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 Strategic Report 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 breath of of breath A air fresh We design our buildings to be healthy, efcient and productive spaces. Which is why our ventilation system at The Zig Zag Building supplies air as fresh as you’d fnd at the coast. At Bluewater, our upgraded system is so efective we’ve turned of the air conditioning. That’s cut costs and energy use, and helps make the place even more inviting for visitors. 2 Landsec Annual Report 2017 Our year Strategic Report 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. 4 Landsec Annual Report 2017 Strategic Report 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 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 ova shines ova N bright We’ve created a stunning new destination in the heart of SW1, with landmark ofce space and an array of eateries making this a stylish and delicious place to work, visit and play. 17 new restaurants and three pop-up kiosks are set to open this summer, together with hundreds of alfresco dining seats. Pedestrianisation, public art and striking architecture complete the transformation of this area between Victoria Station and the Royal Parks. 8 Landsec Annual Report 2017 So how did we address our Strategic Report 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.