Annual Report 2008 Report Annual Our world is changing... Annual Report 2008 www.landsecurities.com/doing2008 Our approach to corporate responsibility Our response to climate change Corporate responsibility stakeholders 2007/08 activities and achievements 2008/09 targets Future challenges www.landsecurities.com Our vision, strategy, objectives and values Information on our Retail Portfolio, London Portfolio and Trillium Structure and Senior Management at Land Securities www.landsecurities.com/annualreport2008 Latest information for investors Corporate responsibility Design by sasdesign.co.uk Land Securities Group PLC Media centre Words by Tim Rich Copyright and trade mark notices Illustrations by Marion Deuchars All rights reserved. Working at Land Securities Location photography by Matt Mawson ©Copyright 2008 Land Securities Group PLC. Awards and memberships Portraits by Andy Lane Printed by St Ives Westerham Press, Land Securities, LandSecurities (stylised), Frequently asked questions environmentally accredited the Cornerstones logo, Making Property Work, printers ISO 14001. and Landfl ex are trade marks of Land Securities Group PLC. This report is printed on paper that meets international environment standards, contains All other trade marks and registered trade marks total chlorine free virgin pulp, obtained from are the property of their respective owners. sustainably managed forests. 1 At the end of our fi rst year of business, in 1944, we owned three houses in Kensington. Today we are the largest Real Estate Investment Trust in the UK. While our markets have always gone up and down, one thing has stayed the same – our long-term approach. Year after year we’ve made Land Securities stronger by looking ahead, taking bold decisions early, and responding to people’s needs with a positive can-do spirit. Report of the Directors 4 All you need to know 24 Retail Portfolio 6 Performance overview 34 London Portfolio Report the of Directors Report from the Directors on the key 8 Chairman’s statement 44 Trillium strategic, fi nancial and operational 10 Chief Executive’s report 52 Board of Directors developments during the year. 13 Benefi ts of demerger 54 Corporate responsibility 14 Financial review 62 Corporate governance 20 Business review 66 Directors’ remuneration report 22 Our risks and how we manage them Financial Statements 78 Directors’ statements of responsibilities Statements presenting the 79 Independent auditors’ report essential numbers, including 80 Income statement the independent auditors’ report. 80 Statement of recognised income and expense 81 Balance sheets 82 Cashfl ow statements 83 Notes to the fi nancial statements Investor Information 120 Five year summary 121 Business analysis Summaries, analysis and 129 Investor information information on properties, 130 Glossary contracts and related subjects 131 Index for shareholders. 132 Contact details Land Securities Annual Report 2008 2 After another year of change and evolution, our three businesses are in good shape. In Retail our ability to means we can deliver the right space in the right place at the right time – for our customers and their customers. In London our knowledge, understanding and scale enable us to compete from a position of strength today while innovating to for tomorrow. And through Trillium we’re extending the range of our partnerships to help organisations and operate more effi ciently. Our demerger plan is another example of evolution in action. While remaining as one company would be a safe choice, becoming three separate businesses will help us maximise our long-term value. This annual report looks at the many ways we’ve evolved this year and shares our plans for the year ahead. We started work in 1990, completed a comprehensive redevelopment in 1992 and sold in 1996 for £128.3m. This early 1990s development provided new offi ce and retail space and features polished and fl ame textured granite on the external elevations. Built in the 1960s and fi rst let at Originally the Stag Brewery, £2.70 per sq ft., we carried out we acquired and developed most a major refurbishment in 1987. of this site in the late 1950s and have since transformed it into Cardinal Place. 3 This extraordinary planned development includes a sky-high garden, with planning consent granted in 2007. Report the of Directors Redeveloped and opened in 2003, this is now the third most popular shopping destination in the UK. We relocated Dresdner Kleinwort Wasserstein from 20 Fenchurch Street to this redeveloped site, then sold the asset in 2005 for £274m. 4 All you need to know Land Securities is a leading Real Estate Investment Trust. Our national portfolio of commercial property includes some of the UK’s best-known shopping centres and landmark buildings in London. We are at the forefront of urban renaissance through our multi-billion pound development programme, transforming regional city centres and key sites in Central London. We are also one of the leading names in property outsourcing and Public Private Partnership markets as well as being involved in long-term, large-scale regeneration projects in the South-east. Our values Our vision Our strategy There are certain core values Our vision is ‘bringing property Our strategy is to invest in that form the foundation of Land to life’. We will go beyond bricks commercial property in sectors Securities. They embody the way and mortar, through design, where we have expertise and in which employees and service community engagement and operational skills which provide partners work together to deliver customer service to create places competitive advantage. In these effective customer relationships. where people choose to shop, are sectors we will apply our risk proud to work and want to live. management skills and we will The values are: actively recycle capital with a ■ Customer service view to delivering total returns ■ Respect for the individual in excess of our cost of equity. ■ Integrity ■ Excellence ■ Innovation Land Securities Annual Report 2008 All you need to know continued 5 Three strong businesses... Report the of Directors This business unit includes This business unit includes all This business unit is engaged in shopping centres, retail warehouses, London offi ces and London retail, long-term property outsourcing shops outside London, shops in but excludes those assets held in partnerships with public sector London held through the Metro the Metro Shopping Fund LP. organisations including DWP, Shopping Fund LP and other Key points DVLA and Royal Mail and with regional properties. 1.1 million m2 of offi ce corporates including Norwich and retail accommodation Key points Union, Barclays and Accor Hotels. more than 50,000 people work 27 shopping centres and 27 retail parks in offi ces owned by us We have equity interests in or 1.7 million m2 of retail accommodation provides accommodation for over manage 137 Public Private approximately 1,300 retailer occupiers 400 organisations some 260 million shopper visits per year Partnership (PPP) projects in areas long-term community development such as schools, hospitals, secure projects in London and the South-east accommodation and offi ces. Key points 3.1 million m2 across 1,776 properties in property outsourcing partnerships 1.7 million m2 of PPP project fl oorspace long-term contracts with gross income of £757.8m Land Securities Annual Report 2008 6 Our performance An overview of our key fi nancial performance fi gures from this fi nancial year. Pre-tax loss Total dividend Revenue profi t £888.8m 64.0p £379.1m The loss refl ects the impact of this year’s valuation We increased the dividend again this year and have Increased revenue profi t from London and Retail defi cit, but we have only moved back to a fi gure now generated compound annual growth of 14.6% was offset by the impact of the accounting treatment comparable to our cumulative surplus in 2006. since 2004. for Trillium’s PPP assets. Land Securities performance versus IPD - ungeared total property return (%) Dividends and adjusted diluted earnings per share (p) Revenue profit (£m) 25 90.00 400 20 80.00 23.3 380 392.2 70.00 391.3 20.7 15 81.71 17.7 360 379.1 16.5 60.00 16.2 15.9 70.20 10 70.47 66.87 13.0 12.8 64.00 12.4 50.00 11.2 361.8 10.7 5 10.5 340 40.00 53.00 47.80 0 46.70 320 30.00 43.25 -9.1 -5 20.00 37.10 300 -10 -3.2 10.00 -15 0.00 280 301.9 04 05 06 07 08 5 10 04 05 06 07 08 04 05 06 07 08 years years Land Securities IPD Quarterly Universe Dividends per share Adjusted diluted earnings per share Combined portfolio value (£bn) Five year cumulative valuation surplus (£m) Net assets per share (p) Other 0.1 5,000 2400 Retail Portfolio 6.2 4,500 2200 2000 2304 4,000 1800 2181 2067 4,372.0 3,500 1956 1600 1912 3,000 1400 1597 2,500 1200 1488 3,067.5 1331 2,989.3 1293 2,000 1000 1294 800 1,500 600 1,000 London Portfolio 7.3 400 406.9 500 1,304.3 200 0 0 04 05 06 07 08 04 05 06 07 08 Basic Adjusted diluted* *Calculated under UK GAAP in 2004; under IFRS thereafter. Land Securities Annual Report 2008 Performance overview continued 7 Read more about why we launched the fund, and which companies have invested in the fund, on page 47. Find out how our Retail Portfolio managed to outperform IPD on Key performance indicators pages 25-33 and read about the London Portfolio’s outperformance on pages 34-43. Objective Metric Progress To create sustainable long-term Sustained real growth in adjusted earnings per Normalised adjusted earnings per share growth returns for shareholders share to be at least 3% per annum over rolling over three years