE 52 Letter from the Chairman TO SUCCEED, THE 54 Board of Directors 56 Executive Committee 57 Leadership ECONOMY TO GROW 60 Letter from the Chairman of the Nomination Committee 61 Effectiveness AND PEOPLE TO THRIVE. 63 Letter from the Chairman of the Audit Committee 65 Accountability 69 Governance in action To ensure we provide the right space 71 Relations with shareholders 72 Directors’ Remuneration Report we must constantly anticipate and meet 86 Directors’ Report FINANCIAL STATEMENTS FINANCIAL people’s changing needs, using our FINANCIAL STATEMENTS 90 Statement of Directors’ insight and experience to inspire how Responsibilities 91 Independent Auditor’s Report we shape our buildings. 95 Income statement 95 Statement of comprehensive income This year we highlight some of the gems 96 Balance sheets 97 Statements of changes in equity in our portfolio, the key things we did at 98 Statement of cash flows those places during the year, and how 99 Notes to the financial statements ADDITIONAL INFORMATION people use and enjoy our space. 144 Business analysis – Group 148 Business analysis – London 149 Business analysis – Retail 150 Sustainability reporting INFORMATION ADDITIONAL 154 Combined Portfolio analysis 156 Lease lengths 156 Development pipeline 158 Five year summary 160 Acquisitions and disposals 161 Directors’ Remuneration Policy 165 Subsidiaries, joint ventures and associates 167 Shareholder information 170 Key contacts and advisers 171 Glossary 172 Cautionary statement 2 Land Securities Annual Report 2016 BLUEWATER, KENT A famous location for fabulous shopping and a great day out, Bluewater attracts 27 million visits a year and is ranked the AS FACILITIES MANAGER number one out-of-town FOR BLUEWATER, OUR AIM retail destination in the UK. IS TO FOCUS ON GIVING GUESTS A TRULY OUTSTANDING EXPERIENCE ON EVERY VISIT.” We acquired a 30% stake and asset management rights in 2014. Since then we’ve Bruce McDonnell, Managing Director, been working to take the guest experience Incentive FM LTD to the next level. The centre already has the longest dwell time of any UK shopping centre; by constantly reviewing the retail and leisure mix and enhancing the space, we want to give people an even better time. The centre has more than 300 retailers. Much of our work this year has focused on adding space for some of the most popular brands. For example, we completed a major extension for Next, new space for Swiss luxury watchmaker Breitling, and are currently extending the H&M store. Along with the shops, guests also enjoy an amazing array of restaurants, cafés, bars and a cinema. We closed the Glow events area this year so we could create more space for food and new opportunities to introduce exciting retailers in the coming months. We also introduced a new natural ventilation system, which keeps the temperature just right, while reducing costs and carbon emissions. And we’ve continued to promote biodiversity in the 50 acres of surrounding parkland, which is home to one million trees and shrubs as RETAIL IS ALL ABOUT THE well as orchards, lakes and 27 rare and DELIVERY OF OUTSTANDING protected species of plants and animals. EXPERIENCES AND WE ARE PROUD OF THE ROLE WE PLAY IN SUPPORTING THIS AT BLUEWATER.” Ben Gay, Training and Facilities Manager, The Learning Shop ALWAYS LOVE GOING TO BLUEWATER, ALWAYS CLEAN, AND THE STAFF ARE VERY HELPFUL.” Visitor to Bluewater Shopping Centre WE WERE DELIGHTED TO RECEIVE SO MANY WONDERFUL GIFTS FROM BLUEWATER FOR OUR DISADVANTAGED CHILDREN – THE GIVING TREE IS A TRULY MAGICAL INITIATIVE.” Katherine Mobey, Partnerships Manager, Ellenor THERE’S A TOTAL FOCUS HERE ON DELIVERING AN OUTSTANDING RETAIL AND LEISURE EXPERIENCE FOR OUR GUESTS.” Claire Mitchell, Marketing Communication Manager, Bluewater 4 Land Securities Annual Report 2016 THE ZIG ZAG BUILDING, SW1 Completed this year and 88% let, The Zig Zag Building is 11 floors of bright, flexible commercial office space with new shops, restaurants and public realm at street level – all in the heart of a transformed Victoria, SW1. Its design has earned it the moniker the ‘thoughtful building’. By harnessing the latest innovations, it offers a healthy, inspiring and productive working environment. THE ZIG ZAG BUILDING FITTED Higher ceilings, open terraces and full-length PERFECTLY WITH MONEYCORP’S openable windows mean more space, natural DESIRE TO CONSOLIDATE AND light and exceptional views. Ample cycle REPOSITION THE BUSINESS – spaces, showers and high-end changing rooms anticipate growing employee demand, THE RETAIL OFFER, VIBRANCY especially as Londoners diversify their AND CONNECTIVITY OF VICTORIA commutes. With an ‘Excellent’ BREEAM rating, WAS THE ONLY CHOICE FOR US.” the building features resilient power, LED lighting, solar panels and rainwater harvesting. Nick Haslehurst, Director, Chief Financial and Operating Officer, Moneycorp The Zig Zag Building has drawn new occupiers from across the West End and City, helping to redefine Victoria as a place businesses are proud to call home. We delivered into supply- constrained market conditions, achieving rental values and lease lengths ahead of our expectations. We’ve carefully planned development along Victoria Street to ensure our schemes don’t compete. For example, as well as being delivered 30 months after nearby 62 Buckingham Gate, The Zig Zag Building neatly complements the former’s larger floorplates. The Zig Zag Building is already proving popular with office occupiers, shoppers and diners. Architecturally, the building both rises and recedes – effectively giving back space to Victoria Street and transforming it from a thoroughfare into a destination in its own right. MY SELF-CONFIDENCE AND SKILLS HAVE BROUGHT ME INTO CONTACT WITH PEOPLE I WOULDN’T NORMALLY MEET.” Michael, Candidate, Community Employment Programme I HAVE BEEN SEARCHING FOR THE PERFECT LOCATION TO OPEN A NEW VENUE. VICTORIA STUCK OUT AS THE AREA WHICH IS BECOMING LONDON’S MOST EXCITING CREATIVE HUB. THE DEMOGRAPHIC OF RESIDENTS AND WORKERS IN VICTORIA SUITS OUR BRAND PERFECTLY, IT’S A LOCATION IN WHICH I AM SURE OUR MULTI- FACETED VENUE WILL THRIVE.” Martin Williams, Founder and CEO, M Restaurants WE ARE VERY HAPPY TO BE PART OF THE REGENERATION OF VICTORIA.” Maarten Slendebroek, Chief Executive Officer, Jupiter 6 Land Securities Annual Report 2016 NOVA, VICTORIA, SW1 Our landmark 5.5 acre mixed-use scheme in SW1 LAND SECURITIES’ VISION TO will deliver first-class offices, WORK WITH AN ECLECTIC MIX OF LEADING RESTAURATEURS contemporary apartments MEANS NOVA, VICTORIA WILL and London’s newest Food BE A STAND OUT EPICUREAN Quarter with 18 restaurants DESTINATION.” and cafés. It will comprise Will Ricker, Founder, Ricker Restaurants a collection of buildings within a pedestrianised, landscaped public space with art and extensive al fresco seating, opposite Victoria station.