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Annual Annual Report 2019 Experience matters Annual Report 2019 Welcome to Landsec. We apply our expertise to create positive experiences for those we rely on, from our customers and communities to our partners and employees. By getting that right, we create long-term, sustainable value for our shareholders and physical and social value for our communities. 2019 in numbers Our purpose is to provide the right space for our customers and communities so that businesses and 45.55p £(123)m people can thrive. We do this to create long-term Dividend up 3.1% Loss before tax (2018: £(43)m)¹ financial, physical and social value. Together, these 59.7p 0.4% create sustainable value for our shareholders. Adjusted diluted earnings per share Ungeared total property return Our vision is to be the best property company up 12.4% (2018: 53.1p) (2018: 4.3%) in the UK in the eyes of our stakeholders – our customers, communities, partners, employees 1,339p £3.2m and investors. EPRA net assets per share down Social value created during 4.6% (2018: 1,403p)¹ the year Our focus is to provide a diverse mix of high-quality work, shopping, dining, leisure, social and residential -1.2% £442m space at destinations in London and across the UK. Total business return (2018: 1.8%) Revenue profit up 8.9% (2018: £406m) Our core activities are buying, developing, £11.8bn 39.8% managing and selling real estate. Our values are customer service, innovation, Total contribution to the UK Carbon intensity (kgCO2e/m2) economy each year from people reduction compared to 2013/14 excellence, accountability, respect and integrity. based at our assets baseline To read more, go to page 49. 1. Restated as a result of changes in accounting policies. Our performance is shaped by big impacts and trends that generate opportunities and challenges Chart 1 Our diverse asset mix for us. These drive our actions. Our clear strategy 1. City of London 11% 11 10 1 has put the business in a strong position at a time 2. Mid-town 10% 9 of uncertainty in our markets – see our performance 3. West End 24% 2 measures left and pages 20-21 for more. 4. Inner London 3% 8 5. Central London retail 10% Combined Our reporting covers the short- and long-term 6. London shopping centres 4% Portfolio 7. Regional shopping centres 17% effects of our actions. In this report, we’ve further 7 8. Retail parks 5% 3 integrated content on our broader social and 9. Outlets 7% physical impacts, but only included what’s material 10. Leisure 6% 6 to our business. 11. Hotels 3% 5 4 Strategic ReportStrategic This year, drawing on our capabilities we have: Strategic report 08 Chief Executive’s statement [ Delivered robust operational results 10 Our market 12 Our business model [ Grown our development pipeline 16 Our strategy 20 Key performance indicators [ Deployed innovative ideas to reduce 22 Our stakeholders construction time, cost and waste 24 Portfolio review 32 Financial review [ Created social value and reduced our 40 Physical review environmental impact 45 Social review 54 Managing risk Over the following pages we show how we’re 56 Our principal risks and uncertainties 60 Going concern turning our skills and knowledge into results 60 Viability statement for our many stakeholders. Governance Our performance, together with our ability 62 Letter from the Chairman 64 Board of Directors to address exciting new opportunities, 67 Executive Committee demonstrates that experience matters. 68 Leadership 72 Our stakeholders and our Board 74 Letter from the Chairman of the Nomination Committee 76 Effectiveness 81 Letter from the Chairman of the Highlights Audit Committee 84 Accountability 89 Investor relations 91 Directors’ Remuneration Report – Chairman’s Annual Statement 94 Remuneration at a glance 96 Annual Report on Remuneration 108 Summary of Directors’ Remuneration Policy 111 Remuneration Policy 118 Directors’ Report Financial statements 122 Statement of Directors’ Responsibilities 123 Independent Auditor’s Report 129 Income statement 129 Statement of comprehensive income Chief Executive’s Our strategy Our portfolio 130 Balance sheets statement Pages 16–19 Pages 24–31 131 Statements of changes in equity Pages 8–9 132 Statement of cash flows 133 Notes to the financial statements Additional information 182 Business analysis – Group 188 Business analysis – London On the cover 189 Business analysis – Retail Our transformation of 190 Sustainability performance Victoria has created 196 Combined Portfolio analysis vibrant spaces like Nova. 198 Lease lengths Now we’re developing 199 Development pipeline the asset further to 199 Alternative performance measures meet demand, using our 200 Ten year summary experience to create the 202 Acquisitions, disposals and capital contemporary space expenditure customers need to thrive. 203 Analysis of capital expenditure Visit our website: landsec.com 204 Subsidiaries, joint ventures and associates 207 Shareholder information 210 Key contacts and advisers 211 Glossary IBC Cautionary statement Landsec Annual Report 2019 01 Decades of experience developing This year we progressed: in the capital have shown us the our landmark scheme at 2,400 value of securing opportunities 21 Moorfields, creating a new Tonnes of CO2 to be early while timing construction HQ for Deutsche Bank; our carefully, in line with the proposed scheme at Nova East; saved using recycled conditions we see ahead. That’s One Sherwood Street, a mixed use aggregates and the approach we’re taking now, scheme behind Piccadilly Lights; cement replacement adding substantial development and innovative proposals and options to our portfolio. tactical acquisitions around at 21 Moorfields Southbank. We’re also considering options for Portland House. Add in our residential plans – blended with retail and leisure – at well- connected London suburban sites, and we have a potential £3bn pipeline in London. Spotting possibilities that can £140m Potential annual rental become value of our London opportunities office pipeline 02 Landsec Annual Report 2019 Broadening ReportStrategic +29% from Growth in UK leisure spend retail to 2013-2018 (GlobalData; March 2019) experience 23% Secondary retail locations and This is why we’ve decisively Percentage of our retail parks outside London are repositioned our consumer under pressure and the sector as a portfolio over recent years, regional retail whole faces challenges. But people creating a diverse mix of high- portfolio let to continue to spend time and money quality, experience-led assets. leisure tenants* in destinations that provide a Our collection of vibrant brands – great experience. Great brands including a growing proportion of compete to be in those locations. leisure, food and hotel operators – gives us a diverse income base. *By rental value Landsec Annual Report 2019 03 Creating an ecosystem for 45% Percentage of occupiers who fast-growth will make use of flexible space in businesses next three years. (Source: CBRE EMEA Occupier Survey 2019) We’re seeing strong demand from Building on our office experience, high-growth businesses for a new this year we expanded our flexible type of flexible workspace offering – offer with the launch of Myo. hassle-free, superbly managed, Targeting businesses of 10–100 38,290 brilliantly designed space that can people, we started at 123 Victoria Number of businesses be customised and expanded to Street and will expand Myo into our with 10-99 employees meet changing needs. workspace destinations. Myo means we can offer a new generation of in London customers an entry point to our (Source: gov.co.uk) portfolio, then support them with an ecosystem of space and services as they grow. 04 Landsec Annual Report 2019 From construction to customer This year we used our community ReportStrategic service, many of our customers employment experience to help 1/3 and partners face skills shortages. the 1,200th person secure a job, of employment At the same time, we’re seeing meeting our 2020 target early. social barriers that prevent those We’re transforming lives through opportunities we've furthest from the jobs market prison projects like our aerial from getting into work. cleaning academy at HMP Isis. created were for This is enabling inmates to develop ex-offenders* skills and confidence ahead of release, while helping our industry address its skills shortage. Looking £1.2m ahead, our new target is to create Social value £25m of social value through created through our community programmes by 2025. Community Employment Programme in 2018 Turning a skills gap into an opportunity *Since 2015 Landsec Annual Report 2019 05 Visitors to retail destinations want In response, we’ve teamed up with a blend of established brands and the British Fashion Council and new players. Emerging consumer designers Black Box Revolution 23% brands can be cautious about long at Trinity Leeds, introducing units Percentage of UK leases – and space providers like for emerging brands new to physical us want optionality – so there’s space. We’re supporting those consumers who an opportunity to develop simpler brands with innovative consumer visited a pop-up space options that work for both tech to help drive sales. This also shop last year* sides and keep the retail mix fresh. enables us to see which brands perform well and quickly remix the offer as required. Curating 975 Number of different consumer brands in brands to our portfolio keep our offer fresh * Barclaycard, OMD Survey, 2000 adults, July 2018 06 Landsec Annual Report 2019 Transforming ReportStrategic 25% By 2020 only a quarter locations into of 30-year-olds will own their own home* destinations 4.5m From Finchley Road to Shepherd’s We’re working on our resident- Number of households Bush and Lewisham, we own sites centred plans now. In total, they in vibrant suburban locations in could create 4,000 new homes, in the private rented London with great potential to all supported by shops, community sector has doubled grow.